Chavdarova v. The Staffing Exchange, 2016 ONSC 1822

CITATION: Chavdarova v. The Staffing Exchange, 2016 ONSC 1822

COURT FILE NO.: 5030/14

DATE: 20160314

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

LYUDMILA CHAVDAROVA (a.k.a) MILA CHAVDAROVA

Plaintiff

– and –

THE STAFFING EXCHANGE INC. (a.k.a.) TSE CANADA INC.

Defendant

Lyudmila Chavdarova, Self-represented

Michael A. Polvere, for the Defendant

HEARD: February 29, 2016

REASONS FOR JUDGMENT

Gray J.

[1] Both parties have brought motions for summary judgment, and both parties agree that the record is such that it is appropriate for me to grant judgment, one way or the other.

[2] The fundamental issue is whether the relationship between the parties is that of licensor and licensee, as contended by the defendant, or franchisor and franchisee, as contended by the plaintiff. If the former, there is little doubt, on this record, that the plaintiff’s action must be dismissed. If the latter, the plaintiff has certain rights under the Arthur Wishart Act (Franchise Disclosure), 2000 (the “AWA”).

Background

[3] The defendant was created in 2001 by Richard Fernandes. It describes itself as a business recruitment company, and says it was founded, developed and designed to standardize and licence the unregulated recruitment industry. It says it does not act as an employment agency, rather, it acts as a service provider to the recruitment industry.

[4] The defendant says that unlike an employment agency, the defendant’s clients are not organizations looking for employees, or candidates for employment. Rather, the defendant’s “clients” are what it calls its licensees. According to the defendant, these are people, like the plaintiff, who enter into a brokerage license agreement with the defendant. Fundamentally, those people use a shared database provided by the defendant called the Multiple Career Listing Service. Through this database, people like the plaintiff can list organizations looking for employees, and potential candidates for employment. The defendant likens this system to the real estate industry’s Multiple Listing Service. Through the database, people like the plaintiff can match organizations with potential employees.

[5] Typically, a person who wishes to do business through the defendant’s Multiple Career Listing Service will sign two agreements, namely, a Certification and Training Agreement, and a Brokerage License Agreement. There is some controversy as to whether these agreements are connected, or whether one is dependent on the other. Accordingly, I will describe them separately.

[6] The Certification and Training Agreement is in a standard form, and is between The Staffing Exchange Inc. and another party called “The TSE Career Broker”.

[7] Certain provisions of the Certification and Training Agreement are particularly relevant. They are:

2.1 In consideration for completion of the Course, the TSE Career Broker agrees to pay to TSE a Certification and Training fee of $29,500, together with all applicable taxes, payable at the time this Agreement is signed.

4.1 TSE will provide the TSE Career Broker with:

a) up to 90 days of office space at TSE’s head office;

b) operations introductions;

c) technical training in the operation and navigation through TSE’s database;

d) training manual(s);

e) recruiting process DVD’s;

f) business directories;

g) recruiting process audio training;

h) recruiting process online training;

i) remote database access and training; and

j) staffing exchange database training.

4.2 TSE will provide successful candidates with business cards, marketing materials and newsletters.

4.3 TSE will also provide successful certification candidates with:

a) laptop and set up;

b) E-mail address;

c) drop-in center for remote TSE Career Brokers;

d) administrative, marketing and IT support;

e) capacity for 1 additional staffing exchange database user at no additional cost. Should the TSE Career Broker require additional staffing exchange database users, TSE shall provide capacity for such users upon payment of a recurring $150 monthly fee, together with all applicable taxes, per additional user; and

f) training for up to 1 additional agent employed by the TSE Career Broker at no additional cost. Should the TSE Career Broker desire training for more than 1 additional agent, TSE shall provide training for such individual(s) upon payment of $750, together with all applicable taxes, per additional trainee.

5.3 The manuals, guidelines, resource kit, concepts, methodology and all other materials integral to the administration of the Course and the conduct of business as a TSE Career Broker are the exclusive property of TSE and shall be used solely for the purpose of acting as a TSE Career Broker

5.6 The TSE Career Broker acknowledges that he/she will be exposed to confidential information belonging to TSE which gives it a commercial advantage over others. The TSE Career Broker agrees not to disclose any of TSE’s confidential information to any third party. A breach of this covenant to maintain confidentiality will result in the immediate termination of the TSE Career Broker as a recognized TSE Career Broker and a possible claim for damages. The TSE Career Broker agrees the obligation to maintain confidentiality is reasonable.

5.7 The TSE Career Broker agrees that all documentation, including all manuals, compact disks, TSE resources and other documents made, received, held or used by the TSE Career Broker are the property of TSE and shall be returned to TSE upon request. The TSE Career Broker acknowledges and agrees that he/she shall not retain any copies of such documentation without the written consent of TSE.

6.1 the TSE Career Broker shall receive 85% of the revenues derived from placements and contracts negotiated in the course of its duties as a TSE Career Broker.

7.1 TSE Career Broker is free to engage in any other activities provided that he or she does not engage in any business activity which would be in competition with his or her role as a certified TSE Career Broker.

