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BC Court Upholds Non competition Privacy and Software Use Restrictions in Franchise Agreement
The British Columbia Supreme Court recently upheld a decision of an Arbitration Panel (the “Panel”) that ruled in favour of H&R Block (“Block”) with regard to a Satellite Franchise Agreement (the “Agreement”) between the company and a complaining franchisee.
While the Court’s central reason for denying the franchisee’s appeal was the lack of a question of law on which the Court could rule, the Court also considered four (4) substantive issues raised by the franchisee.
The Court first assessed the franchisee’s complaint regarding a distribution agreement between Block and a third party, Allianz Education Fund Inc. (“Allianz”). This agreement was for the distribution of Allianz’s products through Block’s franchisees. However, Block informed the complaining franchisee that she was not eligible to participate in the distribution of the Allianz products. Once refused, she then proceeded to enter into a similar agreement directly with Allianz, and subsequently informed H&R of the arrangement. H&R argued that the franchisee’s actions were in breach of the Agreement and demanded that the Allianz contract with the franchisee be cancelled. In considering Block’s actions in this regard, the Panel ruled that the criteria for the torts of unlawful interference with economic relations and inducing breach of contract were not met since there was no element of unlawfulness or lack of justification. In fact, the Panel found that Block had a legitimate interest in ensuring compliance with securities regulations; an obligation that was at risk if the franchisee was allowed to directly enter into agreement with Allianz.
In addition to supporting the Panel’s reasoning on the above issue and emphasizing that the franchisee’s complaint raised no question of law, the Court pointed out that no miscarriage of justice would result from denial of the appeal. It also mentioned that other avenues of addressing the franchisee’s complaint were available, including an action for breach of contract against Allianz or one against Block for its alleged tortuous activities.
The Court also supported the Panel’s decision on the franchisee’s second complaint. She challenged Block’s requirement that franchisees obtain their clients’ signature expressing approval of the terms set out in its Privacy Agreement even when such clients simply desire to acknowledge that they do not want Block to send them unnecessary information. The franchisee argued that this requirement had a perverse effect since it ensured that Block was given access to, and use of, her client’s private information. In addition to similar reasons as those set out in respect of the first issue, the Court ruled that the franchisee was better served by bringing her complaint under alternative legislation regarding protection of personal information.
The franchisee also contested restrictions on her use of Block software. While Block provides franchisees with free tax preparation software, it does so on the condition that the franchisees provide a list of all non-Block software being used and that they do not use non-business software on the computers on which Block software is being used. The Court agreed with the Panel that the franchisee is clearly not obligated to use Block’s software but by choosing to do so, the franchisee is obliged to comply with the conditions of such use.
The Court also dismissed the franchisee’s final submission that Block should provide copies of its software in printed form and that its software licence agreement should not extend beyond standard computer industry licence agreements.
For a copy of the decision (Court of Appeal), visit: