Mike Colle, MPP, Second Reading Debates
…I really think we would save the people of Ontario millions of dollars in legal fees, we would save a lot of Ontarians the agony of going through litigation and confrontations with franchisors if we had a system-and I would recommend that maybe in your golden years way down the road, Mr Speaker, you would make a good franchise Ombudsman, or Mr Stewart. That would be something you could contribute.
The Legislative Assembly of Ontario
Member of Provincial Parliament Statement
Mr. Mike Colle, MPP
Hansard Reporting and Interpretation Services
1st session, 37th Parliament
Orders of the Day
Second Reading Debate
FRANCHISE DISCLOSURE ACT, 1999
Consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors
MIKE COLLE, MPP
Mr Colle: It's certainly very interesting to follow my esteemed colleague from Kingston and the Islands. He talked about his experience as a lawyer. I have to say that this legislation and the whole area of franchise legislation, or lack of it, is really in many ways a gold mine for lawyers. I know that he is not one of those lawyers who take advantage of these situations, but I would certainly tell people that this legislation doesn't preclude the fact that a lot of litigation could follow as a result of getting into a franchise agreement.
I want to commend the member for Sault Ste Marie for his diligence and commitment in trying to improve the lot of franchisees. I think you have done an outstanding thing in contributing your time and dedication to that.
I also want to give praise to Mr Les Stewart for his dedication to improving the plight of franchisees. He's been faxing and e-mailing me non-stop for the last two years or so on this issue. He's been very helpful and I think he's helped to bring forward this legislation which is needed.
As my two colleagues have said, my colleague from Ottawa-Vanier-which really should be Ottawa-Eastview. That's really where she comes from. I hope they go back to the older names. I could never understand why they call it that. I always call it Eastview. The former mayor of Eastview, Mr Grandmaître, may he prosper and may he break 70 in his golf game.
Anyway, I'll get back to this legislation. I know that the indications we received from the franchisees were that they wanted to proceed with some kind of protection, and Bill 33 does give them more protection than they have now. That's why my party was more than willing to co-operate with you, Mr Speaker, and with Minister Runciman and the government members in terms of coming to an agreement that we get this bill passed quickly, because it does aid a lot of small business people who are either in the throes of some litigation or are in franchise situations. That's why our party has been very co-operative in ensuring this bill comes through speedy passage, because it is needed.
I think it's a good opportunity, though, as the member for Kingston and the Islands said, to encourage people who are considering purchasing a franchise to be on guard. You know the old Latin saying, "Caveat emptor." Be careful, buyer beware. It's very attractive and very lucrative to buy a brand name and that's how many franchisees are doing it. They're buying that brand name. But buying that brand name, whatever the company may be, is very expensive and there are many strings attached to being part of that brand. There's no instant financial reward in anything and there's no instant financial reward in owning a franchise. It's no different than starting up your own mom-and-pop coffee shop. You have to basically put in blood, sweat and tears and you have to put a lot of your money at risk. The franchise is not a guarantee of instant success, and there are many problems and challenges that go with owning a franchise.
As we've heard here, there are some very honourable franchisors who have a good track record, a good relationship with their franchisees, and that's commendable. But there are many out there who don't have a good track record in being fair to their franchisees. Again, the sorrowful part that we've seen and know of is that many people who buy franchises are people who have maybe gone into a buyout package at work, people who have put together a little nest egg. You know, Mr and Mrs Jones are nearing retirement age. They put that money together and buy a little shop on Main Street and they sell Joe's Hamburgers, or whatever it is, under the franchise name. They go into it with their last life savings and they hope to live off that into their golden years, you might say. But many of these people are really disillusioned and they lose their life savings. Many have lost their life savings.
Before you go into this kind of venture, you have to use due diligence. This legislation will help in protecting you once you get into an agreement, but please don't assume this legislation protects you and gives you carte blanche to sign agreements with whoever is selling that franchise brand. And remember, there are enormous pressures out there to buy franchises. In the newspapers every day, on the Internet, there's all kinds of promotion of franchises. People who are contemplating that should perhaps contact Mr Les Stewart, Mr Tony Martin, Mr Runciman or Mr O'Toole from Oshawa, and say: "I'm thinking of this. What are the pitfalls?" Contact your MPP and go and visit local franchisees who have similar operations. Ask them what they've gone through and do your due diligence.
If you're going to make a lifetime investment here, spend a couple of months doing that kind of research and I think you'll go into it with open eyes, because it is very complex. There are a lot of strings attached. I know that there are a lot of nuances. For instance, many people don't know that the lease for a property you may have to operate Joe's Coffee Shop under the franchise name is signed by the franchisor. So the franchisor decides whether that lease will be renewed. Therefore, you may be doing very well in that business, but the franchisor may decide not to renew your lease. You could be out in the cold because the franchisor may decide the price of renewal is too much or not to their liking or perhaps the location is problematic. The franchisor still can dictate over whether you get a lease renewed or not.
