Wednesday 19 April 2000

Subcommittee report

Franchise Disclosure Act, 1999, Bill 33, Mr Runciman / Loi de 1999 sur la divulgation relative aux franchises, projet de loi 33, M. Runciman


Chair / Présidente
Ms Frances Lankin (Beaches-East York ND)

Vice-Chair / Vice-Président

Mr Garfield Dunlop (Simcoe North / -Nord PC)

Mr Gilles Bisson (Timmins-James Bay / -Timmins-Baie James ND)
Mrs Claudette Boyer (Ottawa-Vanier L)
Mr Brian Coburn (Carleton-Gloucester PC)
Mr Garfield Dunlop (Simcoe North / -Nord PC)
Mr Raminder Gill (Bramalea-Gore-Malton-Springdale PC)
Mr Pat Hoy (Chatham-Kent Essex L)
Ms Frances Lankin (Beaches-East York ND)
Mr Bill Murdoch (Bruce-Grey PC)

Substitutions / Membres remplaçants

Mr Bruce Crozier (Essex L)
Mr Tony Martin (Sault Ste Marie ND)
Mrs Julia Munro (York North / -Nord PC)
Mr John O'Toole (Durham PC)

Also taking part / Autres participants et participantes

Mr Joseph Hoffman (director, policy and agency relations branch, MCCR)
Ms Bonni Harden (legal counsel, legal services branch, MCCR)

Clerk / Greffière

Ms Anne Stokes

Staff / Personnel

Ms Susan Swift, research officer, Research and Information Services

The committee met at 1008 in committee room 1.


The Chair (Ms Frances Lankin): We will call the meeting to order. The first item of business is to deal with an outstanding matter from the subcommittee report. The subcommittee met on Wednesday, April 5, 2000, and there was a discussion with respect to the method of proceeding on Bill 33. At last week's committee meeting, on April 12, three items from that subcommittee report were carried, those being that the committee meet last week to consider private bills, which was done, and that we meet today to hold discussions on the information that was gathered in the committee hearings to Bill 33.

As you know, the structure for today's consideration will be each caucus making an initial presentation of up to 20 minutes, and a second hour that will allow for discussion and questions. There are technical staff and policy staff from the ministry here who are also available if there are questions that committee members need assistance with. Item 3 was deferred-we'll come back to that-and item 4 was the time line on submission of amendments to Bill 33. Those amendments, again as a notification for committee members, must be in by noon on Tuesday, April 25. None will be accepted after 12 o'clock. The clerk will circulate all amendments to committee members by 4 o'clock that afternoon.

The outstanding item from that subcommittee report is item 3: that the committee meet on Wednesday, April 26, 2000, for clause-by-clause review of Bill 33. I'd like to ask if at this point in time Mr O'Toole would like to move that clause or any amendment to that clause.

Mr John O'Toole (Durham): The intention of the clause would be to complete the deliberations on Bill 33 on the April 26. If that's what this wording means to the members of the committee, then I would so move that particular clause.

The Chair: We can't give an interpretation that's not there on the face of the words. The words indicate "that the committee meet on Wednesday, April 26, 2000, for clause-by-clause review of Bill 33," point-blank. As I indicated last week, when there was an attempt to move an amendment that would limit or place a time line on that consideration, I ruled that amendment out of order. The directions have been given to this committee by the Legislative Assembly, by the House. Those are paramount unless there is a change in direction or unless during the course of consideration of clause-by-clause, committee members themselves move closure on consideration in an appropriate way in accordance with the rules of order. There is no way for this committee in advance to limit the scope of that discussion in clause-by-clause.

Mr O'Toole: Fine. Then I continue to defer that particular clause. Hopefully, we can come to an understanding by the end of this particular session today and not be in breach of any of the standing orders. Clearly, the intention is not to deliberate too much longer, but not breach the orders by trying to invoke some kind of closure, and also to satisfy Mr Martin-and other members of the committee; not to centre anyone out-that we can come to a consensus here. Failing that, I suspect I would be going back to our House leader to see how we can go forward in an attempt to have a unanimous report without invoking some kind of closure.

The Chair: If I could make a suggestion to committee members, it sounds like there may still be some contention around how we proceed with respect to that item. It may be more or less contentious by the end of this morning. What I would like to suggest is that we proceed with the discussion on the bill and that at the end of that discussion and in sufficient time before 12 o'clock, we return to consideration of the subcommittee report. You may or may not be more informed by the way the discussion goes with respect to how you feel with that item. Is that satisfactory for members? OK.

Could I have a motion to stand this down until the end of this morning's meeting.

Mr Tony Martin (Sault Ste Marie): So moved.

The Chair: All those in favour? Opposed? That's carried.


Consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors / Projet de loi 33, Loi obligeant les parties aux contrats de franchisage à agir équitablement, garantissant le droit d'association aux franchisés et imposant des obligations en matière de divulgation aux franchiseurs.

The Chair: Let's move on to item 2, consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors. This morning, as you know, is an opportunity for each of the three caucuses to present some preliminary points of view with respect to the findings the committee gathered during the public hearings into Bill 33.

Each caucus has up to 20 minutes for its presentation. The presentation can be made by an individual or shared among individuals within that caucus. I'd appreciate it if you gave me some indication if you intend to share the time, but the allocation of that is up to you. At the end of that, we will move into a general discussion. We'll begin the presentation with the government caucus. Mr O'Toole, do you intend to start?

Mr O'Toole: No, I'd sooner pass and start with whichever other caucus is prepared to begin.

Mr Martin: I'm willing to start.

The Chair: Mr Crozier, do you defer as well to the expert? Mr Martin, would you like to begin your presentation?

Mr Bruce Crozier (Essex): Not to single out any member.

The Chair: Of course not.

Mr Martin: First of all, I want to go on the record by saying thank you to everybody who participated. I thought it was a rather positive, constructive and full discussion of an issue that is very important to a lot of people across this province, to the economy of this province and to some communities in this province which have within their boundaries some of the folks who are under some duress and feeling some stress at this time, because they have no real avenue of address for some of the difficulties they are experiencing as they try to relate to each other to do business so that each of them might realize the benefit, the profit and the success they thought was there when they entered or took on the possibility of the role of being a small business person in this province.

Certainly the government has been co-operative. Before we started, I had a very positive meeting with the minister around some of the issues that I suggested we would probably hear a lot about as we went through the hearings, and the commitment by him to be open and willing to sit down and work out some arrangements so that in the end we could do something helpful with this bill.

I also want to say to the members of the official opposition and of the government that I appreciated the contribution each of you made in this effort. The preparedness, the questions and the listening that went on will hopefully lend in the end to all of us finding a way to do the right thing in this instance.

I also want to thank the staff, particularly Anne Stokes and Susan Swift, who worked so very hard to make sure this was a good experience. Given that, because of sickness and other things, we went through two or three chairs that week, I thought both of them did a super job keeping us on track; Anne, in particular, making sure everything happened as it should and that everybody had a fair opportunity both to present and ask to questions and participate in the discussion. Of course, Susan Swift provided us with a ton of material: research that was done to make sure that any questions we might have and any information we needed was there and we could refer to it, and that would be helpful in the long run.

I want to say that there were others who participated and helped out a lot as well, certainly those who came forward, some at great risk to themselves and to their businesses, to share with us what's going on and what went on in their lives. Some people had no need to come forward, because it was a bad chapter in their lives that they were trying to forget and move on from, but they knew they couldn't just leave it, given the opportunity to come forward and speak to us here, without contributing some of their experience to perhaps putting something in place that would be helpful to others so they wouldn't find themselves in the same boat, as life unfolded in this province. They have to be commended and thanked profusely because of the risk they took, the effort they made and the information they shared.

