Saskatchewan’s Proposed Comprehensive Franchise Legislation

  • April 12, 2024
  • Madison Black, associate, Osler, Hoskin & Harcourt LLP

Saskatchewan is poised to become the seventh province in Canada to enact franchise legislation, following the introduction of Bill 149 The Franchise Disclosure Act (the “Bill”) in the Legislative Assembly of Saskatchewan (the “Legislature”) on November 9, 2023. The Bill underwent its second reading on March 4, 2024, where the Legislature referred it to the Standing Committee on Intergovernmental Affairs and Justice (the “IAJ Committee”) for a clause-by-clause examination, which may include amendments. If the Bill is enacted, it will serve as Saskatchewan’s first and only comprehensive franchise legislation.

The Government of Saskatchewan had a brief call for public input about the need for franchise legislation and the use of the Uniform Franchises Act  (the “UFA”) adopted by the Uniform Law Conference of Canada as a starting point. In response, the Canadian Franchise Association urged the province to follow the most recently enacted provincial franchise legislation, British Columbia’s Franchises Act (the B.C. Act), which was enacted in 2016 and came into force in 2017. When introducing the Bill, the Legislature indicated the Bill is based on the UFA.  In fact, the Bill appears substantially similar to legislation already in place in the other regulated provinces, and follows the B.C. Act particularly closely.  The complete draft of Bill 149 can be found on the Legislature’s website (available here).

Summary of Saskatchewan’s Bill

As with franchise legislation in the other provinces, the Bill would:

  1. impose a duty of good faith and fair dealing among franchisors and franchisees and provide remedies for a breach of that duty;
  2. confirm franchisees’ right to associate and provide remedies for infringement of such rights;
  3. require franchisors to provide a disclosure document, including prescribed information, to a franchisee prior to the franchisee entering into a franchise agreement;
  4. provide for a rescission remedy for a franchisor’s failure to comply with the disclosure obligation;
  5. create a right of action for damages for a franchisor’s misrepresentation contained in a disclosure document or for the failure to comply with the disclosure obligations;
  6. create other rights of action for damages;  and
  7. prevent the waiver of the application of the franchise legislation, other than in the course of the resolution of a claim or dispute that is subject to the legislation.

Notable Features and Comparisons

The Bill Narrows the Definition of “Franchise”

As drafted, the Bill narrows the definition of “franchise” to circumstances where the franchisor (or franchisor’s associate) exercises significant control over, or provides significant assistance in, the franchisee’s method of operation. By contrast, the equivalent provision in Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 (the Ontario Act) has a lower threshold, where the franchisor (or franchisor’s associate) either exercises or has a right to exercise significant control or either provides or has a right to provide significant assistance. Whether any particular arrangement meets the definition of a “franchise” in Saskatchewan therefore centers on whether the franchisor actually exercises significant control or actually provides significant assistance, not simply if they have a right to do so (as is the case under the Ontario Act) or if the franchisor merely offers to do so (as is the case under the B.C. Act).

Accordingly, Saskatchewan’s Bill implies that there will need to show evidence of a franchisor’s actions, and not just evidence of contractual rights, to prove that a given franchise arrangement meets the definition of a franchise. This potentially presents a higher evidentiary burden for plaintiffs claiming rights pursuant to the legislation in cases where it is not conceded that the business arrangement gives rise to a “franchise.”

Disclosure within Two Years of Entering into a Franchise Agreement

Section 6(2) of the Bill requires that a franchisor provide a prospective franchisee with a disclosure document at least 14 days before the earlier of: (a) the signing of the franchise agreement or any other agreement relating to the franchise, or (b) the payment of any consideration relating to the franchise.  However, section 7(2) of the Bill provides that a franchisee may rescind the franchise agreement within two years after entering into the franchise agreement if the franchisor fails to provide the disclosure document “within those two years”. The reference to providing a disclosure document “within two years” is a notable divergence by the Legislature from any existing provincial franchise legislation in Canada. A plain reading suggests that if a disclosure document is not received by a franchisee prior to the execution of a franchise agreement, the franchisor can remedy this by delivering a disclosure document within two years after the franchisee enters into the franchise agreement — long after the franchisee has made its investment decision. This result may be unintended, as it brings into question one of the main objectives of franchise disclosure laws (i.e., ensuring the franchisee can make an informed investment decision prior to entering into the franchise agreement). Some commentators therefore questioned whether this marked divergence from existing franchise legislation in other provinces would survive second reading, but it has. Other commentators have suggested that the intention of this divergence compared to other six provinces may be to limit a franchisee who receives such a late-delivered disclosure document to the remedy in section 7(1)(a), which allows the franchisee to rescind within 60 days after receiving the disclosure document if “the franchisor failed to provide the disclosure document … within the time required by section 6”. In other words, a late-delivered disclosure document would cap the rescission remedy to 60 days from the delivery of the disclosure document, after which period the franchisee would be statute barred from rescinding for the balance of the two-year period from signing the franchise agreement. If so, this is a new and more restrained approach to the statutory rescission remedy, and it will be interesting to see if this aspect of the Bill remains unchanged following review by the IAJ Committee.

Substantial Compliance

Mirroring the B.C. Act, the Bill includes a substantial compliance provision in respect of disclosure documents and statements of material change. The provision represents a limited safe-harbour provision for certain defects, irregularities or errors that might otherwise make ineffective a disclosure document or statement of material change.

Approach to Regulations

The Bill provides the Lieutenant Governor in Council a broad range of powers and discretion with respect to the categories of information to be prescribed in future regulations, including a broad right to make regulations respecting any matter or thing that the Lieutenant Governor in Council considers necessary to carry out the intent of the Act. This is in contrast to the B.C. Act, which restricts the Lieutenant Governor in Council to making regulations only in respect to a finite number of issues.

Included in the topics that the Lieutenant Governor in Council can address by regulation are details of the types of cooperative organizations that may be exempt from application of the Bill, acceptable methods for delivering the disclosure document, and exemptions for specific classes of persons, organizations, relationships, or arrangements. The Bill’s openness to future regulations suggests that the legislature likely intended to impart the bill with greater flexibility to contemplate ongoing legislative updates as franchising evolves in Saskatchewan, as well as in other provinces.

Draft regulations have not yet been published, and the next step for the progression of the Bill is for the IAJ Committee to issue its report.

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