Mr Gilles Bisson (Timmins-James Bay / -Timmins-Baie James
ND)
Mrs Claudette Boyer (Ottawa-Vanier L)
Mr Brian Coburn (Carleton-Gloucester PC)
Mr Garfield Dunlop (Simcoe North / -Nord PC)
Mr Raminder Gill (Bramalea-Gore-Malton-Springdale PC)
Mr Pat Hoy (Chatham-Kent Essex L)
Ms Frances Lankin (Beaches-East York ND)
Mr Bill Murdoch (Bruce-Grey PC)
Substitutions / Membres remplaçants
Mr Bruce Crozier (Essex L)
Mr Tony Martin (Sault Ste Marie ND)
Mrs Julia Munro (York North / -Nord PC)
Mr John O'Toole (Durham PC)
Also taking part / Autres participants et
participantes
Mr Joseph Hoffman (director, policy and agency relations branch,
MCCR)
Ms Bonni Harden (legal counsel, legal services branch,
MCCR)
Clerk / Greffière
Ms Anne Stokes
Staff / Personnel
Ms Susan Swift, research officer, Research and Information
Services
The committee met at 1008 in committee room
1.
SUBCOMMITTEE REPORT
The Chair (Ms Frances
Lankin): We will call the meeting to order. The first
item of business is to deal with an outstanding matter from the
subcommittee report. The subcommittee met on Wednesday, April 5,
2000, and there was a discussion with respect to the method of
proceeding on Bill 33. At last week's committee meeting, on April
12, three items from that subcommittee report were carried, those
being that the committee meet last week to consider private
bills, which was done, and that we meet today to hold discussions
on the information that was gathered in the committee hearings to
Bill 33.
As you know, the structure
for today's consideration will be each caucus making an initial
presentation of up to 20 minutes, and a second hour that will
allow for discussion and questions. There are technical staff and
policy staff from the ministry here who are also available if
there are questions that committee members need assistance with.
Item 3 was deferred-we'll come back to that-and item 4 was the
time line on submission of amendments to Bill 33. Those
amendments, again as a notification for committee members, must
be in by noon on Tuesday, April 25. None will be accepted after
12 o'clock. The clerk will circulate all amendments to committee
members by 4 o'clock that afternoon.
The outstanding item from
that subcommittee report is item 3: that the committee meet on
Wednesday, April 26, 2000, for clause-by-clause review of Bill
33. I'd like to ask if at this point in time Mr O'Toole would
like to move that clause or any amendment to that clause.
Mr John O'Toole
(Durham): The intention of the clause would be to
complete the deliberations on Bill 33 on the April 26. If that's
what this wording means to the members of the committee, then I
would so move that particular clause.
The Chair:
We can't give an interpretation that's not there on the face of
the words. The words indicate "that the committee meet on
Wednesday, April 26, 2000, for clause-by-clause review of Bill
33," point-blank. As I indicated last week, when there was an
attempt to move an amendment that would limit or place a time
line on that consideration, I ruled that amendment out of order.
The directions have been given to this committee by the
Legislative Assembly, by the House. Those are paramount unless
there is a change in direction or unless during the course of
consideration of clause-by-clause, committee members themselves
move closure on consideration in an appropriate way in accordance
with the rules of order. There is no way for this committee in
advance to limit the scope of that discussion in
clause-by-clause.
Mr O'Toole:
Fine. Then I continue to defer that particular clause. Hopefully,
we can come to an understanding by the end of this particular
session today and not be in breach of any of the standing orders.
Clearly, the intention is not to deliberate too much longer, but
not breach the orders by trying to invoke some kind of closure,
and also to satisfy Mr Martin-and other members of the committee;
not to centre anyone out-that we can come to a consensus here.
Failing that, I suspect I would be going back to our House leader
to see how we can go forward in an attempt to have a unanimous
report without invoking some kind of closure.
The Chair:
If I could make a suggestion to committee members, it sounds like
there may still be some contention around how we proceed with
respect to that item. It may be more or less contentious by the
end of this morning. What I would like to suggest is that we
proceed with the discussion on the bill and that at the end of
that discussion and in sufficient time before 12 o'clock, we
return to consideration of the subcommittee report. You may or
may not be more informed by the way the discussion goes with
respect to how you feel with that item. Is that satisfactory for
members? OK.
Could I have a motion to
stand this down until the end of this morning's meeting.
Mr Tony Martin (Sault
Ste Marie): So moved.
The Chair:
All those in favour? Opposed? That's carried.
FRANCHISE DISCLOSURE ACT, 1999 / LOI DE 1999 SUR LA
DIVULGATION RELATIVE AUX FRANCHISES
Consideration of Bill 33, An
Act to require fair dealing between parties to franchise
agreements, to ensure that franchisees have the right to
associate and to impose disclosure obligations on
franchisors / Projet de loi 33, Loi obligeant les parties
aux contrats de franchisage à agir équitablement,
garantissant le droit d'association aux franchisés et imposant des
obligations en matière de divulgation aux franchiseurs.
The Chair:
Let's move on to item 2, consideration of Bill 33, An Act to
require fair dealing between parties to franchise agreements, to
ensure that franchisees have the right to associate and to impose
disclosure obligations on franchisors. This morning, as you know,
is an opportunity for each of the three caucuses to present some
preliminary points of view with respect to the findings the
committee gathered during the public hearings into Bill 33.
Each caucus has up to 20
minutes for its presentation. The presentation can be made by an
individual or shared among individuals within that caucus. I'd
appreciate it if you gave me some indication if you intend to
share the time, but the allocation of that is up to you. At the
end of that, we will move into a general discussion. We'll begin
the presentation with the government caucus. Mr O'Toole, do you
intend to start?
Mr O'Toole:
No, I'd sooner pass and start with whichever other caucus is
prepared to begin.
Mr Martin:
I'm willing to start.
The Chair:
Mr Crozier, do you defer as well to the expert? Mr Martin, would
you like to begin your presentation?
Mr Bruce Crozier
(Essex): Not to single out any member.
The Chair:
Of course not.
Mr Martin:
First of all, I want to go on the record by saying thank you to
everybody who participated. I thought it was a rather positive,
constructive and full discussion of an issue that is very
important to a lot of people across this province, to the economy
of this province and to some communities in this province which
have within their boundaries some of the folks who are under some
duress and feeling some stress at this time, because they have no
real avenue of address for some of the difficulties they are
experiencing as they try to relate to each other to do business
so that each of them might realize the benefit, the profit and
the success they thought was there when they entered or took on
the possibility of the role of being a small business person in
this province.
Certainly the government has
been co-operative. Before we started, I had a very positive
meeting with the minister around some of the issues that I
suggested we would probably hear a lot about as we went through
the hearings, and the commitment by him to be open and willing to
sit down and work out some arrangements so that in the end we
could do something helpful with this bill.
I also want to say to the
members of the official opposition and of the government that I
appreciated the contribution each of you made in this effort. The
preparedness, the questions and the listening that went on will
hopefully lend in the end to all of us finding a way to do the
right thing in this instance.
I also want to thank the
staff, particularly Anne Stokes and Susan Swift, who worked so
very hard to make sure this was a good experience. Given that,
because of sickness and other things, we went through two or
three chairs that week, I thought both of them did a super job
keeping us on track; Anne, in particular, making sure everything
happened as it should and that everybody had a fair opportunity
both to present and ask to questions and participate in the
discussion. Of course, Susan Swift provided us with a ton of
material: research that was done to make sure that any questions
we might have and any information we needed was there and we
could refer to it, and that would be helpful in the long run.
I want to say that there were
others who participated and helped out a lot as well, certainly
those who came forward, some at great risk to themselves and to
their businesses, to share with us what's going on and what went
on in their lives. Some people had no need to come forward,
because it was a bad chapter in their lives that they were trying
to forget and move on from, but they knew they couldn't just
leave it, given the opportunity to come forward and speak to us
here, without contributing some of their experience to perhaps
putting something in place that would be helpful to others so
they wouldn't find themselves in the same boat, as life unfolded
in this province. They have to be commended and thanked profusely
because of the risk they took, the effort they made and the
information they shared.