For me, personally, Les Stewart, who perhaps to some may present as somewhat obsessed with this issue, but because of his own personal experience and the fact that he put his shingle out there, a lot of people call him when they find themselves in difficulty in franchising and share their stories with him-being the person he is, very conscientious and of great integrity, Les cannot just let it lie, let it sit and not deal with it and bring it someplace where perhaps something could be done with it. He has probably contacted all of you at least a million times and certainly has worked very actively with me to make sure I had everything I needed to make the case here for some things to happen.

That brings me to the reason for this morning, which is to talk a bit about what we heard and to put on the table what I feel needs to be done, and in fact to draw the line in the sand that needs to be drawn re how much I am willing to compromise in this so we can find some consensus and move forward with a bill we can get through the House in reasonable time to be helpful to the folks out there who are waiting with bated breath for this to actually happen.


All of you will know from having read the material that this issue goes back quite some way. It was in the late 1960s and early 1970s that a report was called for by the then Department of Financial and Commercial Affairs, under the leadership of Arthur Wishart, to deal with the "evils of franchising." That's how it was described in the Grange report. I suggest to you that those evils still exist, because nothing has been done since then. That report was tabled and shelved. In the meantime, though, the franchising sector of industry has grown in leaps and bounds, to a point now where-if you just give me a second here, I'll share a couple of statistics with you. With all this paper, it was bound to happen that sooner or later I would get a little confused and mixed up. Here we are.

Franchising in Ontario has grown tremendously. In Ontario alone there are some 40,000 franchisees. In Canada there are 76,000. This represents an investment of $4 billion in Ontario and $7.6 billion in Canada. This is investment by franchisees in the industry. Most of the money in the franchising industry is initially invested by the franchisee-retail sales of $45 billion in Ontario and $90 billion in Canada, an employee factor of some half a million people in Ontario and almost a million in Canada. It is a very significant sector of business in Ontario and, I think, deserves our full attention and effort to make sure we put in place a regulatory regime that creates fairness.

We're not talking here about giving one partner some undue advantage over the other. What we're talking about is correcting a history of undue advantage being taken. I share with you one more time-and John will appreciate this-the big books that were put together primarily by Les Stewart, which are a compilation of all the articles that have appeared in newspapers across this province over the last five to seven years. There are two volumes, and each of you have them. They represent the stories of some 4,500 families who have been affected, mostly negatively, in some way in this province over the last five or six years as the franchisor moved to take advantage of the franchisee by not living up to, if not the agreement, then the spirit of the agreement they signed when the contract was entered into.

This morning I want to, for your help, because I know some of you were probably feeling somewhat at a disadvantage through the hearings-I apologize. I had the index to this and was able to make references and cross-references. We've gone out and put together another book, which you'll have to take home and do some bedtime reading with, that connects these stories and gives you some commonalties. It helps you go through it in a way that makes some sense in terms of putting the story together and putting the jigsaw puzzle together so that you might, at the end of the day, understand why I am going to be so determined, particularly in three areas, to have something put forward by way of amendment to this committee that will complement and add to what the government has brought forward in terms of Bill 33. If you would pass this around, I'd appreciate that.

Having said that, I want to say that this latest round of discussions and activity we are participating in was initiated some six years ago as a result of the very difficult Pizza Pizza debacle that happened in the province. There was some activity at that point. A colleague of mine, a predecessor of mine, Jim Wiseman, brought forward a bill and tabled it in the House. That initiated a study by the then Ministry of Consumer and Commercial Relations and Minister Marilyn Churley. A group of people was brought together from the industry to talk about this. A report was done. It was tabled by the ministry in 1995 with the then Minister of Consumer and Commercial Relations, who I believe was Mr Sterling, and then passed on to Mr Tsubouchi.

In the meantime, I picked up where Mr Wiseman left off. I was encouraged by some very difficult unfoldings in my own community where Provigo and Loeb decided unilaterally to turn some 25 to 30 of their grocery stores into corporate stores without any real conversation or negotiation about recognition of investment and those kinds of things. Following that there was the Mary Carlucci story that I brought to the Legislature, which some of you may remember. She was a young woman out of our community who had done an excellent job of building a small business into a real powerhouse-good name, good corporate citizen, doing well. She built the business up from under $1 million in activity in a year to some millions of dollars. She was summarily dismissed at some point.

Just to give you an idea of how this happens, she was told that there would be a meeting to talk about marketing in a local hotel down the road. While she was away they moved in and changed the locks on her door and took over her cash registers. This is the kind of thing that's going on.

In some instances, in the Loeb-Provigo takeover, for example, we had small business people in this province and their families actually sleeping in their stores at night so that the parent company wouldn't come in while they were away and change the locks and take the store over. That's the environment; that's the atmosphere within which franchising is happening in this province.

There are other stories. Certainly the Pizza Pizza one speaks of the personality of some of the people who are doing franchising from the franchisor perspective in this province. A person who was accused of and found guilty of fraud in Florida comes to Ontario and takes over the Pizza Pizza franchise. There's another story unfolding in the province at the moment, about Chemwise-it was written up in the Toronto Star just a week or two ago-where again we have somebody who had spent some time in jail now running a franchise operation and taking advantage of unsuspecting individuals who simply want to do business, who simply want to invest some money, work hard, take advantage of the good economy that's happening out there, make a profit, and set something up for themselves and their families as they go down the road.

Bill 33, as far as it goes, is a good first step in this whole piece. I suggest to you that there are lots of things in Bill 33 that are also included in the bill I've tabled three times now in the Legislature, Bill 35. I can live with that, but it needs to go further, in my mind. If it doesn't go further, we will do dishonour, in my view, to the stories we heard over the four days that we crossed the province earlier in the year.

Disclosure and the right to associate, however important and necessary, would not have been helpful in the stories we heard. It would not have been helpful in the Loeb-Provigo instance, it would not have been helpful in the Pizza Pizza debacle, and it would not be helpful right now in the Chemwise situation that was in the Toronto Star, because those folks need redress after the agreement is signed. This is an instance where the franchisor decides not to live up to the agreement they signed. Short of going to court and spending a ton of money they don't have, going up like David and Goliath against a big corporate entity that has a ton of money-I'll tell you, from talking to some of the folks in the industry, the big corporations, the franchisors, are not adverse to telling these folks, "You can take us to court, but you'd better have lots of money and lots of time, because if you don't, we'll do you in eventually."


Disclosure and the right to associate, however important and necessary, would not have been helpful in these incidents and the many others we heard during our four days of hearings.

It is still clear and obvious that some mechanism of dispute resolution is necessary.

It is also necessary, in my view, to define the relationship in a manner that allows franchisees to source product at their discretion except where trademark is an issue.

Just very briefly-I probably have about two or three minutes left, I think-if we don't do this piece, we will not have recognized a very troubling reality that's out there today, which is that small stores are tied in to distribution systems now that limit ever more as each day goes on their ability to actually make a profit. Not only that, but it is affecting the ability of small and local producers, and we heard this in spades in Sault Ste Marie, to get their product on to the shelves of some of the major stores in their own communities so that they can actually make some money and do some business. If we allow this to continue, it will in my view kill local economies, and that will be sad and will not add to the rooting of the very good economy we're in today in communities and allow smaller operators to take advantage of that.

I will also be asking that "commercially reasonable" be added to the "fair dealing" section because it's necessary and was recommended by several presenters at the hearings.

To ensure correct and timely tabling of disclosure documents that can be easily accessed and vetted, it will be necessary that some vehicle to accept and be responsible for these documents be in place. A reasonable and convenient possibility for this function would be an extension of the role of the securities commission as suggested by Mr Nori in Sault Ste Marie.

There were many excellent recommendations put forward by witnesses during the hearings including the need to regulate termination and renewal of contract clauses in agreements and the need to make it mandatory that franchisors recognize and deal with franchisee associations, because that's what Bill 33 is recommending, that franchisees be allowed to associate. But if the franchisors aren't willing to recognize those associations, what's the point? That is what a number of presenters asked when they came.

