Franchise Releases

Section 11 of the Arthur Wishart Act[1] is a protective provision that prevents any waiver or release of franchisees’ rights under the Wishart Act: 

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.

The section has been given a large and liberal interpretation to fulfil the overall consumer protection mandate of the Wishart Act. In Dig This Garden[2] the Court held that s. 11 was broad enough to apply to a franchisor’s argument that a franchisee who continued to operate a franchise after exercising rescission had waived that statutory right to rescission. The Court held that accepting this argument would amount to a waiver of rights under the Act and was expressly precluded by s. 11.[3]

The breadth of s. 11 has given rise to issues with respect to releases, which are otherwise typical in the course of commercial litigation and contracting. However, the wording of s. 11 is a blanket prohibition on any waiver or release “of a right”, and thus legal releases do appear to fall afoul of this section on its face. 

For a time, it was felt that releases in franchising were not possible. The law clarified that a release will not contravene s. 11 if the franchisee is provided with legal advice and the release is circumscribed narrowly in order to settle a specific dispute.

In 1518628 Ontario Inc. v. Tutor Time Learning Centres, LLC,[4] a franchisee, represented by counsel, provided a release as part of a settlement regarding inadequate disclosure. The franchisee later argued the release was invalid because it contravened s. 11. Though the Court considered the intent and effect of s. 11, the Court ultimately disagreed with the franchisee. The parties had to be able to release their rights to effect the settlement they had reached.

In 405341 Ontario Limited v. Midas Canada Inc.,[5] a class action was certified, and amongst others advanced claims by franchisees against Midas for breach of its duty of good faith. The representative plaintiff’s franchise agreement renewed in 2009, and as a condition of renewal of the franchise agreement the franchisor required a release of all claims. Midas asserted that the franchisee’s agreement and release meant that the plaintiffs could not continue their claim. The Court of Appeal disagreed, and in its analysis distinguished Tutor Time: