Canada Serves up a Surprise for U.S. Fast Food Franchises

Jennifer Dolman, Andraya Frith

Dec 20, 2011

Legal Hurdles await some American chains hoping to expand into an attractive market north of the border.

By Jeff Gray, The Globe & Mail

[M]any franchise companies seeing slower growth in the United States are now looking to Canada. Lawyers and industry observers say the move is driven by Canada's healthier banks, which are more likely to lend prospective franchisees money, and its healthier economy, which means consumers may have more money to spend on guilty pleasures such as fried chicken.

However, some U.S. brands expanding into Canada for the first time could be in for a surprise, lawyers who represent franchisors here say. Relatively new laws in several provinces impose different, and some times more complex, rules on companies seeking franchisees to open branches of the business.

Jennifer Dolman, a Toronto litigator with Osler Hoskin & Harcourt LLP who acts for franchisors, said recent "harsh" rulings have seen judges favour franchisees in disputes.

"A lot of U.S. companies want to come here, because they do the research and they understand that there's the market and large customer base," Ms. Dolman said. "But they get very nervous about our laws. Very nervous."

Another concern for U.S. franchisors is their trademark, she said. If another restaurant in Canada is already using a name similar to a U.S. chain, expansion could involve expensive litigation. For example, Minneapolis-based Buffalo Wild Wings Inc., which recently expanded into the Toronto area, has faced litigation over its name in a battle with Wild Wings, of Aurora, Ont.

Despite potential pitfalls, the flow north continues.

Andraya Frith, Ms. Dolman's colleague in Osler's franchise law group, said business from U.S. franchisors has picked up dramatically after going into "pens-down mode" during the 2008-2009 financial crisis.

"Certainly in the last 12 to 18 months it started to [move] up again in a big way," Ms. Frith said. "I chalk it up to them recognizing that the Canadian economy is stronger."