The NDP caucus will be tabling amendments to improve on Bill 33. We will be recommending enhancements included in Bill 35 that we feel were called for by a majority of the deputants who came before the committee. Central to these will be a vehicle to accept, vet and manage disclosure statements similar to or an extension of securities commissions; a dispute resolution mechanism; a provision containing the right of franchisees to source product at their discretion outside of a registered trademark.

We will be willing to discuss methods of including these provisions in Bill 33 but will not concede the underlying principle in each.

If these very fair and reasonable ends are met, then we will be putting forward an amendment to have the title of the act changed to read An Act to require fair dealing between parties to franchise agreements, and the short title to read the Arthur Wishart Act (Fairness in Franchising), 2000.

As an addendum to this, I will also be recommending to the committee that we seek standing before the Federal Competition Bureau concerning the grocery industry in Ontario.

I have a copy of a brief summary of the report that I will share with everybody as well, so that we can have a look at it and know what it is that we're saying is absolutely necessary if we're going to have some consensus on this.

The Chair: That would be helpful, Mr Martin. Would you like to give that to the clerk? She can arrange for a copy of that, or have you brought copies?

Mr Martin: I've got copies.

The Chair: Terrific. Thank you very much.

Mr Bill Murdoch (Bruce-Grey): This Arthur Wishart, is he the guy who was Attorney General once?

Mr Martin: Yes. He was my predecessor, a member for Sault Ste Marie and a member of the Robarts government and the Attorney General, after he was minister of consumer and financial affairs.

Mr Murdoch: He's dead now, is he?

Mr Martin: Yes.


The Chair: If that becomes a contentious item in terms of an amendment to the debate, we could have that debate at that time. Mrs Boyer, did you have comments, or Mr Crozier?

Mrs Claudette Boyer (Ottawa-Vanier): Yes. Mr Crozier will share some of my time.

The Chair: You have 20 minutes and I'll let you know when there are about five minutes left.

Mrs Boyer: First of all, I want to say thank you. It was great to have this as my first opportunity to go to hearings. I thought it was great. I'd like to say thank you both to the staff and the MPPs from other parties. I thought it was very instructional for me. Maybe we should have that more often, going around the province. They were succinct, and we let our parties be one group.

I have to say that during the presentations we were all made aware of the difficulties encountered by many who have been involved in franchises. The number of presentations that brought to light serious problems allows me to conclude that these are not isolated incidents. We had people who were so aware that it wasn't going the way they wanted to have it, they managed to be in camera. But one thing that came up which I thought was positive and constructive was that everyone seemed to say that this was a long-awaited bill, that something had to be done about it. The other thing that came out of it was that we heard it being said a lot of times that maybe this bill will tell people who are buying franchises to buy with their head instead of their heart. That came back quite often. I thought that was very important.

I believe that precise and clear disclosure regulations are most likely to provide potential investors with the information necessary to make sound business decisions about franchise investment. I also believe that we need to strike the appropriate balance between investor protection and over-regulation of franchise businesses.

Of course, with all those hearings, we heard that not only was it a long-awaited bill, but the current proposals of Bill 33-and this was said even by the American president who came in-lacked any real authority, lacked teeth. That's why the Liberal caucus is working together to bring in amendments in an attempt to fix the bill and address the main concerns expressed by those from whom we heard. We have to take into consideration and account the different recommendations given by those people. With a few changes, this legislation can reach the objective of protecting consumers against fraudulent and dishonest franchisors without affecting professional and honest businesses.

We will have amendments mostly on fair dealing. This is not explicit enough, so we want to bring in recommendations on fair dealing and also the right to associate and the contents of the disclosure statement. We have amendments to bring in there. We would bring in something on the damages for misrepresentation and failure to disclose. Another point we want to touch on is rights that cannot be waived, the release by a franchisee of a right given in this act as an obligation or requirement. We want to work this out.

Mostly those are the things that we are looking forward to bringing in while we go clause-by-clause with our recommendations.

Mr Crozier: I only attended the committee meetings one day, in London, and consequently what I might have to add to this may be limited. But, as well, I have been able to read the material that was available prior to that committee meeting, the one session that I attended, and subsequent material.

I think any of us who have been involved in our community or in the retail field, as I was, have heard anecdotally many of the stories that are presented as fact. With any legislation that we deal with in Ontario, we want it to be fair, but to me this is one of the cases where being fair is really moving to the side and protection of the franchisee. We all look for balance, but sometimes that balance has to be arrived at by perhaps moving a little bit more to the protection of one side than the other. Of course, what we have heard, through submissions to the committee as well as again in our own communities, is that the scale always, or most of the time, seems to be in favour of the franchisor.


In looking for fairness, we have to, in my view, look on the side of the franchisee, because oftentimes in going into these agreements there's a great deal of hype prior to it, almost evangelical in nature in some of the documentaries I've seen, and we have to guard against that.

In the material that was provided to us, the summary of recommendations by Susan Swift, one of the emerging themes as presented by her and that those in the committee heard was due diligence. We can take every step possible to be sure that a franchisee understands the contract. The unfortunate thing is that we cannot legislate, and forgive me for saying this, common sense; nor can we be absolutely sure that an individual understands.

An example that I could use is, in my former days in the insurance field you could sit down with an individual, go over an insurance contract from beginning to end, have a person sign on the dotted line and in a short time have that individual come back and say, "Well, I didn't understand that." So therein lies the difficulty. We can have lawyers involved, at great expense, unfortunately at great expense to those sometimes who can least afford it. We can try to guard against that, but I think we'll be forever trying to make some of these contracts totally understandable. So I hope we can do our very best to move toward that due diligence, where particularly franchisees are able to understand the contract they're entering into.

The other theme, of course, is dispute resolution. In my view, and from the data that has been presented to us, dispute resolution should be a very important part of this legislation. I truly hope the legislation will contain that kind of avenue for franchisors or particularly franchisees to pursue.

We often, in fact almost always, as members espouse that we want to act in a non-partisan way. Unfortunately, it's a partisan atmosphere that we work in, and I suspect many of us go home at night shaking our heads as to why we have to be that way. But that's the way it is, except in some cases where we really should act in a non-partisan way. I think this is one of them, the committee's attempt today to have these comments made and then discuss the bill after and arrive at a consensus. I commend the committee for trying to work toward that end, and I hope this is one of those cases where we all truly work together to provide meaningful legislation that will take into consideration the interests of everyone on all sides of the issue.

In conclusion, in addition to the other thanks that have been given to the staff on this committee, whom I didn't have the opportunity to meet with as much, I want to say to Mr Martin that I don't know of anyone who has worked any harder on any particular subject than he has. I want to congratulate him for his effort. I hope that in the end your work will have accomplished its goal.

Mr O'Toole: I would like to share my time perhaps with Ms Munro or Raminder Gill. I'd start by also saying that if there are questions, we may have time for discussions with Mr Hoffman from the ministry, as well as Ms Harden, who has been paying close attention to the public input. I feel that the general sentiment or theme here has been one of a very flexible, highly co-operative public process.

I also want to personally thank Mr Martin for going to a heck of a lot of work. I would say that one of the presenters, Mr Stewart, went to a lot of trouble. I thought he was a member of your personal staff, because he was supplying a lot of written documentation and material for the committee.

Respectfully, it does have a bit of history and a bit of legs to it. I think we are, in general, trying to find a balance. Are we going to find a perfect state? I don't think something like that exists on this earth, technically, but I believe we will try to come close to that. I know the government has indicated, through the minister and other communications, that we are very open to an amendment process, and there has been a lot of conversation. Until those amendments are actually tabled, I think we'll then move forward on some of the substantive things we heard during the hearings. Of course that's the way it should be, that we do respond to the public.

On the participation of the government, I think just respectfully-not to centre out anyone any more than Claudette; I know she attended all the hearings, as I did-but we also had Raminder Gill, who has been a small businessman. I don't think you were franchised.

Mr Raminder Gill (Bramalea-Gore-Malton-Springdale): No.

