Everything is electronic: Implementing electronic delivery of franchise disclosure documents and electronic execution of documents

Written by on November 09, 2018.

Everything is electronic. It certainly feels that way. Even in areas that are slow to adopt change, digital is taking over. While many franchise systems are on the cutting edge of technology in their offerings and their methods of conducting business with clients, the processes of selling franchises have taken longer to fully embrace the digital wave. This is not doubted attributable to the many advantages of conducting aspects of the franchise sales process using electronic means – efficiency, ease of compliance tracking, ease of document management and retention, and (of course) saving trees to name a few.

Electronic delivery of disclosure documents and electronic execution of documents are two aspects of the franchise sales process where electronic solutions are becoming increasingly common. But what exactly is permissible electronically and what additional concerns need to be given consideration when adopting electronic solutions as part of the franchise sales process?

 

Electronic Delivery of Disclosure Documents

On July 1, 2016, amendments to Ontario’s franchise laws (the Arthur Wishart Act (Franchise Disclosure), 2000) expressly permitting electronic delivery of franchise disclosure documents came into force. British Columbia’s new franchise laws[1], which came into force on February 1, 2017, also expressly permit electronic delivery of franchise disclosure documents, leaving Alberta as the only disclosure province[2] that does not expressly permit this practice.[3]

Delivering disclosure documents electronically has numerous advantages for all parties to a franchise transaction, including: electronic delivery records, easy and cost-effective transmission between the parties and their advisors, and document searchability. But before deciding to deliver disclosure documents electronically, there are legal and practical considerations that franchisors must turn their minds to.

The following chart summarizes the main legislative requirements for delivering disclosure documents electronically under the franchise laws of each of the disclosure provinces:

 

COMPLIANCE REQUIREMENT[4] ON BC NB PEI MB
1. The document must be delivered in a form that allows the prospective franchisee to:
        a. view it,
        b.  store it,
        c. retrieve it,
        d. print it,
        e.  retrieve,
        f. process.
2. The document has no extraneous content beyond what is required or permitted by law.
3. The document may not contain any links to external documents or content.
4. If a disclosure document is delivered electronically and consists of separate electronic files, the disclosure document shall contain an index listing the file names.
5.  The franchisor keeps records of its electronic delivery of disclosure documents.
6. The franchisor receives written acknowledgment of receipt from the prospective franchisee.

 

Beyond these requirements, delivering disclosure documents electronically raises other practical considerations for franchisors, their salespeople and their legal advisors. For example:

          What formats are acceptable for delivering disclosure documents electronically?

          Who will be responsible for compiling the disclosure document electronically?

          How will the required number of officers or directors sign the certificate?

          To which persons must an electronic disclosure document be delivered?

          Where and how will delivery records be stored?

As with other aspects of the disclosure process, franchisors should consult with a franchise lawyer before delivering disclosure documents electronically to ensure that their electronic disclosure practices meet all applicable legal requirements.

 

Electronic Execution of Documents

Whether you realize it or not, you are almost certainly already entering into binding legal contracts online. Accepting terms and conditions for a software update, signing up for an account on a new social media site and placing an order through an online store all represent ways of entering into legal contracts without ever putting pen to paper.

Despite how common entering into contracts online has become, entering into what would be considered traditional legal contracts – such as franchise agreements – is still usually a more formal process. However, with federal and provincial e-commerce legislation now permitting the use of electronic signatures (“e-signatures”) for all but certain specified types of documents,[5] even these types of contracts are increasingly entered into with the click of a mouse instead of the stroke of a pen.

This raises the question: what actually constitutes an e-signature? The legislative definitions of e-signatures are quite broad and can cover everything from wet ink signatures that are scanned or captured electronically and then sent by electronic means, to electronic signatures generated by software. In certain circumstances, courts have even found that an e-mail containing the sender’s typed name can satisfy legislative requirements that a document be in writing and signed.[6]

Like delivering disclosure documents electronically, there are several advantages to executing franchise documents electronically. For example, documents can be signed more quickly when the parties aren’t in the same place, everyone can receive copies of the documents almost instantaneously and the executed documents are immediately available for electronic storage. E-signature software and mobile applications are also growing in popularity, and these solutions often offer further advantages, such as the ability to track the date on which a signature was applied to an electronic document (which helps ensure 14 clear days passes between when a disclosure receipt is signed and when a franchise agreement is signed), and the ability to ensure a signatory does not miss any places their signature or initials are required (which helps ensure none of the signatories to a franchise agreement miss any signature lines in the franchise agreement and any ancillary agreements thereto).

As with adopting electronic disclosure practices, franchisors should consult with a knowledgeable lawyer before implementing electronic signature practices in order to ensure all legal formalities are complied with.

On Tuesday, November 13, 2018, Andrew MacIver will be leading a roundtable discussion on this topic at the Ontario Bar Associations 18th Annual Franchise Law Conference in Toronto, Ontario. For information regarding the conference or to register, click here.

 

 

[1] Franchises Act, SBC 2015, c 35

[2] The “disclosure provinces” are: Ontario, Alberta, British Columbia, New Brunswick, P.E.I. and Manitoba.

[3] In fact, Alberta’s franchise laws are silent on how disclosure documents are delivered and it is therefore generally regarded as acceptable to deliver disclosure documents electronically

[4] These requirements are summaries of the applicable provisions of the franchise laws of the disclosure province. The provisions summarized may contain additional wording and word does vary between the franchise laws of the disclosure provinces

[5] For example, e-signatures may not be used on wills, negotiable instruments and land transfers.

[6] See e.g. Lev v. Serebrennikov, 2016 ONSC 209, where an e-mail containing the senders name (but not his signature) was found to satisfy the requirement under s. 13(1) of the Limitations Act, 2002, SO 2002, c. 24. that an acknowledgment of debt be in writing and signed  by the person making it where there was no question over whether the e-mail was sent by the sender from his account.

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