Franchise brands across Canada are rapidly embracing centralized online ordering, consumer-facing apps, third-party delivery services, and digital loyalty platforms. These innovations promise convenience and streamline marketing but also present complex legal challenges for franchisees concerned about who owns the customer and revenue. Central to these concerns are impacts on territorial rights and how digital sales factor into gross revenue calculations under franchise agreements.
Under provincial legislation in disclosure jurisdictions such as Ontario’s Arthur Wishart Act and British Columbia’s Franchises Act the duty of fair dealing and disclosure obligations apply to digital platforms just as they do to traditional storefronts.[i] Franchise agreements must therefore clearly define territory in a digital context. What happens when a customer uses an app affiliated with the brand but outside their local franchised location? Without precise digital boundaries, franchisees may find their protected zones eroded by orders flowing through centralized platforms.
Equally significant is the effect on gross sales reporting. Historically, royalties and fees were based on in-person sales. The digital shift means that delivery revenue, app-based orders, or loyalty rewards must be accounted for in gross revenue clauses. Franchise agreements should specify which channels generate reportable sales, how fees are allocated between franchisor and franchisee, and who owns the customer data or loyalty points. Absent this clarity, franchisees may face unexpected charges or diluted earnings from sales outside their agreed-upon territory.
Canada’s franchise statutes provide a framework to address these changes. Disclosure documents must include all “material facts” affecting the franchise’s value including the introduction of centralized digital services.[ii] As such, any significant update to the ordering platform or delivery strategy should trigger an updated disclosure statement provided at least 14 days before execution or fee payment, under provincial rules.[iii] If franchisors fail to update and obtain proper consent, franchisees may have grounds to rescind, claim damages, or argue statutory non-compliance.
Another critical dimension is the statutory duty of good faith and fair dealing, imposed across Canada’s disclosure provinces. Centralized ordering or digital marketing may conflict with franchisees’ business interests and may attract scrutiny under the duty to act in accordance with reasonable commercial standards.[iv]
To future‑proof their tech strategy, franchisors should amend agreements to include:
- Clear definitions of digital territory and applicable revenue channels.
- Specific rules for fee attribution from digital purchases, delivery or loyalty-app transactions.
- Advance disclosure obligations for new platforms, ensuring franchisees can evaluate material changes.
- Audit rights allowing franchisees to verify sales attribution, customer data access, and revenue splits.
- Governance around data ownership, privacy obligations, and alignment with consumer and competition laws.
For franchisees, understanding and negotiating these terms ensures they retain digital rights tied to their region and avoid infiltration from brand-level sales. They should also seek audit provisions and clarity around who controls customer data and loyalty programs.
In conclusion, digital disruption isn’t a passing trend it’s a structural shift in franchising. Canadian franchisors that proactively modernize agreements, respect provincial disclosure laws, and ensure fair revenue attribution will build durable, scalable systems. Franchisees that negotiate clarity on digital territories and sales are best positioned to thrive in the online economy maintaining both their legal protections and bottom-line interests.
Always consult a lawyer and accountant familiar with Ontario franchise law before finalizing any transaction. This article is for informational purposes only and does not constitute legal advice.
[i] https://willisbusinesslaw.com/blog/business-law/the-future-of-franchising-in-ontario-challenges-and-opportunities/
[ii] https://gowlingwlg.com/en/insights-resources/guides/2023/doing-business-in-canada-franchise-law
[iii] https://sotosllp.com/wp-content/uploads/2021/10/Canada-Franchise-Licensing-Legal-500-2021.pdf
[iv] https://willisbusinesslaw.com/blog/business-law/the-future-of-franchising-in-ontario-challenges-and-opportunities