8.2 This agreement does not in any way create an employer/employee relation between TSE and the TSE Career Broker, nor a franchisor/franchisee relationship. The TSE Career Broker shall be considered an independent contractor.

[8] Of significant controversy is paragraph 2.1, which calls for a certification and training fee of $29,500. The plaintiff claims that this is in fact a franchise fee, while the defendant says it is nothing more than a fee paid for the training itself. I will discuss this in more detail later.

[9] The training itself takes place over four days. Included in the material is a training schedule for the period September 27 – 30, 2011. Included within the training as described in the schedule are the following:

• “The TSE mission/vision. Our technology platform, Comparative platforms: TSX, MLS, Insurance, Google, Workopolis The 3 great experiences for Clients, Candidates + Brokers!”
• “Becoming a Career BrokerTM , 20/20 Methodology, MPC Marketing, building your portfolio as an SME (major/minor, industry/discipline/Region) Your own career portal with communication tools i.e. hotlist/ joblist/newsletters, Database mgmt (20/20 Manual)”
• “Tony Byrne Module 1: The 4 Building Blocks of Good Recruiting and Overview of the 30 Steps in the Placement Process.”
• “Building your client base with 20/20 methodology. Active job market vs. passive/hidden job market. Public info: google, indeed, competitor sites, chamber of commerce, associations, being an industry monitor”
• “the System Training” (Patty)
  • Live contact/30 day
  • Submitting/sendouts/linking/placements – documentation
  • Marketing/email blasts schedule (check marks – HOTLIST/JOBLIST, Newsletters)
  • Accurate email addresses and contacts are important
  • Cleaning up with NLT’s
  • Companies
  • Live contact/30 day
  • Candidates – Live contact/30 day
  • Client ownership (3 month review/purge)
  • Jobs
  • Importing/creating/modifying
  • Searching
  • Emailing
  • Calendar
  • Notes/attach documents
  • Reporting Searching through Notes and All Fields of Contacts/Candidate”
• “Policy and Procedures, CBIZ – parsing with CBIZ toolbar, live contact, referrals, carding Using CBIZ, Monster, Workopolis and Career Builder Creating and Using Competitor lists eg Scotts Carding and Qualifying Applicants, and Sourcing Exercise Job Order and procedures Headhunting steps: Scott’s, keywords, scripts and roadmap before starting.”
• “A Day in the life (Tricia)
  • Preparing and planning to trade on the exchange
  • MPC mktg – 10-12am; HH 2-4pm – how all fits with stats/Friday’s
  • 20/20 Methodology
  • Question and Answer and training survey of overall training CONGRATULATIONS on your certification!”

[10] The Brokerage License Agreement is also in a standard form, and it is between The Staffing Exchange Inc. and a “Licensee”. Certain provisions of that agreement are relevant. They are:

1.1 System. As the result of a significant expenditure of time, skill, effort and money, the Company has developed and owns a unique and proprietary system (the “System”) relating to the establishment, development and operation of services relating to the provision to the consumer of recruitment and placement consulting services, which must be operated in accordance with uniform equipment, systems, methods, procedures and designs, and under the Company’s proprietary marks.

1.2 Marks. In connection with its business of licensing and regulating TSE Career Broker licensees the Company has developed, used and continues to use and control the use of certain proprietary interests, trademarks, logos, designs and trade names (collectively, the “Marks”) to identify to the public the source of goods and services marketed under such trademarks and to represent to the public high and uniform standards of quality and service.

1.3 Desire to Obtain License. The Licensee desires to obtain the right and License to use the Marks and System in connection with the operation of the Licensed Business in accordance with the terms of this Agreement and only at the Location. The License represents that it does not wish to obtain such right and license for speculative or investment purposes and has no present intention to sell or transfer or attempt to sell or transfer all or any party of the Licensed Business.

1.4 Need for Strict Conformity. The Licensee understands and acknowledges the importance of the Company’s uniformly high standards of quality and service and the necessity of operating the Licensed Business in strict conformity with the Company’s standards and specifications.

1.6 Principles of Interpretation. The Licensee acknowledges that the Company has responsibilities not only to the Licensee but also to all other TSE Career Broker licensees and to the Company’s corporate offices, clients, employees and shareholders. The Licensee understands that those responsibilities may sometimes conflict or be inconsistent. The Licensee also acknowledges that the Company has the right to act in its own best interest, which may sometimes conflict or be inconsistent with the Licensee’s best interests. Therefore, the Company will be entitled to act, make decisions and grant or withhold consents under this Agreement in the Company’s sole discretion, and without obligation to provide reasons, unless the Company is expressly required under this Agreement to act, make decisions or grant or withhold consents reasonably; or the Company is expressly prohibited under this Agreement from acting, making decision or granting or withholding consents unreasonably.

2.1 Grant of License. Subject to all the terms and conditions of this Agreement, the Company grants to the Licensee, and the Licensee accepts, the non-exclusive right and license to use the Marks and the System in the operation by the Licensee of the Licensed Business at the Location. The Licensee is not granted any exclusive or protected territorial rights.

2.2 Location. For purposes of this Agreement, “Location” means the approved business office listed on Schedule A which must be a Commercial Office Space, as herein defined. The Licensee acknowledges and agrees that he shall not enter into any lease or other commitment for the Location, not conduct any business in or from any place unless and until he had obtained the Company’s written approval of that location. In the event the Licensee does not establish a Location, the Licensee shall use the Company’s office space as it primary place of business.