Mr O'Toole: But you were a small businessman and familiar with the pressures. The reality of the stories we heard, Mr Martin, isn't unique to Sault Ste Marie, although they were told very well there. Mr Gilchrist, who also attended a good number of the hearings, is familiar with the franchise type of operation and, I believe, is quite sympathetic to some of the dilemmas of the franchisees. As Mr Crozier pointed out, you tend to swing to those who are the most vulnerable.

Personally, I would say, whether it's Mr Wishart, the Grange report or the long discussions on the relationship between a franchisor and a franchisee, there are clearly three major areas within the bill. The disclosure piece-I'm expecting to see us bringing some clarity to that. In the disclosure, I suspect it's more a regulated kind of process, without having too many lists of what you must disclose. I would certainly feel that having a framework for disclosure is something we need to do. Within that, you may want to have something to deal with issues of sourcing. They may differ according to certain franchise sectors. For instance, sourcing in a sector that deals exclusively with a product like a secret recipe, so to speak-you don't want somebody substituting stuff for the secret recipe, whatever it might be, in the industry being talked about.

The one I find where we have the greatest opportunity is with respect to fair dealing. The commercial reasonableness you have suggested, Mr Martin, is something I'm very sympathetic to, and have heard that repeatedly in the committee. We'll see what kind of plain language comes out of the amendments we are all going to entertain. I think it is in the amendment process that we may have to come to some consensus ourselves: whether your amendment is worded better or whatever caucus brings forward the best, most tightly worded amendment.

The right to associate, as you've well pointed out, comes down to: Are they going to be recognized? It's fine to say they can associate. I want to make sure that in that association there is no intimidating factor, so that the franchisors just don't take it over and you either play their game or you're not a member, and that they at least recognize them as an association that reflects the common good of the greatest number in a democratic sense. We won't call it a union; we'll call it an association or a professional association. There might be some need to make sure that's clarified.


I also like the suggestion Mr Martin has brought forward that in the framework of Ontario, being an important part of the Canadian economy-not to be political here-there is every reason to have some standing before the Competition Bureau, because if this is a problem in Ontario, certainly the Canadian regulators and government agencies should be looking at this. So I support that. There's quite a lot of foresight in that observation. Grocery stores, whether they are in Ottawa, Toronto or, for that matter, Halifax, may have the same problems and the same need to have some process to resolve their problems. Why would a franchise operated out of some head office not have similar patterns for disclosure and other processes that are standard across Canada? Maybe it's up to the committee to bring some attention to the Competition Bureau.

My intention is not to delay in any way. But if we felt we could get consensus, through discussion, on the 26th, I would like the flexibility, without forcing a vote on each section-I think there are 15 sections in the bill, and it would be in order to do that. We'll never get perfection. I feel we will get some significant improvements to this bill through this process, and I would like to report it before the end of this session. If we delay it and it doesn't get on the order paper-this is the first time we've gone beyond first reading. If we can expedite this process and have something completed in legislative form before the end of June, I think we would really have done something quite profound. We will then say there's a framework. I'm not averse to putting in a sunset provision to review this thing, saying that in three years or five years this would be reviewed or the regulations would be reviewed, or something.

With that, I will share my time with whomever else has something brilliant to share. Again, thanks to all the members and the staff for allowing this to be an educational process.

The Chair: Thank you, Mr O'Toole. I'd just indicate you can't put a qualifier on that they can only speak if they have something brilliant to say. We have about five minutes left.

Mr Gill: It was also a pleasure to travel through Ontario and meet some of the players in this thing. It was great, and I'd like to thank all the members who attended these hearings. It was my first experience where I felt the public had true input into the system. Of course, as everybody else said, my thanks go to Tony Martin as well, because he certainly worked very hard in educating not only us as committee members, but also having that venue where people could come for input. A lot of people shared their very emotional stories with us. In many cases it took a lot of courage, and I would certainly like to thank all those who appeared in this process.

As in anything, there are usually two sides to every story. In franchise systems, we heard from some players where they had difficulties with their contracts or felt they were dealt with perhaps heavy-handedly by the franchisor. At the same time, we knew from the experiences or from hearing from the businesses that the majority of those systems are working fine, except in some cases some of those franchisees got hurt. Many examples come to mind. I think there was a Pizza Pizza person who had difficulty. We all share, in a way, the difficulties he had. From a small business point of view, I know some of those difficulties, even though I didn't go through the franchise system itself. But at the same time, if you look at the papers today, there are still Pizza Pizza franchises being sold as a system, and many people, unless they are hiding something, are doing OK.

What I'm trying to say is that I don't there is any perfect system anywhere. There are systems that are working fine, but some individuals-I think there were difficulties with Bulk Barn. Some of those are doing fine and some are not. Situations change. I personally have knowledge of a friend of mine who took over a doughnut franchise. I think I shared that briefly. When he looked at the numbers as he went into the system everything was fine, except he didn't realize that the courthouse next door, which had a lot of traffic coming in, was moving three months later. So there are things that happen that totally throw out all the disclosures you can have in the world which show the past history but not what might or might not happen.

There was an issue discussed about local sourcing. I think it came through very clearly in Sault Ste Marie, especially because some of those players are the local growers of the produce and local producers of eggs and stuff. So there is some provision where I think the franchisors can have some flexibility. We should not forget-and again, I'm going to speak a little bit from the franchisors' point of view-that the franchise system takes into account the purchasing that would go through the franchisors. The whole profitability is not only the initial investment that a franchisee makes but also this purchasing that they expect the franchisee will be making through the central purchasing system. When we say, "Can we regulate so that everything can be locally sourced?" I don't think we can do that.

As Mr O'Toole was saying, there's a compromise that we will have to come to. I don't think we can find a Utopian ultimate solution. Going back, Mr Martin mentioned that we've been discussing this thing since the 1960s. I believe it's time to move on. I think we've had good public hearings and, as the parliamentary assistant said, we will perhaps put some kind of clause in, a sunset clause, whatever that is, John, where we will revisit it perhaps five years down the road. I don't think we can find an ideal solution, but at the same time, we must move on and come to some compromise.

The Chair: Could we have an opportunity now to move to a more general discussion, or if committee members have any questions of each other or of the parliamentary assistant.

I would just indicate that many people have given thanks. I want to add to the list and thank the government House leader, Mr Sterling, for both introducing the concept of a bill being referred out to committee after first reading and selecting our committee to have the first trial run at this. It provides an opportunity for greater latitude for the committee to discuss concepts and ideas, to hear from people and move toward a consensus. I see that the committee in this case has taken up that challenge and is moving in that direction and that's a very positive sign for legislating in the province. I think that's useful.

One of the things I just heard from people is that there appears to be a consensus about a number of areas of the legislation that the committee would like to see amendments to. We've yet to determine whether or not there is consensus about the actual content of those amendments. That might form part of your discussion at this point in time. I would also just offer the suggestion that it might form part of the discussion among committee members between now and when you actually table the amendments. One of the things we've heard expressed by a couple of members of the committee is a desire to move in an expeditious fashion through the clause-by-clause, when we get to that. That can be facilitated if there is consensus around the wording of amendments before they are actually tabled by the various caucuses. I leave that with you, as committee members, as a suggestion to pursue or not.

At this point in time, we'll open the floor for any general discussion or questions that people might have.

Mrs Boyer: I just wanted to mention that I forgot another point where we wanted to bring an amendment and that was on section 13, about regulations.

The Chair: Would you like to indicate at this time the direction or the intent of what you would like to do?

Mrs Boyer: No, I think I gave what we are working on right now as far as fair dealing and disclosure. We want to look at the regulations and come back with amendments. I just want to mention that we are bringing some changes to section 13, the regulations.


Mr O'Toole: With your indulgence, I might ask Mr Hoffman if he wants to join us at the table, and Ms Harden, in case there are technical questions. It may help, if we could allocate some time here. I've heard the same input, I have the bill, and I think at a technical level it may be helpful in constructing amendments if Mr Hoffman could be helpful in that respect.

