Franchise disclosure law in Manitoba

Manitoba’s rules sit in two instruments: The Franchises Act, C.C.S.M. c. F156, and the Franchises Regulation, Manitoba Regulation 29/2012. What sets Manitoba apart is how much the regulation says about the disclosure package itself: which warnings come first, who signs the certificate, and the conditions under which electronic delivery is allowed. For a buyer in the province, that detail bears on whether a document that arrives meets the rules. The Canadian Franchise Association lists Manitoba among the provinces with franchise disclosure legislation. This guide follows Manitoba’s own text.

How far the Act reaches

Section 2(1) applies the Act to a franchise agreement, and to a renewal or extension of one, where the franchised business is operated or to be operated partly or wholly in Manitoba. The Act defines “grant” to include the sale or disposition of a franchise or of an interest in it, and an interest includes owning shares in the corporation that owns the franchise. Section 2(3) excludes, among other things, the employer–employee relationship, the relationship between partners under a partnership agreement operating a franchised business, certain cooperative memberships, and an arrangement arising from an oral agreement with no writing that evidences a material term.

A package with a fixed order

Section 5 of The Franchises Act requires the franchisor to give every prospective franchisee a copy of its disclosure document, received at least 14 days before the earlier of signing and paying any consideration. The regulation requires four risk warnings at the beginning of the document. They tell the prospective franchisee to seek information on the franchisor, to seek independent legal and financial advice, and to contact current and previous franchisees, and they state that lists of current and previous franchisees and their contact information are in the document. A certificate in the prescribed form must be attached, signed and dated by the franchisor if it is not incorporated, by the one director or officer of a corporation that has only one, or by at least two officers or directors of a corporation that has more.

Delivery by mail, fax, courier or email

The Act lets a disclosure document be delivered personally, by registered mail, by fax or by another prescribed method. The regulation adds prepaid courier and electronic delivery. Electronic delivery is a prescribed method if the document is in a form the recipient can retrieve and process, contains no links to or from external documents or content, and a written acknowledgment of receipt is received from the prospective franchisee; separate electronic files need an index. If the document is not delivered as one, section 5(3) of The Franchises Act says the 14-day requirement is not met until the last document is delivered. New Brunswick’s Act, by contrast, requires one document delivered at one time.

What the document has to say

Section 5(5) requires all material facts, the prescribed financial statements, copies of all proposed franchise agreements and other agreements to be signed, and the prescribed statements, information and documents. If the franchise agreement provides for mediation or arbitration, section 5(6) also requires information on how those procedures work, including how the mediator or arbitrator is chosen, the rules, confidentiality and costs. The regulation lets a franchisor use a document prepared for another jurisdiction if it adds what the Manitoba rules need, and lets some franchisors omit financial statements on conditions it sets. Under section 5(10), a franchisor complies if its document substantially complies with the Act, even if it contains a technical irregularity or mistake not affecting its substance.

The resale exemption

Section 5(11)(a) exempts the grant of a franchise by a franchisee if the seller is not the franchisor, its associate, or a director, officer or employee of either; the grant is for the seller’s own account; the entire franchise is granted when it is a master franchise; and the grant is not effected by or through the franchisor. Section 5(16) says a grant is not effected by or through the franchisor merely because it has a right, exercisable on reasonable grounds, to approve or disapprove, or because it charges a fee set out in the franchise agreement or not above its reasonable actual costs of processing. Section 12 puts the burden of proving an exemption on the person claiming it.

Rescission and damages

Section 6 of The Franchises Act lets a franchisee rescind no later than 60 days after receiving the document if it, or a statement of material change, was late or fell short of section 5, and no later than two years after entering the agreement if no document was ever provided. Notice must be in writing and takes effect on the day delivered personally, the fifth day after mailing, or the day it is faxed if sent before 5:00 p.m. and otherwise the next day; under the regulation, a notice sent by prepaid courier is effective when the courier provides it to the franchisor. Under section 6(5) of The Franchises Act, within 60 days of the effective date, the franchisor or its associate must then refund money other than money for inventory, supplies or equipment, buy back inventory, supplies and equipment bought under the agreement at the price paid, and compensate losses less those amounts. Section 7 gives a right to damages against the franchisor, its associate, its broker and every signer of the document, subject to the defences in section 7(4)–(5).

Questions that follow from the Manitoba text

Because delivery rules decide whether a document counts, a buyer can check the mechanics as well as the contents. Questions that follow from the Act and regulation include these.

• Whether the seller or franchisor relies on section 5(11)(a), and what shows the franchisor is not effecting the grant.
• If the document was emailed, whether it has no external links and whether a written acknowledgment of receipt was given.
• If it arrived in parts, which date the franchisor treats as the date of the last document, and whether the certificate came with the last part, as the regulation requires.
• Whether the certificate is dated and signed by the number of officers or directors the regulation requires.
• Whether the franchise agreement refers disputes to mediation or arbitration, and if so whether the document explained the procedures.