Franchise disclosure law in New Brunswick

New Brunswick regulates franchising through its Franchises Act, 2014, c.111, and the Financial and Consumer Services Commission is responsible for administering it. The Canadian Franchise Association describes the Act as including disclosure requirements and dispute resolution provisions, and the second of those is the feature of the New Brunswick statute this guide gives the most room. For someone buying a franchised business in the province, the Act matters twice: at the start, when disclosure is due, and later, if a dispute with the franchisor needs a formal route. The text cited here is the version of the Act dated 1 June 2016 on the Government of New Brunswick’s site, so check the current consolidation and the regulations.

Reach and definitions

Section 2 applies the Act to franchise agreements entered into on or after 1 February 2011, and to renewals and extensions entered into on or after that date, if the business operated or to be operated by the franchisee is partly or wholly in New Brunswick. Section 2(3) also applies some provisions, including the section 8 dispute step, to agreements entered into before that date. 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. It does not apply to, among other things, an employer–employee relationship, a partnership, certain cooperative memberships, or a relationship or arrangement arising from an oral agreement with no writing that evidences a material term or aspect of it.

Disclosure before signing

Section 5(1) of the Franchises Act requires the franchisor to provide a disclosure document, received by the prospective franchisee not less than 14 days before the earlier of signing the franchise agreement or any other agreement relating to the franchise and paying any consideration relating to it. It may be delivered personally, by registered mail or by another prescribed method, and section 5(3) says it must be one document delivered at one time. Manitoba’s Franchises Act instead provides for a document not delivered as one, and treats its 14-day requirement as unmet until the last document is delivered. The contents include prescribed financial statements, copies of all proposed agreements, prescribed statements and all material facts, and a written statement of any material change must reach the franchisee before signing or paying.

The resale exemption

Section 5(8)(a) takes a grant by a franchisee out of the disclosure duty if the franchisee is not the franchisor, its associate, or a director, officer or employee of either; the grant is for the franchisee’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. Under section 5(10), 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 a fee is payable in an amount set out in the franchise agreement or not above its reasonable actual costs of processing the grant. Section 13 puts the burden of proving an exemption on the person claiming it.

Rescission and damages

Under section 6 of the Franchises Act, a franchisee may rescind no later than 60 days after receiving the document if it, or a statement of material change, was late or its contents fell short of section 5, and no later than two years after entering the agreement if the franchisor never provided one. Notice must be in writing, and the Act fixes when it takes effect by method of delivery, including the fifth day after mailing. Under section 6(6) of the Franchises Act, within 60 days after the effective date, the franchisor or its associate must refund money, buy back inventory, supplies and equipment at the price paid, and compensate losses. Section 7 gives a right to damages against the franchisor, its broker, its associate and every signer of the document, subject to the defences in section 7(4)–(5).

The notice-of-dispute and mediation step

Section 8 sets a notice-of-dispute route that the Manitoba Act, which only requires disclosure about mediation and arbitration procedures, does not contain, and Alberta’s Act instead lets cabinet designate a body to govern franchising. A party to a franchise agreement with a dispute may deliver a notice of dispute setting out its nature and the desired outcome. Under section 8(2) of the Franchises Act, within 15 days after delivery of the notice of dispute, the parties must attempt to resolve it. If they fail, section 8(3) of the Franchises Act lets a party deliver a notice to mediate within 30 days after delivery of the notice of dispute, but not before the 15 days end, and mediation then follows the regulations’ rules. Section 8(6) protects mediation communications from disclosure in a court, tribunal or arbitrator proceeding, with listed exceptions, and section 8(10) says delivering either notice does not stop a party from taking another measure.

Questions that follow from the New Brunswick text

The Act’s structure suggests several things to check before and after a purchase. Questions that follow include these.

• Whether the seller or franchisor relies on section 5(8)(a), and what shows the franchisor is not effecting the grant.
• If a document is delivered, whether it arrives as one document at one time, as section 5(3) requires.
• Whether the franchise agreement already sets a dispute process, and how it fits with the notice-of-dispute timing in section 8.
• Whether the purchase is of assets or of shares in the corporation holding the franchise, since the Act’s definition of a grant covers both.
• What the regulations say about mediation rules and costs, since the Act leaves those to regulation.