For me, personally, Les
Stewart, who perhaps to some may present as somewhat obsessed
with this issue, but because of his own personal experience and
the fact that he put his shingle out there, a lot of people call
him when they find themselves in difficulty in franchising and
share their stories with him-being the person he is, very
conscientious and of great integrity, Les cannot just let it lie,
let it sit and not deal with it and bring it someplace where
perhaps something could be done with it. He has probably
contacted all of you at least a million times and certainly has
worked very actively with me to make sure I had everything I
needed to make the case here for some things to happen.
That brings me to the reason
for this morning, which is to talk a bit about what we heard and
to put on the table what I feel needs to be done, and in fact to
draw the line in the sand that needs to be drawn re how much I am
willing to compromise in this so we can find some consensus and
move forward with a bill we can get through the House in
reasonable time to be helpful to the folks out there who are
waiting with bated breath for this to actually happen.
1020
All of you will know from
having read the material that this issue goes back quite some
way. It was in the late 1960s and early 1970s that a report was
called for by the then Department of Financial and Commercial
Affairs, under the leadership of Arthur Wishart, to deal with the
"evils of franchising." That's how it was described in the Grange
report. I suggest to you that those evils still exist, because
nothing has been done since then. That report was tabled and
shelved. In the meantime, though, the franchising sector of
industry has grown in leaps and bounds, to a point now where-if
you just give me a second
here, I'll share a couple of statistics with you. With all this
paper, it was bound to happen that sooner or later I would get a
little confused and mixed up. Here we are.
Franchising in Ontario has
grown tremendously. In Ontario alone there are some 40,000
franchisees. In Canada there are 76,000. This represents an
investment of $4 billion in Ontario and $7.6 billion in Canada.
This is investment by franchisees in the industry. Most of the
money in the franchising industry is initially invested by the
franchisee-retail sales of $45 billion in Ontario and $90 billion
in Canada, an employee factor of some half a million people in
Ontario and almost a million in Canada. It is a very significant
sector of business in Ontario and, I think, deserves our full
attention and effort to make sure we put in place a regulatory
regime that creates fairness.
We're not talking here about
giving one partner some undue advantage over the other. What
we're talking about is correcting a history of undue advantage
being taken. I share with you one more time-and John will
appreciate this-the big books that were put together primarily by
Les Stewart, which are a compilation of all the articles that
have appeared in newspapers across this province over the last
five to seven years. There are two volumes, and each of you have
them. They represent the stories of some 4,500 families who have
been affected, mostly negatively, in some way in this province
over the last five or six years as the franchisor moved to take
advantage of the franchisee by not living up to, if not the
agreement, then the spirit of the agreement they signed when the
contract was entered into.
This morning I want to, for
your help, because I know some of you were probably feeling
somewhat at a disadvantage through the hearings-I apologize. I
had the index to this and was able to make references and
cross-references. We've gone out and put together another book,
which you'll have to take home and do some bedtime reading with,
that connects these stories and gives you some commonalties. It
helps you go through it in a way that makes some sense in terms
of putting the story together and putting the jigsaw puzzle
together so that you might, at the end of the day, understand why
I am going to be so determined, particularly in three areas, to
have something put forward by way of amendment to this committee
that will complement and add to what the government has brought
forward in terms of Bill 33. If you would pass this around, I'd
appreciate that.
Having said that, I want to
say that this latest round of discussions and activity we are
participating in was initiated some six years ago as a result of
the very difficult Pizza Pizza debacle that happened in the
province. There was some activity at that point. A colleague of
mine, a predecessor of mine, Jim Wiseman, brought forward a bill
and tabled it in the House. That initiated a study by the then
Ministry of Consumer and Commercial Relations and Minister
Marilyn Churley. A group of people was brought together from the
industry to talk about this. A report was done. It was tabled by
the ministry in 1995 with the then Minister of Consumer and
Commercial Relations, who I believe was Mr Sterling, and then
passed on to Mr Tsubouchi.
In the meantime, I picked up
where Mr Wiseman left off. I was encouraged by some very
difficult unfoldings in my own community where Provigo and Loeb
decided unilaterally to turn some 25 to 30 of their grocery
stores into corporate stores without any real conversation or
negotiation about recognition of investment and those kinds of
things. Following that there was the Mary Carlucci story that I
brought to the Legislature, which some of you may remember. She
was a young woman out of our community who had done an excellent
job of building a small business into a real powerhouse-good
name, good corporate citizen, doing well. She built the business
up from under $1 million in activity in a year to some millions
of dollars. She was summarily dismissed at some point.
Just to give you an idea of
how this happens, she was told that there would be a meeting to
talk about marketing in a local hotel down the road. While she
was away they moved in and changed the locks on her door and took
over her cash registers. This is the kind of thing that's going
on.
In some instances, in the
Loeb-Provigo takeover, for example, we had small business people
in this province and their families actually sleeping in their
stores at night so that the parent company wouldn't come in while
they were away and change the locks and take the store over.
That's the environment; that's the atmosphere within which
franchising is happening in this province.
There are other stories.
Certainly the Pizza Pizza one speaks of the personality of some
of the people who are doing franchising from the franchisor
perspective in this province. A person who was accused of and
found guilty of fraud in Florida comes to Ontario and takes over
the Pizza Pizza franchise. There's another story unfolding in the
province at the moment, about Chemwise-it was written up in the
Toronto Star just a week or two ago-where again we have somebody
who had spent some time in jail now running a franchise operation
and taking advantage of unsuspecting individuals who simply want
to do business, who simply want to invest some money, work hard,
take advantage of the good economy that's happening out there,
make a profit, and set something up for themselves and their
families as they go down the road.
Bill 33, as far as it goes,
is a good first step in this whole piece. I suggest to you that
there are lots of things in Bill 33 that are also included in the
bill I've tabled three times now in the Legislature, Bill 35. I
can live with that, but it needs to go further, in my mind. If it
doesn't go further, we will do dishonour, in my view, to the
stories we heard over the four days that we crossed the province
earlier in the year.
Disclosure and the right to
associate, however important and necessary, would not have been
helpful in the stories we heard. It would not have been helpful
in the Loeb-Provigo instance, it would not have been helpful in
the Pizza Pizza debacle, and it would not be helpful right now in
the Chemwise situation that was in the Toronto Star, because those folks need
redress after the agreement is signed. This is an instance where
the franchisor decides not to live up to the agreement they
signed. Short of going to court and spending a ton of money they
don't have, going up like David and Goliath against a big
corporate entity that has a ton of money-I'll tell you, from
talking to some of the folks in the industry, the big
corporations, the franchisors, are not adverse to telling these
folks, "You can take us to court, but you'd better have lots of
money and lots of time, because if you don't, we'll do you in
eventually."
1030
Disclosure and the right to
associate, however important and necessary, would not have been
helpful in these incidents and the many others we heard during
our four days of hearings.
It is still clear and obvious
that some mechanism of dispute resolution is necessary.
It is also necessary, in my
view, to define the relationship in a manner that allows
franchisees to source product at their discretion except where
trademark is an issue.
Just very briefly-I probably
have about two or three minutes left, I think-if we don't do this
piece, we will not have recognized a very troubling reality
that's out there today, which is that small stores are tied in to
distribution systems now that limit ever more as each day goes on
their ability to actually make a profit. Not only that, but it is
affecting the ability of small and local producers, and we heard
this in spades in Sault Ste Marie, to get their product on to the
shelves of some of the major stores in their own communities so
that they can actually make some money and do some business. If
we allow this to continue, it will in my view kill local
economies, and that will be sad and will not add to the rooting
of the very good economy we're in today in communities and allow
smaller operators to take advantage of that.
I will also be asking that
"commercially reasonable" be added to the "fair dealing" section
because it's necessary and was recommended by several presenters
at the hearings.
To ensure correct and timely
tabling of disclosure documents that can be easily accessed and
vetted, it will be necessary that some vehicle to accept and be
responsible for these documents be in place. A reasonable and
convenient possibility for this function would be an extension of
the role of the securities commission as suggested by Mr Nori in
Sault Ste Marie.
There were many excellent
recommendations put forward by witnesses during the hearings
including the need to regulate termination and renewal of
contract clauses in agreements and the need to make it mandatory
that franchisors recognize and deal with franchisee associations,
because that's what Bill 33 is recommending, that franchisees be
allowed to associate. But if the franchisors aren't willing to
recognize those associations, what's the point? That is what a
number of presenters asked when they came.
The NDP caucus will be
tabling amendments to improve on Bill 33. We will be recommending
enhancements included in Bill 35 that we feel were called for by
a majority of the deputants who came before the committee.
