Canadian Franchise Termination: What You Need to Know

It pays to know what type of notice a franchisor must give you to terminate your agreement with them. You do have rights in this situation and may be able to keep your agreement active in some cases, so keep reading to learn about this action.

Look at your agreement

Checking the wording regarding termination in the agreement should be your first step. Find out what the permitted reasons for termination are, such as default in payments to the franchisor. If, for example, you're late with your payment but are allowed time to pay up this default, the franchisor cannot actually cancel the agreement until that grace period has passed and you still haven't paid. Keep in mind that some agreements allow for termination without a default or any other specific event happening. In this cases, there is usually a set period of notice the franchisor has to give you before they terminate, which gives you time to contact the franchisor and find out what is going on.

Conduct does matter

The most fundamental rule, legally speaking, is that both you and the franchisor must have acted honestly when it comes to the performance and enforcement of the franchise agreement. Say, for example, that your franchise agreement allows for termination because you did not operate the business for the hours specified in the agreement. The franchisor tells you that you can close your location early on a holiday and you do, but the franchisor later notifies you it is terminating your agreement because you were not open the required hours that day. In that example, the franchisor is not acting honestly, and it's likely you could successfully challenge the termination in court or arbitration.

Venue and jurisdiction should be taken into account

Your franchise agreement may state that disputes must be dealt with through arbitration or mediation first. If that's the case, if you try to fight the termination in court, you will still be required to do mediation or arbitration first - whichever method your agreement specifies. However, it's important to note that if your agreement has clauses that appear to violate the law, the court will usually declare those particular clauses unenforceable. This will be determined by the provincial franchise law in your area; if there are no specific provincial laws, common law will apply.

Consider having any franchise agreement you may sign reviewed by an attorney first. When you fully understand your agreement, you're in a better position to protect your rights and less likely to be blindsided later.