Nov 4, 2011
Although Manitoba’s Franchises Act (the Act) received royal assent in June of 2010, the province only recently released the proposed regulation (the Regulation) for public comment.1 The Act and Regulation are largely consistent with the legislation in Alberta, Ontario, New Brunswick and Prince Edward Island, though franchisors will need to be aware of some important differences.
- Manitoba’s Act is unique in that it does not require the disclosure document to be delivered as one document at one time. Instead, the Act permits a disclosure document to be delivered in parts, and the 14-day disclosure period begins to run after the franchisee receives the last part of the document. The proposed Regulation sets out specific requirements relating to the delivery of a disclosure document in this manner, including:
- providing the prescribed risk warning statements first;
- including a statement at the top of any document which forms part of the disclosure document that states that the document forms part of the disclosure document required to be provided under the Act (presumably to prevent unscrupulous franchisors from retroactively claiming that some correspondence was intended to form part of the disclosure document);
- providing information on the franchisor’s business background together in a single part; and
- including the certificate of the franchisor with the last part of the disclosure document provided by the franchisor.
These requirements help provide clarity about what will be considered to be part of the disclosure document, and when the 14-day period begins running. While this method of delivery could be beneficial in certain circumstances, it also introduces yet more technical requirements for franchisors to comply with – and failure to do so could lead to a material part of a disclosure document being excluded from the document.
- As in New Brunswick and Prince Edward Island, delivery by facsimile, prepaid courier, or by electronic means is specifically permitted, provided that the prescribed method for delivery requirements are followed.
- Franchisors will be pleased to know that the Act provides that a substantially compliant disclosure document satisfies the requirement to deliver a disclosure document, even if the disclosure document contains a “technical irregularity or mistake not affecting the substance of the document” (though note that the corresponding provision in Alberta’s legislation provided no assistance in the Hi Hotels decision).
- Franchisors will be able to accept fully refundable deposits up to 20% of the initial franchisee fee, to a maximum of $100,000, and enter into site selection and confidentiality agreements, within the 14-day disclosure period. Interestingly, however, to take advantage of the exemption for confidentiality agreements, the franchisor cannot prohibit the disclosure of information to an organization of franchisees or other franchisees in the system.
- Also similar to other regulated provinces, other than Ontario, disclosure documents prepared for use in other jurisdictions can be used in Manitoba provided that additional disclosure is provided to comply with the Act and Regulation. This means franchisors can prepare a wrap-around, standalone document, or incorporate Manitoba’s requirements in their national disclosure documents.
The Regulation prescribes disclosure requirements that are similar to those in other regulated provinces; however, there are some noteworthy differences, including:
- The Regulation includes a number of requirements for positive statements that no information is provided relating to certain disclosure items, such as if a franchisor elects not to provide an estimate of operating costs of earnings projection, or if the franchisor does not provide training or operation manuals, then an express statement to that effect must be included in the disclosure document.
- If the franchisee is required to operate in accordance with manuals provided by the franchisor, the franchisor must provide the table of contents of each manual or a statement specifying where the manuals are available for inspection (this is also a requirement in New Brunswick).
There are additional differences in the Regulation which must be addressed in the disclosure document, or franchisors risk a claim for rescission or misrepresentation.
Finally, franchisors who rely on the exemption from providing financial statements in their disclosure documents should note that the requirements for the exemption in Manitoba are similar to the requirements in other provinces. Though, as with each province, franchisors should take care to review all of the specific requirements.
The public consultation period on the proposed Regulation ends on December 15, 2011. If you have any questions, or would like to submit comments on the proposed Regulation, please contact a member of Osler’s Franchise Team.
1 A copy of the Act can be accessed here and a copy of the proposed regulation can be accessed here. The Act will come into force on a date to be determined by proclamation after the regulation is finalized.