Understand Your Rights. Solve Your Legal Problems
What crucial regulations must Canadian franchisors ensure they understand?
In Canada, franchising is governed provincially. British Columbia, Alberta, Manitoba, New Brunswick, Ontario and Prince Edward Island have each enacted franchise legislation which aims to, among other things, level the playing field between franchisors and franchisees. This allows franchisees to make informed decisions regarding the purchase and operation of franchised businesses in those provinces.
The most significant obligation of franchisors is the duty to disclose. Franchisors must provide prospective franchisees with a franchise disclosure document (FDD) containing certain prescribed information about the franchisor, its executive team, as well as copies of its franchise agreements. This FDD must be delivered at least 14 days before the signing of any franchise agreement or the making of any payment related to the franchise, whichever is earlier. Certain limited exceptions exist for the payment of deposits and the execution of deposit agreements. Failure to adhere to this cooling-off period gives the franchisee the right to rescind the franchise agreement within 60 days of receipt of the FDD. Only in specific, limited circumstances is a franchisor exempt from this requirement.
Understanding the disclosure obligation is vital to the success of any Canadian franchise system, as failure to provide proper disclosure can result in significant financial losses to a franchise system. Franchisees have a statutory right to rescind a franchise agreement and walk away from the business for up to two years after signing the franchise agreement if an FDD is not provided. If the FDD is provided but does not outline the information as prescribed in the regulations, the franchisee can rescind within 60 days of receipt of the FDD. This does not mean that it is safe to simply provide a deficient FDD and assume the risk of a 60-day rescission. Canadian courts have found that certain deficiencies in an FDD are “fatal”, leaving the franchisee in the position as if they had never received an FDD (and thus providing a two-year rescission period).
The most significant obligation of franchisors is the duty to disclose.
In addition to financial losses, franchisors can suffer damage to its brand by its failure to comply with franchise requirements.
Franchise legislation also imposes upon franchisors and franchisees a positive duty of good faith and fair dealing in the enforcement of franchise agreements and operation of franchised businesses. Franchisors and franchisees in those provinces that have not enacted franchise legislation are also bound by a similar duty of good faith, which the Supreme Court of Canada has imposed on all commercial relationships.
How are franchise agreements enforced?
In all provinces, franchise agreements are enforced privately through the civil litigation process. There is no regulatory oversight or enforcement bodies. Many franchise systems opt for mandatory arbitration proceedings to deal with any disputes relating to the franchise system.
Why is it important for Franchise Disclosure Documents (FDDs) to be continually maintained and updated?
It is vitally important that franchisors maintain and update their FDDs. The risk and cost associated with failing to provide compliant and timely disclosure is high. Therefore, the FDD must be a living document as much of the information provided to prospective franchisees changes over time. In addition to information prescribed in the legislation, franchisors must provide franchisees with “all material facts” about the brand and system that may inform their purchasing decision. As materiality can be subjective, much of the litigation in this area relates to whether a fact is or is not material.
Additionally, as franchise systems evolve the FDD must be updated to reflect new information about the brand and system. For example, COVID-19 has been such a change for franchises. Costs have increased due to new safety protocols and lockdowns and forced closures have had significant negative impacts on certain industries while others have thrived.
What is the Canadian Franchise Association (CFA) and what assistance does it offer to franchisors?
The Canadian Franchise Association (CFA) is a national, not-for-profit association that represents the interests of the franchise industry and franchise owners in Canada through advocacy work and education, as well as networking and lead generation for its members. Members of the CFA include franchisors, franchisees, and services providers within the industry. Membership in the CFA adds a level of legitimacy to a franchise system as it denotes professionalism and credibility. Additionally, in order to be a member of the CFA a franchise system must have prepared an FDD that is compliant with the regulations in the jurisdictions in which it intends to operate.
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About Joanne Gilbert-Wiens
What can you tell us about your journey into franchise law?
My journey into franchise law was really a matter of developing my interests and seeing where they led me over time. I always had an interest in studying law and knew that law school would open up opportunities for me, but it was not until I had started law school that I started to envision myself becoming a lawyer. It was as a summer student at KMB Law that I discovered my interest in corporate law. I was fortunate to work for a firm that encouraged me to reflect on what I really wanted for my career and my practice. It was during articling at KMB Law that I discovered my passion for franchise law. I was given the unique opportunity to focus on this niche from the beginning of my career, which has served me well in building my practice and best serving my franchisor and franchisee clients.
