Franchising in Canada: setting expectations for franchisee involvement

Your business relies on your day-to-day presence. When you franchise it, can you expect the same commitment from every operator, or allow them to delegate management? This decision affects costs, staffing and prospective franchisees’ expectations. To build a sustainable franchise network, define attendance requirements before marketing your concept, rather than leaving each party to interpret what it means to be ‘actively involved in the business’.

1. Define the role you need, rather than replicate your working hours

Start by distinguishing what you do as an owner from what is genuinely essential to running an outlet. Your long working days may include product development, centralised accounting or projects that will not fall within the franchisee’s remit.

Over several representative weeks, group your activities into three categories:

• Operator responsibilities: financial decisions, supervision of the local manager, performance monitoring and communication with the franchisor.
• Day-to-day management that can be delegated: staff rotas, orders, opening, closing and handling routine enquiries.
• Tasks requiring specific qualifications: professional activities or regulatory responsibilities, depending on the business.

Then identify which tasks require a physical presence and which can be carried out in other ways. The outlet’s opening hours are not necessarily the hours during which the franchisee must personally be on site.

The aim is a clear role description. It should explain who makes decisions, who leads the team and who remains available when an incident occurs. A phrase such as ‘active participation required’ does not answer these questions.

2. Choose a financially realistic operating model

You could consider an owner-operator franchisee, a franchisee supported by a manager, or a largely manager-run business. No model should be offered simply to widen the pool of applicants: you need to check that it works for your concept.

If you allow a salaried manager, include their pay and associated costs in the operating budget. Avoid presenting a structure that appears to leave the owner free to pursue other activities when profitability actually depends on their unpaid daily work.

For each proposed model, assess in particular:

• cover for opening, closing and peak periods;
• cover for the manager during leave;
• the time the franchisee needs to spend on supervision;
• the financial capacity to sustain this structure during a downturn.

Also distinguish the launch phase from routine operations. Greater on-site involvement at the outset may be justified without becoming a permanent requirement. Set conditions for moving to delegated management: completed training, an operational manager in place and sufficiently stable operations, for example. Present these as requirements of the concept, not as a guarantee of results.

3. Reflect the commitment in the agreement and pre-contractual disclosure

Ask your lawyer to specify who is bound by the attendance requirement. Where the franchisee is a company, an obligation imposed solely on that company does not necessarily define the personal commitment expected of the individual running it. Any personal obligation must be expressly structured.

The agreement should address the designated person in charge, the conditions for delegating management, any approval required for a replacement and the consequences of a prolonged absence. Avoid leaving such a significant obligation solely to a sales presentation or verbal instruction.

In Canada, franchise regulation is a provincial matter. In New Brunswick, the Franchises Act requires, among other things, a disclosure document containing material facts and copies of the proposed agreements to be signed. Unless an applicable exemption applies, this document must be received at least 14 days before an agreement relating to the franchise is signed or any payment covered by the Act is made.

A significant attendance requirement, or a restriction on delegated management, may affect the investment decision and operating costs. Have its presentation checked in the applicable disclosure document, not just in the agreement.

Quebec has no franchise-specific legislation: the general provisions of the Civil Code of Québec, particularly those relating to contracts and good faith, apply. Do not automatically apply another province’s rules.

4. Plan for absences without disrupting the business

An attendance requirement needs to accommodate holidays, illness and a manager’s departure. Establish a straightforward procedure covering whom to notify, who will take temporary charge, the qualifications required and arrangements for a longer-term replacement.

Distinguish emergencies from planned delegation. An unexpected absence cannot be handled in the same way as a decision to hand over the running of the outlet permanently to a third party. Also define objective criteria for assessing requests for replacements, to avoid inconsistent decisions across franchisees.

Key takeaway: before offering your first franchise, align the role description, budget, agreement and pre-contractual disclosure. Prospective franchisees must understand when you require them to be present, what they can delegate and how their outlet will operate in their absence.