Wrongful Termination of a Franchise Agreement?
What is the governing franchise agreement in the absence of a signed written contract between franchisor and franchisee? In this unclear context, what will courts consider in determining whether a wrongful termination of a franchisee has occurred?
The Ontario Superior Court’s decision in Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, addresses these questions.[i] The case is particularly relevant for franchisors and franchisees who are navigating expired agreements, ongoing negotiations, and operational relationships that continue without finalized documentation.
Facts
Ajmal Anwari (“the franchisee”) operated a Mamma’s Pizza franchise through his corporation, Queen Mamma Ltd., since 2004, under an original franchise agreement. In 2019, Anwari and Mamma’s Pizza (“the franchisor”) began negotiating a renewal of the franchise arrangement. Although Anwari, the franchisor, and the landlord agreed on some lease terms, and Anwari and the franchisor appeared to agree on certain commercial terms such as royalty fees and renewal fees, the parties did not sign a formal written renewal agreement.[ii]
The franchisor repeatedly attempted to obtain Anwari’s signature on renewal documentation throughout 2020, but Anwari did not sign the renewal agreement. Later that year, Anwari’s Mamma’s Pizza franchise system was sold to a new franchisor, 2755060 Ontario Inc.[iii]
In March 2021, the new franchisor advised Anwari that his franchise agreement had expired and that he was effectively operating on a month-to-month basis while renewal discussions continued. The franchisor also delivered a disclosure package pursuant to the Arthur Wishart Act (Franchise Disclosure), 2000 containing proposed renewal terms.[iv]
Negotiations deteriorated after a contentious meeting between the parties in May 2021. Shortly afterward, on June 21, 2021, the franchisor delivered a notice terminating the franchise agreement effective June 25, 2021. The franchisor then took possession of the store and locked Anwari out of the premises. In September 2021, Anwari sued for the wrongful termination of his franchise.[v]
The franchisor took the position that only two days’ notice was required to end the business relationship because, inter alia, the franchisee failed to pay royalties in the amount of $1,275.00.[vi]
The franchisee claimed that, inter alia, pursuant to the Arthur Wishart Act, the defendants should have acted in good faith with the franchisee.[vii]
Main Issues
The central issue of this case was whether Anwari had a valid renewed franchise agreement after the expiration of the original term.
The Court also considered the following key issues:
- whether the franchise relationship had become a month-to-month arrangement in the absence of a signed renewal agreement;
- whether the franchisor provided reasonable notice of termination; and
- whether either party breached the duty of fair dealing under the Wishart Act.
The Court’s Analysis
- No valid written renewal agreement existed
The Court decided that while the parties reached an agreement on rent for the lease, they did not conclude the franchise agreement because they never formalized the agreed upon terns in writing. Having terms written was essential because the Mamma’s Pizza franchise system was predicated on formal agreements, and the parties frequently changed the terms of the agreement during their negotiations.[viii]
- The franchise relationship became a month-to-month arrangement
Although the Court found that no renewed franchise agreement had been finalized, it also rejected the franchisor’s argument that the franchise had fully terminated in 2019. Instead, the Court concluded that the franchisor permitted Anwari to continue operating while negotiations continued, creating a month-to-month franchise relationship of indefinite duration.[ix]
- The franchisor had the right to terminate, but not on two days’ notice
The Court found there was no serious misconduct justifying immediate termination of the franchise agreement with two days’ notice. As a result, the Court held that Mamma’s Pizza was required to provide reasonable notice of termination, considering contextual factors including the expectations of the parties, the deterioration of the parties’ relationship, and the fact that negotiations had effectively broken down by May 2021. Therefore, the Court determined that 30 days’ notice was reasonable in the circumstances and awarded the franchisee $10,000 in damages for insufficient notice.[x]
What was notable is that when reasonable notice is not provided, the measure of damages should be an amount equal to prospective profits the distributor would have earned during the time period that would have been considered reasonable notice.[xi]
Because there were losses due to COVID-19, the Court determined that the lack of reasonable notice justifies some compensation apart from the franchise’s profitability which is why it awarded $10,000.[xii]
- There was no breach of the Wishart Act
Both parties alleged breaches of Section 3 of the Wishart Act “Every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement,” but the Court dismissed both claims.[xiii] The Court held that the franchisor’s conduct, while contractually deficient in relation to notice, did not rise to the level of bad faith. Similarly, the franchisee’s refusal to sign renewal documentation did not constitute bad faith conduct.[xiv]
Key Takeaways for Franchisors and Franchisees
This decision highlights the risks associated with allowing franchise relationships to continue informally after the expiry of written agreements. Therefore, key takeaways for franchisors and franchisees alike are to ensure that:
- renewal processes are carefully documented;
- timelines for execution are clearly communicated and enforced;
- interim operating arrangements are expressly addressed in writing; and
- termination rights are exercised consistently with both the contract and principles of reasonable notice.
How Our Team Can Assist You
Walker Law can assist you with a variety of contract law matters, including disputes about agreements of purchase and sale; commercial and residential leases; construction matters; contracts for goods and services; franchise agreements; and negotiations of contracts on behalf od employees or employers.
Tags: Franchise Law, Contract Disputes
[i] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686.
[ii] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at paras. 10-36.
[iii] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at para. 37.
[iv] Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3
[v] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at paras. 54-60.
[vi] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at para. 19.
[vii] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at para. 58.
[viii] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at paras. 106-108.
[ix] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at para. 93.
[x] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at para. 138.
[xi] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at para. 155.
[xii] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at para. 157.
[xiii] Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 at s. 3.
[xiv] Queen Mamma Ltd. et al v. 2755060 Ontario Inc. et al, 2026 ONSC 1686 at paras. 150-153.