Mastering Canadian franchise legalities with Aird & Berlis

Brodie Lawson  00:00:08 

Welcome to Canadian Lawyer TV. I'm Brodie Lawson, now whether you're launching a franchise or have established a network, franchising in Canada requires strategic legal guidance and we're lucky to have with us today, an expert in franchise distribution and licensing law and a trusted voice in the space, Jennifer Shayko, a partner at Aird & Berlis LLP. She'll break down how the key issues every Canadian franchisor and franchisee should understand, in this constantly evolving legal landscape. Jennifer, welcome to the show.  

Jennifer Shayko  00:00:40 

Thank you. Thanks for having me. 

Brodie Lawson  00:00:43 

Let's start with the basics. What are the key legal obligations that franchisers need to understand when operating in Canada? 

Jennifer Shayko  00:00:53 

So, Canada has provincial regulation for franchising, and there are currently six provinces in Canada that have franchise legislation, and we can break it down into four major buckets that franchisors should be aware of. So, number one is a disclosure regime. So, this is a disclosure document that has to be provided to a Prospect. The second is that it imposes a duty of fair dealing and good faith to both parties after they've signed a Franchise Agreement. The third is that franchisees had the right under statute to associate with each other, and the fourth is that franchisees cannot contract out of their rights under legislation. So, this means that a party to a franchise agreement, whether or not that's the franchisor the franchisee, they can't unilaterally decide to not do the things that are required under provincial legislation. So that's what I mean when I say contract out. 

Brodie Lawson  00:02:04 

Franchise systems often grow so quickly, and that, of course, brings risk. So, what are some of the most common legal missteps that you see franchisors make, and how can they be avoided?  

Jennifer Shayko  00:02:16 

Theres a few different things, and the good news is that, you know, there's lots of franchise lawyers in Canada that they can seek proper advice from. So definitely the first thing would be, you know, make sure that you have a qualified lawyer that is experienced in franchising, and not someone who's kind of dabbling in franchising, because, similar to lots of other areas of the law, this is an area that's constantly evolving, constantly changing, so they definitely want someone who's an expert. But what I see quite often, especially with newer franchise systems, is that, you know, they're coming into the market and there's a lot of excitement, and maybe they're going to be giving away too much territory, or too many rights to a new franchisee that hasn't been proven that, you know, they have not necessarily kind of demonstrated themselves as being the right person to grow with and just giving kind of too much away. I think that it's important for franchisors, when they're coming into a new market, to kind of, you know, do a bit of a test with new franchisees. You know, give them one maybe two units and and see how they operate, see how they are, because it really is about a long term relationship, and how they are going to prove themselves as someone that you want to grow with, not even for the next five years, but for the next 20, 30 years. 

Brodie Lawson  00:03:44 

We know brand is key, and of course, protecting that brand is vital. So how can Franchisors maintain control and protect their brand as their system expands across jurisdictions? 

Jennifer Shayko  00:03:57 

I mean Canada is a very, very large country geographically, and so one of the kind of tips or recommendations that I would provide to new franchisors is, you know, you need to build that foundation. So, and is the foundation sexy? No, but when you're building a house, you don't start with, you know, the window dressings, you start with the foundation of that home. So, from a franchising perspective, you want to make sure that you have the right tools to enforce the system standards, whether that's from Ontario all the way out to BC, and you want to, secondly, make sure that you have the right personnel. So, it's important to have boots on the ground to actually go and visit the locations. Go and visit the operations, conduct audits, conduct inspections, and just make sure you have your pulse on what's happening in that market, the foundation the right personnel, and another part of this is actually really simple, which is just maintaining that relationship. So, everything comes down to communication, everything comes down to that Franchisor Franchisee relationship, and the Franchisor has to ask itself, when was the last time they visited the market? When was the last time they came face to face with the Franchisee? And not to say that, you know, virtual and phone calls are great, they're great check ins, but there's something to be said about face to face meetings, face to face relationships to really continue to maintain that consistency and that brand protection. 

Brodie Lawson  00:05:29 

Expansion is exciting, but it also introduces new complexities. So, what should Franchisers consider when they're entering new markets, either within Canada or Internationally? 

