If you’ve thought about starting your own business, you may have considered running a franchise. Although starting a franchise carries fewer risks than starting a wholly independent business, franchises in Alberta are subject to additional rules and regulations. This article provides an overview of franchisors’ and franchisees’ rights and obligations under Alberta’s Franchises Act.
Franchising describes a package deal in which a franchisee pays a franchise fee and a certain percentage of sales in exchange for help from a parent company, or franchisor. The franchisee uses the franchisor’s trademark and runs the business, and the franchisor acts as counsellor and advisor.
Under this model, the franchisor provides a tested and proven package, thereby helping to mitigate the risks normally associated with starting a business. The franchisor usually retains some rights related to advertising and quality control, while helping the franchisee with
A number of federal and provincial laws apply to franchising. Various federal laws (e.g., Competition Act) govern income tax, competition, privacy, packaging and labelling, and intellectual property.
Franchises in Alberta have a state legal definition. Under the Franchises Act (Alberta), you are a franchise if you’ve been granted the right to engage in a business
The Franchises Act
Additional provincial laws govern consumer protection legislation, sales taxes, liquor licensing and class action.
If you’re considering buying a franchise, you have certain rights, and the franchisor has specific obligations. The franchisor must give every prospective buyer of a franchise a copy of a disclosure document. Formalities prescribed in the Franchises Act relate to the release and contents of the disclosure.
Franchisors must deliver a disclosure document at least 14 days before the prospective franchisee signs any agreement or pays any consideration relating to the franchise (unless the payment is fully refundable).
The franchisor must ensure that the disclosure document provided to the prospective franchisee contains
This disclosure is intended to help the prospective franchisee make an informed decision before entering into any franchise agreements.
The Franchises Act governs the relationship between franchisors and franchisees. A franchisor may not prohibit or restrict a franchisee from forming an organization of franchisees or from associating with other franchisees in any organization of franchisees. A franchisor (or its associate) must not directly or indirectly penalize a franchisee for engaging in any such association activities. Where a franchisor infringes upon a franchisee’s rights to associate, the franchisee may claim damages against the franchisor.
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.
Whether you’re a franchisor or a prospective franchisee, failure to know about applicable franchise legislation could place your business and your reputation at risk. Sound legal advice can help.
At Lift Legal, we can help you draft and revise franchise agreements and disclosure documents. Look to us for sound legal advice about your business’s corporate and commercial needs, including buying or selling your franchise.
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