Mr Crozier: I don't know whether anyone has any amendments on sunset clauses per se, but I would like to add my voice to that. This certainly is one of those pieces of legislation, and in fact there are many pieces of legislation, that probably should have a sunset clause so that they're reviewed after a period of time to see if they are working. That might be drafted by ministry people, or perhaps my friends around the table have some kind of introduction of that.

I also want to say that Mr Martin's comments about standing before the federal Competition Bureau would be one that I would individually support. It isn't something that I feel confident to speak about on behalf of my whole caucus, but it sounds like a reasonable recommendation to me.

Mr Martin: I just want to put some caution on the table here in terms of the sunset clause in that I'm hoping it isn't something that was put out there that takes the edge off something we should be doing now, because as you know, the books I've given you tell the stories of some 4,500 families in a period of about five to seven years that have been damaged big time. Five years is a long time if you're in difficulty or in trouble, waiting for some redress to that. I hope we would not see this sunset clause as an escape valve and not do the right thing at this particular point in time when we have an opportunity to do that. I would put that as a caution on the table that I would be worried about.

I've got some questions actually for Mr Hoffman.

Mr Crozier: Can I make one comment with regards to that one, Chair?

I agree with you, Tony, that you wouldn't want to take the edge off anything. The thing I see about a sunset clause is that if it isn't on the agenda of the government of the day, as you're all aware, it's very difficult to get it on the agenda. This is an important issue, I think we all feel, so I agree with the caution but I think the sunset clause helps to get it back on the agenda if there are kinks in it, that's all.

Mr Martin: It's consistent with another concern I have, to be honest with you, which is that we put something in place that kind of gives us all a sense of "OK, we're all right here," when in fact we haven't gone the distance or done the appropriate thing at the moment. You're absolutely right, Mr Crozier, when you say it's difficult-even when you're in government; I was there for five years-to get something on the agenda and actually have it come forward and see the light of day. It really is a monumental task and I have to tell you this whole exercise has been, for me, somewhat serendipitous in that here we are today, discussing this and actually having a chance to put it in place. Some pieces came together and we have a wonderful opportunity, I think, to do something meaningful and helpful in this instance.

So it's consistent with my concern that we not simply go with what is in Bill 33. It's my very sincere feeling that if we simply go with Bill 33-and I know that the government is not suggesting that that's where we stay, that they are willing to move-that what we put up is this façade of, "There is regulation, therefore don't worry. Just go in and, if something goes wrong, you can always fall back on the fact that the government has a regime in place that will be helpful to you," when in fact under Bill 33 there really isn't. There's just a call for full disclosure before you sign the agreement and there's the right to associate. Now, they're good as long as they're done properly and appropriately and everybody lives up to the spirit of that. But if that's all we put up, then we perhaps do more damage in the long run than we do good. So by not doing the right thing here, or by hanging our hat on a sunset clause, we may in fact be doing more damage than we are good. I just want to say that's something that concerns me and that I want to put on the table.

The Chair: Mr Martin, before you go on with questions, Mr O'Toole wanted to comment on the sunset clause.

Mr O'Toole: We're at liberty to consult with really expert people here. We've just been pontificating on this thing, which is not very substantive. Let's say this: I would never like to leave the impression that franchising and small business is unsuccessful. My impression is that it is a very competitive, very margin-driven, successful business formula. That's the impression I would be leaving. There are anomalies. There are the Pizza Pizzas and others that have failures in front of them, but I hold in front of me examples like Tim Hortons, McDonald's, Harvey's and Wendy's that are successful formulas. In the context of today, five years in business is a lifetime; it's a product lifetime. In that context, we don't want to regulate or micromanage and the sunset is an appropriate tool in this particular sector, the small business, ever changing, Second Cup sector.

I would say to you that the government's theory, its philosophical genre, is non-interventionist. Our mandate is really less regulation and less red tape, no better demonstrated than in the ministry I'm with, consumer and commercial relations. We're trying to get into a self-regulatory framework. Those kinds of overarching phenomena may find some discomfort with you, because competition is the word and the market determines the outcomes of who sells more Coke or Pepsi or whatever. If we were to get in and say that thou shalt get certain kinds of-that is a non-starter in my view. I'm not speaking for the government, but we're non-interventionist. Start with that, Mr Martin, and you'll have a better comfort zone.

Mr Martin: If you want to go down that road-

Mr O'Toole: I'm not trying to-

Mr Martin: -we can take this cart and tip it over and get into that kind of adversarial back and forth on this. I would claim that you're dead wrong in some of the assumptions you're making here where this particular sector is concerned. We could have that argument. We could spend the rest of the time here this morning having that argument, and I could put on the table anecdotal evidence of the fact that there is no free market out there and that there is no fairness where the big guy dealing with the little guy is concerned. We can do that. That's actually why we're here today, because there has been undue advantage taken by some people in the sector against others in the sector. You can have a freewheeling free market, if in fact there was one happening out there, but the reality is there isn't. Government needs to have the intestinal fortitude and backbone to stand up at some point and say, "We're going to put in a regulatory regime here that will at least create some fairness in the system." That's what we're trying to do here.

Mr O'Toole: I wasn't trying to be combative. I was really trying to be helpful in saying just what I've stated.

The Chair: Mr Martin, You had some questions you wanted to put to Mr Hoffman?

Mr Martin: Yes, I did. I was looking at this, and you've been on this train for quite some time and work very hard, I know.

Mr Joseph Hoffman: We'll have to compare dates at some point as to when we boarded the respective-

Mr Martin: Yes, in terms of this. Some of the things that I have concern about and that have been highlighted for me as we've gone through the hearings, and the three particular things that I'll be calling for: what were you imagining in terms of a way of making sure, for example, in the disclosure piece, that it happened and that what was in those disclosure statements was correct and consistent with other disclosure vehicles of this sort? How did you see the ministry overseeing or making sure that that in fact is what happens? I guess, to go even further-I might as well do it all-what did you see as a vehicle to make sure people don't misuse or abuse, because in Bill 33 there is no reference to penalties, and there is in Bill 35. I was just wondering if you thought anything more about that.


Mr Hoffman: I'll try to cover all the elements you've raised, so if I've missed one, please don't hesitate. I want to emphasize that it's not what I envision. I can talk to the policy intentions behind the drafting of the bill and the issues the government considered in choosing to put forward the bill in its current form.

First of all, the concept of using legislation to set out a disclosure requirement without reliance on an inspection or audit regime is not an unusual feature. It exists in many jurisdictions, and it exists in many jurisdictions specifically in the area of franchise. It's also part of the statutory framework that exists in Ontario and other parts of Canada for things like cost of credit disclosure, which I think I made reference to at the beginning of the hearings.

In the way the bill is drafted, essentially the legislation provides a very clear obligation to provide the disclosure documents in plain language as a single document a minimum period of time prior to accepting any payment or allowing the franchisee to sign any agreement. The law will require that the franchisee receive that document in that time frame; the 14 days I think is set in regulation.

Ms Bonni Harden: Fourteen days is set out in the bill.

Mr Hoffman: Yes. There's also the obligation that within that period of time, if any material change occurs in relation to the disclosure requirements, the franchisor is obligated to disclose that to the franchisee. In effect, the bill also provides a right of rescission that can be exercised by the franchisee in one of two circumstances.

The first circumstance is where they've received the disclosure document, but there has been some material change subsequent to the provision of the document that has not been disclosed. In that circumstance, if you want to think of it as a clock, the 14-day period is extended automatically by 60 days so that there's a longer period of time in which the franchisee gets to exercise a rescission right.

The second circumstance is when, for whatever particular reason, there has been no disclosure whatsoever, so the franchisor has ignored the legislation absolutely and allowed the franchisee to sign a contract, accepted payment and has never provided a disclosure document at all. For a period of two years following the date of entering into an agreement, if the franchisee becomes aware of the legislation and that they were entitled to receive this document, as in the first circumstance, they have a right of rescission.

