Franchising in Canada: planning for dispute resolution

Turning an existing business into a franchise creates a new relationship: you are now working with independent business owners. A disagreement over an invoice, a business decision or a contractual obligation can quickly become costly. Before signing your first franchise agreement, put a dispute resolution process in place. The aim is not to prevent every challenge, but to give your franchise community a clear, accessible and legally sound route to resolving problems.

1. Set out a process before a dispute arises

In your existing business, disagreements may go straight to the owner. That approach becomes risky when the owner is also the person whose decision is being challenged. Appoint someone who can receive a complaint, gather the facts and coordinate a response without prejudging the outcome.

Build a straightforward process:

• Written complaint: the franchisee sets out the facts, the relevant documents and the outcome they are seeking.
• Internal review: a designated person checks each party’s obligations and meets those involved.
• Discussion between decision-makers: representatives with authority to reach an agreement seek a solution.
• External intervention: a mediator becomes involved, followed by the appropriate legal process if necessary.

Set realistic timescales for acknowledging complaints and responding. Present these as management commitments, without suggesting that they replace statutory deadlines. Also provide an alternative contact when a complaint concerns the person who would normally handle it.

For a small franchise community, this procedure may fit on a single page. Above all, it needs to work when relationships are strained.

2. Respect provincial protections

In Canada, franchise-specific rules fall under provincial jurisdiction. A dispute resolution clause cannot override mandatory protections that apply. Have your process checked against the rules where the franchisee operates, rather than reusing a clause designed solely for your home province.

In Manitoba, The Franchises Act and the Franchises Regulation govern matters including pre-contractual disclosure. The Act also imposes a duty of fair dealing in the performance of the agreement, including good faith and compliance with reasonable commercial standards. It protects franchisees’ right to associate and prevents penalties being imposed for exercising that right.

Manitoba’s legislation also renders unenforceable provisions that, for a claim to which it applies, would restrict its application or require dispute resolution to take place outside Manitoba. A clause requiring every hearing to take place at the franchisor’s headquarters may therefore cause problems.

Quebec has no franchise-specific legislation. However, the Civil Code of Québec governs matters including the formation and performance of contracts, good faith and, in contracts of adhesion—where essential terms are imposed rather than negotiated—abusive clauses. The absence of franchise-specific legislation does not mean unlimited freedom of contract.

Your procedure must preserve access to legal remedies. Nor should it be used to discourage legitimate exchanges between franchisees.

3. Distinguish between mediation, arbitration and urgent legal action

These mechanisms are not interchangeable. In mediation, a third party helps those involved reach an agreement without imposing a decision. In arbitration, an arbitrator decides the dispute under the applicable agreement and rules. Court proceedings remain appropriate or necessary in some circumstances.

Before choosing an approach, ask your legal adviser to review:

• the disputes covered and any exclusions;
• how the third party is appointed and their independence;
• the location, language and availability of remote meetings;
• how advance payments and final costs are allocated;
• urgent measures and limitation periods.

Do not present arbitration as automatically cheaper or faster. Fees, the complexity of the case and the chosen rules all have a significant bearing on its suitability.

Crucially, internal discussions or mediation do not necessarily stop the clock on deadlines for bringing a claim. State expressly that the parties may take the steps needed to preserve their rights, as advised by their lawyers.

4. Test and document the process

Before welcoming your first franchisee, run through a realistic disagreement: an invoiced amount is disputed, and the parties interpret an obligation differently. Check who receives the complaint, which documents are available and who can authorise a compromise.

Then keep a factual record of each dispute: a timeline, supporting documents, responses and commitments. Restrict access to those involved. Do not assume that every internal communication automatically benefits from legal privilege or absolute confidentiality.

When an agreement is reached, record precisely the actions required, the deadlines and the agreed consequences. Have its legal effect checked before signing, particularly if it includes a release of claims.

Key takeaway: before franchising, prepare a short procedure, test it against a real case and have its compatibility with the franchise agreement and provincial law checked. Handling a disagreement well also protects trust within your franchise community.