Lapointe Rosenstein Marchand Melançon LLP

Montreal QC

Our growth and reputation have been built on the successful practice of business, commercial law and insurance law. Although we have never lost this focus, we have developed our capabilities to address the highly specialized needs of the corporate finance and securities, venture capital, life sciences, licensing and technology, energy and franchising sectors.

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Updates

Franchising

Franchisee or employee in disguise?
Canada | 18 June 2019

Franchising communities in Quebec and elsewhere in Canada have been eagerly awaiting a Supreme Court of Canada decision on whether an unincorporated franchisee operating a two-person cleaning services business in Quebec as part of a cleaning services franchise network qualified as an employee. While the court's ruling may be worrisome to franchisors in certain industries, there are several mitigating factors to consider.

Limits of good faith and relational nature of franchise agreements in Quebec
Canada | 26 March 2019

The Supreme Court of Canada recently reiterated the fact that franchise agreements are relational contracts and are therefore subject to a heightened duty of good faith pursuant to Quebec civil law. This decision is in line with a series of recent Quebec civil law decisions that have broadly interpreted, and arguably extended, the duty of good faith owed by a franchisor to its franchisees.

Will a franchisee's rescission claim stay or will it go? Mandatory mediation may result in stay of proceedings
Canada | 18 December 2018

It has become common practice to include alternative dispute resolution (ADR) provisions in franchise agreements. A recent decision by the Ontario Court of Appeal serves as a stark reminder to franchisors to ensure that ADR provisions contained in a franchise agreement are properly drafted so that the commencement of disputes thereunder triggers the running of the applicable limitation period.

To be an employee or not to be – that is once again the question
Canada | 13 November 2018

The issue of whether a franchisee is an employee or an independent contractor has been debated on numerous occasions and was once again raised in a recent Quebec Court of Appeal decision. In its decision, the court emphasised that when analysing whether a franchisee qualifies as an employee or an independent contractor, the courts should look beyond the terms of the agreement between the parties. While this decision may worry certain franchisors, there are a number of mitigating factors to consider.

Franchisor caught between rock and hard place: importance of clear exclusivity clauses
Canada | 21 August 2018

Franchise arrangements often involve a three-way relationship whereby franchisors enter into commercial leases with landlords and then sublease the rented premises to franchisees. Such leases often contain an exclusivity clause limiting the landlord's ability to lease nearby commercial space to competitors of the franchise network. The Superior Court of Quebec recently confirmed that exclusivity clauses must be interpreted and applied restrictively so as not to unduly interfere with the parties' freedom of contract.

Franchisors rejoice! Ontario Court of Appeal raises bar for franchise rescission
Canada | 05 June 2018

The Ontario courts have recently endeavoured to clarify the outer limits of the parameters within which a franchisee may exercise its right to rescind a franchise agreement. A long-awaited Ontario Court of Appeal decision sends a clear message to the lower courts that a franchisee's right to rescission is an exceptional measure that should not be granted lightly, and that the terms and conditions negotiated between a franchisor and its franchisee cannot be ignored.

Rescission or bust: statutory requirements trump franchisee's insouciance
Canada | 13 February 2018

The Ontario Court of Appeal overturned a lower court's finding that a deficient disclosure document may be forgiven if the franchisor has provided the franchisee with sufficient information to make an informed decision regarding the acquisition of the franchise. It also held that, where disclosure is insufficient, rescission may be granted regardless of whether the franchisee has read the contents of the franchise disclosure.

Happily ever after: the perpetual franchise
Canada | 10 October 2017

Renewal clauses are common in commercial contracts, particularly in the case of franchise agreements. The Supreme Court recently upheld the validity of a clause which had the effect of allowing a franchisee to renew a franchise agreement perpetually. In its landmark judgment, the court affirmed the lower courts' determination that a renewal clause which does not limit the number of times that a contract of affiliation may be renewed is legal pursuant to Quebec civil law.

Structuring royalties on professional fees
Canada | 27 June 2017

Until recently, there was significant doubt as to the validity of fees payable by professional franchisees on the basis of professional revenue. However, two decisions in Quebec have established certain conditions for such fee payments to be considered valid, in particular that the fees are related to the fair market value of the goods or services provided to the professional.

