Buying a Franchise in Canada: Checking the Franchisor’s Litigation History

Before joining a franchise network in Canada, review the franchisor’s litigation history. A lawsuit does not prove that a brand should be avoided, just as the absence of a publicly available judgment does not guarantee a trouble-free relationship. The aim is to understand what disputes have arisen, how they were resolved and what they might reveal about your future contractual relationship.

1. Identify the people and companies to check

Start by identifying the exact company that will sign your agreement. The trading name displayed above a shopfront may differ from its legal name. A search limited to the brand name could therefore miss relevant cases or lead you to a business unrelated to your proposed purchase.

Ask the franchisor to provide:

• its legal name and any previous names;
• the identity of the entity granting you the franchise rights;
• details of any related companies that will be involved in your contractual relationship;
• the names of the relevant executives covered by the litigation information disclosed.

Then ask your lawyer to define an appropriate scope for the checks. The aim is not to investigate everyone associated with the brand indiscriminately, but to check the entities and background information relevant to your purchase.

Keep this information in a dated record. This will help you match each search result to the right company and avoid confusion where several businesses have similar names.

2. Understand what disclosure should cover

In Canada, franchise-specific obligations vary by province. A voluntarily supplied list of disputes should not automatically be treated as equivalent to disclosure that complies with the applicable law.

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 requires, subject to applicable exemptions, a disclosure document to be provided at least 14 days before a franchise-related agreement is signed or a payment is made. Among other things, this document must include the prescribed information about the litigation history of the franchisor and certain people associated with it.

This obligation does not mean that every commercial dispute, without distinction, must appear in an exhaustive list. Your lawyer should check the categories covered by the Act and its regulations, as well as the material facts that must be disclosed. A potential omission calls for legal analysis, not a snap conclusion.

Quebec has no specific franchise disclosure legislation. The general rules of the Civil Code of Québec, including those concerning good faith and consent, apply. Nevertheless, ask for relevant litigation information and have your lawyer clarify the applicable disclosure obligations. Do not assume that Ontario’s statutory waiting period applies to a purchase in Quebec.

3. Read the records without confusing allegations with findings

Compare the information supplied with publicly available court decisions and, where warranted, the records of the relevant courts. Your lawyer can guide these searches and explain their limitations. Public databases of court decisions do not necessarily cover every proceeding, settlement or confidential arbitration.

For each relevant case, prepare a brief summary:

• Parties: who is suing whom, and what role does each company play?
• Subject: which obligation or practice is being challenged?
• Status: ongoing proceedings, judgment, appeal, withdrawal or settlement?
• Outcome: what did the court actually decide?
• Relevance: does the same arrangement or provision appear in your proposed agreement?

An allegation in a claim is not an established fact. Similarly, a settlement does not necessarily amount to an admission of liability. Conversely, an older judgment may still be instructive if the clause or practice concerned remains unchanged.

Avoid judging a franchise network solely by the total number of lawsuits. The nature of the cases, recurring patterns and corrective action are more useful than a simple count.

4. Use your findings to inform your purchase decision

Put factual questions to the franchisor: what caused the disagreement? What was the outcome? Which procedures have changed since? Ask for written answers and any documents it can legitimately share, without requiring it to breach confidentiality commitments.

Above all, look for recurring problems. Several cases concerning the same obligation may justify a closer review of that clause and how it is applied in day-to-day operations. A vague answer does not prove wrongdoing, but it leaves uncertainty that should be resolved before you commit.

With your lawyer, classify the findings: an explained risk, an issue requiring clarification or a serious obstacle to the purchase. If the issue affects costs or operations, also ask your accountant to assess its potential consequences.

Key takeaway: before signing, identify the right company, check the relevant records and insist on clear explanations. The aim is not to find a brand with no history of disputes, but to understand the risks you would be accepting.