Central to these will be a vehicle to accept, vet and manage
disclosure statements similar to or an extension of securities
commissions; a dispute resolution mechanism; a provision
containing the right of franchisees to source product at their
discretion outside of a registered trademark.
We will be willing to discuss
methods of including these provisions in Bill 33 but will not
concede the underlying principle in each.
If these very fair and
reasonable ends are met, then we will be putting forward an
amendment to have the title of the act changed to read An Act to
require fair dealing between parties to franchise agreements, and
the short title to read the Arthur Wishart Act (Fairness in
Franchising), 2000.
As an addendum to this, I
will also be recommending to the committee that we seek standing
before the Federal Competition Bureau concerning the grocery
industry in Ontario.
I have a copy of a brief
summary of the report that I will share with everybody as well,
so that we can have a look at it and know what it is that we're
saying is absolutely necessary if we're going to have some
consensus on this.
The Chair:
That would be helpful, Mr Martin. Would you like to give that to
the clerk? She can arrange for a copy of that, or have you
brought copies?
Mr Martin:
I've got copies.
The Chair:
Terrific. Thank you very much.
Mr Bill Murdoch
(Bruce-Grey): This Arthur Wishart, is he the guy who was
Attorney General once?
Mr Martin:
Yes. He was my predecessor, a member for Sault Ste Marie and a
member of the Robarts government and the Attorney General, after
he was minister of consumer and financial affairs.
Mr Murdoch:
He's dead now, is he?
Mr Martin:
Yes.
Interjections.
The Chair:
If that becomes a contentious item in terms of an amendment to
the debate, we could have that debate at that time. Mrs Boyer,
did you have comments, or Mr Crozier?
Mrs Claudette Boyer
(Ottawa-Vanier): Yes. Mr Crozier will share some of my
time.
The Chair:
You have 20 minutes and I'll let you know when there are about
five minutes left.
Mrs Boyer:
First of all, I want to say thank you. It was great to have this
as my first opportunity to go to hearings. I thought it was
great. I'd like to say thank you both to the staff and the MPPs
from other parties. I thought it was very instructional for me.
Maybe we should have that more often, going around the province.
They were succinct, and we let our parties be one group.
I have to say that during the
presentations we were all made aware of the difficulties
encountered by many who have been involved in franchises. The
number of presentations that brought to light serious problems
allows me to conclude that
these are not isolated incidents. We had people who were so aware
that it wasn't going the way they wanted to have it, they managed
to be in camera. But one thing that came up which I thought was
positive and constructive was that everyone seemed to say that
this was a long-awaited bill, that something had to be done about
it. The other thing that came out of it was that we heard it
being said a lot of times that maybe this bill will tell people
who are buying franchises to buy with their head instead of their
heart. That came back quite often. I thought that was very
important.
I believe that precise and
clear disclosure regulations are most likely to provide potential
investors with the information necessary to make sound business
decisions about franchise investment. I also believe that we need
to strike the appropriate balance between investor protection and
over-regulation of franchise businesses.
Of course, with all those
hearings, we heard that not only was it a long-awaited bill, but
the current proposals of Bill 33-and this was said even by the
American president who came in-lacked any real authority, lacked
teeth. That's why the Liberal caucus is working together to bring
in amendments in an attempt to fix the bill and address the main
concerns expressed by those from whom we heard. We have to take
into consideration and account the different recommendations
given by those people. With a few changes, this legislation can
reach the objective of protecting consumers against fraudulent
and dishonest franchisors without affecting professional and
honest businesses.
We will have amendments
mostly on fair dealing. This is not explicit enough, so we want
to bring in recommendations on fair dealing and also the right to
associate and the contents of the disclosure statement. We have
amendments to bring in there. We would bring in something on the
damages for misrepresentation and failure to disclose. Another
point we want to touch on is rights that cannot be waived, the
release by a franchisee of a right given in this act as an
obligation or requirement. We want to work this out.
Mostly those are the things
that we are looking forward to bringing in while we go
clause-by-clause with our recommendations.
Mr Crozier:
I only attended the committee meetings one day, in London, and
consequently what I might have to add to this may be limited.
But, as well, I have been able to read the material that was
available prior to that committee meeting, the one session that I
attended, and subsequent material.
I think any of us who have
been involved in our community or in the retail field, as I was,
have heard anecdotally many of the stories that are presented as
fact. With any legislation that we deal with in Ontario, we want
it to be fair, but to me this is one of the cases where being
fair is really moving to the side and protection of the
franchisee. We all look for balance, but sometimes that balance
has to be arrived at by perhaps moving a little bit more to the
protection of one side than the other. Of course, what we have
heard, through submissions to the committee as well as again in
our own communities, is that the scale always, or most of the
time, seems to be in favour of the franchisor.
1040
In looking for fairness, we
have to, in my view, look on the side of the franchisee, because
oftentimes in going into these agreements there's a great deal of
hype prior to it, almost evangelical in nature in some of the
documentaries I've seen, and we have to guard against that.
In the material that was
provided to us, the summary of recommendations by Susan Swift,
one of the emerging themes as presented by her and that those in
the committee heard was due diligence. We can take every step
possible to be sure that a franchisee understands the contract.
The unfortunate thing is that we cannot legislate, and forgive me
for saying this, common sense; nor can we be absolutely sure that
an individual understands.
An example that I could use
is, in my former days in the insurance field you could sit down
with an individual, go over an insurance contract from beginning
to end, have a person sign on the dotted line and in a short time
have that individual come back and say, "Well, I didn't
understand that." So therein lies the difficulty. We can have
lawyers involved, at great expense, unfortunately at great
expense to those sometimes who can least afford it. We can try to
guard against that, but I think we'll be forever trying to make
some of these contracts totally understandable. So I hope we can
do our very best to move toward that due diligence, where
particularly franchisees are able to understand the contract
they're entering into.
The other theme, of course,
is dispute resolution. In my view, and from the data that has
been presented to us, dispute resolution should be a very
important part of this legislation. I truly hope the legislation
will contain that kind of avenue for franchisors or particularly
franchisees to pursue.
We often, in fact almost
always, as members espouse that we want to act in a non-partisan
way. Unfortunately, it's a partisan atmosphere that we work in,
and I suspect many of us go home at night shaking our heads as to
why we have to be that way. But that's the way it is, except in
some cases where we really should act in a non-partisan way. I
think this is one of them, the committee's attempt today to have
these comments made and then discuss the bill after and arrive at
a consensus. I commend the committee for trying to work toward
that end, and I hope this is one of those cases where we all
truly work together to provide meaningful legislation that will
take into consideration the interests of everyone on all sides of
the issue.
In conclusion, in addition to
the other thanks that have been given to the staff on this
committee, whom I didn't have the opportunity to meet with as
much, I want to say to Mr Martin that I don't know of anyone who
has worked any harder on any particular subject than he has. I
want to congratulate him for his effort. I hope that in the end
your work will have accomplished its goal.
Mr O'Toole:
I would like to share my time perhaps with Ms Munro or Raminder
Gill. I'd start by also saying that if there are questions, we
may have time for discussions with Mr Hoffman from the ministry, as
well as Ms Harden, who has been paying close attention to the
public input. I feel that the general sentiment or theme here has
been one of a very flexible, highly co-operative public
process.
I also want to personally
thank Mr Martin for going to a heck of a lot of work. I would say
that one of the presenters, Mr Stewart, went to a lot of trouble.
I thought he was a member of your personal staff, because he was
supplying a lot of written documentation and material for the
committee.
Respectfully, it does have a
bit of history and a bit of legs to it. I think we are, in
general, trying to find a balance. Are we going to find a perfect
state? I don't think something like that exists on this earth,
technically, but I believe we will try to come close to that. I
know the government has indicated, through the minister and other
communications, that we are very open to an amendment process,
and there has been a lot of conversation. Until those amendments
are actually tabled, I think we'll then move forward on some of
the substantive things we heard during the hearings. Of course
that's the way it should be, that we do respond to the
public.
On the participation of the
government, I think just respectfully-not to centre out anyone
any more than Claudette; I know she attended all the hearings, as
I did-but we also had Raminder Gill, who has been a small
businessman. I don't think you were franchised.
Mr O'Toole:
But you were a small businessman and familiar with the pressures.
