The Arthur Wishart Act (Franchise Disclosure), 2000 is Ontario's franchise law. For a franchisor it means four things: deal fairly with franchisees, let them associate, give every prospective franchisee a complete disclosure document at least 14 days before they sign or pay, and accept that a missing, late or inaccurate document can unwind the sale and expose everyone who signed it to damages. The contents of the document are set by Ontario Regulation 581/00. The text below follows the current consolidation on Ontario e-Laws (last amended in 2017 for the Act and in 2020 for the regulation).
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Who the Act applies to
The Act defines a franchise broadly: a right to run a business where the franchisee pays the franchisor, directly or indirectly, and either sells goods or services associated with the franchisor's trademark under the franchisor's significant control or assistance, or receives representational or distribution rights with related support. Businesses that call their arrangement a "licence" can still fall within that definition. Section 2(3) lists the relationships the Act does not cover, among them employment, partnership, co-operative membership and a single trademark licence granted to one licensee in Canada. Where your model sits is one of the first questions to put to a franchise lawyer.
Fair dealing and the right to associate
Section 3 imposes on each party a duty of fair dealing in the performance and enforcement of the franchise agreement, which includes acting in good faith and in accordance with reasonable commercial standards. Breach gives a right of action for damages.
Section 4 lets franchisees associate and form or join an organization of franchisees. The franchisor may not prohibit, restrict or penalise this, and any contract clause that tries to is void.
The disclosure obligation, section 5
| Requirement | What the Act says |
|---|---|
| Timing | Received by the prospective franchisee not less than 14 days before the earlier of signing any agreement relating to the franchise and paying any consideration |
| Allowed before disclosure | Confidentiality and non-use agreements, and agreements that only designate a location, site or territory (s. 5(1.1)) |
| Deposit | Only if refundable without deductions, given under a non-binding agreement and not exceeding 20% of the franchise fee, maximum $100,000 (O. Reg. 581/00 s. 7.1) |
| Form | One document, delivered as one document at one time (s. 5(3)) |
| Delivery | Personally, registered mail, courier paid by the franchisor, or electronically with the conditions in O. Reg. 581/00 s. 12 |
| Contents | All material facts, financial statements, copies of all proposed agreements, prescribed statements and documents (s. 5(4)) |
| Changes | A certified written statement of material change before signing or payment (s. 5(5)) |
| Quality | All information accurately, clearly and concisely set out (s. 5(6)) |
What O. Reg. 581/00 requires in the document
From the franchisor's side, these are the items that take the most preparation:
- Background (s. 2): the franchisor's business history, each director's and officer's experience, ten years of convictions for fraud, unfair business practices or violations of franchise or business law, any administrative orders and civil findings of that kind with pending matters, plus six years of bankruptcy or insolvency history.
- Financial statements (s. 3): audited, or prepared to review engagement standards, for the last fiscal year. A franchisor with less than one fiscal year provides an opening balance sheet.
- Risk statements (s. 4): four prescribed statements together at the start of the document, including the advice to seek independent legal and financial advice and to contact current and former franchisees.
- Costs and economics (s. 6): every start-up cost with assumptions; if you give an operating cost estimate or an earnings projection, its basis, assumptions and where supporting information can be inspected.
- Operations (s. 6): training and who pays for it, advertising fund spending and retention over two fiscal years, purchase restrictions, rebates, trademark rights, required licences, territory and proximity policy.
- The network (s. 6): franchisees who left the system in the last fiscal year with contact details, reasons for closures over three years, and a list of Ontario locations (topped up to 20 with the closest locations elsewhere).
- Certificate (s. 7): signed and dated by the franchisor; for a corporation with more than one officer or director, by at least two of them.
Rescission, section 6
| Situation | Franchisee's right |
|---|---|
| Document or material change statement late, or contents deficient | Rescind without penalty within 60 days after receiving the disclosure document |
| No disclosure document ever provided | Rescind without penalty within 2 years after entering the agreement |
After rescission the franchisor has 60 days to refund money received (other than for inventory, supplies or equipment), buy back inventory, supplies and equipment at the purchase price, and compensate the franchisee for other losses of acquiring, setting up and operating the franchise. For a franchisee who has fitted out a location, that last item can be the largest.
