Apr 30, 2012
By Derek Sankey, The Financial Post
When the judge in the much-publicized Tim Hortons class action court case dismissed the franchisees claim, he took careful measure to note that, despite mountains of evidence provided by both sides, the case was, at its core, not complex at all.
The franchisor, Tim Hortons, was entitled to tell the franchisees what to buy, where to buy it, what to sell and how to sell it, as per the franchise agreement. It was “entitled to make a profit on what the franchisees are required to buy” and “entitled to determine the amount of its profit,” wrote Justice George Strathy.
There are contractual and statutory limits to what any franchisor can do, and they must act in good faith, but the case was ultimately dismissed on very simple, basic grounds.
Every franchise system is different, but the Tim Hortons case may provide a cautionary tale of what to be aware of before writing the cheque.
“The parties, for the most part, start off with the best intentions,” says Jennifer Dolman, a franchise litigator who acts mainly on behalf of franchisors. She compares it to a marriage in that sense.
“You have to put the time in, roll up your sleeves — and you’ve got to be there and take responsibility,” she says. On the other hand, while feedback and motivation is always a positive thing to have in any franchise, you still have to work within the established system.
“If [franchisees] start thinking that they know better too much — they clearly would have been better off on their own,” says Ms. Dolman, a partner at Osler, Hoskin & Harcourt LLP.
At the end of the day, there are also never any guarantees. Not everybody is suited to franchising and you have to be very clear, up front, about what your obligations are and how to work within the system and under the contract.