Ontario Court provides guidance on claims against “franchisor’s associates” in recent decision

Ontario’s Arthur Wishart Act (Franchise Disclosure) gives franchisees rights and remedies against “franchisor’s associates”. These are powerful tools to obtain increased leverage and to increase the likelihood of recovery against individuals and principals involved in the franchise if there is a successful judgment.

In a recent decision of the Ontario Superior Court of Justice, Addison Chevrolet Buick GMC Limited et al. v. General Motors of Canada et al., 2015 ONSC 3404, the court struck claims sought to be made against a purported franchisor’s associate. The court also struck attempts by the franchisee to “pierce the corporate veil” to make claims against persons other than the franchisor. The decision provides guidance on resolving claims made against franchisor’s associates in a cost-effective and timely way.

In its decision, the Superior Court of Justice held:

• The Arthur Wishart Act does not impose blanket joint liability on franchisor’s associates for everything done by a franchisor.

• An individual is not a franchisor’s associate unless he or she: (i) meets a “control test” (controlling the franchisor or being controlled by the franchisor) and (ii) is directly involved in the grant of a franchise (or exercises significant operational control over a franchisee).

• The court will not lightly “pierce the veil” of the corporate franchisor to hold individuals liable unless the corporate entity is “completely dominated and controlled and is being used as a shield for fraudulent or improper conduct.” Only “exceptional cases that result in flagrant injustice warrant going behind the corporate veil.”

• The balance struck by the Legislature in the Arthur Wishart Act should not be lightly disturbed in favour of an ad hoc approach to piercing the corporate veil.

The court’s decision in Addison illustrates that while there are indeed powerful rights and remedies available against franchisor’s associates, the principles are not unlimited. Persons who are not genuine franchisor’s associates have remedies and options to be removed from claims in a cost-effective and timely manner.