On November 14, 2017, Bill 154, Cutting Unnecessary Red Tape, received Royal Assent and became law in Ontario. I was asked by AdvocateDaily.com to provide commentary on this legislative change, and have provided a summary of that article here. Bill 154 made several important changes to the Arthur Wishart Act (the “Act”). The most notable related to the interplay between disclosure and (1) confidentiality agreements, and (2) fully-refundable deposits.
(1) Confidentiality Agreements No Longer Trigger a Disclosure Obligation
Previously, Ontario was the only Canadian jurisdiction with franchise legislation that did not permit non-disclosure agreements to be signed prior to delivery of the disclosure document. Bill 154 amended the Act so that franchisors are allowed to enter into non-disclosure agreements with potential franchisees without triggering disclosure obligations. Franchisors can now release proprietary information to potential franchisees without concerns that information will be unprotected. This is especially important when taking into consideration franchisors would frequently withhold proprietary information from a disclosure document, out of confidentiality concerns, exposing themselves to risks that a franchisee will attempt to exercise a right of rescission for the franchisor’s failure to disclose material facts.
(2) Deposits Can Be Accepted Without Disclosure
Under Bill 154 a franchisor can also now accept a fully refundable deposit, without being required to subsequently deliver a disclosure document. The maximum amount for an acceptable deposit has yet to be set, however, under BC’s franchise legislation, the disclosure obligation only kicks in after a deposit exceeds 20% of the initial franchise fee. This change will allow franchisors to explore relationships with potential franchisees, and obtain some evidence that the potential franchisee is genuinely interested.
Other Important Changes
Other relevant changes to the Act under Bill 154 include:
- Disclosure exemptions are expanded to include the grant of a franchise to corporations controlled by former directors or officers.
- Fractional franchise disclosure exemptions are brought into line with other Canadian franchise law jurisdictions.
Several of these key amendments are not yet in force, and a date has not been set yet for when they will become effective. For more information on these or other changes to the law that are relevant to your business, please feel free to contact us at any time.