BC Government Seeks Input on Franchise Act Regulations

There are new regulatory developments in the province of British Columbia that will be of interest to Canadian and international franchisors seeking to franchise in Canada’s third largest province, as Bill 38 – The Franchises Act was passed by the BC Legislature on October 20, 2015

The BC Franchises Act largely mirrors disclosure model used in the other five provinces that regulates franchising in Canada, including the requirement for the preparation and delivery to a prospective franchisee of a Franchise Disclosure Document (FDD) containing all material facts related to the franchise opportunity, and copies of all agreements a franchisee is expected to sign. The BC Act is largely based on the Uniform Franchise Act developed by the Uniform Law Conference of Canada to encourage uniformity of franchise laws throughout Canada.

A More Level Playing Field for BC Franchisees

In British Columbia, prospective franchisees make a significant capital investment when they acquire a franchised business, yet they are often at a disadvantage when relying on information provided by the franchisor (if any) due to a lack of knowledge and experience. Not only would the new BC Franchises Act help to rectify this imbalance by standardizing regulatory requirements consistent with other Canadian provinces and require franchisors to provide prospective franchisees within FDD containing all material facts relating to the franchise, it will help with access to justice in that all litigation relating to the franchise, whether initiated by the franchisor or the franchisee must be held in BC. This prevents a scenario where a BC-based franchisee is required to litigate its dispute, whether as plaintiff or defendant, with a U.S. franchisor in the United States, under US law, in US courts, and obviously, paying US dollars to its US lawyers. Requiring all disputes to be litigated or arbitrated BC will very much level the playing field and will prevent non-BC or foreign franchisors from taking strategic advantage against the franchisee by forcing them to sue or be sued in another (more expensive) jurisdiction.

Arguably, the BC Franchises Act is more business friendly then Ontario’s “Arthur Wishart Act” in that the BC Act includes the ability of franchisors to take refundable deposits and enter into confidentiality agreements before disclosure to the franchisee of the Franchisor’s FDD; electronic delivery of the FDD; and a threshold of “substantial compliance” for the FDD, which will not invalidate an FDD for a technical error or defect that doesn’t affect the substance of the franchisor’s disclosure obligations. This is discussed in greater detail in my last column on this topic, “New B.C. law will help small business owners buying franchises” featured in The Globe and Mail.

New Disclosure Requirements

What’s new is that the British Columbia government is wasting no time with respect to the regulations under the BC Franchises Act which will determine, among other things, what material facts franchisors need to disclose in their FDD’s to validly comply with the Act; whether there should be warning or risk statements in the FDD as there is in other provinces; the standard of financial disclosure in the franchisor’s financial statements; disclosure with respect to the franchisor’s advertising fund expenditures; level of disclosure with respect to the advertising fund; earnings claims; exemptions to the requirement to provide an FDD; the use of “wraparound” disclosure documents; exclusive territories granted to the franchisee; and other details which would normally be the subject of regulations.

Help Shape the Act

With that in mind, the BC government is seeking public consultation and input with respect to regulations under the Franchises act. Although the regulations are expected to be based on the Uniform Law Conference Disclosure Document Regulation and and the recommendations of the British Columbia Law Institute in its draft Franchise Act (Disclosure) Regulation as set out in its “Report on a Franchise Act for British Columbia”, government to make sure that stakeholders in the franchise community are involved and have the opportunity to provide their input and advice on what the regulations should contain.

The government is entertaining responses from the franchise community before and stakeholders have until January 15, 2016 to provide their input. Further information is available at the govTogetherBC Franchises Act Disclosure Regulation page.


Tags: Article; Franchising