Case reference: 2176693 Ontario Ltd. et al. v. The Cora Franchise Group Inc., 2014 ONSC 600
This historical case summary discusses the decision identified above. Later decisions and legislative changes may affect how it applies today. Obtain legal advice about your circumstances.
It was held by the Court of Appeal that a clause in the franchise agreement required the franchisee to provide the franchisor with a general release of any claims against the franchisor as a condition precedent to the franchisor consenting to the assignment of the franchise agreement was void and unenforceable under s. 11 of the Arthur Wishart Act (Franchise Disclosure), 2000. The Franchisor could not avoid the operation of s. 11 by offering to accept a narrower release after the issue was raised. That approach would permit abuse, as it would open the door for a franchisor to take advantage of a franchisee who was unaware of s. 11 of the Act. Section 11 voided the entire clause, not just its operation in relation to rights under the Act.
Section 11 of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c.3 (the “AWA”):
11. Any purported waiver or release by a franchisee of a right given under this Act or of an obligation or requirement imposed on a franchisor or franchisor’s associate by or under this Act is void.
As a matter of ordinary statutory interpretation, the words of s. 11 must be read in their context and in their grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act, and the intention of the legislature.
Franchise agreement are contract of adhesion and it has been recognised repeatedly that the AWA is intended to mitigate and alleviate the power imbalance that exists between franchisors and franchisees: 405341 Ontario Ltd. V. Midas Canada Inc., 2009, O.J. No. 4354, 64 B.L.R. (4th) 252 (S.C.J.), at para. 21, and the cases cited therein, affd (2010) O.J. No. 2845, 2010 ONCA 478, 264 O.A.C. 111 (“Midas Canada”). As put by Strathy J. (as he then was) in 779975 Ontario Ltd. v. Mmmuffins Canada Corp. (2009) O.J. No. 2357, 62 B.L.R. (4th) 137 (S.C.J.), at para 10: “The AWA is remedial legislation that was designed to address the inequality in bargaining power between franchisees, who were frequently small business people, often lacking in commercial experience, and franchisors, who were typically more sophisticated and substantial corporate organizations. It was a legislative response to the commercial disasters that had befallen some franchisees, who found that the reality of the franchise life was far from the rosy picture painted by the franchisor’s marketing force.”
The purpose of the AWA is to protect franchisees; the provisions of the AWA are to be interpreted in that light: Midas Canada (C.A.), at para. 30.
Section 11 of the AWA is particularly broad. To interpret s. 11 to essentially allow a franchisor to read down its offensive release clause certainly fails to protect franchisees. It allows franchisors to take advantage of franchisees. This is directly contrary to the purpose of the AWA. Further, in considering the scheme of the AWA, it must be recognized that some of the rights found in the AWA are codifications of common law rights. The suggestion that the general release should be read down to release only non-statutory rights invites considerable debate and confusion about the status of all overlapping claims.
In Shafron v. KRG Insurance Brokers (Western) Inc., (2009) 1 S.C.R. 157, (2009) S.C.J. No. 6, 2009 SCC 6, at paras. 33 and 36, the Supreme Court observed as follows: “While the courts, wish to uphold contractual rights and obligations between the parties, applying severance to an unreasonably wide restrictive covenant invites employers to draft overly broad restrictive covenants with the prospect that the courts will only sever the unreasonable parts or read down the covenant to what the courts considers reasonable. I am of the opinion that blue-pencil severance may be resorted to sparingly and only in cases where the part being removed is clearly severable, trivial and not part of the main purport of the restrictive covenant. However, the general rule must be that a restrictive covenant in an employment contract found to be ambiguous or unreasonable in its terms will be void and unenforceable.”
*source: Ontario Reports
