The Grange franchise investigation stands the test of time

Samuel Grange, Q.C. and his 1971 “Report of the Minister’s committee on Franchises”: the Grange Report.

In 1970, the Honourable Arthur Wishart, W.C., M.P.P. (Sault Ste. Marie),  Minister of Financial and Consumer Affairs commissioned a public inquiry into referral sales, multi-level or pyramid sales, and franchises. He appointed Grange to head a public inquiry. The current Ontario law was named in 2000, specifically to point backwards in time to Grange’s independent recommendations.

Even after almost 40 years, Justice Grange cuts through the nonsense.

SUMMARY OF RECOMMENDATIONS

Franchises
1. Legislation is to apply to all industries and to all franchises within each industry
2. Prohibition against dealing in franchises except as provided
3. Franchisor to file prospectus setting forth detailed information on scheme
4. Franchisee to have compulsory 48-hour cooling-off period before execution of agreement
5. Franchisee to have right to apply to Tribunal or Court to determine,
(a) whether contract is fair; and
(b) whether conduct of franchisor is fair in circumstances
6. Tribunal or Court to discourage following:
(a) arbitrary termination
(b) arbitrary refusal of assignments or renewals
(c) arbitrary forfeiture of deposits
(d) forced purchases and secret profits
(e) competitive and discriminating practices by franchisors

General
1. The formation of a separate branch of division with its own Registrar to administer multi-level and franchise matters.
2. Control of advertising
3. Regular renewal of permission to operate to be required
4. Suspension and cancellation of permission to operate
5. Regular inspection of records
6. Provision for escrow of investments or fees to protect investors and franchisees
7. Application of legislation to leases as well as sales

Full Report

It is my impression that the current Ontario judiciary is on same frequency as was retired Appeal Court Justice Grange.

York University’s Osgoode Hall Law School Alumni Association Honours Three Outstanding Members of the Legal Profession

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13 Responses to The Grange franchise investigation stands the test of time

  1. Ray Borradale says:

    Les, I’ve have only read this document once, so far.

    Having been around franchising for a few days now I always tend to look for what is missing.

    I have not noted anything dealing with gag orders? Your thoughts and have you additional recommendations to improve on the Grange Report given the extra dimensions of franchising 40 years on?

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  2. Les Stewart says:

    Ray,

    Good catch on gag orders.

    I think many of the other nasties would calm right down if franchisees had an ability to contact a bureau and file a complaint. This “re-education” of the parties would be fairly brief in time as a best practices model evolves within franchising.

    Of course the franchise registrar would be the body that would insist that all participants be members of the best practices movement, very similar to the not-so-voluntary enrollment QA, ISO9000, etc. initiatives.

    For example, general insurance companies would insist their franchisor and franchisee sign or or they would be “rated” for their premiums.

    Who knows: someone might even suggest each franchise agreement be evaluated along the lines of what the AAFD and Michael Webster developed.

    Stranger things seem to be happening…

    Les

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  3. Ray Borradale says:

    Layman’s view of Law;

    It’s a guard dog: have a good look and from all angles and make sure it has balls.

    To date in franchising the law has been a bitch with saleable bark.

    Stranger things seem to be happening … but far from ready to go fishing.

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  4. Les Stewart says:

    No question we’re not farting through silk.

    I think of it in terms of political power with Big Franchising on one end of a teeter-toter and franchisees on the other end.

    The fulcrum or pivot point is movable based not on the franchisors needs/wants/desires or the franchisees for that matter. Shrill choruses without “stickiness” in the public’s mind are like peeing in a dark suit: nice to hear but, like, we’ve had some 20-40 years of lone voices.

    When that fulcrum moves “just enough” somebody’s ass is going to be very (not a little) shocked. It’s a digital not incremental function.

    And there’s something about reality-based arguments (commonly seen as “truth”) that comprises the “X” factor in aid of one side or another. Our job is let nature take its course: Be Calm, Carry On.

    We may never ride any donkeys over psalms, Ray, but knowing we pulled a few weeds out of this garden, is enough for now. Now about that Order of Ontario/Canada/World….

