Common Franchise Disputes Lend Themselves to Class Action Lawsuits

In recent years, Ontario courts have seen a number of certifications of franchise class actions. This is because class actions and the issues typically raised in franchise disputes tend to be compatible. In franchise class actions, all class members are usually party to a common franchise agreement, involved in a common system and subject to common treatment by a common franchisor.

In the recent Fairview Donut Inc. v. TDL Group Corp. case (“Tim Hortons“), Justice Strathy referred to the “intersection” of the Arthur Wishart Act and the Class Proceedings Act  (the “CPA“) and stated that “the CPA has proven to be an effective tool to address concerns that individual franchisees are powerless, vulnerable and lack an effective voice.”  Justice Strathy was careful to point out, however, that just because a number of franchise disputes have been found suitable for certification doesn’t mean that a class action will be the preferable procedure for the resolution in all franchise cases.

Before a franchise class action can be certified, the representative franchisee plaintiff(s) must satisfy the same test set out in section 5(1) of the CPA as any other class action. Whatever the nature of the dispute, a thorough inquiry is needed to determine whether a class action is the appropriate avenue for resolving the claim.  The judge hearing the certification motion is the “gatekeeper” and decides which cases can proceed as class actions and which cannot. If a class action isn’t certified, then each class member who wishes to proceed with a claim must do so either individually or as part of a group action in which each participating individual is named as a plaintiff. In a certified class action, only one or two people are named as plaintiffs and their role is to represent the interests of the class.

So far, five franchise class actions have been certified in the Arthur Wishart Act era.  These are Quizno’s Canada, Midas Canada, Sears Canada, Pet Valu Canada and General Motors of Canada.  The central issue in Quizno’s, Sears and Pet Valu is the alleged overcharging on the supply of goods or withholding of supplier rebates; in Midas, the basis of the claim is system change; and in General Motors, the principal issue is franchise disclosure. As none of these cases have gone to trial, there have been no findings on the merits.

In Suncor and Tim Hortons, two other franchise class actions, the actions were dismissed by way of summary judgment with the result that there was no proceeding to certify.  Tim Hortons would have been certified had the Court not dismissed the action on summary judgment.  The matter is going to the Court of Appeal next month. Franchise class actions have also commenced but not yet been certified against Panzerotto Pizza, Shoppers Drug Mart and Revolution Foods.

While Ontario courts have embraced class actions as a vehicle for resolving systemic franchise disputes, until any franchise class action makes it to trial, their true effectiveness remains to be seen.