LCBO franchising: Where the government both regulates and profits from unfairness

The Liquor Control Board of Ontario, LCBO is reputed the largest single purchaser of alcohol in the world.

It is the monopoly retailer for all liquor and, much to The Beer Store‘s chagrin, increasingly beer

The LCBO is a provincially-owned and -controlled agency that remits a type of profit or dividend to the government every year.

On $4.13 billion sales, the 2008 dividend to the treasury was $1.345 billion. That’s billion per year.

The LCBO is also a franchisor.

They run what they call agency stores: liquor and beer sales through rural grocery and convenience stores. These are franchise agreements as defined by Ontario provincial law.

However, the Ontario government exempts the LCBO (themselves) from protecting these franchisees when compared to the other 40,000 ON franchisees.

Section 2. (3) of the Arthur Wishart Act (Franchise Disclosure), 2000 reads:

Non-application

2. (3) This Act does not apply to the following continuing commercial relationships or arrangements:…

8. A service contract or franchise-like arrangement with the Crown or an agent of the Crown. 2000, c. 3, s. 2 (3).

The Ontario government knows perfectly well how franchising works. Franchisors take 100% of both:

• the benefits (no capital, no risk, no litigation, no unionized workers, alternate distribution in case of labour strife, monopoly supplier) and
• strip all legal rights from the retailer/franchisee.

Franchisees in the U.S. have had specific franchise law since 1956.

For the LCBO franchisees:

1. No disclosure documents to make an informed pre-sale decision,
2. No good faith obligations,
3. No fair dealing,
4. No commercially reasonableness standard,
5. No right to associate,
6. No right of rescission,
7. No damages for breaking the franchise law,
8. No protection from pre-sale LCBO misrepresentations:
9. No thing.

To be fair, the operators can always privately sue this +$4-billion agency if they act in a negligent, reckless or in an opportunistic way. Good luck with that.

I was there when the Wishart Act was passed and there was no discussion, zero, zilch, not-a public discussion about this self-serving exemption.  Out of the blue…100% behind-the-door stuff…another cruel joke on the Ontario small business community and organized labour.

If there was ever a group that needed a franchisee association, it is these operators.