Franchise litigation

How BC law treats it

Most franchise disputes in BC turn on the franchise agreement and the Franchises Act, SBC 2015, c 35. Common claims include rescission for late or deficient disclosure (s. 6), damages for misrepresentation in the disclosure document (s. 7), breach of the duty of fair dealing in performance and enforcement (s. 3), interference with franchisees' right to associate (s. 4), wrongful termination, and the franchisor's claims for unpaid royalties or breach of restrictive covenants. Contract law supplies further duties. Parties must perform honestly and not knowingly mislead each other (Bhasin v Hrynew, 2014 SCC 71; C M Callow Inc v Zollinger, 2020 SCC 45), and must exercise contractual discretion in good faith (Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7). Many franchise agreements require mediation or arbitration before or instead of court. Arbitrations seated in BC are governed by the Arbitration Act, SBC 2020, c 2. Where many franchisees have the same complaint, such as a common misrepresentation or misuse of the advertising fund, claims may be brought as a class proceeding under the Class Proceedings Act, RSBC 1996, c 50. Disputes can be urgent: franchisors often seek injunctions to enforce de-identification and non-compete covenants after termination. Most claims must be started within two years after the claimant discovered, or reasonably ought to have discovered, the claim (Limitation Act, SBC 2012, c 13, ss. 6 and 8). The shorter rescission windows under the Franchises Act run separately and can expire much sooner.

What it means for your business

Franchise disputes can threaten a franchisee's entire investment and a franchisor's whole system, because one successful claim may invite others. Early assessment of the agreement's dispute resolution clause, the disclosure record and the strict rescission deadlines often decides the outcome. Franchisors benefit from consistent enforcement and documented good faith decisions. Franchisees benefit from acting quickly, preserving records and coordinating with other franchisees where issues are system wide. Example: Twelve BC franchisees of a fitness chain allege the franchisor used advertising fund contributions to cover head office costs. They bring a joint claim for breach of contract and of the duty of fair dealing after a mandatory mediation fails.

Risks and common mistakes

Missing the 60 day or two year rescission deadline while negotiating informally. Ignoring a mandatory mediation or arbitration clause and filing in court first. Stopping royalty payments without legal advice, giving the franchisor grounds to terminate. Failing to preserve emails, sales data and the disclosure document needed to prove the claim. Assuming the duty of fair dealing allows a court to rewrite unfavourable but clear contract terms.