The reality of the stories we heard, Mr Martin, isn't unique to
Sault Ste Marie, although they were told very well there. Mr
Gilchrist, who also attended a good number of the hearings, is
familiar with the franchise type of operation and, I believe, is
quite sympathetic to some of the dilemmas of the franchisees. As
Mr Crozier pointed out, you tend to swing to those who are the
most vulnerable.
Personally, I would say,
whether it's Mr Wishart, the Grange report or the long
discussions on the relationship between a franchisor and a
franchisee, there are clearly three major areas within the bill.
The disclosure piece-I'm expecting to see us bringing some
clarity to that. In the disclosure, I suspect it's more a
regulated kind of process, without having too many lists of what
you must disclose. I would certainly feel that having a framework
for disclosure is something we need to do. Within that, you may
want to have something to deal with issues of sourcing. They may
differ according to certain franchise sectors. For instance,
sourcing in a sector that deals exclusively with a product like a
secret recipe, so to speak-you don't want somebody substituting
stuff for the secret recipe, whatever it might be, in the
industry being talked about.
The one I find where we have
the greatest opportunity is with respect to fair dealing. The
commercial reasonableness you have suggested, Mr Martin, is
something I'm very sympathetic to, and have heard that repeatedly
in the committee. We'll see what kind of plain language comes out
of the amendments we are all going to entertain. I think it is in
the amendment process that we may have to come to some consensus
ourselves: whether your amendment is worded better or whatever
caucus brings forward the best, most tightly worded
amendment.
The right to associate, as
you've well pointed out, comes down to: Are they going to be
recognized? It's fine to say they can associate. I want to make
sure that in that association there is no intimidating factor, so
that the franchisors just don't take it over and you either play
their game or you're not a member, and that they at least
recognize them as an association that reflects the common good of
the greatest number in a democratic sense. We won't call it a
union; we'll call it an association or a professional
association. There might be some need to make sure that's
clarified.
1050
I also like the suggestion Mr
Martin has brought forward that in the framework of Ontario,
being an important part of the Canadian economy-not to be
political here-there is every reason to have some standing before
the Competition Bureau, because if this is a problem in Ontario,
certainly the Canadian regulators and government agencies should
be looking at this. So I support that. There's quite a lot of
foresight in that observation. Grocery stores, whether they are
in Ottawa, Toronto or, for that matter, Halifax, may have the
same problems and the same need to have some process to resolve
their problems. Why would a franchise operated out of some head
office not have similar patterns for disclosure and other
processes that are standard across Canada? Maybe it's up to the
committee to bring some attention to the Competition Bureau.
My intention is not to delay
in any way. But if we felt we could get consensus, through
discussion, on the 26th, I would like the flexibility, without
forcing a vote on each section-I think there are 15 sections in
the bill, and it would be in order to do that. We'll never get
perfection. I feel we will get some significant improvements to
this bill through this process, and I would like to report it
before the end of this session. If we delay it and it doesn't get
on the order paper-this is the first time we've gone beyond first
reading. If we can expedite this process and have something
completed in legislative form before the end of June, I think we
would really have done something quite profound. We will then say
there's a framework. I'm not averse to putting in a sunset
provision to review this thing, saying that in three years or
five years this would be reviewed or the regulations would be
reviewed, or something.
With that, I will share my
time with whomever else has something brilliant to share. Again,
thanks to all the members and the staff for allowing this to be
an educational process.
The Chair:
Thank you, Mr O'Toole. I'd just indicate you can't put a
qualifier on that they can only speak if they have something
brilliant to say. We have about five minutes left.
Mr Gill: It was also a pleasure to
travel through Ontario and meet some of the players in this
thing. It was great, and I'd like to thank all the members who
attended these hearings. It was my first experience where I felt
the public had true input into the system. Of course, as
everybody else said, my thanks go to Tony Martin as well, because
he certainly worked very hard in educating not only us as
committee members, but also having that venue where people could
come for input. A lot of people shared their very emotional
stories with us. In many cases it took a lot of courage, and I
would certainly like to thank all those who appeared in this
process.
As in anything, there are
usually two sides to every story. In franchise systems, we heard
from some players where they had difficulties with their
contracts or felt they were dealt with perhaps heavy-handedly by
the franchisor. At the same time, we knew from the experiences or
from hearing from the businesses that the majority of those
systems are working fine, except in some cases some of those
franchisees got hurt. Many examples come to mind. I think there
was a Pizza Pizza person who had difficulty. We all share, in a
way, the difficulties he had. From a small business point of
view, I know some of those difficulties, even though I didn't go
through the franchise system itself. But at the same time, if you
look at the papers today, there are still Pizza Pizza franchises
being sold as a system, and many people, unless they are hiding
something, are doing OK.
What I'm trying to say is
that I don't there is any perfect system anywhere. There are
systems that are working fine, but some individuals-I think there
were difficulties with Bulk Barn. Some of those are doing fine
and some are not. Situations change. I personally have knowledge
of a friend of mine who took over a doughnut franchise. I think I
shared that briefly. When he looked at the numbers as he went
into the system everything was fine, except he didn't realize
that the courthouse next door, which had a lot of traffic coming
in, was moving three months later. So there are things that
happen that totally throw out all the disclosures you can have in
the world which show the past history but not what might or might
not happen.
There was an issue
discussed about local sourcing. I think it came through very
clearly in Sault Ste Marie, especially because some of those
players are the local growers of the produce and local producers
of eggs and stuff. So there is some provision where I think the
franchisors can have some flexibility. We should not forget-and
again, I'm going to speak a little bit from the franchisors'
point of view-that the franchise system takes into account the
purchasing that would go through the franchisors. The whole
profitability is not only the initial investment that a
franchisee makes but also this purchasing that they expect the
franchisee will be making through the central purchasing system.
When we say, "Can we regulate so that everything can be locally
sourced?" I don't think we can do that.
As Mr O'Toole was saying,
there's a compromise that we will have to come to. I don't think
we can find a Utopian ultimate solution. Going back, Mr Martin
mentioned that we've been discussing this thing since the 1960s.
I believe it's time to move on. I think we've had good public
hearings and, as the parliamentary assistant said, we will
perhaps put some kind of clause in, a sunset clause, whatever
that is, John, where we will revisit it perhaps five years down
the road. I don't think we can find an ideal solution, but at the
same time, we must move on and come to some compromise.
The Chair:
Could we have an opportunity now to move to a more general
discussion, or if committee members have any questions of each
other or of the parliamentary assistant.
I would just indicate that
many people have given thanks. I want to add to the list and
thank the government House leader, Mr Sterling, for both
introducing the concept of a bill being referred out to committee
after first reading and selecting our committee to have the first
trial run at this. It provides an opportunity for greater
latitude for the committee to discuss concepts and ideas, to hear
from people and move toward a consensus. I see that the committee
in this case has taken up that challenge and is moving in that
direction and that's a very positive sign for legislating in the
province. I think that's useful.
One of the things I just
heard from people is that there appears to be a consensus about a
number of areas of the legislation that the committee would like
to see amendments to. We've yet to determine whether or not there
is consensus about the actual content of those amendments. That
might form part of your discussion at this point in time. I would
also just offer the suggestion that it might form part of the
discussion among committee members between now and when you
actually table the amendments. One of the things we've heard
expressed by a couple of members of the committee is a desire to
move in an expeditious fashion through the clause-by-clause, when
we get to that. That can be facilitated if there is consensus
around the wording of amendments before they are actually tabled
by the various caucuses. I leave that with you, as committee
members, as a suggestion to pursue or not.
At this point in time,
we'll open the floor for any general discussion or questions that
people might have.
Mrs Boyer:
I just wanted to mention that I forgot another point where we
wanted to bring an amendment and that was on section 13, about
regulations.
The Chair:
Would you like to indicate at this time the direction or the
intent of what you would like to do?
Mrs Boyer:
No, I think I gave what we are working on right now as far as
fair dealing and disclosure. We want to look at the regulations
and come back with amendments. I just want to mention that we are
bringing some changes to section 13, the regulations.
1100
Mr
O'Toole: With your indulgence, I might ask Mr Hoffman if
he wants to join us at the table, and Ms Harden, in case there
are technical questions. It may help, if we could allocate some
time here. I've heard the same input, I have the bill, and I
think at a technical level it may be helpful in constructing amendments if Mr
Hoffman could be helpful in that respect.