How does working with franchise systems differ from other fields of corporate law?
I have always found the practice of franchise law to be rewarding and been truly excited to watch my clients grow in the franchise industry, whether as franchisors or multi-unit franchisees. In my practice, I get to assist new and emerging franchisors with the initial development of their franchise systems, the Canadianisation of US brands, and the growth of their system throughout Canada. Franchise law has also allowed me to assist franchisees to become business owners for the first time, when they might not otherwise have the opportunity or ability to do so. It is a unique and truly exciting experience entering into a relationship with your clients knowing that you are a part of their growth strategy and seeing them accomplish their goals.
What are you most looking forward to for the remaining half of the year?
As we begin putting COVID-19 behind us, I look forward to a return to normalcy. I am eager to meet with my clients face-to-face and have the opportunity to engage with their businesses in a meaningful way. I also look forward to spending time with my colleagues in the franchise industry and continuing to learn and grow in my practice for the benefit of my current (and future) clients.
Joanne Gilbert-Wiens, Lawyer
KMB Law
Tel: (905) 276-0406
Email: jgilbert@kmblaw.com
Website: kmblaw.com
https://www.linkedin.com/in/joannegilbertkmb
Keyser Mason Ball LLP is a fully diversified business law firm with additional expertise in family law, mediation, wills and estates. With over 40 years of experience, KMB Law provides guidance and expertise to its international client base in virtually every area of business law, equipping clients with support to find innovative and cost-effective solutions to achieve their goals.
Joanne Gilbert-Wiens is a Lawyer in KMB Law's Franchise, Retail & Distribution and Corporate/Commercial practice groups. She is also a registered Canadian Trademark Agent.
Joanne’s corporate/commercial practice covers a wide range of corporate and commercial matters including mergers and acquisitions; negotiation and preparation of commercial agreements, including shareholders agreements, customer agreements, supplier agreements, sales agreements and terms and conditions; and assisting start-ups and family-owned businesses with incorporation and start-up.
As a member of the Franchise, Retail & Distribution Group, Joanne has extensive experience assisting business owners across a wide range of industries with the creation of franchise systems; review, negotiation and compliance with disclosure requirements; preparation of franchise disclosure documents and franchise agreements; assisting foreign franchisors with expansion into Canada; and negotiating and documenting the purchase and sale of franchised businesses. She also assists franchisors with their ongoing franchise needs, including the maintenance and delivery of franchise disclosure documentation, and correspondence with franchisees and enforcement of franchise agreements.
Joanne also assists franchisees with disclosure and franchise agreement review and negotiation, as well as the negotiation and documentation of franchise resale transactions.
Experienced real estate attorneys will often recommend that their real estate developer and investor clients form a limited liability company to hold property. Lenders often require the formation of a single-entity LLC to hold each property. Therefore, successful investors will often have numerous LLCs. Forming a new LLC is as easy as filling in the details on a new operating agreement and registering it with the State. However, real estate owners need to be careful — the protection of a limited liability company can be “pierced” through the doctrine of alter ego and lead to individual liability for the individual members if the corporate formalities are not followed.
A recent California Court of Appeal case provides a good example of how the individual members can be held liable for the obligations of the undercapitalised LLC. The case involves a family-owned LLC that signed a contract to purchase a hotel for $39 million. The LLC did not go through with the purchase and allowed the purchase contract to expire by its own terms. Later, discovering alleged concealed conditions, the LLC sued the seller for specific performance and fraud.
At trial, the court found that the LLC had failed to conduct a sufficient investigation and entered judgement in favour of the seller and awarded over $2 million in attorneys’ fees. The LLC appealed and lost. However, the seller was unable to collect anything from the empty LLC.
The seller then sought to add two of the individual members of the LLC to the judgement as judgement debtors. The trial court found that the LLC was not adequately funded to purchase major hotels and therefore granted the motion, finding the individual members to be alter egos of the LLC.
