Duty of Fair Dealing (Franchise)

Section 3(1) of the Arthur Wishart Act (Franchise Disclosure), 2000 states that every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement. Section 3(3) says the duty includes the duty to act in good faith and in accordance with reasonable commercial standards, and section 3(2) gives a party to the agreement a right of action for damages against another party who breaches it.

Four features shape how the duty works:

• It is reciprocal. It binds the franchisee as well as the franchisor.
• It cannot be waived. Section 11 makes void any waiver or release by a franchisee of a right under the Act, or of an obligation the Act imposes on a franchisor or its associate.
• It reaches older agreements. Under section 2(2), sections 3 and 4 also apply to franchise agreements signed before the Act came into force, if the business is operated wholly or partly in Ontario.
• Liability is shared. Under section 8(1), parties to the franchise agreement found liable for breaching the duty are jointly and severally liable.

The duty applies only where the relationship is a franchise under the Act's definition. That includes fractional franchises and other arrangements exempt from the disclosure requirement, because the exemptions switch off disclosure only.

The duty attaches to performance and enforcement, which covers most of the life of a franchise agreement. Disputes usually arise where the agreement gives one side a discretion or a remedy, for example:

• approving or refusing a site, a supplier, a renovation plan or a transfer to a buyer;
• changing system standards, fees or technology requirements through the operations manual;
• opening new units near an existing location, which turns on the franchise territory terms;
• declaring a default, applying a cure period and terminating; and
• handling renewal, where the agreement provides for one.

Our article on franchise renewal, transfer and exit shows how the duty plays out at the end of the relationship, including a 2025 Superior Court decision on a dealership termination that did not follow the agreement's own process.

A leading appellate decision on the limits of section 3 is 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2016 ONCA 24. In a franchisee class action, the motion judge found that Pet Valu breached section 3 by not telling franchisees that the volume discounts it received from suppliers were, in his words, virtually non-existent. On January 14, 2016 the Court of Appeal allowed Pet Valu's appeal and dismissed the action. Three points from the reasons matter for every franchise relationship:

1. Disclosure failures are not unfair dealing in performance. If the information was material, it belonged in the disclosure document before the franchisees signed. The Court would not treat a failure to include material facts in a disclosure document as unfair dealing in the performance of the agreement; sections 5 to 7 already supply the remedies through the franchise disclosure document rules, rescission and damages.
2. No pre-litigation disclosure duty. Section 3 does not oblige a franchisor to hand over information so franchisees can check whether it has breached the agreement. The Court relied on Spina v. Shoppers Drug Mart Inc., 2012 ONSC 5563, on this point.
3. Bad faith in performance is the target. Assuming, without deciding, that non-disclosure during the relationship can breach section 3, the information in Pet Valu was not withheld in bad faith in connection with performance or enforcement of the agreement.

The practical result: a complaint about what was or was not disclosed before signing belongs under the disclosure provisions, not section 3, and franchisors should treat pre-signing disclosure and post-signing conduct as separate compliance tasks.

Every Canadian contract also carries common-law good faith obligations, covered on our page on the duty of good faith in contracts. The statutory duty sits alongside them, and section 9 confirms that the Act's rights are in addition to any other right or remedy at law.

Section 3 names reasonable commercial standards as well as good faith, but whether it demands more than the common law is unsettled. In Pet Valu, the motion judge treated the statutory duty as broader than Bhasin; the Court of Appeal overturned his decision and left open whether non-disclosure during the relationship can ever breach section 3.

Section 4 protects collective action by franchisees, and it is often raised together with the duty of fair dealing:

• a franchisee may associate with other franchisees and may form or join an organization of franchisees;
• a franchisor or franchisor's associate must not interfere with, prohibit or restrict that, by contract or otherwise;
• neither may directly or indirectly penalize, attempt to penalize or threaten to penalize a franchisee for exercising the right;
• any term in a franchise agreement or related agreement that purports to restrict the right is void; and
• a franchisee has a right of action for damages for a contravention, with joint and several liability among those found liable under section 8(2).

The protection reaches pre-signing paperwork too. Under section 5(1.2)(b), a confidentiality agreement that bars disclosure to an organization of franchisees, other franchisees of the system or the prospect's professional advisors is caught by the 14-day disclosure rule, so it cannot be signed until the prospect has had the disclosure document for at least 14 days.

Gurpreet Grewal operates two franchised shawarma restaurants in Brampton under 10-year franchise agreements. In early 2026 she and 14 other franchisees form an association to push back on a new $1,200 monthly technology fee. Three weeks later, the franchisor sends her a default notice for two minor brand-standard items it had tolerated for years, and says it will not consent to her planned $420,000 sale of one restaurant to an experienced buyer who meets its published criteria.

Her lawyer writes to the franchisor. The letter cites section 4(3), which bars penalizing or threatening a franchisee for associating, and section 3, which requires the franchisor to exercise its consent right and enforce its standards in good faith and in accordance with reasonable commercial standards. It notes that any claim could name the franchisor and any associate that took part, and that liability would be joint and several. The timing of the default notice, and the franchisor's own transfer criteria, are documented in a short chronology attached to the letter.

The franchisor withdraws the default notice, processes the transfer under its usual criteria and agrees to meet the association about the fee. Gurpreet's sale closes six weeks later.