Court Sets Out Notice Period to Terminate Franchise Agreement

Andrew Ottaway, B.A. (Hons.), LL.B.Civil Litigation, Contract Disputes, Employment & Wrongful Dismissal, Franchise Law0 Comments

The Ontario Superior Court in France v. Kumon Canada Inc. considered the appropriate notice period required to terminate a franchise agreement, in this case in respect to a Kumon tutoring franchise.   Kumon terminated the franchise agreement with 12 months’ notice.  The Plaintiff had successfully run the franchise for 20 years.  There was no franchise agreement in place (as the franchise was entered into by oral agreement 20 years earlier when their franchise agreements were not in writing).  The Plaintiff sued Kumon for damages, arguing that her franchise was perpetual and could not be terminated. Kumon argued that the franchise agreement could be terminated on reasonable notice, and brought a motion for summary judgment.  The Court granted Kumon summary judgment, but asked for further submissions regarding the proper notice period.

The Court noted that there were no cases directly on point. The Court accepted that a franchise relationship is close to an employer/employee relationship.  However, the Court stated that because franchisor is an independent contractor, there should be some discount applied to acknowledge the risk of being an independent contractor.  The Court set down a number of non-exhaustive factors to be considered in setting the notice period to terminate a franchise agreement, including:

  • The length of the relationship;
  • Whether there was a history of oppressive conduct or bad faith by the franchisor;
  • Whether there was a history of poor performance by the franchises;
  • Whether the parties acted in good faith throughout the relationship; and
  • Whether there were any violations of the franchise legislation (the Wishart Act).

The Court commented that 20 to 24 months notice would have been reasonable for an employer/employee relationship but, applying the independent contractor discount,  awarded damages of 18 months’ loss of income.

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About the Author
Andrew Ottaway, B.A. (Hons.), LL.B.

Andrew Ottaway, B.A. (Hons.), LL.B.

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