Court Rules Franchise Release as Condition of Resale Is Invalid

The Ontario Superior Court of Justice released a decision in January 2014, involving Cora Franchise Group, 2176693 Ontario Ltd. v. Cora Franchise Group Inc., 2014 ONSC 600 (CanLII), holding that a standard assignment release clause – requiring a franchisee to release a franchisor of all claims as a condition of assigning the franchise – is invalid.

The court ruled that such a general release condition is invalid because of s. 11 of the Arthur Wishart Act (Franchise Disclosure), 2000, which voids any purported release or waiver:

• Rights cannot be waived
• 11. Any purported waiver or release by a franchisee of a right given under this Act or of an obligation or requirement imposed on a franchisor or franchisor’s associate by or under this Act is void

This is an important decision to the franchise community because practically every modern franchise agreement contains a similar general release clause.  Many franchisees complain about being required to release a franchisor of all claims before being allowed to sell their franchise to a new purchaser (which typically requires an assignment their franchise agreement). Franchisees cannot be required to provide a blanket release of their rights under the Arthur Wishart Act.

Franchisors are not without options.  As a best practice, franchisors should deal with the issue of settlement without delay and more thoughtfully, proactively and more specifically in relation to a particular dispute they may have with a franchisee.

One of the cases discussed in the Cora decision is the very first Ontario decision on franchise settlements, called Tutor Time:1518628 Ontario Inc. v. Tutor Time Learning Centres LLC (2006), 150 A.C.W.S. (3d) 93 (Ont. Superior Court of Justice).  In the often-cited Tutor Time decision, Law Works’ Ben Hanuka acted as counsel.

For more information on this issue please visit Law Works’ Franchise Waivers and Releases page.