Jul 11, 2014

Court Rules Franchise Release As Condition of Resale Is Invalid

2176693 Ontario Ltd. v. Cora Franchise Group Inc., 2014 ONSC 600 (CanLII)

The Ontario Superior Court of Justice released a decision in January 2014, involving Cora Franchise Group, 2176693 Ontario Ltd. v. Cora Franchise Group Inc., 2014 ONSC 600 (CanLII), holding that a standard assignment release clause - requiring a franchisee to release a franchisor of all claims as a condition of assigning the franchise - is invalid.

The court ruled that such a general release condition is invalid because of s. 11 of the Arthur Wishart Act (Franchise Disclosure), 2000, which voids any purported release or waiver:

Rights cannot be waived

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

This is an important decision to the franchise community because practically every modern franchise agreement contains a similar general release clause. Many franchisees complain about being required to release a franchisor of all claims before being allowed to sell their franchise to a new purchaser (which typically requires an assignment their franchise agreement). Franchisees cannot be required to provide a blanket release of their rights under the Arthur Wishart Act.

Franchisors are not without options. As a best practice, franchisors should deal with the issue of settlement without delay and more thoughtfully, proactively and more specifically in relation to a particular dispute they may have with a franchisee.

One of the cases discussed in the Cora decision is the very first Ontario decision on franchise settlements, called Tutor Time:1518628 Ontario Inc. v. Tutor Time Learning Centres LLC (2006), 150 A.C.W.S. (3d) 93 (Ont. Superior Court of Justice). In the often-cited Tutor Time decision, Law Works' Ben Hanuka acted as counsel.

For more information on this issue please visit Law Works’ Franchise Waivers and Releases page.