Settlement possible in Tim Hortons franchisee-franchisor lawsuits

This restaurant-franchise dispute between the franchisor and franchisees illustrates the kind of relationship breakdown that can occur in this business model.

Two class-action lawsuits filed in Ontario brought by an "unsanctioned" association of Tim Hortons' franchisees against the franchisor and its parent company Restaurant Brands International are closer to settlement after extensive negotiation. According to The Canadian Press, about 1,500 franchisees across the country each received a proposed settlement for their review on March 8, 2019. Each franchisee can either accept the proposal or opt-out.

While these suits are in Ontario court, they impact franchisees throughout Canada and are representative of the kinds of franchise disputes that can arise in Alberta.

The Canadian Press reports that the Tim Hortons franchisees, represented by the Great White North Franchisee Association or GWNFA, alleged these concerns:

  • How the franchisor spent advertising money at a national level
  • Makeup and function of the elected franchisee advisory board
  • Money set aside to "buy out the GWNFA's current and future members"
  • Denial of "store opportunities" to franchisees "'not aligned' with the chain's interest"
  • And others

The proposed settlement, if approved, would provide:

  • Franchisor payments of $10 million over a two-year period on local ads
  • Franchisor payment of $2 million in GWNFA legal fees
  • Franchisee advisory board review of advertising budget
  • Advisory board reforms
  • Future franchisee power to negotiate some contracts such as for insurance
  • "[P]rotection from retribution" for some GWNFA members against whom the franchisor had taken negative action, including 10-year franchise extensions

On or about April 26, 2019, the parties will have the opportunity to appear in court to voice concerns, after which the judge still must approve the settlement.

Common issues in the franchise relationship

According to Lexpert, as of 2016 Canada's franchise industry was number two internationally, with about 1,300 brands and 78,000 franchise units that employed more than 7 percent of Canadian workers. One-fifth of all Canadian spending on consumer goods or services go to franchises.

In 1971, Alberta was the first province to enact comprehensive franchise legislation and the business model continues to proliferate the province. Legal issues that might come up in an Alberta franchisor-franchisee dispute include:

  • Breach of the duty to act in good faith and fair dealing
  • Breach of contract (franchise agreement)
  • Failure of franchisor to provide franchisee with compliant disclosure document and related information as required by the Franchises Act
  • Financial disputes
  • Fraud
  • Degree of franchisor control over franchisee activity, including over employment and marketing (including evolving standards for social media)
  • And others

Any Albertan involved in franchising as a franchisor or franchisee who faces a business dispute should seek legal advice and representation from an experienced lawyer.

The lawyers at Ridout Barron in Calgary represent franchisors and franchisees in a variety of industries and sizes in the Calgary area and throughout southern Alberta. Ridout Barron lawyers represent clients in franchisor-franchisee disputes using negotiation, mediation, arbitration and, when necessary, litigation.