    Les

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  5. Ray Borradale says:

    Carol, I suspect that the size of the US market and the issues of Federal/States law ensure that franchisees in the US will be dealing in silk for some time yet.

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  6. Carol Cross says:

    Yes! Unfortunately! While the Federal Government appears to have intended the FTC Rule goverrning the sale of franchises to the public to preempt state laws governing the sale of franchses, the states appear not to agree. This area of the law is troubled with conflicting case law!

    One would hope that the Congress and the Executive and the Courts would look at the FLAW in the Federal Trade Commission Rule governing franchising and do something about it.

    All of this fraud and intentional tort against franchisees has been flying under the radar —but maybe this will no longer be possible. This is the only reason I see for pushing litigation in the form of class actions into the higher courts. Can they ignore the FLAW and the fraud forever — will they?

    Read Franchise-Fraud.com and http://thegreatfranchisingrobbery.blogspot.com

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  7. Ray Borradale says:

    Carol, I made this comment at BMM yesterday:

    ‘My knowledge of US law does not come close to being microscopic but in my naïve and unqualified opinion your franchising law(s) seem to be pinpointed toward litigation and there is the sense that for all those that can’t play in the litigation arena they are forgotten and without voice.

    That just doesn’t seem to fit with your history and ‘for the people’. The internet is contributing to positive change in Australia but it was people knocking on politician’s doors that made the difference and Canada appears to be moving forward with the Wishart Act. Does franchising relationship Law have to be ‘settled’ in the US?’

    Carol I’m not suggesting change would be easy in the US but anything can be taken down and rebuilt in time. Perhaps a long time but making noise for change seems to find more good people prepared to make noise and so it grows.

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  8. Ray Borradale says:

    It was also suggested that noise has healing powers for those who actually believe it was all their fault when in fact they were professionally duped.

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  9. Carol Cross says:

    In our current political climate, where arrogant Republicans want to destroy the advances in health care for all the people because it is an extravagance they say we cannot afford, I don’t think the noise about “franchising” will even be heard by the Congress. Unfortunately, I think many of the “tea party” people are good people but misguided, I think much of this movement is inspired by “politically incorrect” racism that is hidden and which still exists just under the surface — and which is used by the Republican party to undermine the initiatives of the current administration.

    Politics is “show business” in the United States and product for the news media. It may be that Presidents will not be able to govern because of information overload that confuses the issues and turns the people off.

    The body bags of the victims of dishonest regulation that allows franchisors to hide the actual risk and lack of profitability of the franchises that they sell to the public will continue to be hidden from view by both of the political parties, as usual. If there are no reliable government statistics available on failure and churning, all involved continue to have deniability and will not look at the victims.

    The Internet is making a change and there is a little noise but the noise of the status quo that pushes franchising to the public drowns out the noise of those who try to warn that franchising is a gamble that NO MOM and POP should consider if they have to put their home or their retirement savings up as collateral for a loan. http://thegreatfranchisingrobbery.blogspot.com

    .

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  10. Ray Borradale says:

    So ‘for the people’ is an aged concept?

    On a smaller scale we peasants in this country are just as oblivious. I do give global financial institutions, or at least the aholes behind them, utmost credit for creating the maze and keeping the little folk with their noses to the grindstone.

    Today’s hallucination is that a leader comes out and screws the created law and just takes back the power. What we have is not much different from history and that is probably why it continues to turn to siht.

    I’ve been given all manner of nasty labels because for my opinions as have most of us. I just believe I am a realist that sees the pox in front of me. Franchising is a bi-product but you have to start with what you know and hope like hell others are doing the same.

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  11. Carol Cross says:

    Yes! In representative democratic Republics, it appears that “capitalism” trumps “democracy” in the marketplace! Obviously, prospective franchisees aren’t considered to be consumers under the law in order to enable disclosue without disclosing the risk in terms of unit performance of the system. Prospective franchisees (UNKNOWINGLY) become calculated sacrifices to promote competition among the franchisors, who are able to saturate the many concepts in their fight for market share because the franchise model of business mitigates the risk for the franchisor and enables “churning” and “encroachment” of the assets of the franchisees that produce the EBITDA’s for the franchisors.

