“Revolt of the franchisees”

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Revolt of the franchisees Posted: 18 Jan 2011 03:03 PM PST JEFF GRAY — LAW REPORTER From Wednesday's Globe and Mail Published Tuesday, Jan. 18, 2011 5:52PM EST Last updated Tuesday, Jan. 18, 2011 7:30PM EST Back in 2005, Robert Rodger was looking for a chance to be his own boss and spend more time with his family. So he left his post as a plant manager with auto parts giant Magna International Inc. in Aurora, Ont., and bought a local Pet Valu franchise. He thought it would be a fun business to be in. Local kids used to volunteer to care for the lizards, rabbits and birds he had for sale. Being part of the Markham, Ont.-based Pet Valu chain – as opposed to opening an independent store – meant he was supposed to benefit both from a brand-name banner and the discounts on dog food and other pet supplies that come with a corporate giant's purchasing power. More related to this story It didn't turn out that way, he said. Today, Mr. Rodger, 48, is involved in a class-action battle on behalf of fellow franchisees against Pet Valu's head office. In court documents, he accused Pet Valu of failing to pass on the promised savings and rebates from its bulk purchases, sucking up profits while leaving franchisees – who must also pay various fees and royalties to head office – to struggle. Pet Valu, which has 155 franchised stores in Ontario and Manitoba, denies the allegations. It says the real problem is Mr. Rodger's "poor management," according to court documents. The company has also called the suit an attempt to coerce it into buying back his unprofitable franchise. (According to court documents, talks between the two sides on a buyout failed before the lawsuit was launched in December, 2009.) "It's all an invisible wall, where they are doing all the purchasing and buying, and you don't know what they are doing with the finances," Mr. Rodger said in an interview. "When you start to challenge those issues, it can make your life miserable." Last week, Mr. Rodger's case won certification – or the right to proceed as a class action – in Ontario Superior Court. The suit is the latest in a wave high-profile litigation launched by aggrieved franchisees against their corporate parent. Midas, Shoppers Drug Mart, Quiznos, and national icon Tim Hortons each have similar class actions. David Sterns of Sotos LLP, who is Mr. Rodger's lawyer and also acts for the franchisees in the Quiznos and Midas cases, said recent preliminary court judgments have favoured plaintiffs. In the Quiznos case, for example, the Ontario Court of Appeal, ruling last year on a decision to certify the case, said a fight between a franchisor and hundreds of franchisees is "exactly the kind of case for a class proceeding." Class actions allows franchisees to band together and more easily to take on their corporate parent, Mr. Sterns said, although only one representative plaintiff is needed to proceed. The cases often revolve around how the franchisor uses its power to set the prices – both the prices that franchisees must pay for the products they sell, and how much they can sell them for. "It's about dividing up the profit pie. And the person who has the pie cutter is the franchisor. And so, they cut themselves the biggest piece," Mr. Sterns said. "But on the other hand, the franchisees are the ones who put a lot of investment into making the pie." In the Quiznos case, the representative plaintiffs – who operated submarine sandwich shops in Windsor and Oakville, Ont. – allege that Quiznos engaged in "price gouging." In court documents, they say that the company, which obligates franchisees to buy everything from meat to cleaning supplies through its distribution network, jacked up prices to inflate its value. Quiznos Canada Restaurant Corp. denies the allegations. Larry Lowenstein, a Toronto lawyer with Osler Hoskin & Harcourt LLP who has defended franchisors in similar cases, said such suits they are more emotionally charged than the average commercial court fight. This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php Five Filters featured site: So, Why is Wikileaks a Good Thing Again?.

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