California business litigation attorneys often use Code of Civil Procedure section 187 to add additional debtors to a judgement based on a theory of alter ego. To prevail in a motion to add a judgement debtor based on alter ego, the moving party must establish that (1) the parties to be added as judgement debtors had control of the underlying litigation and were virtually represented in that proceeding; (2) there is such a unity of interest and ownership that the separate personalities of the entity and the owners no longer exist; and (3) an inequitable result will follow if the acts are treated as those of the entity alone.
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In order to establish its case for specific performance, the LLC had to prove that it could have closed the transaction. However, the LLC itself did not have the money. One of the LLC members testified that his family had the cash on hand to complete the purchase. The family members introduced their personal financial statements into evidence to show they had control over $52 million in available cash.
When asked about his ability to withdraw cash from family entities, one member testified that “It’s not as formal as, you know, having to abide by some operating [document] – these are family entities that – and once again, we borrow from these family entities quite often and repay.”
On appeal the members conceded that they controlled the underlying litigation and were represented in that litigation.
The court therefore looked at unity of interest and ownership. The court found that the individual members owned and controlled the LLC. During the trial, “they made it abundantly clear that they could fund [the LLC] or not as they please.” While the members tried during appeal to argue that the LLC was a “fully independent business entity”, the court found that their testimony belied that assertion. The court especially took note of the testimony that they were not “formal”, that they did not have to “abide by” operating documents and that they borrow from the family entities quite often. The court concluded that the testimony established that the members were “willing and able to disregard corporate formalities in order to purchase the hotel” and that they could “commingle their own funds with the funds of their entities to accomplish whatever purpose they wish.”
The members countered that “infusing a legal entity with capital does not make them alter egos of that entity.” The Court of Appeal deftly countered: “But no one is suggesting the [members] are alter egos of [the LLC] because they infused it with capital. In fact, it is undisputed that the [the members] never infused [the LLC] with capital. That is the problem. [The LLC] has never had sufficient capital to purchase the hotel, or, for that matter, to pay the judgement. An important factor in imposing alter ego liability is that a legal entity is so undercapitalised that it is likely to have no sufficient assets to meet its debts.”
The members then argued that there must be some behaviour that amounts to bad faith in order to pierce the corporate veil. The Court noted that the alter ego’s acts need only cause an inequitable result.
"An important factor in imposing alter ego liability is that a legal entity is so undercapitalised that it is likely to have no sufficient assets to meet its debts.”
The first lesson to be learned by LLC members is that the protection of a limited liability company also demands that the members respect the corporate formalities of the entity. In other words, the LLC protection cannot be turned on and off to suit the members’ purposes while shielding those members from the debts and obligations of the entity.
A second lesson is that amendment of a judgement to add individual LLC members as judgement debtors is usually a difficult task. Oftentimes there will not be any testimony regarding unity of ownership during a typical business trial. It is unclear here whether trial counsel had anticipated being hoisted with his own petard. By eliciting testimony about performance necessary to establish the specific performance claim, the trial attorney also provided the fodder for the other side’s motion to amend the judgement.
An Interview With Laine Wagenseller
What is the best way to ensure a client is satisfied with your legal services?
“The skills that make an excellent business trial attorney also work with clients – and everyone else for that matter. I would rank knowing and understanding the basic human needs as the most important skill for a good lawyer to master. When new clients call me, they may not know much about the legal theories or the case law. But they want to know if I am listening to them. If I understand them. The clients do not know how we are going to solve their problem, but they want to have confidence that we can solve it.”
You decided early on to focus on real estate litigation. Why was that?
“My father was a real estate developer. He built industrial buildings in Southern California. It was something I grew up with. As a young attorney working in several big law firms, I was exposed to different areas of business litigation. Real estate always appealed to me because it involved complex and sophisticated legal issues."
“When I founded Wagenseller Law Firm, I set a big mission statement—to become the preeminent boutique real estate litigation law firm in Los Angeles. Since then we have worked on all of the big issues in real estate—breach of contract, specific performance, partition, boundaries and easements, partnership and family lawsuits, and more."
“Clients know that they are getting experienced real estate attorneys who handle real estate issues day in and day out.”
