ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-11-433397
DATE: 20141211

BETWEEN:

BOBBIE FRANCE
Plaintiff/Responding Party

– and –

KUMON CANADA INC. and KUMON EDUCATIONAL INSTITUTE OF CANADA INC.
Defendants/Moving Parties

Ryan M. Naimark, for the Plaintiff/Responding Party

J. Gardner Hodder, for the Defendants/Moving Parties

HEARD: July 21, 2014

GOLDSTEIN J.

[1] Kumon Canada Inc. and its associated companies (which I will refer to simply as Kumon) operate the world’s largest after-school math and reading programs. Kumon operates through franchises. Ms. France was a long-time franchisee. She became a Kumon franchisee in 1991. She successfully operated her franchise for almost 20 years.

[2] In 2009 Kumon gave Ms. France 12 months’ notice that her franchise would be terminated. In December 2010 Kumon terminated the franchise. Ms. France sued Kumon. Kumon brought a motion for summary judgment. On October 15, 2014 I granted summary judgment to Kumon, but with the caveat that the 12-month notice period was inadequate given the relationship between franchisee and franchisor: France v. Kumon, 2014 ONSC 5890.

[3] Kumon relied on a series of cases in the context of distributorships for the proposition that a 12-month notice period was adequate: Western Equipment Ltd. v. A.W. Chesterton Company, 1983 527 (BC SC), [1983] B.C.J. No. 1831, 46 B.C.L.R. 64 (B.C.S.C.). I disagreed. I found that the distributorship cases did not fully apply in the franchise context given the duties on a franchisor: Shelanu v. Print Three Franchising Corp. (2003), 2003 52151 (ON CA), 64 O.R. (3d) 533, 226 D.L.R. (4th) 577, [2003] O.J. No. 1919 (C.A.). I then asked for submissions for both parties on the issue of the proper notice period: France v. Kumon, paras. 63-66.

ANALYSIS

[4] This is a case where the court is venturing into uncharted territory. There are no cases directly on point, as both parties have noted.

[5] Counsel for Ms. France relied on the calculations of economic damage produced by Paul Mandel, a business valuator. Mr. Mandel calculated the loss of income for Ms. France as $28,867.00 for 2011, $29,301.00 for 2012, and $29,566.00 for 2013. Ms. France was also required to pay an additional $7000 in rent and expenses until August 2011.

[6] Counsel for Kumon notes that because he brought the motion, he did not prepare an expert report on Ms. France’s damages and is not in a position to dispute the numbers. I cannot give that submission much weight: first, counsel for Kumon could have easily prepared a valuation, or filed material to dispute Ms. France’s numbers. A summary judgment motion still requires the “best foot forward” in a post-Hryniak world: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, [2014] O.J. No. 851, affirmed at 2014 ONCA 878. Second, in the original material Kumon did not contest Ms. France’s numbers. Third, and perhaps more importantly, it is unrealistic to suggest that a contrary defence valuation would have yielded much lower numbers. The income that Ms. France reports is exceedingly modest: $29,566.00 in her best year. I accept that Ms. France’s numbers are accurate for the purposes of this analysis.

[7] Counsel for Ms. France argued that one of two scenarios applied: in the first, the calculation of the notice period is based on the proposed franchise agreement; and in the second, calculation of the notice period is based on an employer-employee relationship.

[8] In the first scenario, the proposed franchise agreement contained a renewal clause that the standard franchise agreement would be three years. Counsel for Ms. France argues that since only one year of notice was provided, an additional two years of notice as well as her continuing expenses of $7000.00 should be paid by Kumon. The total amount of damages is therefore $72,000.00, plus interest.

[9] I disagree that this first scenario applies. Ms. France consistently refused to sign the franchise agreement. There is no basis to apply the renewal clause. It would be unfair to Kumon to award damages on this basis.

[10] In the second scenario, counsel for Ms. France argues that reasonable notice for a long-standing employee like Ms. France is something over 20 months: Campbell v. Petro-Canada Inc. (1992), 44 C.C.E.L. 234, [1992] O.J. No. 1813; Brito v. Canac Kitchens, 2011 ONSC 1011, [2011] O.J. No. 1117 (Sup.Ct.). He further argues that given her age and limited employability, Ms. France is kin to a vulnerable employee and should therefore have been provided 24 months’ notice: Johnston v. Algoma Steel Corp. (1989) 24 C.C.E.L. 1, [1989] O.J. No. 124 (H.C). Again, since one year of notice was provided, Ms. France should receive an additional 12 months as well as the $7,000.00 for her continuing expenses. Accordingly, under this scenario Ms. France should receive $35,867.85 plus interest, based on the 2013 amount of $28,867.65 for 2013 and $7,000.00 in continuing expenses.