A franchisee does not need to go to a court to exercise that right of rescission. The legislation as drafted right now allows the franchisee to exercise that option. Once they exercise the rescission requirements in accordance with the statute, that triggers certain obligations on behalf of the franchisor in terms of the repayment of monies, etc.

If there is an onus that involves the courts, the onus is on the franchisor in that if there is a triggering of the rescission requirements and the franchisor believes they have disclosed or they did comply with the legislation, then the obligation, or the onus if you will, is on the franchisor to go to a court and demonstrate that in such a way that the court would determine that the rescission right is invalid.

So in our view it sets out quite clearly what the statutory obligations are. I can tell you that, as you alluded to at the beginning, as a policy director in the ministry, I've worked in this area for many years under successive ministers and successive governments and we've looked very carefully at the experience in other jurisdictions along the way. One of the things we looked at was, is there any demonstrable evidence that a filing requirement is one that adds value to the type of disclosure obligations that I've said?

Our conclusion in looking at that was that in many jurisdictions where there are filing requirements, they don't really add to the value. In some respects they create some risks in that there is a risk of a false reliance somehow that the document is filed, wherever it happens to be, with a department of government or with an agency or a securities commission. The presence of a filing requirement is taken by some franchisees as a sort of comfort that, somewhere, someone else has done the due diligence. This is an important point to think about in that context.

There are many jurisdictions that have also had filing requirements and have repealed them, for a variety of reasons, including the one I have just mentioned.

I'm not sure if I've covered all of your points.

Mr Martin: Yes, you have, although at another time, as we debate amendments, I can bring up some more.

Mr Hoffman: If I could just add one point, Bonni has whispered in my ear to remind you there is also the right of action for misrepresentation that is set out in the statute. That's an area which I know our minister is certainly open to seeing some consideration of, whether there can be improvements, for example, in regard to the duty of fair dealing and the rights of actions in that area.

The Chair: I have Mr O'Toole and then Mr Crozier and then back to Mr Martin.

Mr O'Toole: I think this is sort of helpful. I perhaps should stay out of this loop because we have some broader opportunities.

Under section 2, the application section talks about extension and renewal of contracts. One of the things we heard, which was quite sensitive, was somebody coming up to the renewal date in their existing agreement, and some of them felt, with leasehold and other commitments, there maybe wasn't due process there for extension. Would that be treated in the disclosure portion or is that treated specifically-like, some security that I'm going to stay in business. That gives you some idea what I am asking.

Mr Hoffman: Yes. Basically, the way the act is drafted, the disclosure requirements-and these requirements will be set out in regulation-would require that the franchisor disclose how they deal with terminations. It wouldn't compel them to deal with terminations in a specific way, but it would compel them to explain what happens upon termination and what rights the franchisor, for example, exercises.

The way the bill is drafted right now, as those regs are prepared, the government does have flexibility to create certain obligations for the phrasing of that section of a disclosure document. For example, a cautionary note of some form that's attached to that section of the agreement might be something that any government of the day would want to look at.

But as a disclosure bill, the approach taken would be to require clear disclosure of how the franchisor deals with termination and what rights or obligations the contract sets out between the two parties in terms of what happens upon termination.

Mr Crozier: Just a question, because I'm a layperson when it comes to this kind of thing, and some reassurance. You said that in the case of no disclosure, the franchisee would not have to go to court. I've always felt that even though that's the case, it's the right of anybody to go to court. I mean, to say, "No, thank you"-I think that's either wrong under the Charter of Rights or it's wrong under some sort of legislation. I have a right to go to court. Is that solid, or can the franchisor say: "No, thank you. I disclosed it to you and we're going to fight this out in court."


Mr Hoffman: I'm sorry, I'm not sure if I understood.

Mr Crozier: You made the statement that, in the case of nondisclosure, the franchisee would not have to go to court.

Mr Hoffman: No. In the case that the franchisee chose to exercise their rescission right under the legislation, arguing that because there was absolute nondisclosure, they never received the disclosure document, the onus would be on the franchisor to either fulfill their obligations under the legislation and pay back etc, or say: "Well, I'm sorry, you did receive the disclosure documents. I have the evidence right here. You signed on a certain day. If we have to, we'll take it to a court and ask the court to overrule your rescission right."

Mr Crozier: But to say they don't have to go to court-they may have to go to court.

Mr Hoffman: Let's contrast this with the way it is now. Right now there are no rescission rights because there's no obligation to disclose. Even if there is a disclosure document provided, which in some franchise systems there are-there are systems that use the uniform franchise circular disclosure that's set out in the US Federal Trade Commission because it's convenient to use that in many jurisdictions in which they operate. Even though that disclosure document may be provided to a franchisee, there are no entitlements. If there is nondisclosure of a material change or a material fact, there's no obligation under law for rights to a rescission etc. So right now the franchisee would have to go to court in order to prove basically the broad duty of fair dealing or that their rights have been abrogated in some other fashion. That's been partly the arguments raised in many of the court situations that have been covered in the media for years.

Mr Crozier: I don't want to spend a lot of time on it, but in all probability then, as long as the franchisor went along with these steps and didn't dispute that there had been disclosure, you don't go to court. But if the franchisor disputes it, you're going to end up in court.

Mr Hoffman: Yes, absolutely.

Mr Martin: Just by way of a quick comment, we regulate the stock market and we have the securities commission at which statements are tabled so that we can in some way give people a sense of confidence that when they put their money in, it's protected, so there isn't insider trading or whatever happening. We have an industry in Ontario of some $45 billion in retail activity and investment of $4 billion. It seems to me there's the need of some vehicle where some of these statements could be put so they could be vetted and make sure they're somewhat consistent and streamlined.

My second question is about a dispute resolution mechanism. I don't know about you, but it was obvious to me as we went through the hearings, from the people who brought me to where I am today in terms of this issue, that what they were looking for more than anything was some vehicle that they could bring their grievance to, to have it looked at by some objective third party so that they wouldn't have to go through the very expensive and difficult exercise of going to court.

Is that not something that you've thought about or considered or would be willing to now do some work around? And in coming to Bill 33, what was the history? What did you look at in terms of not including that?

Mr Hoffman: First of all, I think it's safe to say that the experience in the ministry very much mirrored the experience of the committee in terms of hearing from many sources, not unanimously but a substantial number of sources, that some mechanism other than the courts is either needed or useful to resolve disputes.

Our experience maybe went one step beyond what emerged in the committee process. In the consultations and the work with franchisees and franchisors over the past four or five years, it became very obvious to the ministry that there was absolutely no consensus on what the alternative mechanism should be, if any. There were franchisees who argued that mandatory mediation should be absolutely compelled in the statute even though from a design point of view it is kind of problematic to mandate mediation, which tends to be a mechanism that's proven successful only where both parties have an interest in that. There were other franchisees who argued that mandatory arbitration should be set in place. There was another constituency of franchisees-and I'm not talking about the franchisor perspective-who argued that alternative dispute mechanisms like arbitration should be banned under the legislation because they were as costly as the courts and having a particular prescribed method in the bill could preclude a variety of different choices.

I'm not trying to suggest to you that the ministry reached some conclusion as to which of a variety of mechanisms makes the most sense. That's not the case. But I think I can say to you that in the policy work leading up to the bill in its current form, there was very strongly the view that absolutely one fundamental thing that should be part of the legislation is clarity about whether or not the franchise system that's being offered utilizes a dispute resolution mechanism, that the disclosure requirements can set that out clearly and the presence of that section in a disclosure document would send an important signal to the franchisee or the prospective investor, either by noting that the franchisor doesn't have a system or doesn't subscribe to any kind of system or is not prepared to be involved in any kind of alternative dispute resolution, or to outline the nature of the system and how it might operate so that the potential investor can make an informed decision.

I certainly would not want to debate with you the merits of different mechanisms. Clearly, if political consensus emerged that the bill should take a different approach in this area, that's highly appropriate. I'll leave that to that process.