The other major pitfall is, while you can open up your doughnut shop at a certain location, there's nothing in many agreements to preclude a similar doughnut shop by the same franchisor to be opened down the street from you. Now, there's fine print there which says they can open up down the street from you, but you have the right of first refusal. I know in some cases the franchisee has bought the second doughnut shop down the street to protect his assets, but then you cut into the income of the first franchise you bought. Now you split it with the second. Then what happens if they open up a third one around the corner in the same town? Are you going to buy that third outlet? They can do that. So don't think that because you're doing very well and you've got your franchise going, that's there in perpetuity.
I've talked to some franchisees who have done very well financially and are very happy with the arrangement they have. They are out there. Do your investigation in terms of what the track record is, what the history of it is in your community, in your neighbourhood, before you go ahead into this venture. You can do well and perhaps take care of your family and pay the bills, but it is not easy work. It is still a very risky venture.
A lot of these brand names are very much into promoting their profile rather than giving you a good deal. You may buy a very glossy brand name. Don't feel self-assured because you've bought this name that's got a lot of hype behind it. It's better to do your due diligence and get into an agreement with a company or a franchisor that's got a better track record. You may not have that glossy brand name, but you may have a lesser brand name and you'll be able to accomplish your goals as a small businessperson.
There are a lot of warnings that have to go out there. As you know, this is a growing field, because wherever you go, whether it's in Hawkesbury, whether it's in Eastview, whether it's in Sault Ste Marie or whether it's in London, Ontario, what's happening on Main Street is we have the franchises taking over. The little individual entrepreneur operations are being shoved aside, and people are moving towards these franchises because they see them as being more successful, perhaps because of the advertising they do.
With this trend continuing, not only in Canada and Ontario but all over North America, I think there should be even more warning given to people who are contemplating this: Please consult your lawyer, consult your fellow business people, people who are already in franchises. Do all kinds of research so you can get a pretty good handle before you enter into this extremely challenging business venture. Don't underestimate how challenging and difficult this will be, even though you now have some good, added protection here with Bill 33.
As you know, a lot of the Bill 33 protection is pre-sale, which is fine. A lot of the problems happen post-sale. One of the areas I'm still not very satisfied with is the area of single-sourcing, that you still have to buy your product from Joe's Hamburgers, the franchise. You can't buy from other tomato farmers or butchers; you have to buy from their producers of that product so you can make your hamburgers in the franchise operation. You don't get to pick and choose and get competitive prices. The agreement states you have to buy those products from that source. Just be careful of that. If you can find some of your ingredients cheaper in town, you may not be able to buy them, even though it's better for your business, because the franchisor dictates you have to buy from them. That's how they make their money. Remember, the franchisors are in this to make money. They're not in it as a philanthropic exercise. They're not the Knights of Columbus; they're not the Kiwanis. They're big business that makes money by getting people to pay them big money. They're not, as I said, a Big Brothers operation. Be very cautious of that.
The other area I'm still not that satisfied with, and I hope somehow in the future we can deal with it in the regulations, is this whole area of dispute resolution. With due regard to my colleague from Kingston and the Islands who represents the legal profession-as you know, most people in the legal profession are fine and excellent, but it just leaves too much room for post-sale litigation in terms of how you resolve disputes. That's why we put forward a dispute resolution tribunal, which we thought would be very good for this, but as you know, the government wasn't willing to go that far. They're willing to go a small step in that direction, which is good, but I really think we would save the people of Ontario millions of dollars in legal fees, we would save a lot of Ontarians the agony of going through litigation and confrontations with franchisors if we had a system-and I would recommend that maybe in your golden years way down the road, Mr Speaker, you would make a good franchise Ombudsman, or Mr Stewart. That would be something you could contribute.
Really, we're talking about thousands and thousands of families who need some kind of mechanism where they don't spend millions of dollars in legal fees but they have a way of resolving a dispute with their small business, which they're doing for all good purposes, to just try to make a living and pay bills. They're going in with good intentions, so I think they deserve some protection. As you know, a lot of these people are also new Canadians whom we find sometimes have language barriers. They come here to Ontario and they're gung-ho; it's the land of opportunity: "I'm going to be part of this big chain of Joe's Hamburgers." But it's not that easy.
Again, my parting words are to thank you for your work and the co-operation that the minister and the members on the other side showed in trying to make this as good as possible, but I really think we should continue to warn people to be very careful before they get into a franchise. Please do your due diligence and be careful.
This document is a verbatim copy of this MPP's speech. To review the original transcript:
http://www.ontla.on.ca/web/house-proceedings/house_detail.do?Date=2000-05-17&Parl=37&Sess=1&locale=en
Office of the Legislative Assembly of Ontario
Risks: Affordable, early and non-legal dispute resolution mechanism, Arthur Wishart Act (Franchise Disclosure), 2000, Canada, Can't afford to sue, Dispute resolution means franchisee goes broke, Encroachment (too many outlets put in territory), Expand with another store across the street or we'll sell to new franchisee, Immigrants as prey, Lease controlled by franchisor, Les Stewart, Life savings gone, Must buy only through franchisor (tied buying), Ombudsman, War of attrition, Canada, 20000517 Mike colle