Franchisees launch lawsuit against Quiznos
TORONTOâ€”Quiznos Canada Restaurant Corporation is trying to overturn a judgeâ€™s decision allowing dissatisfied franchisees to launch a Canada-wide class action lawsuit against the hot sandwich chain.
Gordon Food Service has also being named in the legal action. Mississauga-based Quiznos is seeking to appeal the decision of the Ontario Divisional Court to allow the class action.
The lawsuit alleges that Quiznos violated its franchise agreements and the federal Competition Act by acting together with the distributor to artificially inflate prices franchisees pay for supplies and services.
The franchiseesâ€™ lawyer, David Sterns of Sotos LLP in Toronto, told Restaurant News that this case tackles the most important issue in franchising, which is the cost of goods. The issue being dealt with here, he said, is when do prices to operators become â€śblatant overcharging?â€ť
Douglas Johnson, an Oakville franchisee, is the lead plaintiff in a franchisee group that started the legal action against Quiznos.
Quiznos is not answering the franchiseesâ€™ claims until a judge has decided on the companyâ€™s appeal.
â€śThe case is in very early procedural stages and itâ€™s not necessary to use the media to discuss it when it may not proceed,â€ť said Ellen Kramer, executive vice-president, communications.
â€śIn this tough economy, Quiznos remains singularly focused on franchisee profitability and success. We continue to dedicate tremendous resources (throughout operations and marketing) toward creating and sustaining that success for the Quiznos franchise owner community.â€ť
Lawyer Sterns said the problems for franchisees arose after Quiznos adopted an American model of setting up an intermediary company to buy supplies and then re-sell them to operators at a markup. The franchisees contend the markup is unreasonable.
Johnson says that after a first unit he and a partner started turned out to be very profitable, he opened two more Quiznos in the Oakville area. However, after the parent company in the United States took over the master franchise in Canada the situation changed and the best he could do was break even with one restaurant.
In April, days after the franchisee lawsuit was approved as a class action, Quiznos obtained a court injunction against Johnson obliging him to close his restaurants.
The franchisor said that Johnson was in default of his franchise agreement. Quiznos said that Johnson and his partners were selling sandwiches with insufficient portions, they were refusing to take part in promotions and failed to provide delivery service. Johnson disputes this.
This is the second time in two years that Quiznos has faced a class action lawsuit in Canada.
In 2007, Quiznos agreed to a $2-million settlement of a suit in which plaintiffs said that after they bought franchises they lost their deposits because they were unable to find suitable locations within the time required under their franchise contract.
Their lawyer argued that the franchisor did not warn his clients how difficult it was to find a location, and therefore had not provided full disclosure as required by law.