The Chair: Mr Martin, Mr O'Toole has a question on this point. Did you want to move on to something else?

Mr Martin: No, the same point.

The Chair: Continue then.

Mr Martin: It seems obvious to me then from what you said that there is some real concern that there be something. They can't agree, but there has to be something. This is a huge point of contention and concern. It seems that the government's position at this point is to include it in the disclosure piece but not to actually go ahead and take the bull by the horns and put in place a vehicle that would be helpful.

In terms of the group that you had this discussion with-and from what I can gather, looking at the makeup of the working team, most of the players were either franchisors or lawyers who represent franchisors or who belong to the Canadian Franchise Association. The president of that organization, when he appeared before us, said that there were no franchisees as members of the Canadian Franchise Association.

In talking to a lot of the franchisees out there who are experiencing difficulties at this point in time, their fear, even up to a discussion I had yesterday with some folks who have some real concern about this, is that they're not willing to come out publicly and vehemently put their case about some of these things they feel are necessary, because they're afraid of the retribution that may happen.

I would like some clarification from you as to the makeup of the group that actually came to the compromise position we have in front of us here re the question of a dispute resolution mechanism.


Mr Hoffman: Sure. First of all, I can clarify a number of things for you. The ministry, over the years, has used different mechanisms to consult on this issue, in addition to having a standing team, so to speak, that we have used as a discussion forum, for example, during the consultation or in earlier attempts to see where there might be some elements of consensus between franchisors and franchisees or experts on a legal side who work from a franchisee perspective or work from a franchisor perspective. It's not the only mechanism the ministry has used, and I want to clarify that at the beginning.

Your referred to the Franchise Sector Working Team. Basically there are nine members of that group. Four of those are people who are currently franchisees. There used to be five, but one individual left the group for personal reasons; retirement, I believe. A number of them appeared before the committee on different days of the hearings. One of them is a lawyer, who has represented franchisees and chaired a franchisee action group in a number of legal disputes over the years and is knowledgeable on franchise issues from a legal perspective from the point of view of franchisees. Five members of the Franchise Sector Working Team are franchisors. They are either senior staff from an individual franchise system-Tim Hortons, for example-or they are executives, like the president of the Canadian Franchise Association, who represents a franchisor perspective, as you know.

This is the current composition. As I said, the composition has changed a little as people left, but by and large the ministry has been satisfied that this has been a very balanced discussion. When we conducted the consultation leading up to the bill-you'll recall the consultation paper that was released by the ministry-we met with a wide number of groups, predominantly franchisees, people who were not part of the team. Basically, as I said at the outset, the Franchise Sector Working Team is not the only consultative mechanism involving franchisees that the ministry has had.

The Chair: Thank you. I'm going to go to Mr O'Toole, and I'd like to suggest that over the next 10 minutes or so we try to wrap up this phase of the discussion, if we can. We still have an outstanding item from the subcommittee report to deal with.

Mr O'Toole: This has been helpful in a technical sense, I believe. I just want to go through in some systematic way and briefly summarize. Section 4 is the section dealing with the right to associate. What I'm trying to establish here is that if I were to go through those sections and strengthen them under the whole umbrella of the right to associate, and then look at the sections dealing with the right of action, basically sections 5 through 12-section 12 deals with some exemptions-if you look in detail at those sections, starting with disclosure and the 14-day-penalty situation, each of those sections establishes legitimacy for action and right of action.

I'm not trying to be a legal beagle here because I'm not, but it reads fairly straightforwardly. What I could say and would like to ask you, Mr Hoffman, from a policy perspective is, once this right to associate is established and we have whatever the franchise group is called and they engage the services of a litigant and that litigant, in collective action, or what I would call a class action of sorts-there are two parts to this: the right of association and the right to form a collective class action against a franchisor. Is that outcome a possibility as this bill is currently written? I have a part 2 to that as well.

Mr Hoffman: It's important to clarify. Actually, I'm glad you raised the right to associate, because I think it is important to understand the intention behind the drafting of that section. One problem that became apparent over the years of looking at this sector was that, as fantastic as it is to believe this actually goes on, there are franchise agreements that contractually prohibit a franchisee from talking to another franchisee in the same system or anywhere else.

Our current minister, as well as his predecessors, felt very strongly that this is a fundamental issue. No contractual system should basically assign away someone's entitlement to have an association with other individuals. The intent of this section was basically to eliminate that practice, as limited as it is-and our evidence is that it's not widespread by any means. The intention is to say that if there is a contract that prohibits a franchisee from associating with another franchisee or another business, that essentially is nullified under this agreement. It's one of the few aspects of the bill that is retroactive.

Mr O'Toole: OK, I accept that. I'm just really trying to get to a fairly simple-

Mr Hoffman: But I want to clarify what it wasn't intended to do. It wasn't intended to create an obligation to deal collectively. In the circumstance you described, franchisees can associate, or will be unconstrained, able to associate. If they are doing so for the purposes of comparing information for legal action or choosing to have someone represent the interests of a number of franchisees in a legal action, that can be done and can't be contractually prohibited any longer.

Mr O'Toole: Good. I think that establishes in some fair and reasonable way the right to be recognized, either as an individual or as a collective behind a single lawyer. I think that could be established. The failure to respond to an application of the law here would sort of be contempt of court, because there are provisions here for the right of action. And if these are common things-I'm sure this association is one of the most troubling for the franchisors. It redistributes the balance.

I'm always saying to Mr Martin that in my strengthening of this thing, that's the section that has some pretty-the final part of this, to wrap up quickly, is: This not becoming a piece of legislation that is interfering and, I would say, interventionist, is important. We don't want it to become a relationship piece of legislation. I would say, though, that in the ADR process, if we look at the courts today in civil matters, some attempt to have alternative dispute processes is the future. No one can afford the lawyers technically. Part 2 of this is that the associations would improve the language of disclosure specific to their sector over time. That's what I'm trying to say here. What I have said is: Associate the rights to recognize and follow through resolving disputes.

Healthy organizations are in a continual refinement of the relationship. I saw that in McDonalds. I heard that in McDonalds which, by the way, is one of the more successful franchises. I'm not complimenting. I'm saying that the fellow who was on the franchise working team, a gentleman I could speak to with some comfort-20 years in three or four or five McDonalds and just singing that company song. He's been successful. He says they deal with their individual and collective expectations at corporate meetings. He's on some advisory board. I think that's healthy and I think that exists today.


Those alternate dispute mechanisms don't have to end up in the courts at all times. It isn't a conflict deal; it's change. The corporation wants to survive. All of them want their products to be the best cars, the best banks, the best pizzas, the best chicken, and to do that they've got to change. As an individual, one says: "Oh gee, this continual corporate pressure to change. I'm so sick of it." You either change or you perish, unfortunately.

I understand the dynamics. There is a process there and part of that process of course is educating the independent businessman. What I've described here, the ADR, is a model for this to survive. Do you think it's strong enough?

The Chair: Mr Hoffman, I'm going to ask you to keep your answer as brief as possible.

Mr Hoffman: I think the best thing I can do is just to clarify that the right to associate as drafted in the statute isn't an obligation. It doesn't create an obligation on a franchisor to bargain with an association. It eliminates any contractual ability of a franchisor to prevent association between franchisees and establishes a right of action for damages if that right is interfered with directly or indirectly in any way.

The Chair: Just so I understand that exchange, I think one of the things Mr O'Toole referred to was the right to be recognized, which in fact is not contained within the provision as it is currently written. OK.

Mr Martin, you had one more question?

Mr Martin: Yes, very briefly. On the issue of sourcing, have you done any research?

Mr Hoffman: We've done quite a lot here, but in the interests of time, I've had some fairly recent discussions with our minister around this, debriefing him on the parliamentary committee hearings. One of the issues the ministry is concerned about and the minister is very interested in is this problem of supply relationships and franchise systems being perceived as a restraint on trade. If this is a systemic problem that is coming out of the fact that franchising as a way of organizing businesses has mushroomed so much, then it probably is appropriate to make representations of some kind to the Competition Bureau. Our minister has asked us to do whatever we can to prepare. I think he's quite open to having discussions with other caucus members around how such a representation might be a multiparty one.