2.3 Rights Reserved by Company. The Company retains the right, among others, in any manner and on any terms and conditions that the Company deems advisable, and without granting the Licensee any rights therein, to own, acquire, establish and/or operate, and license others to establish and operate, a TSE Career Broker Licensed Business at any location; and to own, acquire, establish and/or operate, and license others to establish and operate, businesses under other proprietary marks or other systems, whether such businesses are the same, similar or different from the Licensed Business, at any location.

2.4 No Payments to Company. The parties acknowledge and agree that no provision of this Agreement will be applied or interpreted such that the Licensee is required by this Agreement or otherwise to make a payment or continuing payments, whether direct or indirect, or a commitment to make such payment or payments, to the Company, or to any person related to or affiliated with the Company, in the course of operating the Licensed Business or as a condition of obtaining or maintaining the license granted under section 2.1. Any amounts invoiced by the Company to the Licensee during the term of this Agreement will represent either reimbursement of third-party expenses incurred by the Company for the benefit or at the direction of the Licensee, or payment for goods and services supplied by the Company to the Licensee in the ordinary course, at bona fide wholesale prices (except where the Licensee is an end-user of the product or service being supplied, in which case the price may be a bona fide retail price), and without any compulsion or obligation upon the Licensee whatsoever to purchase such goods or services from the Company.

2.5 Renumeration of the Licensee. Upon and subject to the terms and conditions of this agreement, the Company will pay to the Licensee the fees as outlined in section 5 of this Agreement. The Licensee acknowledges and agrees that the compensation payable under this agreement is subject to the ongoing requirement of the Licensee to comply with the terms of this Agreement.

2.10 Term and Renewal. The term of this Agreement will commence on the date set out beside the signature of the Company on page 9 and will continue, subject to any early termination provisions of this Agreement, for an initial term of 10 years. This Agreement may be renewed at the Company’s discretion for 1 further 10 year term provided the Licensee has remained in good standing under this Agreement, and provided the Licensee wishes to renew this Agreement for the additional renewal period.

3.1 Obligations of the Company During the term of this Agreement, and provide the Licensee is not in default under this Agreement, the Company will:

(a) permit the Licensee to use its trademark, logo types or commercial symbols which the Company may authorize and designate for use;

(b) provide the Licensee with access to:

(i) the TSE databases;

(ii) the TSE Exchange System

(iii) the recruiter list for the purposes of promoting placements; and

(iv) the Client and Candidate information contained in the TSE databases for the sole purpose of recruiting and placement under this Agreement and as part of the System.

(c) provide the Licensee with billing and invoicing services;

(d) provide the Licensee with collection services (until the point where litigation is required), excluding client information on refills and renegotiating client job orders including salary, bonuses and relocations;

(e) provide the Licensee with office support;

(f) provide the Licensee with accounting support;

(g) during training, provide the Licensee with office amenities, including voicemail, telephone line, desk, stationery, photocopies, access to the TSE internal job boards, business cards, corporate brochures, job posting access to specific internet sites, status reports, monthly recruiting industry newsletters, weekly sales meetings, temporary and contract payroll financing and email hosting; and, once training is completed, the Licensee will retain all of the aforementioned items for use in its operation as a TSE licensee with the exception of the services provided by the Company relating to voicemail, a telephone line, photocopies, stationery, and a desk, all of which shall be the Licensee’s responsibility;

(h) permit posting of the Licensee’s job information on various job websites, including by not limited to Workopolis.com and careerbuilder.com, at the Company’s expense; and

(i) provide the Licensee with access to any other services outline in Schedule F.

4.1 General Obligations of the Licensee. During the term of this Agreement the Licensee will:

(a) use its best efforts and devote its full time and attention to develop and enhance the Licensed Business, the System and the Marks;

(b) use only those materials supplied by the Company, including the Company’s forms, agreements and all other relevant information and materials, in the conduct of business;

(c) abide by all laws relating to the conduct of the Licensed Business;

(d) make no unauthorized promise, representations or commitments in connection with the services offered by the Licensee;

(e) feature only the Company’s trademarks and logo types in all of its local advertising, promotions, signs and literature and operation, in addition to the use of the term “licensed user”; and

(f) deliver financial, business and other reports to the Company at the times and in the format stipulated by the Company.

4.5 Standards of Service. The Licensee and its employees and independent contractors will at all times give prompt, courteous, friendly and efficient service to all customers. The Licensee and its employees and independent contractors will in all deals with all clients, suppliers and the public adhere to the highest standards of honesty, integrity, good faith, fair dealing, ethical and legal conduct. The Licensee agrees not to deviate from the standards set by the Company from time to time for the operation of the Licensed Business.