Get out while you can – franchisors navigating the consumer class actions maze
Canada | 04 April 2017

A recent Quebec Court of Appeal decision reversed a Quebec Superior Court ruling which had granted authorisation of a proposed class action by consumers against a franchisor for alleged misrepresentations made by its franchisee with respect to the purchase of an extended warranty for consumer goods. The case illustrates the difficulties often faced by franchisors in relation to class action proceedings brought by consumers at the authorisation stage.

Should franchisors avoid entering into franchise agreements before selecting a franchise location?
Canada | 31 January 2017

A recent Ontario Superior Court of Justice decision has created an unprecedented expansion of a franchisor's disclosure obligations, significantly affecting franchisors' disclosure practices when entering into franchise agreements before the franchise location is determined. This case is troubling for franchisors, for which it has been common practice to enter into franchise agreements before selecting a specific location for the franchise.

To the end of the term and beyond: perpetual renewal clauses considered legal
Canada | 12 July 2016

The Quebec Court of Appeal has recently addressed whether a franchise agreement may include a clause that would have the effect of renewing the agreement perpetually. This decision is a reminder of the importance of clear renewal conditions and processes in place in the context of franchise, affiliate and banner association agreements.

Surprise! Franchisors may be unable to rely on enforceable non-compete covenants
Canada | 17 May 2016

A recent decision confirms that franchisors may face resistance in enforcing non-compete covenants in circumstances where they are experiencing uncertainty as to their continued presence in a given market or contemplating downsizing their franchise network, as these factors may have a significant impact on what is considered to form part of the franchisor's legitimate interests as they relate to the non-compete covenants of franchisees.

Joint employer liability in franchise relationships
Canada | 16 February 2016

Recent decisions of the US National Labour Relations Board may ultimately undermine certain advantages of franchising arrangements in the United States and could give rise to a willingness by decision-making authorities to blur the fundamental legal separation between franchisors and their franchisees. Now, certain developments relating to labour and employment law suggest that there may be an impending risk to franchisors in Canada.

Proceed with caution: why Dunkin' Brands may be applied under common law
Canada | 27 October 2015

In Dunkin' Brands the Quebec Court of Appeal ruled on the scope and extent of a franchisor's contractual obligations based on both explicit contractual terms and implicit principles established by law. The decision forms part of an interesting convergence between the duty for parties to conduct themselves in good faith under Quebec civil law and the duty of good faith in contractual performance in common law provinces.

Dunkin' Brands: Quebec court finds franchisor has duty to support its brand
Canada | 11 August 2015

The Quebec Court of Appeal has issued its eagerly awaited decision in the long-running Dunkin' Brands case. Throughout this saga, the Quebec courts have made significant determinations with respect to the scope and extent of a franchisor's contractual obligations based on explicit contractual terms and implicit principles that are established by law.

Franchisors must be vigilant in monitoring contractual compliance
Canada | 12 May 2015

In a recent decision the Quebec Superior Court recognised that under Quebec civil law, there is a distinction between the concepts of best efforts and reasonable efforts pursuant to the terms of a contract. As a result, practitioners should proceed with caution when drafting franchising agreements to ensure that they properly reflect the parties' obligations and the efforts that a party is expected to use in fulfilling its contractual obligations.

Franchise disclosure legislation does not apply to trademark licence
Canada | 17 February 2015

The Ontario Superior Court of Justice recently found that a trademark licence agreement was not subject to the Arthur Wishart Act, Ontario's franchise disclosure law. The judgment provides informative guidelines for businesses that wish to avoid falling within the requirements of franchise disclosure legislation when licensing trademarks in Ontario.

New application of franchise disclosure remedies?
Canada | 11 November 2014

The Ontario Superior Court of Justice recently found that certain disclosure deficiencies alleged by a franchisee were not tantamount to no disclosure at all and did not give rise to the franchisee's right to rescind the franchise agreement on that basis. This decision may constitute an important turning point in the interpretation of disclosure obligation incumbent upon franchisors under the Arthur Wishart Act.

Restrictive covenants and non-arm's-length third parties
Canada | 06 May 2014

The Ontario Superior Court of Justice recently sent a clear message that it will look past transparent and ill-advised methods of working around non-compete and non-solicitation covenants in franchising agreements. The court granted injunctive relief against the husband of the defendant franchisee's principal and his company, despite them not being a party to the franchise agreement.

Outer limits of late payment and collection fees in Quebec
Canada | 07 January 2014

A persistent concern in Quebec has been whether interest or late payment clauses could be considered abusive under civil law in the context of the rules of interpretation applicable to contracts of adhesion – as franchise agreements are normally considered – or by being re-characterised as penalty clauses that may be reduced by the court if considered abusive in any contract.

