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Written by Shahzaib Farooq
JD Candidate 2025 | UCalgary Law Once businesses start to grow rapidly, they often look to various avenues to expand their success and further grow their business. One avenue open for businesses is to franchise and expand their business via franchising. Franchise Overview What is a Franchise A franchise is a type of business arrangement in which the franchisee buys the right to market certain products and services from a franchisor for a specific time in a particular location.[1] What is the Law Various federal and provincial laws apply to franchising. Federal laws such as (e.g. Competition Act) govern income tax, competition, privacy, packaging and labelling, and intellectual property.[2] If you decide to go the route of franchising, you will have to consider more than just the Franchise Act (Alberta) (the “Act”),[3] as certain federal laws also apply to franchising. The Act and Franchises Regulations (the “Regulations”)[4] outline the franchisor’s responsibilities to disclose information and provide legal options when the rules in the Act or Regulations are not followed.[5] The Act imposes a duty of fair dealing on both parties, this includes the duty to act in good faith and in accordance with reasonable commercial standards.[6] Section 1 of the Act, provides, that a: (d) “franchise” means a right to engage in a business (i) in which goods or services are sold or offered for sale or are distributed under a marketing or business plan prescribed in substantial part by the franchisor or its associate, (ii) that is substantially associated with a trademark, service mark, trade name, logotype or advertising of the franchisor or its associate or designating the franchisor or its associate, and (iii) that involves (A) a continuing financial obligation to the franchisor or its associate by the franchisee and significant continuing operational controls by the franchisor or its associate on the operations of the franchised business, or (B) the payment of a franchise fee, and includes a master franchise and a subfranchise. [7] Under the Act, a “franchisor” means one or more persons who grant a franchise and includes a subfranchisor with regard to its relationship with a subfranchisee.[8] Obligations of Franchisor Disclosure Documents Before the franchisee signs any binding agreements, or pays any non-refundable deposits to the franchisor, the franchisor must provide the prospective franchisee with a copy of the franchisor’s disclosure documents.[9] A Franchisor must deliver the disclosure documents to the prospective franchisee at least 14 days before the prospective franchisee signs any agreement relating to the franchise or pays any consideration (meaning: anything of value) relating to the franchise, whichever is earlier[10] (unless the payment is fully refundable).[11] If a franchisor fails to provide the disclosure documents as referred to above,[12] the prospective franchisee may rescind all the franchise agreements by giving notice of cancellation to the franchisor.[13] Further, if any of the information you provide in your disclosure documents is incorrect or incomplete, your franchisee will be able to sue you and every person who signed the disclosure document for any monetary (or other) loss they suffer as a result of that incorrect information.[14] This loss due to misrepresentation can have detrimental effects upon not only the business but also those individuals who signed the disclosure documents. Section 4(3) of the Act, outlines that the disclosure documents must:
According to Section (1)(1)(n) of the Act, “material change” means (i) a change in the business, operations, capital or control of the franchisor or its associate, or (ii) a change in the franchise system, that would reasonably be expected to have a significant adverse effect on the value or price of the franchise to be sold or the decision to purchase the franchise and includes a decision to implement the change made by the board of directors of the franchisor or its associate or by senior management of the franchisor or its associate who believe that confirmation of the decision by the board of directors is probable.[20] The written description of the material change must be provided to the prospective franchisee as soon as practicable after the change has occurred and before the franchisee signs any agreement relating to the franchise, or before the franchisee makes any non-refundable payment relating to the franchise.[21] If the written description of the material change is not provided within the allocated timeframe, this could result in an incomplete disclosure document, giving the franchisee the potential to rescind (meaning: cancel the contract and put the parties in a position as if it had never happened) any financial agreements.[22] Additionally, the disclosure documents must include information about the franchisor, including, but not limited to: (a) the name, address, and the name under which the franchisor does or intends to do business; (b) the principle business address of the franchisor and, if the franchisor has an attorney for service in Alberta, the name and address of that person; (c) the business form of the franchisor; (d) the length of time the franchisor has conducted a business of the type to be operated by the franchisee; and (e) the names of the persons with day-to-day franchise management responsibilities.[23] Further, the disclosure documents must also include a certificate as set out in Schedule 2 of the Regulations. The certificate acts as an acknowledgement that the disclosure documents contain no untrue information of a material fact, they do not omit to state a material fact that is required to be stated, and they do not omit to state a material fact that needs to be stated for the information not to be misleading.[24] However, under the Act and the Franchises Act Exemption Regulations, there are instances where a franchisor is not required to provide a disclosure document[25] or is not required to include financial statements in the disclosure documents. [26] The burden is on the party claiming the exemption, typically the franchisor, to prove that such an exemption exists, and disclosure compliance is not warranted.[27] The Franchise Agreement The Franchise Agreement is a contract that sets out the terms and conditions of your franchise arrangement.[28] The Agreement should include a number of details, including, but not limited to, (a) rights and responsibilities of both franchisor and franchisee; (b) every verbal written promise agreed upon; and (c) the conditions under which the agreement will be renewed and the cost of renewal.[29] [1] Canada, Alberta Government, Franchises in Alberta (Alberta: Service Alberta, October 12, 2022) at 1 online: <alberta.ca/opendata> [perma.cc/2H7J-FV2R]. [2] Mel Garbe, “Franchising and Alberta’s Franchise Act” (last visited 12 March 2025), online: <liftlegal.ca> [perma.cc/53WX-8DUR]. [3] Franchises Act, RSA 2000, c F-23. [4] Franchises Regulation, Alta Reg 240/1995. [5] Franchises in Alberta, supra note 1 at 1. [6] Franchise101, “Franchise Regulations in Canada” (last visited 12 March 2025), online: <franchise101.net> [perma.cc/64XT-GY4X]. [7] Franchises Act, supra note 3 s 1(1)(d). [8] Ibid, s 1(1)(j). [9] Ibid, 1 s 4(1). [10] Ibid, s 4(2). [11] Ibid, s 6. [12] See note 10 above. [13] Franchises Act, supra note 3 s 13. [14] Ibid, s 9. [15] Ibid, s 4(3). [16] Franchises Regulation, supra note 4 s 2(1). [17] Franchises Act, supra note 3 s 1(1)(o). [18] Franchises Regulation, supra note 4 at Schedule 1. [19] Franchises Act, supra note 3 s 4(4). [20] Ibid, s 1(1)(n). [21] Ibid, s 4(5). [22] Bryan & Company LLP, “Franchise Disclosure in Alberta: What the Franchise can Expect and What is Expected from the Franchisor” (4 November 2019), online <bryanco.com> [perma.cc/XC3W-CS9H]. [23] Franchises in Alberta, supra note 1 at 1. [24] Franchises Regulation, supra note 4 at Schedule 2. [25] Franchises Act, supra note 2 s 5. [26] Franchises Act Exemption Regulation, Alta Reg 312/2000. [27] Bryan & Company LLP, supra note 22. [28] Franchises in Alberta, supra note 1 at 2. [29] Ibid.
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