4.8 Performance Criteria. During each year of the Agreement, in order to remain in good standing under this Agreement and in addition to all other obligations in this Agreement, the Licensee will be required to generate a minimum Gross Billable Amount of $80,000 per Location in each and every calendar year of this Agreement (the “Performance Minimum”). Should this Agreement commence after January 1 in a particular year, the Performance Minimum shall be prorated proportionately for that calendar year, and then shall be $80,000 the following calendar year. The Company may, at its option, terminate the Agreement for failure to meet the Performance Minimum in any calendar year. Notwithstanding the foregoing, in the event of an “Act of God” (for example: flood, fire, natural disaster) that would render the Licensed Business inoperable for a period of 10 or more consecutive days in a calendar year; or, any major medical illness of the Licensee, if an individual, or of the Licensee’s principal, if the Licensee is a corporation, that prevents the Licensee from operating the Licensed Business for 10 or more consecutive days in a calendar year, then the Performance Minimum shall be prorated by the Company, acting reasonably, to account for the period of inoperation of the Licensed Business.

5.3 Payment to Licensee. The Company will collect the Gross Billable Amount invoiced to the Client and will remit the billings of 85% of the Gross Billable Amount in accordance with the Search Summary, Deposit Summary, signed Fee Agreement, Job Order Form of Placement Summary submitted by the Licensee. The Company will provide a summary for the current month’s Reserve Account by the 25th day of each calendar month during the term of this Agreement in the form of the Earnings Chart attached as the Schedule E to this Agreement. The Licensee will provide a Company with an invoice for the amount to be remitted by the 27th day of each calendar month. Upon commencement of operations from a Commercial Office Space, the Licensee will be issued 1 additional license to use the TSE System for its agents or employees who have signed the Company’s Agency Agreement. Only Client Postings and Candidate Postings submitted subsequent to commencement of operation of a Commercial Office Space are eligible for this rate of billings.

7.1 Submission and Approval of Advertising. All advertising by the Licensee in any medium will be conducted in a dignified manner and will conform to the standards and requirements established from time to time by the Company. The Licensee will submit to the Company’s marketing department, for its prior approval samples of all advertising that the Licensee desires to use.

7.2 Local Advertising Directed by the Licensee. The Licensee will advertise and promote only in a manner that will reflect favourably on the Company, the Licensee, the Licensed Business and the good name, goodwill and reputation of each. All advertising by the Licensee must be completely factual and conform to the highest standards of ethical advertising.

7.3 Telephone Listing. If the Licensee operates its own Location, the Licensee will arrange and pay for the placement in a yellow and white page telephone directory approved by the Company and serving the Licensee’s market area of a listing of the size and containing the content required by the Company. If other Licensees are serviced by the same directory, the Company may arrange for a group listing of all such Licensees and may arrange such listing in the Licensee’s behalf and may allocate the cost of the listing among such of the Licensees as the Company in its discretion deems appropriate.

7.4 Use of Company’s Name. In connection with its conduct of business as TSE Career Broker licensee, the Licensee will use only the Marks or such other business name as the Company approves in writing from time to time, and will use no other name, acronym, pseudonym, telephone number, URL or description whatsoever.

7.5 Use of Licensee’s Name. The Licensee agrees to the use by the Company of the Licensee’s name, photograph or biographical material in any publication, circular or advertisement related to the Licensed Business, in any place for an unlimited period, without compensation.

7.6 Internet Home Page. The Licensee will not maintain any domain name, home page or universal resource locator (URL) on the Internet in connection with the Licensed Business.

8.1 Non-disclosure of Confidential Information. Neither the Licensee, (where the Licensee is an individual, corporation or partnership) nor any of its officers, directors, shareholders, employees or independent contractors, partners or Licensees, as the case may be, will, during or after the term of this Agreement, communicate, divulge, or use for the benefit of any other person, persons, partnership, association or corporation any confidential information, knowledge, or know-how concerning the methods of operation of the System which may be communicated to the Licensee, or of which the Licensee may have knowledge, by virtue of the Licensee’s operation under the terms of this Agreement. The Licensee will divulge confidential information to its employees or independent contractors on a “need to know” basis only. Any and all information, knowledge and know-how, including, without limitation, customer information, pricing and marketing information, customer lists and other records, strategic planning, instructional information, and trade secrets, specifications, office design, documents, and data relating to the techniques for, methods of, or practice in the operation of the Licensed Business, which the Company designates as confidential, will be considered confidential for purposes of this Agreement (the “Confidential Property”).

8.2 Return of Materials. Upon the request of the Company, and in any event upon the termination or expiration of this Agreement for any reason, the Licensee will immediately return to the Company any and all materials in his possession or under his control relating in any manner to the System, the Licensed Business, or the Company, including all Confidential Property.

9.1 Trademarks. The Company will apply for and will be the owner of the trademarks TSE and TSE Career Broker and their respective design equivalents, for which trademark registration has been applied for or granted by the Canadian Intellectual Property Office. Any goodwill associated with such trademarks is the exclusive property of the Company. The Licensee’s right to use such pending trademarks is specifically limited to the duration and scope of the Licensee’s duties under this Agreement and is subject to direction given by the Company.

9.2 Grant of License. The Company grants the Licensee a non-exclusive license to use the Marks in connection with the Licensee’s performance of its obligations under this Agreement.

9.3 Conditions of use. With respect to the Licensee’s use of the Marks pursuant to the license granted under this Agreement, the Licensee agrees to comply with all of the conditions of use set out below.

