What Saskatchewan’s new franchise disclosure legislation means for franchisors

On November 9, 2023, the Government of Saskatchewan introduced Bill 149, The Franchise Disclosure Act (the “Franchise Disclosure Act”).

Currently, Saskatchewan has no franchise-specific legislation in place; instead, principles of contract and the common law govern the franchise relationship.

If enacted, the Franchise Disclosure Act will introduce a new regime for franchised businesses and result in increased rights for franchisees and corresponding obligations for franchisors, similar to what is already present in Alberta, Ontario, Prince Edward Island, New Brunswick, Manitoba and British Columbia.

Consultation process

From August 15, 2023, to September 15, 2023, the Government of Saskatchewan carried out a consultation process, inviting the public to provide comments on the use of the Uniform Franchises Act adopted by the Uniform Law Conference of Canada.

In response, the MLT Aikins Franchise Law Group submitted comments and suggestions for the consideration of the Government of Saskatchewan with a view to improve on the existing legislative framework across Canada.

For example:

  • The lack of clarity on the application of certain terms to certain complex business models – i.e. master franchise and area development models
  • Uncertainty on what the law considers “material” facts or changes
  • Greater clarification on what constitutes failure to meet disclosure obligations

Key points of proposed legislation

At a high level, the Franchise Disclosure Act proposes to put in place the following rights and obligations:

  • Fair dealing: Franchisors and franchisees alike will be subject to a duty of fair dealing, including with respect to their obligations under the franchise agreement.
  • Franchisee right of association: Franchisees will have the right to associate with one another and franchisors cannot attempt to interfere with this right.
  • Disclosure obligations: Franchisors will be responsible for providing prospective franchisees with a disclosure document that meets certain requirements at least 14 days before entering into any agreement relating to the franchise or paying and funds.
  • Remedies: Where franchisors breach their obligations and do not substantially comply with the legislation, they will face significant penalties, including for example the right for franchisees to “rescind” the franchise agreement with the franchisor responsible for refunding franchisees all money expended, purchase all equipment, supplies and inventory, and any losses the franchisee experiences if disclosure obligations are not met.
  • Jurisdiction and waiver of rights: Franchise agreements will not be able to attempt to opt out and waive Saskatchewan’s jurisdiction or the rights under the Franchise Disclosure Act.
  • Regulations: The legislation will provide the Lieutenant Governor in Council a broad ability to set out additional detail on the above requirements by regulation.

Status and next steps

The Franchise Disclosure Act will come into force after the following steps:

  • The Franchise Disclosure Act is currently before the legislature for its second reading, which has been adjourned each sitting since November 14, 2023.
  • Once the Franchise Disclosure Act passes through second reading, it will move to committee stage.
  • At committee stage, the legislation will undergo review which could result in proposed changes to the legislation before it returns to the legislature for third reading.
  • After it passes through third reading, it will come into force on order of the Lieutenant Governor.

Although this process can often be long and drawn out, the legislation has already made it through the first reading, with the second reading underway within two weeks. This suggests that the Franchise Disclosure Act may move through the additional stages promptly and, as a result, franchisors should start preparing for its enactment accordingly.

What this means for franchisors

The majority of the Franchise Disclosure Act is set to only apply to new franchise agreements or renewals entered into after the legislation is in force. That said, existing franchise arrangements as at the time of enactment will be subject to the fair dealing, franchisee right to associate and liability provisions, among others.

It is critical that franchisors start preparing for the implementation of the Franchise Disclosure Act by ensuring that they understand their rights and obligations under the legislation, that their current practices are in line with such requirements, and, among other things, start preparing a disclosure document.

MLT Aikins has extensive experience advising franchisors on franchise structures, agreements and disclosure documents in Saskatchewan as well as under similar legislation across Western Canada. Contact one of our franchise lawyers to learn more.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.