[11] Counsel for Kumon maintains that the 12 months’ notice was adequate. He says that this notice period is reasonable in the circumstances of a commercial relationship where Ms. France was not an employee: Western Equipment Ltd. He argues that the employment cases are inapplicable since Ms. France was simply not an employee, but an independent business person. He also argues that Ms. France had the benefit of running her business using Kumon’s methods and materials but without agreeing to the uniform contract that all other North American franchisees had signed. In effect, counsel for Kumon argues that Ms. France would be made better off by her intransigence.

[12] In an employment situation, the Court will look to what is reasonable in the circumstances. In Bardal v. Globe and Mail Ltd (1960), 1960 294 (ON SC), 24 D.L.R. (2d) 140, [1960] O.J. No. 149 (H.C.) McRuer C.J.O. stated at para. 21:

There can be no catalogue laid down as to what is reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.

[13] In a distributorship situation, the Court will also look to what is reasonable in the circumstances. In 1193430 Ontario Inc. v. Boa-Franc Inc. (2005), 2005 39862 (ON CA), 260 D.L.R. (4th) 659, 78 O.R. (3d) 81, 2005 CarswellOnt 5661 (C.A.) Feldman J.A. stated at para. 45:

What is reasonable will depend on the circumstances of each case including such factors as the expectations of the parties, the duration or intended duration of the relationship, the dependency of the business of the terminated party on the arrangement and the commercial climate for the product.

[14] As I have noted, a franchise situation is closer to an employment situation than it is to a distributorship situation: Shelanu, at para. 66. That is why I held that Ms. France was entitled to more than 12 months of notice. Although I agree that the 20 or 24 month notice scenarios that counsel for Ms. France relies on are not unreasonable in a straight employment situation, no particular “rule of thumb” applies: Brito v. Canac Kitchens at para. 8.

[15] That said, there must be some discount for the fact that a franchisee is still an independent contractor, and must bear much of the risk associated with being an independent contractor. It is true that she is in a vulnerable position, but that is not Kumon’s fault. Furthermore, even if she were to have received two years notice, it is not apparent to me how she would be any less vulnerable: her inability to secure other employment due to her age and limited training would be no different after 24 months’ notice rather than 12 months’ notice (except for being another year older). Furthermore, I do not think that Kumon is responsible for the $7,000.00 in expenses that Ms. France was required to pay between December 2010 and August 2011. She was on notice and could have made arrangements to terminate her lease and other obligations. She had a duty to mitigate her losses in these circumstances. While I therefore agree that a franchisee is closer to an employee than to a distributor with significant commercial power, a franchisee is still not an employee – and a franchisor is not a fiduciary.

[16] Without attempting to lay down any absolute rule, I would say that what is a reasonable notice period in the circumstances of the franchise context will depend on a number of factors. I suggest that some of those factors might be:

• The length of the relationship between the franchisee and the franchisor;

• Whether there was a history of oppressive conduct or bad faith on the part of the franchisor;

• Whether there was a history of poor performance by the franchisee;

• Whether the franchisor or franchisee, as the case may be, has acted in good faith throughout the course of the relationship; and,

• Whether there have been violations of the Wishart Act;

[17] I also note that there are stronger and weaker franchisees. Some franchisees are multi-million dollar businesses, with multiple locations and numerous employees. Some are small operations, like Ms. France’s Kumon Centre. The size and relative power of the franchisee may also be a factor to take into account.

[18] Applying these factors, I make the following observations:

• The parties were associated for a very long period of time, almost 20 years;

• Ms. France performed her obligations faithfully and was, as Kumon has admitted, a good franchisee;

• Kumon did not act oppressively or in bad faith towards Ms. France, and, indeed, made significant efforts to accommodate Ms. France;

• There must also be a discount for the fact that Ms. France was not an employee, but an independent contractor.

[19] In my view, given the above factors, the appropriate notice period that should have been given to Ms. France is 18 months. I therefore award her a further six months’ notice. Accepting that she would have received 6 months’ notice in 2011, the amount that Kumon must pay to Ms. France is one-half of $28,867.00 or $14,433.50 plus interest. In making this award I wish to make it clear that I am not laying down a “rule of thumb”.

DISPOSITION

[20] Ms. France is awarded $14,433.50 plus interest. I ask the parties to work out the amount of interest. If the parties are unable to do so, they may make further submissions limited to 2 pages to me within 30 days.

COSTS

[21] In my original judgment I indicated that the fair thing to do would be to have each party bear its own costs, given the divided success. That is still my view. No costs are awarded.

[22] I thank both parties for their submissions.

GOLDSTEIN J.

Released: December 11, 2014

COURT FILE NO.: CV-11-433397
DATE: 20141211

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

BOBBIE FRANCE
Plaintiff/Responding Party

– and –

KUMON CANADA INC. and KUMON EDUCATIONAL INSTITUTE OF CANADA INC.
Defendants/Moving Parties

SUPPLEMENTARY REASONS FOR JUDGMENT

GOLDSTEIN J.

Released: December 11, 2014