Insights & Articles
The Healthy Menu Choices Act and the Impact on Franchisors
January 1st, 2017 marks the day that the Healthy Menu Choices Act, 2015 (the “HMCA” or the “Act”) comes into force. The HMCA, Schedule 1 of Bill 45, the Making Healthier Choices Act, 2015, received royal assent after its third and final reading on May 26, 2015. The HMCA is directed at increasing nutritional transparency for those who own or operate chains of food service premises. According to the HMCA, “chain of food service premises” means “20 or more food service premises in Ontario that operate under the same, or substantially the same name, regardless of ownership, and that offer the same or substantially the same standard food items”. The HMCA is of particular concern for franchisors, as it appears likely that many will be caught by this definition and required to comply with the Act.
“Owns or operates”
In the first draft of Bill 45, the definition of a person who “owns and operates” a regulated food premise specifically contemplated franchisors. The Canadian Franchise Association (the “CFA”) lobbied the Standing Committee on General Government at the Ontario Legislature to amend the definition on the basis that it did not accord with the independent contractor essence of the franchisor/franchisee relationship. The CFA also argued that it did not take into account that many franchisors do not control the operation of their franchisees. The CFA believed that franchisors may unfairly attract liability for failing to comply with the legislation when they could not reasonably be expected to do so. As a result, a more purposive definition of owner/operator appears in the final version of the Act. While a franchisor may still be found to be an owner/operator, this is not a forgone conclusion and evidence will be required to show this.
General Issues with the Act
There are other practical difficulties associated with the HMCA. According to the Act, only “standard food items” are required to display caloric or nutritional information. Standard food items are defined as “a food or drink item that is sold or offered for sale in servings that are standardized for portion and content”. This implies that there are certain items on a menu that are non-standard, opening the door to inconsistencies and uncertainty over which menu items fall within the standard category.
Currently, only caloric and nutritional information need be displayed, however, additional information may be required if prescribed by the Regulations. This creates uncertainty for food service providers and if the Regulations stipulate greater strictness and accuracy, it may be difficult and costly to provide such information. It is possible that the legislators will look to the U.S. model for guidance, which requires a far greater scope of information to be displayed (see the U.S. Food and Drug Administration Rule Regarding Nutrition Labeling). This cost and difficulty may be exacerbated by the fact that many food service providers operate nationally. As a consequence, they may be subject to a patchwork of requirements across Canada, as other provinces inevitably enact similar, but slightly different, legislation. For example, British Columbia has already enacted voluntary guidelines for restaurants to display nutritional information (see Healthy Families BC).
Enforcement and Penalties
An individual who contravenes the Act is liable for a penalty for a first offence of not more than $500 ($5,000 for a corporation) for every day on which the offence occurs. The penalty for an individual for a second offence increases to $1,000 ($10,000 for a corporation) for every day on which the offence occurs. Those responsible for compliance with the HMCA are the directors and officers of the corporation who own or operate the food service premises. The concern is that franchisors may find themselves liable for heavy penalties due to unscrupulous franchisees. This reflects the objections that the CFA had with the original definition of owner/operators and the lack of appreciation for the independent contractor nature of the relationship.
Enforcement will be carried out by inspectors appointed by the Minister of Health and Long-Term Care. Inspectors are given broad powers and may, without a warrant, enter and inspect a regulated food service premise (unless also used as a dwelling) or any business premises of a company that owns, operates, franchises or licenses one or more regulated food service premises. Inspectors may also examine a standard food item, demand the production of a standard food item, take photographs and question a person on matters relevant to the inspection, among other things. Anyone having information regarding the inspection must volunteer such information if asked and must not hinder or obstruct the investigation.
The HMCA ushers in a new era of transparency for those owning or operating more than 20 food service premises in Ontario. The information required to be displayed may be costly and difficult to provide in some situations, and the penalties for non-compliance are significant. There is uncertainty surrounding some of the definitions in the Act and how they will be interpreted. Most importantly for franchisors is the question of whether they will be held responsible if franchisees fail to abide by the legislation. Given a franchisee’s independent operations, it may be difficult for a franchisor to correct breaches of the HMCA, even if the franchisor is aware of them. At this point, it is unclear what kind of rope franchisors will be given in these situations and the Act’s impact on franchisors remains to be seen.