CANADA Trends and Developments Contributed by: Melissa Cattini and Ahmed Malik, MLT Aikins
mately, compliance is a system-wide responsibility that rests on the franchisor’s shoulders, no matter who carries out the work. From a practical perspective, many franchise systems will err on the side of provid - ing compliant disclosure to prospective franchisees notwithstanding the availability of a potential disclo - sure exemption to mitigate risk. Economic Shifts and Financial Disclosure In addition to legislative changes and case law devel - opments, the Canadian franchise industry is feeling the effects of global economic and geopolitical vola - tility. Economic uncertainty in global markets due to rising inflation, supply-chain disruptions, tariff and trade disputes, wage pressures and fluctuating inter - est rates have heightened the need for financial trans - parency and increased due diligence considerations for potential investors. These pressures affect both franchisee performance and the accuracy of fran - chisors’ disclosure. Franchisees are more frequently seeking detailed earn - ings projections and certainty around costs, including start-up and ongoing fees, operational budgets and profitability expectations. Under Canadian franchise disclosure laws, franchisors must disclose a detailed estimate of the total investment required to open and operate the franchise, including product, equipment, inventory and service costs, which are often subject to “approved supplier” or “approved product” restric - tions. While franchisors may choose whether to provide forward-looking financial performance representa - tions, doing so carries risk; if projections are not met, franchisees may be motivated to seek remedies. In the Regulated Provinces, any such representations, including historical earnings or projections, must include descriptions of assumptions, methodologies, and often supporting documentation. Non-compli - ance can expose franchisors to rescission or enforce - ment. Informal statements by sales representatives, agents or associates can also be treated as earnings claims, even without formal documentation. It remains critical for franchisors to implement strict internal con - trols to ensure only standardised, vetted and up-to- date materials are used, that assumptions are clearly stated and supporting data is available.
Global economic conditions also impact franchise cost disclosures. Where supply chains rely on the US or other foreign sources currently subject to tariffs, sanctions or trade restrictions, franchisee costs can change dramatically and without warning. Such vola - tility can undermine the reliability of franchisors’ cost estimates. In response, some franchisors now qualify cost disclosures to reflect a specific point in time and note that figures are subject to change due to exter - nal factors such as tariffs or supply-chain issues. This approach is aimed at maintaining legal compliance by anchoring estimates to documented circumstances, reducing reliance risk if actual costs later diverge. To further mitigate exposure, along with the broad - er business community, Canadian franchisors with international supply chains are exploring flexibility in sourcing. Some permit Canadian franchisees to obtain approved products domestically or from alter - native suppliers provided they meet the system’s brand standards. While no Canadian court has yet ruled specifically on whether such broadly qualified disclosures satisfy statutory requirements in the cir - cumstances, these measures reflect a trend towards proactive cost management, franchisee awareness and overall risk mitigation. Economic turbulence increases the risk of perfor - mance shortfalls, franchisee dissatisfaction and potential damage to brand goodwill. Allegations that projections in disclosure were misleading, incomplete or based on unrealistic assumptions are more likely without a documented basis and transparent ration - ale. To mitigate these risks, franchise systems should inte - grate robust compliance protocols including stand - ardised financial disclosure packages, subjecting all projections to legal and accounting review, maintain - ing version-controlled delivery logs and utilising clear and appropriate disclaimers. In the current environ - ment, accurate, transparent and compliant disclosure is not just a legal obligation but a strategic necessity for brand protection and franchise system stability. Technology Mandates and AI in Franchise Systems A major trend set to influence franchise systems in 2025 and beyond is the rapidly evolving technological
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