News Briefs

Ontario Considers New Franchise Regulation; Passage Considered Unlikely

Ontario, Canada legislators are considering a bill to amend Ontario's Arthur Wishart Act (Franchise Disclosure), 2000 that would mandate that a supplemental “Educational Document” be developed by franchisors and delivered to prospective franchisees.

Although the legislation has been co-sponsored by members of the three major political parties in the Ontario legislature and has passed a second reading, passage in its current form is considered far from assured ' which is a relief to franchisors operating in Ontario. “It's off-the-wall,” said Debi Sutin, partner, Gowling, Lafleur, Henderson LLP in Ontario. “It would be a radical departure.”

According to Paul Jones, Jones & Co., in Ontario, the Education Document would require the franchisor to inform prospective franchisees of the need to “self evaluate” whether the prospect has the necessary management skills to operate the franchise. (The bill does not define “self evaluate.”) The document also would suggest that the franchisee consider alternatives to buying a franchise, find out how the franchisor selects franchisees, assess demand for the franchise system's goods or services, and seek information about pricing of goods that the franchisee would be required to purchase from the franchisor, the franchisee's territory and exclusivity, and the franchise's potential for growth and profitability. The document also would inform the prospective franchisee about the benefits of having a lawyer and an accountant review the FDD, and it suggests some questions that the prospect should ask legal counsel. Franchisee prospects will have to document that they have read the Educational Document.

Jones said that the proposed law probably arose because lawmakers became concerned after hearing from several franchisee prospects who were defrauded by what he called “a fraud artist posing as a franchisor” several years ago. The legislation would increase the notification to franchisees that they should hire legal and financial counselors before spending money on a franchise opportunity.

But Sutin pointed out that it's not realistic to place the burden of being “a legal advisor, financial advisor and trusted advisor on the franchisor in what is a business relationship, not a consumer relationship.” She added that the legislation also would be redundant in some respects, as the Wishart Act already requires extensive disclosure of all material facts to franchisees.

Representatives of the Canadian Franchise Association have met with Ontario legislators, and Sutin said that she believes “wiser heads will prevail” when legislators learn about the franchisee protections that are currently in effect.

Edible Arrangements Sued By Independent Franchisee Association

The EA Independent Franchisee Association (“EA Association”) filed a lawsuit on Sept. 20 in the U.S. District Court for the District of Connecticut against franchisor Edible Arrangements and several affiliated companies.

According to a lawsuit released by the EA Association, the franchisor “altered the business arrangement with its franchisees over the last several years, to the detriment of the Association's members and all other franchisees in the franchise system, in violation of its contractual obligations and general principles of fairness.” Specifically, the complaint charges that mandatory purchasing arrangements imposed by Edible Arrangements violate franchise agreements and the Connecticut Unfair Trade Practices Act.

Edible Arrangements issued a prepared statement to the media that stated that the company “plans to defend the complaint vigorously and is very confident its strategies to build and evolve the Edible Arrangements' system are expressly allowed and have been undertaken in good faith.” Edible Arrangements has 970 franchised units in 11 countries.

Lawsuit Filed over Use of Phrase 'Never Ending'

Darden Restaurants, franchisor of Olive Garden, Red Lobster and four other restaurant chains, has filed a lawsuit in the U.S. District Court for the Southern District of California against a franchisee of T.G.I. Friday's over the latter's promotion of a “never-ending shrimp special.” (Darden Concepts, Inc. v. Briad Restaurant Group, L.L.C., No. 10-2077 (U.S. Dist. Ct., S.D. Cal., filed Oct. 6, 2010)). Darden argues that it has trademarked the phrase “never-ending” pasta bowl at Olive Garden and an “endless” shrimp special at Red Lobster, both of which are being infringed upon by the T.G.I. Friday's franchisee. The franchisee, the Briad Restaurant Group, did not respond to inquiries from FBLA.

Ontario Considers New Franchise Regulation; Passage Considered Unlikely

Ontario, Canada legislators are considering a bill to amend Ontario's Arthur Wishart Act (Franchise Disclosure), 2000 that would mandate that a supplemental “Educational Document” be developed by franchisors and delivered to prospective franchisees.

Although the legislation has been co-sponsored by members of the three major political parties in the Ontario legislature and has passed a second reading, passage in its current form is considered far from assured ' which is a relief to franchisors operating in Ontario. “It's off-the-wall,” said Debi Sutin, partner, Gowling, Lafleur, Henderson LLP in Ontario. “It would be a radical departure.”

According to Paul Jones, Jones & Co., in Ontario, the Education Document would require the franchisor to inform prospective franchisees of the need to “self evaluate” whether the prospect has the necessary management skills to operate the franchise. (The bill does not define “self evaluate.”) The document also would suggest that the franchisee consider alternatives to buying a franchise, find out how the franchisor selects franchisees, assess demand for the franchise system's goods or services, and seek information about pricing of goods that the franchisee would be required to purchase from the franchisor, the franchisee's territory and exclusivity, and the franchise's potential for growth and profitability. The document also would inform the prospective franchisee about the benefits of having a lawyer and an accountant review the FDD, and it suggests some questions that the prospect should ask legal counsel. Franchisee prospects will have to document that they have read the Educational Document.

Jones said that the proposed law probably arose because lawmakers became concerned after hearing from several franchisee prospects who were defrauded by what he called “a fraud artist posing as a franchisor” several years ago. The legislation would increase the notification to franchisees that they should hire legal and financial counselors before spending money on a franchise opportunity.

But Sutin pointed out that it's not realistic to place the burden of being “a legal advisor, financial advisor and trusted advisor on the franchisor in what is a business relationship, not a consumer relationship.” She added that the legislation also would be redundant in some respects, as the Wishart Act already requires extensive disclosure of all material facts to franchisees.

Representatives of the Canadian Franchise Association have met with Ontario legislators, and Sutin said that she believes “wiser heads will prevail” when legislators learn about the franchisee protections that are currently in effect.

Edible Arrangements Sued By Independent Franchisee Association

The EA Independent Franchisee Association (“EA Association”) filed a lawsuit on Sept. 20 in the U.S. District Court for the District of Connecticut against franchisor Edible Arrangements and several affiliated companies.

According to a lawsuit released by the EA Association, the franchisor “altered the business arrangement with its franchisees over the last several years, to the detriment of the Association's members and all other franchisees in the franchise system, in violation of its contractual obligations and general principles of fairness.” Specifically, the complaint charges that mandatory purchasing arrangements imposed by Edible Arrangements violate franchise agreements and the Connecticut Unfair Trade Practices Act.

Edible Arrangements issued a prepared statement to the media that stated that the company “plans to defend the complaint vigorously and is very confident its strategies to build and evolve the Edible Arrangements' system are expressly allowed and have been undertaken in good faith.” Edible Arrangements has 970 franchised units in 11 countries.

Lawsuit Filed over Use of Phrase 'Never Ending'

Darden Restaurants, franchisor of Olive Garden, Red Lobster and four other restaurant chains, has filed a lawsuit in the U.S. District Court for the Southern District of California against a franchisee of T.G.I. Friday's over the latter's promotion of a “never-ending shrimp special.” (Darden Concepts, Inc. v. Briad Restaurant Group, L.L.C., No. 10-2077 (U.S. Dist. Ct., S.D. Cal., filed Oct. 6, 2010)). Darden argues that it has trademarked the phrase “never-ending” pasta bowl at Olive Garden and an “endless” shrimp special at Red Lobster, both of which are being infringed upon by the T.G.I. Friday's franchisee. The franchisee, the Briad Restaurant Group, did not respond to inquiries from FBLA.