Mr
Crozier: I don't know whether anyone has any amendments
on sunset clauses per se, but I would like to add my voice to
that. This certainly is one of those pieces of legislation, and
in fact there are many pieces of legislation, that probably
should have a sunset clause so that they're reviewed after a
period of time to see if they are working. That might be drafted
by ministry people, or perhaps my friends around the table have
some kind of introduction of that.
I also want to say that Mr
Martin's comments about standing before the federal Competition
Bureau would be one that I would individually support. It isn't
something that I feel confident to speak about on behalf of my
whole caucus, but it sounds like a reasonable recommendation to
me.
Mr Martin:
I just want to put some caution on the table here in terms of the
sunset clause in that I'm hoping it isn't something that was put
out there that takes the edge off something we should be doing
now, because as you know, the books I've given you tell the
stories of some 4,500 families in a period of about five to seven
years that have been damaged big time. Five years is a long time
if you're in difficulty or in trouble, waiting for some redress
to that. I hope we would not see this sunset clause as an escape
valve and not do the right thing at this particular point in time
when we have an opportunity to do that. I would put that as a
caution on the table that I would be worried about.
I've got some questions
actually for Mr Hoffman.
Mr
Crozier: Can I make one comment with regards to that
one, Chair?
I agree with you, Tony,
that you wouldn't want to take the edge off anything. The thing I
see about a sunset clause is that if it isn't on the agenda of
the government of the day, as you're all aware, it's very
difficult to get it on the agenda. This is an important issue, I
think we all feel, so I agree with the caution but I think the
sunset clause helps to get it back on the agenda if there are
kinks in it, that's all.
Mr Martin:
It's consistent with another concern I have, to be honest with
you, which is that we put something in place that kind of gives
us all a sense of "OK, we're all right here," when in fact we
haven't gone the distance or done the appropriate thing at the
moment. You're absolutely right, Mr Crozier, when you say it's
difficult-even when you're in government; I was there for five
years-to get something on the agenda and actually have it come
forward and see the light of day. It really is a monumental task
and I have to tell you this whole exercise has been, for me,
somewhat serendipitous in that here we are today, discussing this
and actually having a chance to put it in place. Some pieces came
together and we have a wonderful opportunity, I think, to do
something meaningful and helpful in this instance.
So it's consistent with my
concern that we not simply go with what is in Bill 33. It's my
very sincere feeling that if we simply go with Bill 33-and I know
that the government is not suggesting that that's where we stay,
that they are willing to move-that what we put up is this
façade of, "There is regulation, therefore don't worry. Just
go in and, if something goes wrong, you can always fall back on
the fact that the government has a regime in place that will be
helpful to you," when in fact under Bill 33 there really isn't.
There's just a call for full disclosure before you sign the
agreement and there's the right to associate. Now, they're good
as long as they're done properly and appropriately and everybody
lives up to the spirit of that. But if that's all we put up, then
we perhaps do more damage in the long run than we do good. So by
not doing the right thing here, or by hanging our hat on a sunset
clause, we may in fact be doing more damage than we are good. I
just want to say that's something that concerns me and that I
want to put on the table.
The Chair:
Mr Martin, before you go on with questions, Mr O'Toole wanted to
comment on the sunset clause.
Mr
O'Toole: We're at liberty to consult with really expert
people here. We've just been pontificating on this thing, which
is not very substantive. Let's say this: I would never like to
leave the impression that franchising and small business is
unsuccessful. My impression is that it is a very competitive,
very margin-driven, successful business formula. That's the
impression I would be leaving. There are anomalies. There are the
Pizza Pizzas and others that have failures in front of them, but
I hold in front of me examples like Tim Hortons, McDonald's,
Harvey's and Wendy's that are successful formulas. In the context
of today, five years in business is a lifetime; it's a product
lifetime. In that context, we don't want to regulate or
micromanage and the sunset is an appropriate tool in this
particular sector, the small business, ever changing, Second Cup
sector.
I would say to you that the
government's theory, its philosophical genre, is
non-interventionist. Our mandate is really less regulation and
less red tape, no better demonstrated than in the ministry I'm
with, consumer and commercial relations. We're trying to get into
a self-regulatory framework. Those kinds of overarching phenomena
may find some discomfort with you, because competition is the
word and the market determines the outcomes of who sells more
Coke or Pepsi or whatever. If we were to get in and say that thou
shalt get certain kinds of-that is a non-starter in my view. I'm
not speaking for the government, but we're non-interventionist.
Start with that, Mr Martin, and you'll have a better comfort
zone.
Mr Martin:
If you want to go down that road-
Mr
O'Toole: I'm not trying to-
Mr Martin:
-we can take this cart and tip it over and get into that kind of
adversarial back and forth on this. I would claim that you're
dead wrong in some of the assumptions you're making here where
this particular sector is concerned. We could have that argument.
We could spend the rest of the time here this morning having that
argument, and I could put on the table anecdotal evidence of the
fact that there is no free market out there and that there is no fairness where the big
guy dealing with the little guy is concerned. We can do that.
That's actually why we're here today, because there has been
undue advantage taken by some people in the sector against others
in the sector. You can have a freewheeling free market, if in
fact there was one happening out there, but the reality is there
isn't. Government needs to have the intestinal fortitude and
backbone to stand up at some point and say, "We're going to put
in a regulatory regime here that will at least create some
fairness in the system." That's what we're trying to do here.
Mr
O'Toole: I wasn't trying to be combative. I was really
trying to be helpful in saying just what I've stated.
The Chair:
Mr Martin, You had some questions you wanted to put to Mr
Hoffman?
Mr Martin:
Yes, I did. I was looking at this, and you've been on this train
for quite some time and work very hard, I know.
Mr Joseph
Hoffman: We'll have to compare dates at some point as to
when we boarded the respective-
Mr Martin:
Yes, in terms of this. Some of the things that I have concern
about and that have been highlighted for me as we've gone through
the hearings, and the three particular things that I'll be
calling for: what were you imagining in terms of a way of making
sure, for example, in the disclosure piece, that it happened and
that what was in those disclosure statements was correct and
consistent with other disclosure vehicles of this sort? How did
you see the ministry overseeing or making sure that that in fact
is what happens? I guess, to go even further-I might as well do
it all-what did you see as a vehicle to make sure people don't
misuse or abuse, because in Bill 33 there is no reference to
penalties, and there is in Bill 35. I was just wondering if you
thought anything more about that.
1110
Mr
Hoffman: I'll try to cover all the elements you've
raised, so if I've missed one, please don't hesitate. I want to
emphasize that it's not what I envision. I can talk to the policy
intentions behind the drafting of the bill and the issues the
government considered in choosing to put forward the bill in its
current form.
First of all, the concept
of using legislation to set out a disclosure requirement without
reliance on an inspection or audit regime is not an unusual
feature. It exists in many jurisdictions, and it exists in many
jurisdictions specifically in the area of franchise. It's also
part of the statutory framework that exists in Ontario and other
parts of Canada for things like cost of credit disclosure, which
I think I made reference to at the beginning of the hearings.
In the way the bill is
drafted, essentially the legislation provides a very clear
obligation to provide the disclosure documents in plain language
as a single document a minimum period of time prior to accepting
any payment or allowing the franchisee to sign any agreement. The
law will require that the franchisee receive that document in
that time frame; the 14 days I think is set in regulation.
Ms Bonni
Harden: Fourteen days is set out in the bill.
Mr
Hoffman: Yes. There's also the obligation that within
that period of time, if any material change occurs in relation to
the disclosure requirements, the franchisor is obligated to
disclose that to the franchisee. In effect, the bill also
provides a right of rescission that can be exercised by the
franchisee in one of two circumstances.
The first circumstance is
where they've received the disclosure document, but there has
been some material change subsequent to the provision of the
document that has not been disclosed. In that circumstance, if
you want to think of it as a clock, the 14-day period is extended
automatically by 60 days so that there's a longer period of time
in which the franchisee gets to exercise a rescission right.
The second circumstance is
when, for whatever particular reason, there has been no
disclosure whatsoever, so the franchisor has ignored the
legislation absolutely and allowed the franchisee to sign a
contract, accepted payment and has never provided a disclosure
document at all. For a period of two years following the date of
entering into an agreement, if the franchisee becomes aware of
the legislation and that they were entitled to receive this
document, as in the first circumstance, they have a right of
rescission.
