Siskinds franchise lawyer Peter Dillon was recently interviewed by AdvocateDaily.com regarding a recent decision from the Ontario Court of Appeal on whether the relationship between two parties constituted a franchise. Read the full article below.
By AdvocateDaily.com Staff
A recent decision from the Ontario Court of Appeal on whether the relationship between two parties constituted a franchise is raising eyebrows in the franchise community, says London franchise lawyer Peter Dillon.
The central question in Chavdarova v The Staffing Exchange, 2016 ONSC 1822, 2016 ONCA 874, was whether the motion judge erred in recognizing the relationship between the parties as franchisor and franchisee, rather than licensor and licensee, he tells AdvocateDaily.com.
In the summary judgment motion, the court was asked to consider whether the relationship between two parties, expressed in two separate documents — a brokerage agreement and a training agreement — constituted a franchise agreement, explains Dillon.
The franchisee signed a brokerage license agreement, which stated that no payments were payable to the company, but that remuneration to the licensee was on the basis of a commission split, meaning the franchisor collected all fees and remitted a percentage of those to the franchisee,” he adds.
“The court confirmed the franchisor exercised significant control over the franchisee’s method of operation, as indicated by provisions of the brokerage agreement, which stipulate ‘the necessity of operating the licensed business in strict conformity with company standards and specifications,’” he says.
The franchisee executed a training agreement, which included the payment of $29,000 along with a variety of training, hardware, software and other services, and also contained a provision about the division of royalties from placements and contracts negotiated during the course of the trainee’s duties as a “TSC Career Broker,” Dillon points out.
Because the motions judge found the training fee to be the equivalent of a franchise fee, it raises questions around the common understanding of what it means to make a payment, Dillon says.
“When a licensor is responsible for billing and collecting monies, and remits a commission to a licensee, this has traditionally not been regarded as ‘a payment’ by the licensee,” he says.
Having satisfied the payment component, the court next considered whether the business operated by the licensee was “substantially associated” with the defendant’s trademarks, Dillon says.
“The court examined the wording of the brokerage agreement, and found a clear indication that the relationship between the parties was premised on the franchisee being able to use the franchisor’s trademarks,” he says.