Franchising in Canada: planning for dispute resolution

Buying a franchise means joining a community built on a long-term relationship. Even when relations are cordial, disagreements can arise over an invoice, an instruction or a contractual obligation. Before signing, examine the process for resolving these issues: it can determine the time, expense and resources needed to enforce your rights.

1. Map out the dispute resolution process

Do not simply look for a clause headed ‘dispute resolution’. Relevant rules may appear in several parts of the agreement: notices, defaults, mediation, arbitration, governing law and court jurisdiction.

Ask your lawyer to map out the steps using a concrete example. Suppose you dispute fees charged by the franchisor. Who should you write to? Is a discussion with your franchise support adviser enough, or must you send formal notice to a specified address?

Prepare a checklist setting out:

• the person or role to contact first;
• the required format for notices and how they must be delivered;
• the deadlines for responding or raising a dispute;
• any mandatory steps before proceedings can begin;
• the options for urgent intervention.

Above all, distinguish between a commercial discussion and a formal legal step. A polite email may help resolve the problem without meeting the agreement’s notice requirements. Equally, a formal letter of demand does not necessarily replace a preliminary step required by the agreement.

2. Understand the mechanisms and their costs

Direct negotiation allows the parties to seek a solution themselves. Mediation involves a third party who facilitates discussions but generally does not decide the dispute. Arbitration puts the decision in the hands of an arbitrator rather than a court, subject to the applicable legal framework.

These mechanisms are not interchangeable. A mediation clause does not guarantee agreement; an arbitration clause can significantly change how you bring a claim and challenge a decision.

Before buying, clarify the following points:

• Starting the process: who can request it, and must the other party participate?
• Choosing the third party: how will the mediator or arbitrator be selected if the parties disagree?
• Location and language: can meetings take place remotely?
• Costs: who pays the third party’s fees and administrative charges upfront?
• Confidentiality: what information is protected, and what communications remain permitted?

Ask your lawyer for an estimate of potential expenses rather than expecting a standard price. Travel, an expert accountant’s report or several days of hearings can influence the decision to take action. A process described as quick is not necessarily affordable for a small business.

3. Check provincial protections

In Canada, the agreement is not the only source of rules to consult. Franchise-specific protections vary by province, so a clause should not be assumed valid simply because it appears in a standard agreement.

In Manitoba, The Franchises Act and its regulation provide, among other things, for a duty of fair dealing in the performance of the agreement. This duty includes good faith and compliance with reasonable commercial standards. The Act also protects the location of certain proceedings: a provision seeking to require a claim otherwise enforceable under the Act to be heard by a court outside Manitoba is void. Ask your lawyer to check exactly how this protection applies to your circumstances.

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 governs pre-contractual disclosure. According to the provincial guide, the disclosure document must, among other things, describe the franchisor’s mediation process, if it uses one. Compare that description with the proposed clauses: the steps, people involved and costs should make sense when read together.

In Quebec, there is no franchise-specific legislation imposing a comparable general disclosure regime. The general provisions of the Civil Code of Québec, particularly those relating to contracts and good faith, apply. This means neither an absence of rights nor unlimited freedom of contract.

4. Protect your legal remedies from the outset

Before signing, have any clauses that seek to limit remedies, require proceedings in a distant location or shorten deadlines reviewed. Their validity and scope depend on the applicable law. Also ask whether negotiations or mediation actually suspend any time limit: never assume that they do.

Set up a simple system for keeping agreements, notices, invoices and important correspondence. If a disagreement arises, document the facts and seek advice promptly before withholding payment or refusing to fulfil an obligation. An improvised response could create a second dispute.

Key takeaway: before buying, obtain a clear checklist setting out who to contact, which procedure to follow, where it takes place and what costs to expect. A strong franchise community benefits from clear, understandable processes, but these do not replace the franchisee’s legal protections.