A franchisee does not need
to go to a court to exercise that right of rescission. The
legislation as drafted right now allows the franchisee to
exercise that option. Once they exercise the rescission
requirements in accordance with the statute, that triggers
certain obligations on behalf of the franchisor in terms of the
repayment of monies, etc.
If there is an onus that
involves the courts, the onus is on the franchisor in that if
there is a triggering of the rescission requirements and the
franchisor believes they have disclosed or they did comply with
the legislation, then the obligation, or the onus if you will, is
on the franchisor to go to a court and demonstrate that in such a
way that the court would determine that the rescission right is
invalid.
So in our view it sets out
quite clearly what the statutory obligations are. I can tell you
that, as you alluded to at the beginning, as a policy director in
the ministry, I've worked in this area for many years under
successive ministers and successive governments and we've looked
very carefully at the experience in other jurisdictions along the
way. One of the things we looked at was, is there any
demonstrable evidence that a filing requirement is one that adds
value to the type of disclosure obligations that I've said?
Our conclusion in looking
at that was that in many jurisdictions where there are filing
requirements, they don't really add to the value. In some
respects they create some risks in that there is a risk of a
false reliance somehow that the document is filed, wherever it
happens to be, with a department of government or with an agency
or a securities commission. The presence of a filing requirement
is taken by some franchisees as a sort of comfort that,
somewhere, someone else has done the due diligence. This is an
important point to think about in that context.
There are many jurisdictions that have also had
filing requirements and have repealed them, for a variety of
reasons, including the one I have just mentioned.
I'm not sure if I've
covered all of your points.
Mr Martin:
Yes, you have, although at another time, as we debate amendments,
I can bring up some more.
Mr
Hoffman: If I could just add one point, Bonni has
whispered in my ear to remind you there is also the right of
action for misrepresentation that is set out in the statute.
That's an area which I know our minister is certainly open to
seeing some consideration of, whether there can be improvements,
for example, in regard to the duty of fair dealing and the rights
of actions in that area.
The Chair:
I have Mr O'Toole and then Mr Crozier and then back to Mr
Martin.
Mr
O'Toole: I think this is sort of helpful. I perhaps
should stay out of this loop because we have some broader
opportunities.
Under section 2, the
application section talks about extension and renewal of
contracts. One of the things we heard, which was quite sensitive,
was somebody coming up to the renewal date in their existing
agreement, and some of them felt, with leasehold and other
commitments, there maybe wasn't due process there for extension.
Would that be treated in the disclosure portion or is that
treated specifically-like, some security that I'm going to stay
in business. That gives you some idea what I am asking.
Mr
Hoffman: Yes. Basically, the way the act is drafted, the
disclosure requirements-and these requirements will be set out in
regulation-would require that the franchisor disclose how they
deal with terminations. It wouldn't compel them to deal with
terminations in a specific way, but it would compel them to
explain what happens upon termination and what rights the
franchisor, for example, exercises.
The way the bill is drafted
right now, as those regs are prepared, the government does have
flexibility to create certain obligations for the phrasing of
that section of a disclosure document. For example, a cautionary
note of some form that's attached to that section of the
agreement might be something that any government of the day would
want to look at.
But as a disclosure bill,
the approach taken would be to require clear disclosure of how
the franchisor deals with termination and what rights or
obligations the contract sets out between the two parties in
terms of what happens upon termination.
Mr
Crozier: Just a question, because I'm a layperson when
it comes to this kind of thing, and some reassurance. You said
that in the case of no disclosure, the franchisee would not have
to go to court. I've always felt that even though that's the
case, it's the right of anybody to go to court. I mean, to say,
"No, thank you"-I think that's either wrong under the Charter of
Rights or it's wrong under some sort of legislation. I have a
right to go to court. Is that solid, or can the franchisor say:
"No, thank you. I disclosed it to you and we're going to fight
this out in court."
1120
Mr
Hoffman: I'm sorry, I'm not sure if I understood.
Mr
Crozier: You made the statement that, in the case of
nondisclosure, the franchisee would not have to go to court.
Mr
Hoffman: No. In the case that the franchisee chose to
exercise their rescission right under the legislation, arguing
that because there was absolute nondisclosure, they never
received the disclosure document, the onus would be on the
franchisor to either fulfill their obligations under the
legislation and pay back etc, or say: "Well, I'm sorry, you did
receive the disclosure documents. I have the evidence right here.
You signed on a certain day. If we have to, we'll take it to a
court and ask the court to overrule your rescission right."
Mr
Crozier: But to say they don't have to go to court-they
may have to go to court.
Mr
Hoffman: Let's contrast this with the way it is now.
Right now there are no rescission rights because there's no
obligation to disclose. Even if there is a disclosure document
provided, which in some franchise systems there are-there are
systems that use the uniform franchise circular disclosure that's
set out in the US Federal Trade Commission because it's
convenient to use that in many jurisdictions in which they
operate. Even though that disclosure document may be provided to
a franchisee, there are no entitlements. If there is
nondisclosure of a material change or a material fact, there's no
obligation under law for rights to a rescission etc. So right now
the franchisee would have to go to court in order to prove
basically the broad duty of fair dealing or that their rights
have been abrogated in some other fashion. That's been partly the
arguments raised in many of the court situations that have been
covered in the media for years.
Mr
Crozier: I don't want to spend a lot of time on it, but
in all probability then, as long as the franchisor went along
with these steps and didn't dispute that there had been
disclosure, you don't go to court. But if the franchisor disputes
it, you're going to end up in court.
Mr
Hoffman: Yes, absolutely.
Mr Martin:
Just by way of a quick comment, we regulate the stock market and
we have the securities commission at which statements are tabled
so that we can in some way give people a sense of confidence that
when they put their money in, it's protected, so there isn't
insider trading or whatever happening. We have an industry in
Ontario of some $45 billion in retail activity and investment of
$4 billion. It seems to me there's the need of some vehicle where
some of these statements could be put so they could be vetted and
make sure they're somewhat consistent and streamlined.
My second question is about
a dispute resolution mechanism. I don't know about you, but it
was obvious to me as we went through the hearings, from the
people who brought me to where I am today in terms of this issue,
that what they were looking for more than anything was some
vehicle that they could bring their grievance to, to have it
looked at by some objective third party so that they wouldn't have to go through
the very expensive and difficult exercise of going to court.
Is that not something that
you've thought about or considered or would be willing to now do
some work around? And in coming to Bill 33, what was the history?
What did you look at in terms of not including that?
Mr
Hoffman: First of all, I think it's safe to say that the
experience in the ministry very much mirrored the experience of
the committee in terms of hearing from many sources, not
unanimously but a substantial number of sources, that some
mechanism other than the courts is either needed or useful to
resolve disputes.
Our experience maybe went
one step beyond what emerged in the committee process. In the
consultations and the work with franchisees and franchisors over
the past four or five years, it became very obvious to the
ministry that there was absolutely no consensus on what the
alternative mechanism should be, if any. There were franchisees
who argued that mandatory mediation should be absolutely
compelled in the statute even though from a design point of view
it is kind of problematic to mandate mediation, which tends to be
a mechanism that's proven successful only where both parties have
an interest in that. There were other franchisees who argued that
mandatory arbitration should be set in place. There was another
constituency of franchisees-and I'm not talking about the
franchisor perspective-who argued that alternative dispute
mechanisms like arbitration should be banned under the
legislation because they were as costly as the courts and having
a particular prescribed method in the bill could preclude a
variety of different choices.
I'm not trying to suggest
to you that the ministry reached some conclusion as to which of a
variety of mechanisms makes the most sense. That's not the case.
But I think I can say to you that in the policy work leading up
to the bill in its current form, there was very strongly the view
that absolutely one fundamental thing that should be part of the
legislation is clarity about whether or not the franchise system
that's being offered utilizes a dispute resolution mechanism,
that the disclosure requirements can set that out clearly and the
presence of that section in a disclosure document would send an
important signal to the franchisee or the prospective investor,
either by noting that the franchisor doesn't have a system or
doesn't subscribe to any kind of system or is not prepared to be
involved in any kind of alternative dispute resolution, or to
outline the nature of the system and how it might operate so that
the potential investor can make an informed decision.
I certainly would not want
to debate with you the merits of different mechanisms. Clearly,
if political consensus emerged that the bill should take a
different approach in this area, that's highly appropriate. I'll
leave that to that process.
The Chair:
Mr Martin, Mr O'Toole has a question on this point. Did you want
to move on to something else?