Courts rule on the duty to inform
Canada | 16 July 2013

The courts in Ontario have recently had to interpret the statutory duty of fair dealing in the context of claims of breach of such duty by reason of a franchisor withholding critical information that influenced the franchisee's decision not to exercise a right of first refusal. The Quebec Court of Appeal also recently issued a decision of potentially significant import with respect to the duty to inform under the civil law of Quebec.

Are provisional injunctions still available for competition by former franchisees?
Canada | 02 April 2013

The Quebec Superior Court recently rejected a motion for a provisional injunction to prevent a former franchisee from operating another restaurant from the same premises where it had previously operated the franchised restaurant. The case will now go to trial on the merits; the court's analysis of the non-compete provision and the obligation to de-identify will be of great interest in the Canadian franchising community.

A franchisor's obligation to protect its brand
Canada | 16 October 2012

In Bertico Inc v Dunkin' Brands Canada Ltd the Quebec Superior Court ordered Dunkin' Brands Canada Ltd, the franchisor, to pay more than C$16 million in damages (the full amount of the claim) to 21 former franchisees for repeatedly failing to protect and enhance the Dunkin' Donuts brand in Quebec over the course of a decade. This landmark decision may be seen to impose a burdensome obligation on franchisors.

Encroachment concerns: Réal Martineau v Canadian Tire
Canada | 26 June 2012

The Quebec Court of Appeal decision in Réal Martineau v Canadian Tire Corporation Ltd has surprised many in the Quebec franchising community. The court did not, as many had expected, intervene to protect the dealer from a seemingly abusive clause which permitted the supplier to build new stores in the same geographic area as the store operated by the dealer.

Ontario Court of Appeal upholds analysis of statutory disclosure exemption
Canada | 21 February 2012

TA & K Enterprises Inc v Suncor Energy Products Inc concerned the application of the exemption in the Arthur Wishart Act whereby a franchisor is not required to deliver a disclosure document in circumstances if the franchise agreement is not valid for more than one year and does not involve the payment of a non-refundable franchise fee. The decision has now been confirmed on appeal.

Assignment of franchise agreement by a trustee in bankruptcy
Canada | 16 August 2011

A recent decision may have significant implications for franchisors whose franchisees become insolvent, as the Alberta Court of Appeal ruled that pursuant to the Bankruptcy and Insolvency Act of Canada, a franchise agreement may be assigned by a trustee in bankruptcy.

Transfers triggering disclosure: lessons learned
Canada | 24 May 2011

In a recent case the Ontario Superior Court of Justice offered further interpretation of the disclosure exemptions outlined in Section 5(7) of the Arthur Wishart Act. Adding to previous decisions on this matter, this latest judgment provides new insight into the transfer of franchises, as well as the events that may trigger a disclosure requirement on the part of franchisors.

Will important clarifications to disclosure document exemptions stand?
Canada | 08 March 2011

A recent decision has shed new light on the application of one of the disclosure exemptions for franchisors under the Arthur Wishart Act. The court held that a disclosure document was not required as the agreement was not valid for longer than one year and did not involve the payment of a non-refundable franchise fee.

Franchisors as advisers? Proposed changes to franchise disclosure in Ontario
Canada | 26 October 2010

Bill 102, the Arthur Wishart Amendment Act (Franchise Disclosure) 2010, has passed the second of three readings before the Legislative Assembly of Ontario, Canada's largest province. This proposed amendment could change the existing franchise legislation by greatly increasing the quantity and scope of information that a franchisor would be required to communicate to prospective franchisees.

Manitoba introduces draft franchise legislation
Canada | 22 June 2010

Manitoba's Entrepreneurship, Training and Trade Minister Peter Bjornson recently introduced for first reading by Parliament Government Bill 15 (The Franchises Act), which is Manitoba's draft franchise legislation. According to the explanatory note contained in the bill, the legislation, which is intended to be of public order, is modelled on the Uniform Franchises Act that was prepared by the Uniform Law Conference of Canada.

Exclusivity provisions in dealership relationships
Canada | 15 June 2010

A recent decision has shed some light on the application of the obligation of good faith and loyalty in respect of exclusivity provisions in dealership relationships. In light of this decision, it is important that a franchise agreement clearly stipulate, in no uncertain terms, whether an exclusivity has been granted and each party's rights and obligations within an exclusive market.

