Buying a Franchise in Canada: Check the Dispute Resolution Process

Before buying a franchise, you need to understand how any disagreement with the franchisor will be handled. A disputed invoice or a disagreement over promised support can become costly if the contract requires a procedure that is difficult to use. Within a franchise network, a clear dispute resolution process helps preserve relationships without undermining either party’s rights.

1. Map out the process set out in the contract

Do not look only for a clause headed ‘disputes’. The rules may be spread across provisions covering notices, mediation, arbitration, courts and governing law. Read them together to understand the steps you must follow when a problem arises.

Direct negotiation generally involves discussions between the parties, sometimes with escalation to a senior executive. Check who must receive the complaint, in what form and how soon a response is expected.

Mediation involves a neutral person who helps the parties reach an agreement. The mediator does not decide the dispute as a judge would. A requirement to participate in mediation therefore does not oblige you to accept a compromise.

Arbitration places the decision in the hands of an arbitrator rather than a court. Review its procedures, costs and the scope for challenging a decision with your lawyer. Do not assume it will necessarily be quicker or cheaper.

Ask for a written summary identifying the mandatory steps, those that remain optional and the circumstances in which you can go directly to court.

2. Check which provincial protections apply

Canada has no general federal franchise legislation. The legal framework depends, among other things, on the province concerned. The location of the franchisor’s head office does not, on its own, determine which rules will protect your business.

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 requires advance disclosure, subject to statutory exceptions. As a general rule, the disclosure document must be provided at least 14 days before a franchise-related agreement is signed or a payment is made. Among other things, it must describe any mediation process used by the franchisor. This requirement does not mean that every franchisor must offer mediation.

In Manitoba, The Franchises Act and its regulation govern matters including pre-contract disclosure. The Act also provides for fair dealing in the performance of the agreement and includes protection concerning the venue for court proceedings in Manitoba. A clause specifying a distant court therefore deserves particular scrutiny.

In Quebec, there is no specific franchise disclosure legislation. The general provisions of the Civil Code of Québec, particularly those relating to contracts and good faith, apply.

Have any clause concerning governing law, the location of hearings or the waiver of legal remedies reviewed. A contract cannot simply override a mandatory statutory protection. However, the precise effect of a clause depends on the applicable law and the circumstances.

3. Assess the practical cost of using the process

A procedure may appear balanced yet be difficult for a new franchisee to access. Ask your lawyer to help you draw up an indicative budget, rather than treating the figure as a guaranteed cost.

In particular, examine:

• the mediator’s or arbitrator’s fees and how they are shared;
• administrative charges and payments required in advance;
• the location of meetings and whether remote participation is possible;
• the language of the proceedings;
• legal fees and any expert fees;
• clauses allowing costs to be recovered from the losing party.

Also check how the neutral third party is chosen if the parties cannot agree. A clear appointment procedure prevents the first dispute from being about who should help resolve it.

Finally, ask which obligations must still be fulfilled while the disagreement is ongoing. Disputing an invoice does not automatically entitle you to stop making payments or operating the business.

4. Work through a scenario before signing

Test the contract using a simple example: you dispute support fees charged by the franchisor. Who do you write to? What supporting documents must you include? What happens if there is no response? When can you move to the next stage?

Then have an urgent situation reviewed, such as a threatened interruption to an essential service. Ask whether the contract allows you to seek an interim court order promptly when necessary.

Watch the deadlines: discussions or mediation do not necessarily suspend statutory time limits for bringing a claim. Your lawyer should check these deadlines separately from the contractual timetable.

Finally, keep notices, invoices and correspondence in an organised file. The key point: before signing, make sure you know who to contact, how much the process could cost and how to preserve your legal remedies if no agreement is reached.