Liability, section 7 and onward
A franchisee who suffers a loss from a misrepresentation in the disclosure document, or from any failure to comply with section 5, can sue the franchisor, its agent, its broker, its associate and every person who signed the document. Reliance on the misrepresentation is deemed. Liability is joint and several (s. 8). A clause moving the dispute out of Ontario is void for claims under the Act (s. 10), a franchisee's waiver of rights under the Act is void (s. 11), and whoever claims an exemption has to prove it (s. 12).
Two practical consequences for franchise sales. First, a franchise broker or sales agent who markets the franchise sits on the list of people who can be sued, so their scripts should match the document. Second, the directors and officers who sign the certificate carry personal exposure, so they should read the document line by line.
Exemptions in brief
Section 5(7) lists grants that need no disclosure, for example an additional franchise to an existing franchisee for the same franchise with no material change, a renewal without a material change, and grants where the franchisee's total initial investment is $15,000 or less, or over $3,000,000 (amounts from O. Reg. 581/00 s. 9). Your lawyer confirms whether one applies; the burden of proof sits with you.
Where franchisors trip up
On Fast Coffee, a self-serve coffee brand in our own group, the early website carried income promises and a "guaranteed money back" claim on its franchise pages. We took them out, because an earnings claim in Ontario belongs in a disclosure document with its basis and assumptions, and a money-back guarantee is a commitment that would have to appear in the agreement and the document. See the Fast Coffee case. Other frequent problems: start-up cost tables that leave out working capital, advertising fund rules that differ between the agreement and the document, and documents sent as several emails over a week, which conflicts with the one-document rule.
How we help
Marketing MIX prepares the business content an Arthur Wishart disclosure document needs and keeps the sales materials consistent with it. A franchise lawyer licensed in Ontario drafts and reviews the document and agreements. Related reading: franchise disclosure document in other provinces, franchise financial model, franchise fees and royalties and franchise sales and marketing.
Book a paid 30-minute consultation (100 €), or send your current franchise pages and draft documents for a written review (from 200 €). The full package is on franchise development in Canada.
Franchise development FAQ
What is the Arthur Wishart Act?
The Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3, is Ontario's franchise law. It imposes a duty of fair dealing on both parties, protects franchisees' right to associate, requires the franchisor to deliver a disclosure document at least 14 days before the franchisee signs or pays, gives rescission rights when disclosure fails, and creates a right to damages for misrepresentation. Its regulation, O. Reg. 581/00, sets out what the disclosure document must contain.
How long before signing must the disclosure document be delivered?
The prospective franchisee must receive it not less than 14 days before the earlier of signing the franchise agreement or any other agreement relating to the franchise, and paying any consideration relating to the franchise. A confidentiality agreement, a non-use agreement or one that only designates a location, site or territory does not trigger the deadline.
Can an Ontario franchisor take a deposit before disclosure?
Only a deposit that does not exceed 20% of the franchise fee, to a maximum of $100,000, is refundable without any deductions, and is given under an agreement that does not bind the prospective franchisee to enter into a franchise agreement (Act s. 5(1)(b); O. Reg. 581/00 s. 7.1).
What are the rescission rights under the Arthur Wishart Act?
A franchisee may rescind without penalty within 60 days after receiving the disclosure document if it was late or did not meet the requirements of section 5, and within two years after entering the agreement if no disclosure document was ever provided. Within 60 days of rescission the franchisor must refund money received, buy back inventory, supplies and equipment at the price paid, and compensate other losses of acquiring, setting up and operating the franchise.
Who can be liable for misrepresentation in a disclosure document?
Under section 7, the franchisee has a right of action against the franchisor, the franchisor's agent, the franchisor's broker, the franchisor's associate and every person who signed the disclosure document or statement of material change. The franchisee is deemed to have relied on the misrepresentation, and these persons are jointly and severally liable.
Can a franchise agreement choose another province's law to avoid the Act?
A clause restricting the application of Ontario law or moving jurisdiction or venue outside Ontario is void for a claim otherwise enforceable under the Act in Ontario (s. 10), and any waiver or release by a franchisee of rights under the Act is void (s. 11).
Laws and sources we cite
- Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3, current consolidation, last amendment 2017, c. 20, Sched. 9 (Ontario e-Laws)
- O. Reg. 581/00 General, last amendment O. Reg. 418/20 (Ontario e-Laws)
- Marketing MIX case: Fast Coffee