Mr Martin:
No, the same point.
The Chair:
Continue then.
Mr Martin:
It seems obvious to me then from what you said that there is some
real concern that there be something. They can't agree, but there
has to be something. This is a huge point of contention and
concern. It seems that the government's position at this point is
to include it in the disclosure piece but not to actually go
ahead and take the bull by the horns and put in place a vehicle
that would be helpful.
In terms of the group that
you had this discussion with-and from what I can gather, looking
at the makeup of the working team, most of the players were
either franchisors or lawyers who represent franchisors or who
belong to the Canadian Franchise Association. The president of
that organization, when he appeared before us, said that there
were no franchisees as members of the Canadian Franchise
Association.
In talking to a lot of the
franchisees out there who are experiencing difficulties at this
point in time, their fear, even up to a discussion I had
yesterday with some folks who have some real concern about this,
is that they're not willing to come out publicly and vehemently
put their case about some of these things they feel are
necessary, because they're afraid of the retribution that may
happen.
I would like some
clarification from you as to the makeup of the group that
actually came to the compromise position we have in front of us
here re the question of a dispute resolution mechanism.
1130
Mr
Hoffman: Sure. First of all, I can clarify a number of
things for you. The ministry, over the years, has used different
mechanisms to consult on this issue, in addition to having a
standing team, so to speak, that we have used as a discussion
forum, for example, during the consultation or in earlier
attempts to see where there might be some elements of consensus
between franchisors and franchisees or experts on a legal side
who work from a franchisee perspective or work from a franchisor
perspective. It's not the only mechanism the ministry has used,
and I want to clarify that at the beginning.
Your referred to the
Franchise Sector Working Team. Basically there are nine members
of that group. Four of those are people who are currently
franchisees. There used to be five, but one individual left the
group for personal reasons; retirement, I believe. A number of
them appeared before the committee on different days of the
hearings. One of them is a lawyer, who has represented
franchisees and chaired a franchisee action group in a number of
legal disputes over the years and is knowledgeable on franchise
issues from a legal perspective from the point of view of
franchisees. Five members of the Franchise Sector Working Team
are franchisors. They are either senior staff from an individual
franchise system-Tim Hortons, for example-or they are executives,
like the president of the Canadian Franchise Association, who
represents a franchisor perspective, as you know.
This is the current
composition. As I said, the composition has changed a little as
people left, but by and large the ministry has been satisfied
that this has been a very balanced discussion. When we conducted
the consultation leading up to the bill-you'll recall the
consultation paper that
was released by the ministry-we met with a wide number of groups,
predominantly franchisees, people who were not part of the team.
Basically, as I said at the outset, the Franchise Sector Working
Team is not the only consultative mechanism involving franchisees
that the ministry has had.
The Chair:
Thank you. I'm going to go to Mr O'Toole, and I'd like to suggest
that over the next 10 minutes or so we try to wrap up this phase
of the discussion, if we can. We still have an outstanding item
from the subcommittee report to deal with.
Mr
O'Toole: This has been helpful in a technical sense, I
believe. I just want to go through in some systematic way and
briefly summarize. Section 4 is the section dealing with the
right to associate. What I'm trying to establish here is that if
I were to go through those sections and strengthen them under the
whole umbrella of the right to associate, and then look at the
sections dealing with the right of action, basically sections 5
through 12-section 12 deals with some exemptions-if you look in
detail at those sections, starting with disclosure and the
14-day-penalty situation, each of those sections establishes
legitimacy for action and right of action.
I'm not trying to be a
legal beagle here because I'm not, but it reads fairly
straightforwardly. What I could say and would like to ask you, Mr
Hoffman, from a policy perspective is, once this right to
associate is established and we have whatever the franchise group
is called and they engage the services of a litigant and that
litigant, in collective action, or what I would call a class
action of sorts-there are two parts to this: the right of
association and the right to form a collective class action
against a franchisor. Is that outcome a possibility as this bill
is currently written? I have a part 2 to that as well.
Mr
Hoffman: It's important to clarify. Actually, I'm glad
you raised the right to associate, because I think it is
important to understand the intention behind the drafting of that
section. One problem that became apparent over the years of
looking at this sector was that, as fantastic as it is to believe
this actually goes on, there are franchise agreements that
contractually prohibit a franchisee from talking to another
franchisee in the same system or anywhere else.
Our current minister, as
well as his predecessors, felt very strongly that this is a
fundamental issue. No contractual system should basically assign
away someone's entitlement to have an association with other
individuals. The intent of this section was basically to
eliminate that practice, as limited as it is-and our evidence is
that it's not widespread by any means. The intention is to say
that if there is a contract that prohibits a franchisee from
associating with another franchisee or another business, that
essentially is nullified under this agreement. It's one of the
few aspects of the bill that is retroactive.
Mr
O'Toole: OK, I accept that. I'm just really trying to
get to a fairly simple-
Mr
Hoffman: But I want to clarify what it wasn't intended
to do. It wasn't intended to create an obligation to deal
collectively. In the circumstance you described, franchisees can
associate, or will be unconstrained, able to associate. If they
are doing so for the purposes of comparing information for legal
action or choosing to have someone represent the interests of a
number of franchisees in a legal action, that can be done and
can't be contractually prohibited any longer.
Mr
O'Toole: Good. I think that establishes in some fair and
reasonable way the right to be recognized, either as an
individual or as a collective behind a single lawyer. I think
that could be established. The failure to respond to an
application of the law here would sort of be contempt of court,
because there are provisions here for the right of action. And if
these are common things-I'm sure this association is one of the
most troubling for the franchisors. It redistributes the
balance.
I'm always saying to Mr
Martin that in my strengthening of this thing, that's the section
that has some pretty-the final part of this, to wrap up quickly,
is: This not becoming a piece of legislation that is interfering
and, I would say, interventionist, is important. We don't want it
to become a relationship piece of legislation. I would say,
though, that in the ADR process, if we look at the courts today
in civil matters, some attempt to have alternative dispute
processes is the future. No one can afford the lawyers
technically. Part 2 of this is that the associations would
improve the language of disclosure specific to their sector over
time. That's what I'm trying to say here. What I have said is:
Associate the rights to recognize and follow through resolving
disputes.
Healthy organizations are
in a continual refinement of the relationship. I saw that in
McDonalds. I heard that in McDonalds which, by the way, is one of
the more successful franchises. I'm not complimenting. I'm saying
that the fellow who was on the franchise working team, a
gentleman I could speak to with some comfort-20 years in three or
four or five McDonalds and just singing that company song. He's
been successful. He says they deal with their individual and
collective expectations at corporate meetings. He's on some
advisory board. I think that's healthy and I think that exists
today.
1140
Those alternate dispute
mechanisms don't have to end up in the courts at all times. It
isn't a conflict deal; it's change. The corporation wants to
survive. All of them want their products to be the best cars, the
best banks, the best pizzas, the best chicken, and to do that
they've got to change. As an individual, one says: "Oh gee, this
continual corporate pressure to change. I'm so sick of it." You
either change or you perish, unfortunately.
I understand the dynamics.
There is a process there and part of that process of course is
educating the independent businessman. What I've described here,
the ADR, is a model for this to survive. Do you think it's strong
enough?
The Chair:
Mr Hoffman, I'm going to ask you to keep your answer as brief as
possible.
Mr
Hoffman: I think the best thing I can do is just to
clarify that the right to associate as drafted in the statute
isn't an obligation. It
doesn't create an obligation on a franchisor to bargain with an
association. It eliminates any contractual ability of a
franchisor to prevent association between franchisees and
establishes a right of action for damages if that right is
interfered with directly or indirectly in any way.
The Chair:
Just so I understand that exchange, I think one of the things Mr
O'Toole referred to was the right to be recognized, which in fact
is not contained within the provision as it is currently written.
OK.
Mr Martin, you had one more
question?
Mr Martin:
Yes, very briefly. On the issue of sourcing, have you done any
research?
Mr
Hoffman: We've done quite a lot here, but in the
interests of time, I've had some fairly recent discussions with
our minister around this, debriefing him on the parliamentary
committee hearings. One of the issues the ministry is concerned
about and the minister is very interested in is this problem of
supply relationships and franchise systems being perceived as a
restraint on trade. If this is a systemic problem that is coming
out of the fact that franchising as a way of organizing
businesses has mushroomed so much, then it probably is
appropriate to make representations of some kind to the
Competition Bureau. Our minister has asked us to do whatever we
can to prepare. I think he's quite open to having discussions
with other caucus members around how such a representation might
be a multiparty one.
Mr Martin:
In the meantime, though, is there any talk about putting
something in this act that would untie the hands of some
franchisees? For example, the Bulk Barn issue right now: "Bulk
Barn, bulk buying." They were told when entered into it that they
would get product cheaper than they could get it themselves. When
they looked into it, they found out that wasn't true. If they
just went down the road, they could get product at a much cheaper
rate than they were getting from the franchisor and they were
being misled.
Mr
Hoffman: I can't comment on a specific circumstance, but
I would think in a case where a franchisor has made
representations in a disclosure document asserting the cost
advantage of the supply relationship and that franchisees would
be able to source supplies contractually at a lower rate than
available on the market and that didn't happen, that would
clearly be an area where there has been some kind of material
change or an issue of fair dealing.
In a general sense, the
supply issue is one which, if the government was to contemplate
an amendment in this area, it would be a departure from the
approach of focusing on disclosure, although it is possible to
strengthen the disclosure requirements in the way the bill is
drafted now to provide very strong cautions to the franchisee
around what the implications could be for them arising from any
contractual obligations to purchase supplies solely from the
franchisor.
Ms Harden:
In those circumstances, if I can just add, the franchisee, if
there were a misrepresentation, has a clear right under section 7
of the bill for an action for damages if the franchisee suffers a
loss, a right of action for damages against the franchisor for
the misrepresentation. That same section provides a right of
action if the franchisor does not comply with the disclosure
requirements.
The Chair:
Are there any further questions for ministry staff at this point
in time? Mr Hoffman and Ms Harden, thank you very much. We really
appreciate your attendance here today.
Mr O'Toole will be
returning momentarily. We need his presence in order to deal with
the subcommittee report. That's our next item to deal with before
12 o'clock.
We are just temporarily
pausing, awaiting a couple of members' return to the room. I'm
not prepared to wait long. I guess I won't have to. About two
more minutes and then we will begin, irrespective of who's back
in the room or not. Thank you.
SUBCOMMITTEE REPORT
The Chair:
If we can continue with the business at hand, clause 3 of the
report of the subcommittee was deferred to today, April 19, to be
dealt with. Clause 3 reads, "That the committee meet on
Wednesday, April 26, 2000, for clause-by-clause review of Bill
33." At this point in time, I would like to ask a member of the
subcommittee to put that motion on the floor so it is duly moved
and then we can deal with it as the entire committee sees
fit.
Mr Martin:
So moved.
The Chair:
OK, Mr Martin, it's moved. It is before us now. Is there any
debate or discussion with respect to that clause?
Mr
O'Toole: Just trying to loosen this off a little bit, as
has been demonstrated this morning, we can talk about this ad
infinitum-and I'm not trying to be smart here. I'm trying to say
that I look at an end date; how do I get there, recognizing that
everyone should still be in the boat? Do you understand? If we
don't put some expectations on the committee, we'll talk about
the first amendment for five hours. I think we could achieve this
by setting some framework around it. I'd be very pleased to
extend another day, start a day earlier-do you
understand?-without meaning to be in contravention of the clerk
of the committee. Otherwise, we'll be here for four months
talking about it. That's what happened with the last two
governments: They couldn't get consensus, so it died. That's
what's happened. Anyway, can we have some response to that? I'm
not trying to hold you up to ransom either.
1150
Mr Martin:
Mr O'Toole, it's called the parliamentary process. It's a vehicle
that we've put in place over a long number of years to make sure
that people have their say and that issues get dealt with in a
fulsome fashion. Some things take longer than others. That's the
way it is around here. We, in opposition, have a limited number
of vehicles to use to get our point across. Bill will
remember, because he was
in opposition when we were government. To tie the hands of the
opposition by saying you're only going to have a day, when that's
not in keeping with the spirit of this place in my view, is
unparliamentary.
I would hope two things:
that the government would be respectful enough of the right of
the opposition to make their case and bring their amendments
forward and use whatever vehicles are at their disposal to put
pressure on the government to consider seriously and in a
wholesome way the points which they are trying to make, but I
also recognize that the Chair has a role to play. The Chair, in
her role, will make sure that we don't become completely and
totally repetitive and that we stay on topic and that when we run
out of things to say, it's obvious and she'll put the
question.
I want to exert my respect
for both the parliamentary process in this instance and the role
of the Chair to make sure that we do the right thing, that we
stay within the parameters of the committee and that we allow
whatever time is necessary to make sure that we all get to say
our piece and put our points. I get the feeling on one hand that
the government is willing to look at and listen to and work with
us on this side of House on finding some ways to resolve some of
these issues, and then every now and again I hear you, Mr
O'Toole, go off on a tangent that indicates to me that we're
completely and totally on different sides of the issue here. I
don't know where we're going to end up at the end of the day, to
be honest with you, given that sort of inconsistency in
presentation and approach and understanding of where this issue
is concerned.
I am very concerned that
there are a number of small business people, very well meaning,
hard-working, determined, who have made significant investments,
who are concerned about their future, wanting us to do the right
thing. For us to limit ourselves simply because, I don't know, we
want to get this done next week as opposed to the week after, I
have a difficult time with that. I think we need to take the time
that's necessary to do this right, to find the proper balance. At
the end of the day, yes, I too want to see the light of day and
become the order of the day as far as the legislation is
concerned. Out of respect for and trying to honour the stories of
those who came forward, I don't want to carry this on any longer
than anybody else does, but I certainly want to have my
opportunity to make my case and to play this out as this place
presents opportunity to have a playout. We're only at first
reading here. After we do this, we have to go to House, second
reading. Then there's the possibility of more committee work
after that. Even if we determined that we were going to finish
this next week, it isn't finished until it's finished.
In keeping with that, I do
have with me today the amendments that we're going to table. I'm
not proposing to table them today, although I could if that would
be helpful to people. I heard the parliamentary assistant say
that he was interested in knowing what it is that we're bringing
forward. Well, I would suggest to all of you that if you want to
know what I'm bringing forward, look at Bill 35. I'm basically
making amendments that reflect a call for us to move to where I
wanted it to be had we adopted Bill 35. There are a couple of
other things that I have in the report that I circulated-
The Chair:
Mr Martin, to keep you on topic, we're actually talking about the
recommendations for dealing with clause by clause right now.
You're close, but we're running out of time.
Mr Martin:
OK. I'm just saying that if, in the interests of time and getting
this done, people would like to have my amendments today, I'm
willing to share them, but given that everybody else is holding
off until next Tuesday, maybe that's what I should be doing too.
I'm more than happy to sit down off the record, away from this
table, with other people to try to hammer out some consensus on
this so that we can get it done perhaps next week. But if that's
not possible and I find that I'm not able to achieve at least the
underlying principle of what I've outlined here, then it may take
longer, and I'm not sure how long that will be.
The Chair:
Briefly if possible, Mrs Boyer.
Mrs Boyer:
I just want to say that I go along with us beginning next
Wednesday. I mean, we've decided by unanimous consent that we
would go clause-by-clause. You're the Chair. I'm not ready to say
that we have to finish on Wednesday, but I would be ready to
start earlier, as we had said, and move on in other hours, not
just from 10 to 12. That would be great.
Let's wait for what we have
as recommendations from clause-by-clause. I think that today we
did have a chance to ask the questions and we may have consensus
from what we heard today.
The Chair:
If it's of any assistance to the committee members, I'm going to
try one more time to give you fair warning that no attempt to
limit the time for this, with respect to limitations placed in
this motion, will be accepted by this Chair. You can express
intent and goodwill all you want, but we will not, as a
committee, overrule the rules of order or the directions, or lack
thereof, at this point in time from the House. So I appreciate
and am hearing a general intent to move as quickly as possible.
I'm attempting to circumvent a long debate on this by indicating
that any amendment which places a time limit on the
clause-by-clause will not be accepted as in order by myself as
Chair.
Is there any further
discussion or debate on this? OK. We have before us the
recommendation from the subcommittee that the committee meet on
Wednesday April 26, 2000, for clause-by-clause review of Bill
33.
All those in favour, please
indicate. Those opposed?
Carried unanimously.
Thank you very much. At
this point in time we'll adjourn. See you next week.