    If franchisors had to compete to recruit franchisees” cheap labor and cheap venture capital through the disclosure of risk/profitability/success statistics of units within the franchise systems, the worst franchisors would be weeded out because of the competition to recruit franchisees -but, ultimately, there would not be as much competition between the various systems and, ultimately, the number of unsustainable startups franchised business units would be reduced.

    Obviously, prospective franchisees are “calculated” sacrifices to the highest GOD of capitalism and free markets, i.e. the God of “Competition” which is rationalized as a service to the “consumers” in the nation in terms of producing the lowest prices and the greatest choice. If the “unknown” percentage of buyer/ owners of unsustainable franchised businesses are sacrificed to feed the God of Competition, they have to be silenced and hidden from any “official” view of government so that government has continued deniability of “churning” and of the high failure rate of franchised small business startups.

    http://thegreatfranchisingrobbery.blogspot.com

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  12. Ray Borradale says:

    In my view of Australia’s FCA objections to state and federal laws the FCA won’t be concerned about financial penalties as they don’t have to pay them. But the concerns come with giving affordable access to remedy and then keeping a publicly accessible record of those who abuse franchising law.

    I’ve always argued that the greatest contributors to the FCA are those who protect the revenue dollars from the whole package of contract fear mongering, disclosure creation and conflict. But I’ve never had a response to that argument.

    We all know that when we speak of franchising’s contribution to economies those figures do not include a whole package of operating costs including mega-dollar legalities and employment.

    The fear of effective legislation comes from the fear that cleansing the market place will cut back on available clients. For the government I suspect it considers a cleansing to potentially hurt its reputation as a government that creates employment as much as it wants the franchising dollars.

    Two points; the greater the resistance to effective reform the greater the expectation that such reform would effect a greater part of their market than they can tolerate.

    Second point; none of our markets are saturated. What happens when all the choices are relatively good choices? Good brands grow and employ and the people that were buying burgers from a scam franchise end up buying burgers from a better franchise down the road. Investors buy into better franchising and successful franchising attracts more investors.

    But seriously it just goes to show how incompetent governments are when it comes to small business. And they understand less about what happens at peasant level. I would suggest this applies everywhere and in every country.

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  13. Carol Cross says:

    Yes, governments are incompetent when it comes to small business but, of course, BIG FRANCHISING is big business that uses the creation of small startup franchises to feed profits to big business franchisors who then are attractive to private equity investors or who go public with the hope of even greater profits for those at the top of the franchise pyramids.

    In this country, there has been an over-development of shopping centers, malls, discount stores, etc..and many of the concept sectors are saturated —especially the fast-food sector–where many are closing their doors and suffering great losses even though they operate with famous brand names. In one upscale outside Mall, a HagenDaz-Chocolate Factory franchise lost big time after just a few years and had to close down because this Mall never took off! Too many Malls and shopping areas within the area and hard for a new Mall and its merchants to get market share! .

    Some large commercial buildings are empty and will perhaps be going into forclosure and yet it is said that our City has fared better than others in the recession –that is now over??? Home forclosures continue.

    Large Malls have been failing. Our City Newspaper recently wrote about the blight left behind from “unsustainable development” (a large Mall) and suggested that something needed to be done about this problem. But, of course, if development is tamed by city planning, etc.. many of the special interests will lose money and, therefore, it is not politically correct to plan for sustainable development. Who is it who makes all of the money and drives away in the “getaway” car before the bubble bursts?

    A franchised small business may be bad for your wealth and health and NO MOM and POP franchisees should be encouraged by government to put their homes and retirement savings at risk to borrow to buy a franchise. As Les Stewart says, “Unsafe at any Brand.”

    http://thegreatfranchisingrobbery.blogspot.com. Read Franchise-Forum.Com!!!!! .

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