(a) The Licensee will use only the Marks designated by the Company and will use them only in the manner required or authorized and permitted by the Company.

(b) The Licensee will use the Marks only in connection with the operation by the Licensee of the Licensed Business.

(c) During the term and any renewal of this Agreement, the Licensee will identify itself as a Licensee and not the owner of the Marks and will execute any documents considered necessary by the Company for protection of the Marks to reflect such status. In addition, the Licensee will identify itself as a licensee of the Marks on all invoices, cheques order forms, receipts, business stationery and contracts, as well as the display of a notice in such form and content and at such conspicuous locations as the Company may designate in writing.

10.1 Default. The Licensee will have 5 business days after its receipt from the Company of a written notice of default within which to remedy any default under this Agreement described in such notice, and to provide evidence of compliance to the Company. During the 5 day period, the Company may restrict the Licensee’s access to any of the Company’s databases and software. If any such default is not cured within that time, this Agreement, at the Company’s option, will terminate without further notice to the Licensee effective immediately upon the expiration of the 5 day period. The Licensee will be in default for any failure to comply substantially with any of the requirements imposed by this Agreement, as it may from time to time be supplemented by updates from the Company, or for any failure to carry out the terms of this Agreement in good faith.

12.2 Status of License. This Agreement does not create a fiduciary relationship. The Licensee will be an independent contractor. Nothing in this Agreement is intended to constitute either party a licensee, franchisee, legal representative, subsidiary, joint venturer, partner, employee or servant of the other for any purpose whatsoever. The Licensee will have the right to profit from its efforts, commensurate with its status as owner of the Licensed Business, and correspondingly will bear the risk of loss or failure that is characteristic of this status notwithstanding the affiliation with the System and the Marks created by this Agreement. The Licensee will have no authority to assume or create any obligation whatsoever, express or implied, in the name of the Company, nor to bind the Company in any manner whatsoever, nor to enter into any contract on behalf of the Company, nor to endorse the Company’s cheques, nor to make amendments to the materials supplied by the Company to the Licensee.

[11] In August, 2011, discussions commenced between the plaintiff and a representative of the defendant regarding the potential involvement of the plaintiff in the defendant’s business. A number of emails were exchanged between the plaintiff and Derek Thomas, a representative of the defendant. Ultimately, on September 14, 2011, Mr. Thomas, in an email to the plaintiff, said that he would present the plaintiff with both the draft License Agreement and the Training and Certification documents for her to review.

[12] The Certification and Training Agreement between the plaintiff and the defendant was signed on September 21, 2011. The Brokerage License Agreement was signed by the plaintiff on September 21, 2011, and by the defendant on September 27, 2011.

[13] There is no dispute that the plaintiff paid to the defendant the sum of $29,500, plus HST, for a total of $33,335. Some of it was paid over time, through a promissory note.

[14] According to the defendant, the plaintiff failed the Certification and Training Program the first time she took it. She took it a second time and passed.

[15] On July 11, 2012, the defendant sent to the plaintiff a “notice of default”. It listed a number of activities undertaken by the plaintiff during the period January 12, 2012 to June 30, 2012, including total billings of $586.84. The notice states “this activity does not follow the training of our 20/20 methodology or the 30 steps to the placement process and is not in line to cover the minimum billings of $80K per year.”

[16] Ultimately, the plaintiff was given notice of the termination of the Brokerage License Agreement. She signed an “acknowledgement and continuation” agreement on October 23, 2012, under which she acknowledged that she had to remedy certain defaults by December 1, 2012, failing which the agreement would be terminated, and under which she released any claims she had against the defendant.

[17] By letter dated February 14, 2013, the plaintiff was given notice, by the defendant’s solicitors, of the termination of the agreement effective February 22, 2013.

[18] By notice in writing dated July 22, 2013, the plaintiff purported to give notice to the defendant that she rescinded the “franchise agreement” between herself and the defendant, and claimed that she would exercise her statutory right of action for financial damages under the AWA.

[19] The plaintiff claims a refund of any amounts she paid to the defendant, and she also claims damages.

[20] The defendant has filed a counterclaim against the plaintiff. However, the defendant has filed no evidence of any damages.

Submissions

[21] The plaintiff submits that the relationship between the parties was that of franchisor and franchisee. She submits that, pursuant to the AWA, all that needs to be established are the following:

a. The payment of money to the defendant as a condition of commencing operations or in the course of operating the business;

b. The right to offer goods or services associated with the defendant’s trademark or trade name; and

c. The defendant exercises significant control over, or offers significant assistance in, her business.

[22] The plaintiff submits that if these three elements are met, it does not matter what the relationship might be called for other purposes. If the statutory conditions are met, the relationship is that of franchisor and franchisee.

[23] The plaintiff submits that the relationship meets these three conditions. She submits that she gave notice of rescission as required by section 6(2) of the AWA. Accordingly, she became entitled to what is contemplated by the statute, namely, the refund of any monies paid by her to the defendant, and damages.