Scope of abusive or unreasonable non-compete covenant cannot be reduced
Canada | 16 March 2010

In a recent case the franchisor, a fertilizer manufacturer, instituted injunctive proceedings against several of its former franchisees, requesting compliance with non-compete covenants contained in their franchise agreements with the franchisor. Given the similar fact patterns of each of the proceedings, the Superior Court of Quebec relied on the facts of one of the proceedings for the purposes of rendering its decision.

Court confirms that disclosure documentation deficiencies amount to non-disclosure
Canada | 08 December 2009

In a recent case the Ontario Court of Appeal overturned the trial judge's decision and held that material deficiencies in disclosure documentation amount to non-disclosure, thus permitting the franchisee to exercise its right of rescission of the franchisee agreement, without penalty or obligation, within two years (rather than 60 days) of its execution.

Franchise-specific legislation in the provinces
Canada | 25 August 2009

Thus far, four of the 10 Canadian provinces (Alberta, Ontario, Prince Edward Island and New Brunswick) have adopted franchise-specific legislation and other provinces are now considering following suit and enacting similar legislation. This update focuses on the status of franchise-specific legislation and proposed regulations pending in two Canadian provinces: Manitoba and New Brunswick.

Restrictions of Use Covenants Are Valid Personal Obligations of Franchisee
Canada | 16 June 2009

A recent decision rendered by the Quebec Superior Court held that the restriction of use covenants contained in several servitudes or easements were personal obligations of the franchisee. Therefore, the court upheld their validity, despite invalidating the actual easements. The decision is interesting in light of the particularities of Quebec civil law, which differs from the common law applicable elsewhere in Canada.

Material Deficiencies in Disclosure Documentation Amount to Non-disclosure
Canada | 17 March 2009

Two recent Ontario Superior Court of Justice decisions have held that material deficiencies contained in disclosure documents that must be provided to prospective franchisees pursuant to the Arthur Wishart Act (Franchise Disclosure) 2000 (Ontario) amount to non-disclosure, giving rise to a franchisee's right to rescind the franchise agreement without penalty or obligation within two years of its execution.

Failure to Comply with Disclosure Requirements Leads to Rescission
Canada | 25 November 2008

In a recent Alberta Court of Appeal decision it was unanimously held that a franchisor’s failure to comply with a technical disclosure requirement gave way to rescission of the franchise agreement. The decision highlights the importance for franchisors of ensuring compliance with technical requirements under franchise legislation.

Considerations for Franchising in Canada
Canada | 18 March 2008

There are several different vehicles available to foreign franchisors that wish to carry on business in Canada, each of which has various fiscal and corporate consequences. This update looks at some of the key commercial considerations and regulations affecting franchising in Canada.

Supreme Court Refuses to Reopen Issue of Rewriting of Contracts
Canada | 04 September 2007

In 2007 the Supreme Court of Canada denied Automobiles Jalbert Inc leave to appeal the August 2006 decision of the Quebec Court of Appeal in the case of BMW Canada Inc v Automobiles Jalbert Inc . The decision means that parties to a franchise agreement will be held thereto and should not expect courts - at least those of common law jurisdictions - to alter agreed business terms.

Franchising and the Lease
Canada | 10 July 2007

The lease relating to the franchisee's premises is as important a document to the franchisee as the franchise agreement. The lease dictates the franchisee's costs, location and relationship with the landlord. However, there are various things that a franchisee should look out for when agreeing a lease.

Financial Statement Presented to a Franchisee
Canada | 31 October 2006

It is common for a potential franchisee to request that a franchisor provide it with financial data in respect of the franchise. However, a franchisor should be cautious when delivering financial statements or budget forecasts to a potential franchisee, in order to avoid the possibility of the franchisee misinterpreting the information contained therein as a guarantee of profitability.

Examining the Duty of Fair Dealing
Canada | 15 August 2006

Actual and draft franchising legislation in several Canadian provinces imposes a duty of fair dealing on parties to a franchise agreement. Earlier this year the Ontario Superior Court of Justice had the opportunity to determine whether particular behaviour on the part of a franchisee amounted to a breach of that franchisee's duty of fair dealing.

Franchising Legislation Update
Canada | 06 June 2006

Canada’s different provinces and territories have different franchise-related legislation. In particular, the province of Quebec has no specific legislation dealing with franchising. Instead, the Civil Code of Quebec contains provisions of general application that may give rise to obligations similar to those contained in the franchise-related legislation of the common law provinces.