Laine T Wagenseller
Wagenseller Law Firm
Tel: (213) 286-0371
Email: ltw@wagensellerlaw.com
Website: https://wagensellerlaw.com/
Wagenseller Law Firm focuses on real estate and business litigation in Los Angeles and Southern California. Its lawyers have extensive litigation and trial experience handling a variety of lawsuits, including partnership disputes, breach of contract, real property partition, and breach of fiduciary duty. As a full-service firm, its trial attorneys are trusted to handle all facets of business and real estate litigation.
Laine T Wagenseller is the founder of Wagenseller Law Firm and a trial attorney who handles real estate lawsuits. With over 28 years of experience in the sector, he has advised property owners, real estate investors and developers in the resolution of disputes. He has extensive experience in trials, arbitrations and mediations.
What is the role of a legal operations professional?
Before diving into the role of a legal operations professional, it is important to take a step back and look at legal operations as a field. Legal ops is characterised by strategic thinking and implementation plans around workflow systems. This is considered to be fairly progressive work for most legal departments, particularly in North America, and it is only growing in awareness and popularity. Legal ops is more of a philosophy for – or approach to – the practice of law. It is the perspective that the legal department can – and probably should – be an integral part of everyday business operations. The role of the legal operations professional put simply is focused on the end goal of how legal teams are operating and making lawyers work better.
What goals do these professionals help achieve?
Legal operations and the professionals in the legal operations space come into organisations to help the law department and GC achieve several goals:
What backgrounds and skills should GCs look for in a legal ops professional?
First, some GCs look for legal operations professionals with a legal background, as they are often familiar with legal terminology, ethical obligations, client requirements and the professional pressures faced by lawyers. Others prefer legal operations professionals with a financial background, with the goal of focusing on budgeting, financial reporting and cost controls. A third focus area for GCs is technical expertise. They may seek legal operations professionals who are experienced in technical project management, systems implementation, troubleshooting, and the evaluation of technology solutions.
While these are three key areas that GCs typically focus on, there are other important proficiencies that a legal operations manager should have. In my experience, I tend to seek those with complementary technological skills and financial management experience. Think great teamwork, project and change management, problem-solving, communication, and business acumen, as well the ability to advocate for the department.
What are the benefits of legal ops professionals?
One thing we have seen at ContractPodAi is that having a legal operations professional on staff benefits GCs and legal teams. In my experience, I found that adding legal operations professionals provided me with several key benefits. As the senior legal executive, I am able to spend more time guiding the legal department and my team of lawyers in our activities, as well as provide strategic advice to other executives and senior leadership. The attorneys and allied professionals are then able to better drive the law department’s priorities, support other areas of the business, and focus more on day-to-day tasks. Legal ops professionals, meanwhile, bring their experience — whether financial, technical, or managerial — to address legal department issues and increase the entire team’s quality of service. Surprisingly enough, we saw that there was an increase in job satisfaction amongst the team as people were able to work on items for which they were best suited: legal, technical, management, strategic, and otherwise.
How do legal ops professionals fit into a company’s legal technology department?
Generally, legal operations professionals are involved in the selection and implementation of legal technology solutions. After adopting and implementing a legal management platform like ContractPodAi Cloud, they can help simplify and speed up the digital transformation process and improve overall usage. They can address process improvement, select solutions, integrate tools and manage technology, not to mention handle many other areas of law department operations.
What does the future of this role look like within the legal industry?
There are a few areas that are going to help define legal operations beyond the core technical and operational needs in the future. The goals for future legal departments will be agile, value-oriented and technology-enabled.
With that, what we will see more of is staff using the massive amounts of unstructured data within a legal department for significantly improved decision-making and cost containment. By tracking dollars and value, legal departments will be able to curtail unnecessary spending and decide where money needs to be used to achieve better results.
The ability to take the data we have and apply it to decision making is going to significantly drive adoption of technology in law departments and the need for experienced legal operations professionals who can be cross-functional in the role, whether they are coming from a legal background, a technical background, or financial background.
Jerry Levine, Chief Evangelist & General Counsel
ContractPodAi®
Address: 5 Merchant Square, 7th Floor, London W2 1AY
Tel: + 44 (0) 207 096 1401
Email: connect@contractpodai.com
Website: contractpodai.com
What has changed in Brazil’s economy since the inauguration of the new government?