[24] The plaintiff relies on 2130489 Ontario Inc. v. Philthy McNasty’s (Enterprises) Inc., 2011 ONSC 6852; 1490664 Ontario Ltd. v. Dig This Garden Retailers Ltd. (2005), 2005 CanLII 25181 (ON CA), 256 D.L.R. (4th) 451 (Ont. C.A.); and 1706228 Ontario Ltd. v. Grill It Up Holdings Inc. (2011), 2011 ONSC 2735, 88 B.L.R. (4th) 191 (Ont. S.C.J).

[25] Counsel for the defendant submits that this action should be dismissed.

[26] Counsel submits that the relationship between the parties is not that of franchisor and franchisee. Rather, he submits, it is that of licensor and licensee.

[27] Counsel submits that no payment was required from the plaintiff as a franchise fee, or as a fee to operate the business. Rather, the only payment made by the plaintiff was for training.

[28] Counsel submits that the training fee was in no way connected to the business. Rather, it was a stand-alone fee for training only. He submits that a person who takes the training is not required to sign a license agreement. Indeed, counsel submits that some people take the training and set up their own businesses without any involvement with the defendant.

[29] Counsel submits that the defendant does not exercise significant control over the licensee’s business. Any control exercised is simply for the purpose of ensuring uniformity and a high quality of service.

[30] Counsel submits that any use of the defendant’s trademarks is simply in accordance with the Trademarks Act.

[31] The defendant relies on TA&K Enterprises Inc. v. Suncor Energy Products Inc. (2010), 78 B.L.R. (4th) 70 (Ont. S.C.J.); DiStefano v. Energy Automated Systems Inc., 2010 ONSC 493; and MGDC Management Group Inc. v. Estate of Marilyn Monroe, LLC (2014), 2014 ONSC 4584, 32 B.L.R. (5th) 166 (Ont. S.C.J.).

Analysis

[32] The relevant provisions of the AWA are as follows:

1 (1) In this Act,

“disclosure document” means the disclosure document required by section 5; (“document d’information”)

“franchise” means a right to engage in a business where the franchisee is required by contract or otherwise to make a payment or continuing payments, whether direct or indirect, or a commitment to make such payment or payments, to the franchisor, or the franchisor’s associate, in the course of operating the business or as a condition of acquiring the franchise or commencing operations and,

(a) in which,

(i) the franchisor grants the franchisee the right to sell, offer for sale or distribute goods or services that are substantially associated with the franchisor’s, or the franchisor’s associate’s, trade-mark, service mark, trade name, logo or advertising or other commercial symbol, and

(ii) the franchisor or the franchisor’s associate exercises significant control over, or offers significant assistance in, the franchisee’s method of operation, including building design and furnishings, locations, business organization, marketing techniques or training, or

(b) in which,

(i) the franchisor, or the franchisor’s associate, grants the franchisee the representational or distribution rights, whether or not a trade-mark, service mark, trade name, logo or advertising or other commercial symbol is involved, to sell, offer for sale or distribute goods or services supplied by the franchisor or a supplier designated by the franchisor, and

(ii) the franchisor, or the franchisor’s associate, or a third person designated by the franchisor, provides location assistance, including securing retail outlets or accounts for the goods or services to be sold, offered for sale or distributed or securing locations or sites for vending machines, display racks or other product sales displays used by the franchisee; (“franchise”)

“franchise agreement” means any agreement that relates to a franchise between,

(a) a franchisor or franchisor’s associate, and

(b) a franchisee; (“contrat de franchisage”)

“franchisee” means a person to whom a franchise is granted and includes,

(a) a subfranchisor with regard to that subfranchisor’s relationship with a franchisor, and

(b) a subfranchisee with regard to that subfranchisee’s relationship with a subfranchisor; (“franchisé”)

“franchise system” includes,

(a) the marketing, marketing plan or business plan of the franchise,

(b) the use of or association with a trade-mark, service mark, trade name, logo or advertising or other commercial symbol,

(c) the obligations of the franchisor and franchisee with regard to the operation of the business operated by the franchisee under the franchise agreement, and

(d) the goodwill associated with the franchise; (“système de franchise”)

2 (1) This Act applies with respect to a franchise agreement entered into on or after the coming into force of this section, with respect to a renewal or extension of a franchise agreement entered into before or after the coming into force of this section and with respect to a business operated under such an agreement, renewal or extension if the business operated by the franchisee under the franchise agreement or its renewal or extension is to be operated partly or wholly in Ontario.

(3) This Act does not apply to the following continuing commercial relationships or arrangements:

1. Employer-employee relationship.

2. Partnership.

3. Membership in a co-operative association, as prescribed.

4. An arrangement arising from an agreement to use a trade-mark, service mark, trade name, logo or advertising or other commercial symbol designating a person who offers on a general basis, for consideration, a service for the evaluation, testing or certification of goods, commodities or services.

5. An arrangement arising from an agreement between a licensor and a single licensee to license a specific trade-mark, service mark, trade name, logo or advertising or other commercial symbol where such licence is the only one of its general nature and type to be granted by the licensor with respect to that trade-mark, service mark, trade name, logo or advertising or other commercial symbol.

6. An arrangement arising out of a lease, licence or similar agreement whereby the franchisee leases space in the premises of another retailer and is not required or advised to buy the goods or services it sells from the retailer or an affiliate of the retailer.

7. A relationship or arrangement arising out of an oral agreement where there is no writing which evidences any material term or aspect of the relationship or arrangement.

