Manitoba Seeks Public Comment on Proposed Franchise Rules

This posting was written by John W. Arden.

The Province of Manitoba is seeking public comment on proposed regulations under the Manitoba Franchises Act, which was passed June 17, 2010 and will come into force on a date determined after the regulation is finalized.

The Act requires franchisors to make presale disclosures to prospective franchisees using a prescribed disclosure document, imposes a duty of good faith and fair dealing on parties to franchise agreements, and provides franchisees with the right to associate and a right of rescission.

As with franchise legislation enacted by Prince Edward Island and New Brunswick, the Manitoba statute is based on the Uniform Franchises Act (CCH Business Franchise Guide ¶7021), a model law that was adopted by the Uniform Law Conference of Canada.

As proposed, the regulation would establish specific requirements of the disclosure document, prescribe delivery methods, provide an exemption from the financial statement disclosure requirement for mature franchisors, and furnish a small investment exemption.

The Province has published a consultation paper, providing background to the law and regulations and describing the important provisions of the proposed regulation.

The “key features” of the proposal include:

Contents of disclosure document. The contents of the required disclosure document would closely follow those of Ontario, Prince Edward Island, and New Brunswick in order to facilitate use of documents prepared for other jurisdictions.

Wraparound documents. The proposal would allow use of a disclosure document prepared for another jurisdiction if the franchisor includes supplementary information required by Manitoba in a “wraparound document.”
Risk warnings. The rules would require the disclosure document to include warnings advising the franchisee to seek information about the franchisor and to obtain legal and financial advice.

Financial statements. The franchisor would be required to include its most recent financial statements in the disclosure document. A mature franchisor with a good record of compliance might qualify for an exemption from this requirement.

Electronic and courier delivery. The disclosure document and subsequent material changes may be delivered by a prepaid courier or by electronic means. A notice of rescission must be delivered by prepaid courier.

Delivery of disclosure document in parts. Although normal practice would be to deliver the entire contents of the disclosure document together, a franchisor would be permitted to deliver the disclosure document in parts.

Restriction on refundable deposits. A franchisor is permitted to request and receive from a franchisee a refundable deposit not exceeding 20 percent of the initial franchise fee to a maximum of $100,000.

Small investment exemption. A franchisor may receive an exemption from the disclosure document requirement where the franchisee’s total annual investment does not exceed $5,000.

Text of the consultation paper, proposed franchise regulation, and the Manitoba Law Commission’s Franchise Law Report 2008 appears here on the Province of Manitoba website.

Written comments on the proposed regulation may be submitted through December 15, 2011. They should be sent to Franchises Consultation, Manitoba Entrepreneurship, Training and Trade, Small Business Branch, 250-240 Graham Avenue, Winnipeg MB R3C 0J7, telephone: 204-945-7721; Fax: 204-983-3852; e-mail: Franchises@gov.mb.ca.

Further details will appear in CCH Business Franchise Guide.