Mr Martin: In the meantime, though, is there any talk about putting something in this act that would untie the hands of some franchisees? For example, the Bulk Barn issue right now: "Bulk Barn, bulk buying." They were told when entered into it that they would get product cheaper than they could get it themselves. When they looked into it, they found out that wasn't true. If they just went down the road, they could get product at a much cheaper rate than they were getting from the franchisor and they were being misled.

Mr Hoffman: I can't comment on a specific circumstance, but I would think in a case where a franchisor has made representations in a disclosure document asserting the cost advantage of the supply relationship and that franchisees would be able to source supplies contractually at a lower rate than available on the market and that didn't happen, that would clearly be an area where there has been some kind of material change or an issue of fair dealing.

In a general sense, the supply issue is one which, if the government was to contemplate an amendment in this area, it would be a departure from the approach of focusing on disclosure, although it is possible to strengthen the disclosure requirements in the way the bill is drafted now to provide very strong cautions to the franchisee around what the implications could be for them arising from any contractual obligations to purchase supplies solely from the franchisor.

Ms Harden: In those circumstances, if I can just add, the franchisee, if there were a misrepresentation, has a clear right under section 7 of the bill for an action for damages if the franchisee suffers a loss, a right of action for damages against the franchisor for the misrepresentation. That same section provides a right of action if the franchisor does not comply with the disclosure requirements.

The Chair: Are there any further questions for ministry staff at this point in time? Mr Hoffman and Ms Harden, thank you very much. We really appreciate your attendance here today.

Mr O'Toole will be returning momentarily. We need his presence in order to deal with the subcommittee report. That's our next item to deal with before 12 o'clock.

We are just temporarily pausing, awaiting a couple of members' return to the room. I'm not prepared to wait long. I guess I won't have to. About two more minutes and then we will begin, irrespective of who's back in the room or not. Thank you.


The Chair: If we can continue with the business at hand, clause 3 of the report of the subcommittee was deferred to today, April 19, to be dealt with. Clause 3 reads, "That the committee meet on Wednesday, April 26, 2000, for clause-by-clause review of Bill 33." At this point in time, I would like to ask a member of the subcommittee to put that motion on the floor so it is duly moved and then we can deal with it as the entire committee sees fit.

Mr Martin: So moved.

The Chair: OK, Mr Martin, it's moved. It is before us now. Is there any debate or discussion with respect to that clause?

Mr O'Toole: Just trying to loosen this off a little bit, as has been demonstrated this morning, we can talk about this ad infinitum-and I'm not trying to be smart here. I'm trying to say that I look at an end date; how do I get there, recognizing that everyone should still be in the boat? Do you understand? If we don't put some expectations on the committee, we'll talk about the first amendment for five hours. I think we could achieve this by setting some framework around it. I'd be very pleased to extend another day, start a day earlier-do you understand?-without meaning to be in contravention of the clerk of the committee. Otherwise, we'll be here for four months talking about it. That's what happened with the last two governments: They couldn't get consensus, so it died. That's what's happened. Anyway, can we have some response to that? I'm not trying to hold you up to ransom either.


Mr Martin: Mr O'Toole, it's called the parliamentary process. It's a vehicle that we've put in place over a long number of years to make sure that people have their say and that issues get dealt with in a fulsome fashion. Some things take longer than others. That's the way it is around here. We, in opposition, have a limited number of vehicles to use to get our point across. Bill will remember, because he was in opposition when we were government. To tie the hands of the opposition by saying you're only going to have a day, when that's not in keeping with the spirit of this place in my view, is unparliamentary.

I would hope two things: that the government would be respectful enough of the right of the opposition to make their case and bring their amendments forward and use whatever vehicles are at their disposal to put pressure on the government to consider seriously and in a wholesome way the points which they are trying to make, but I also recognize that the Chair has a role to play. The Chair, in her role, will make sure that we don't become completely and totally repetitive and that we stay on topic and that when we run out of things to say, it's obvious and she'll put the question.

I want to exert my respect for both the parliamentary process in this instance and the role of the Chair to make sure that we do the right thing, that we stay within the parameters of the committee and that we allow whatever time is necessary to make sure that we all get to say our piece and put our points. I get the feeling on one hand that the government is willing to look at and listen to and work with us on this side of House on finding some ways to resolve some of these issues, and then every now and again I hear you, Mr O'Toole, go off on a tangent that indicates to me that we're completely and totally on different sides of the issue here. I don't know where we're going to end up at the end of the day, to be honest with you, given that sort of inconsistency in presentation and approach and understanding of where this issue is concerned.

I am very concerned that there are a number of small business people, very well meaning, hard-working, determined, who have made significant investments, who are concerned about their future, wanting us to do the right thing. For us to limit ourselves simply because, I don't know, we want to get this done next week as opposed to the week after, I have a difficult time with that. I think we need to take the time that's necessary to do this right, to find the proper balance. At the end of the day, yes, I too want to see the light of day and become the order of the day as far as the legislation is concerned. Out of respect for and trying to honour the stories of those who came forward, I don't want to carry this on any longer than anybody else does, but I certainly want to have my opportunity to make my case and to play this out as this place presents opportunity to have a playout. We're only at first reading here. After we do this, we have to go to House, second reading. Then there's the possibility of more committee work after that. Even if we determined that we were going to finish this next week, it isn't finished until it's finished.

In keeping with that, I do have with me today the amendments that we're going to table. I'm not proposing to table them today, although I could if that would be helpful to people. I heard the parliamentary assistant say that he was interested in knowing what it is that we're bringing forward. Well, I would suggest to all of you that if you want to know what I'm bringing forward, look at Bill 35. I'm basically making amendments that reflect a call for us to move to where I wanted it to be had we adopted Bill 35. There are a couple of other things that I have in the report that I circulated-

The Chair: Mr Martin, to keep you on topic, we're actually talking about the recommendations for dealing with clause by clause right now. You're close, but we're running out of time.

Mr Martin: OK. I'm just saying that if, in the interests of time and getting this done, people would like to have my amendments today, I'm willing to share them, but given that everybody else is holding off until next Tuesday, maybe that's what I should be doing too. I'm more than happy to sit down off the record, away from this table, with other people to try to hammer out some consensus on this so that we can get it done perhaps next week. But if that's not possible and I find that I'm not able to achieve at least the underlying principle of what I've outlined here, then it may take longer, and I'm not sure how long that will be.

The Chair: Briefly if possible, Mrs Boyer.

Mrs Boyer: I just want to say that I go along with us beginning next Wednesday. I mean, we've decided by unanimous consent that we would go clause-by-clause. You're the Chair. I'm not ready to say that we have to finish on Wednesday, but I would be ready to start earlier, as we had said, and move on in other hours, not just from 10 to 12. That would be great.

Let's wait for what we have as recommendations from clause-by-clause. I think that today we did have a chance to ask the questions and we may have consensus from what we heard today.

The Chair: If it's of any assistance to the committee members, I'm going to try one more time to give you fair warning that no attempt to limit the time for this, with respect to limitations placed in this motion, will be accepted by this Chair. You can express intent and goodwill all you want, but we will not, as a committee, overrule the rules of order or the directions, or lack thereof, at this point in time from the House. So I appreciate and am hearing a general intent to move as quickly as possible. I'm attempting to circumvent a long debate on this by indicating that any amendment which places a time limit on the clause-by-clause will not be accepted as in order by myself as Chair.

Is there any further discussion or debate on this? OK. We have before us the recommendation from the subcommittee that the committee meet on Wednesday April 26, 2000, for clause-by-clause review of Bill 33.

All those in favour, please indicate. Those opposed?

Carried unanimously.

Thank you very much. At this point in time we'll adjourn. See you next week.

The committee adjourned at 1155.