8. A service contract or franchise-like arrangement with the Crown or an agent of the Crown.

5 (1) A franchisor shall provide a prospective franchisee with a disclosure document and the prospective franchisee shall receive the disclosure document not less than 14 days before the earlier of,

(a) the signing by the prospective franchisee of the franchise agreement or any other agreement relating to the franchise; and

(b) the payment of any consideration by or on behalf of the prospective franchisee to the franchisor or franchisor’s associate relating to the franchise.

(4) The disclosure document shall contain,

(a) all material facts, including material facts as prescribed;

(b) financial statements as prescribed;

(c) copies of all proposed franchise agreements and other agreements relating to the franchise to be signed by the prospective franchisee;

(d) statements as prescribed for the purposes of assisting the prospective franchisee in making informed investment decisions; and

(e) other information and copies of documents as prescribed.

6 (2) A franchisee may rescind the franchise agreement, without penalty or obligation, no later than two years after entering into the franchise agreement if the franchisor never provided the disclosure document.

(6) The franchisor, or franchisor’s associate, as the case may be, shall, within 60 days of the effective date of the rescission,

(a) refund to the franchisee any money received from or on behalf of the franchisee, other than money for inventory, supplies or equipment;

(b) purchase from the franchisee any inventory that the franchisee had purchased pursuant to the franchise agreement and remaining at the effective date of rescission, at a price equal to the purchase price paid by the franchisee;

(c) purchase from the franchisee any supplies and equipment that the franchisee had purchased pursuant to the franchise agreement, at a price equal to the purchase price paid by the franchisee; and

(d) compensate the franchisee for any losses that the franchisee incurred in acquiring, setting up and operating the franchise, less the amounts set out in clauses (a) to (c).

7 (1) If a franchisee suffers a loss because of a misrepresentation contained in the disclosure document or in a statement of a material change or as a result of the franchisor’s failure to comply in any way with section 5, the franchisee has a right of action for damages against,

(a) the franchisor;

(b) the franchisor’s agent;

(c) the franchisor’s broker, being a person other than the franchisor, franchisor’s associate, franchisor’s agent or franchisee, who grants, markets or otherwise offers to grant a franchise, or who arranges for the grant of a franchise;

(d) the franchisor’s associate; and

(e) every person who signed the disclosure document or statement of material change. 2000, c. 3, s. 7 (1).

11. Any purported waiver or release by a franchisee of a right given under this Act or of an obligation or requirement imposed on a franchisor or franchisor’s associate by or under this Act is void.

[33] I agree with the plaintiff that if the relationship between the parties meets the conditions set out in the definition of the word “franchise” in the AWA, then the relationship between the parties is that of franchisor and franchisee, no matter what terminology the parties have used to describe the relationship. I agree with my colleague Corbett J., in 1706228 Ontario Ltd., supra, where he stated, at para. 31, “The expansive definition of “franchise agreement” in the Arthur Wishart Act is clear: if the substance of the relationship is a franchise, it matters not whether the parties sign a document called a “franchise agreement””.

[34] In this case, in my view, the terms of the definition of “franchise” in the AWA are met.

[35] The requirement for a payment, or payments, to the defendant is met in two ways. The so-called payment for training is, in reality, a payment for the right to enter into the relationship. Furthermore, payments are made to the defendant, directly or indirectly, in the course of operating the business.

[36] The assertion that the so-called training payment is unconnected to the business is unconvincing. An examination of the training materials makes it clear that the training is for the purpose of operating a business under the auspices of the defendant. Assuming the trainee decides not to enter into a relationship with the defendant, the trainee is required to return all materials furnished by the defendant. The training agreement says all material supplied during training “are the exclusive property of TSE and shall be used solely for the purpose of acting as a TSE Career Broker.” The training agreement itself specifies that the trainee will keep 85 per cent of the revenues derived from placements and contracts negotiated in the course of its duties as a TSE Career Broker. That reflects the revenue split contained in the actual license agreement. The trainee himself or herself is referred to as a “TSE Career Broker”, which is an odd way of describing a trainee if it were not anticipated that the trainee would be entering into a relationship with the defendant.

[37] While it is theoretically possible that a trainee may go on to a career without an involvement with the defendant, the converse is not true. It would simply not be possible for a person to sign a license agreement with the defendant without undergoing the training. As noted earlier, the training activities themselves contemplate the subsequent engagement with the defendant. All materials supplied are to be used only for the purpose of acting as a TSE Career Broker. The training materials are replete with references to the “20/20 Methodology” and the “30 Steps in the Placement Process”. Indeed, in the notices to the plaintiff in which it was alleged that she had violated her contract with the defendant, it was alleged that she had not lived up to the 20/20 Methodology or the 30 Steps to the Placement Process. The materials that the so-called licensee will use during his or her relationship with the defendant are the materials supplied during the training.

[38] While the defendant has attempted to dress up the payment as one for training only, there is little doubt that it is, in fact, a fee that must be paid in order to enter into the relationship. The defendant does not suggest any way in which a person off the street could enter into the relationship without undergoing the training and the payment of the training fee.