Jennifer Shayko  00:05:41 

That's a really great question. So, let's talk about Canada first, very large differences between provinces, consumer preferences can be different, so you know, your consumer in Alberta may be different than your consumer in Ontario. So, consumer preferences are something that Franchisors should look into, conduct market studies, research. They might want to do some testing into how that product may resonate in a different province. Just to give you another example is, you know,in in certain provinces, just as this is based upon my restaurant experience, in certain provinces, they like certain proteins more than others. So, in the Western Provinces they might, they may gravitate towards, you know, red meat as their preferred protein, whereas in other provinces, like Ontario, it may gravitate more towards poultry as their protein of choice. So, there can be very large differences in terms of what the consumer is looking for between provinces. Second of all, there's obviously different regulatory regimes in the provinces. So going back to the beginning, and you know, the fact that there's six provinces with franchise legislation in Canada, there's also, you know, nuances between that legislation, but from a legal perspective, it could be that, you know, there's a big difference between how you franchise in Ontario, versus how you would franchise in Quebec. So, consumer preferences, the legal regime, and then also what people need to think about is there could be just different cultural norms and practices, even as amongst provinces or even as among cities. So, there's definitely a bunch of different things to consider. So, my advice would be to to do your research, if you have the ability to do so. Do some testing and see what those differences could be, so that's kind of from like a Canadian perspective. When we're talking International Franchise expansion, it's those same considerations, but even bigger, right? So, if you're expanding your brand to, let's say France, their consumer preferences may be completely different. There, the way that the consumer would interact with your product and services may be completely different. So just to give another example, in Canada, there's certain communities, like bedroom communities, where we don't see people really going out for breakfast, but maybe they're going to go out for lunch, and predominantly they may go out for dinner, whereas in a different country, that could be a completely different shift. Maybe people are going out for breakfast, maybe it's just like the cultural norms will impact how your consumers interact with your product and services. So and that becomes even more heightened when it's a different country, and maybe there's a different language, you have to look at those kind of consumer preferences and how they could change the product offering that the franchisor wants to make in that particular market. Secondly, is the legal regime. So going back to, you know, Canada, we have provincial legislation in other countries such as the US, they have federal level and state level. So, it really depends on what country you're looking at, and it's important to get legal advice from a local expert in franchising. It's definitely something to consider, and it would be really great as well, if they could drill down on some of the cultural norms and practices in that country as well. And based upon my experience in the restaurant industry with some of our brands, when those brands went into India, we had to be very sensitive to the fact that, you know, a lot of people in in that country have certain affiliations and do not eat pork, or do not eat beef, or are vegetarian. So, there's just a lot of different cultural norms that can impact the franchisor's product offering, and it's really important that you do your research and kind of lay that groundwork and foundation before you go into that market. 

Brodie Lawson  00:09:39 

Franchise legislation is always evolving. So, what should people be watching for in the regulatory landscape over the next 12 to 18 months?  

Jennifer Shayko  00:09:48 

There's actually some excitement right now, as exciting as franchise legislation can be, but so Saskatchewan has been one of the provinces that practitioners are looking at right now. So, they have a new Franchises Act which has received Royal Assent but has not yet come into force. So they have just released the regulations to the legislation, and they are still inviting comments on the regulations, but this is something that a lot of practitioners are looking out for, and we anticipate is going to be coming, coming into force, either late this year or early next year. So, for any franchisors that are franchising in Saskatchewan, this is very important that you kind of pay attention to this. 

Brodie Lawson  00:10:40 

And what advice would you give to someone exploring franchising their business for the first time? 

Jennifer Shayko  00:10:47 

I love being in that situation, because it's always so exciting when you're dealing with a new concept or a new person who's very enthusiastic about franchising, this is really what gets me going. So, I like to seek to understand is really listening to, what is their concept, what is their brand, like what are the trademarks and what are the hallmarks that they're trying to franchise? So one of the most important things of franchising is consistency, and so when you're talking about franchising a brand, for the first time, the question really is, is the concept capable of being consistently reproduced, and that sometimes need a little bit of drilling down and a little bit of thought into like, is this reproducible, and can you reproduce it in a consistent way? So, I think there's a lot of different elements to franchising for the first time, but that would be my initial consideration. Secondly, would be, is the concept something unique? Is it something new? So, there's a lot of competition in so many different industries, and so there needs to be a bit of a hook. What is this new concept trying to do? How? How does it distinguish itself from the other competitors that are already in in the market? That's the second part, and the third part is, and this is something that I really love, is, what's the story of this franchise? How did this come about? How was this founded? What's the connection? Because with consumers, it's all about making that personal connection. And with certain brands like you hear about the story of how these brands came into about and they become movies, they become books. So, you know, is the story of the franchise a really good story? Will it resonate with people? So those are some of the things that I like to think about when I am dealing with someone who wants to franchise their concept for the first time. 

Brodie Lawson  00:12:55 

Jennifer, thank you so much for sharing your insights today. 

Jennifer Shayko  00:13:00 

Thank you.  

Brodie Lawson  00:13:01 

To learn more about Aird & Berlis and their Franchise Law expertise, visit Airdberlis.com or follow them on LinkedIn, X and Facebook. Thanks for watching Canadian lawyer TV. Until next time. I'm Brodie Lawson.