[39] It is also apparent, in my view, that the so-called licensee makes payments to the defendant during the course of the relationship. While the license agreement says, on its face, that the licensee makes no payments to the licensor, that is not in fact the case.

[40] All billings are done by the licensor. The licensor remits 85 per cent of the billings to the licensee. The licensor keeps 15 per cent for itself. The billings are generated by the efforts of the licensee. In reality, the licensee is making payments to the licensor no matter how it may be portrayed.

[41] There can be little doubt that the business operated by the licensee is substantially associated with the defendant’s trademarks and its trade name. In the license agreement itself, the business itself is described, in Article 1.1, as a “unique and proprietary system relating to the establishment, development and operation of services relating to the provision to the consumer of recruitment and placement consulting services, which must be operated in accordance with uniform equipment, systems, methods, procedures and designs, and under the Company’s proprietary marks.” The agreement says, in Article 1.2, that in connection with its business of licencing and regulating TSE Career Broker licensees, “the Company has developed, used and continues to use and control the use of certain proprietary interests, trademarks, logos, designs and trade names to identify to the public the source of goods and services marketed under such trademarks and to represent to the public high and uniform standards of quality and service.” Without going through the agreement in detail, it is clear that the entire relationship is premised on the identification of the business with the defendant, its trade name and its trademarks.

[42] It is also clear, in my view, that the defendant exercises significant control over the so-called licensee’s method of operation. Article 1.4 of the Agreement constitutes the acknowledgement of the licensee of “the necessity of operating the Licensed Business in strict conformity with the company’s standards and specifications.” Under article 3.1(b), the defendant provides the licensee with billing and invoicing services; collection services; office support; accounting support; and many other services. Once again, without going through the agreement in detail, it is apparent that the defendant exercises significant control over, or at least significant assistance in, the licensee’s method of operation.

[43] The cases relied on by the defendant are of no assistance to it.

[44] In TA&K Enterprises, the agreement in question was for one year or less, thus triggering the application of s.5(7)(g)(ii) of the AWA. That is not the case here. The issue, then, under s. 5(7)(g)(ii), was whether there was a “non-refundable franchise fee”. Those words are not used in the definition of “franchise” in s.1(1) of the Act. At para.62, Perell J. stated “In my opinion, in the Arthur Wishart Act, a franchise fee means a direct or indirect payment to obtain the right to purchase a franchise, to operate a franchised business, or to become a franchisee in a franchise chain.” I think this is, in fact, an apt description of the arrangement in this case. In any event, in this case there are also continuing payments, which are included in the definition of “franchise” in s.1(1).

[45] In DiStefeno, the issue before Justice Code was whether forum selection clauses, that excluded Ontario, were valid. If the agreements under consideration were franchise agreements, s.10 of the AWA would render the forum selection clauses unenforceable. Code J. held that on the evidence before him, the so-called franchisor did not exercise significant control over or render assistance to the business. There was a required training fee, which he held was, in fact, a condition precedent to obtaining a dealership. However, the training itself did not constitute significant assistance in operating the business. That case is in no way analogous to this one.

[46] In MGDC Management, the agreement in question simply licensed the use of the name Marilyn Monroe in a restaurant, nothing more. Morgan J. had no difficulty in holding that this did not make the arrangement that of franchisor and franchisee. That is not this case.

[47] For these reasons, I hold that the plaintiff was, at all material times, a franchisee, and the defendant was a franchisor. There is no dispute that the defendant did not provide a disclosure document as required by section 5(1) of the AWA. The plaintiff rescinded the agreement, in writing, within the period of two years as prescribed by section 6(2) of the AWA.

[48] As noted earlier, the plaintiff signed an acknowledgement and continuation agreement on October 23, 2012, under which, among other things, she released any claims she had against the defendant. That has no impact on this case. That document contemplated the continuation of the agreement. It did not affect the statutory right of the plaintiff to rescind pursuant to s.6(2) of the AWA, or her statutory rights under s.6(6) and 7 of the AWA. If it did, s.11 of the AWA would render it void.

[49] Pursuant to section 6(6) of the AWA, the plaintiff is entitled to a refund of the amount paid to the defendant, namely, $33,335. That amount included money paid for supplies and equipment. She is also entitled to damages under s.7.

[50] The plaintiff’s affidavit material as to her damages is sketchy, at best. She says she purchased insurance, leased space, and purchased furniture and equipment. She says she was unable to obtain “meaningful employment” for a year. She has attached invoices and receipts. She has attached a summary of her claimed financial losses to her notice of rescission. They total $96,000. That sum includes $29,500 for the training fee. It does not include HST of $3,835, which should be added to the total.

[51] While the plaintiff’s evidence respecting damages in slim, she was not cross-examined on her affidavit and her evidence is otherwise unchallenged. Judgment will issue in favour of the plaintiff for $99,835, together with pre-judgment interest at the statutory rate from and after the date of delivery of the notice of rescission, July 22, 2013.

[52] The motion for summary judgment brought by the defendant, including judgment on its counterclaim, is dismissed.

[53] I will entertain brief written submissions as to costs, not to exceed three pages, together with a bill of costs. The plaintiff shall have five days, and the defendant a further five days. The plaintiff shall have three days to reply.

Gray J.

Released: March 14, 2016