The new government was elected promising economic liberalization and deregulation. After a long debate in Parliament, Law 13874 was enacted in September 2019, with a ‘Declaration of The Rights of Economic Freedom’ imposing new rules for the protection of free enterprise and the free exercise of economic activities.
In accordance with this law, the bases of banking and insurance supervision were reassessed. Their control is no longer total and comprehensive and has been directed to those who most need it. In the financial area, digital banks and the open banking scheme were permitted, as well as new remote means of payment (e.g. WhatsApp). In the insurance area, only individuals and small-sized companies will be covered by state supervision. Medium and large companies should deal directly with insurers about their insurance coverage needs. In addition, a regulatory sandbox has been created, opening the way for new and creative digital insurers to assess the market without major demands.
What is the most impactful measure for insurance and reinsurance?
The measure with the greatest impact was the freedom the regulatory body granted to underwriting large risks insurance policies (oil, engineering, banks, aeronautics, maritime, nuclear and credit). Insurance from any branches (including performance bands) can also be released as long as they are contracted by legal entities under certain minimum requirements. In all these cases, insurance contracts shall be governed by contractual conditions freely agreed between insurer and insured.
In the insurance area, only individuals and small-sized companies will be covered by state supervision.
However, there are advantages and disadvantages to this. First, the insurance contract loses its characteristic of adhesion contract, where the interpretation of any ambiguity will be made in favour of the insured (Civil Code,art. 423). On the other hand, as the contracts will be unique and personalised, the insured will need to understand the options of coverage existing in the market, the values of respective premiums, and the risks and needs of insurance litigation. In this sense, insurance brokers can help a lot. Moreover, reinsurance cessions tend to be more complex and time-consuming, given the need to study each case, delaying the beginning of contractual coverage.
What role will performance bonds insurance play in public bids?
A new public bids law was also issued, where performance bonds insurance became the main guarantee to be offered by the contracted builder or supplier. In normal contracts of building works and services, the insurance guarantee will be between 5% and 10% of the insured contract value. In the case of major engineering works and services (over USD 40 million), the insurance guarantee will be up to 30% of the insured contract value. The great innovation in these bigger cases is that the bid may function as an insurer´s obligation to assume the execution and complete the object of the contract of works and services in case of default by the insured contractor.
Luis Felipe Pellon, Founder and President
Pellon & Associados Advocacia Empresarial
Address: Rua Desembargador Viriato 16, CEP 20030-090, Altavista Building, Rio de Janeiro, Brazil
Tel: (55) (21) 38247821
Cel: (55) (21) 993392323
Email: lfpellon@pellon-associados.com.br
Website : www.pellon-associados.com.br
Luis Felipe Pellon
I have worked in insurance and reinsurance matters for 30 years, covering all its legal and operational aspects. I deal with contracts, claims, lawsuits, arbitration, product development, corporate, tax and governmental issues. My education took place mainly in Brazil, plus four years in Germany in the Insurance legal department of Hamburg University and in the Max Planck Institute for Comparative and International Private Law. There I studied contractual and regulatory aspects in insurance and reinsurance, both in Germany and in the European Community. I live in Rio de Janeiro but I work all over the country and abroad. I also work with industry associations, especially AIDA WORLD, of which I am a member of the Presidential Council.
My firm, Pellon & Associados, has a long and special relationship with the insurance market, as a leading law office in this area in Brazil with over 100 lawyers distributed among our offices in Rio de Janeiro, São Paulo and Vitoria. We have employ correspondent lawyers in all other main Brazilian cities and abroad. The firm renders a full range of services to insurers, reinsurers, brokers and agents, from consultation to court litigations and administrative proceedings, in all jurisdictions. We also conduct arbitrations and mediations, either independently or through arbitration chambers.
The term “Regulatory Sandbox” has seen global embrace in the past five years, inspiring recent initiatives such as the World Bank’s 2020 Report of Regulatory Sandboxes(1) and the FCA’s 2021 Digital Sandbox pilot(2). For those unfamiliar with the concept, a Regulatory Sandbox is a platform where regulators allow technology solutions – mostly in the fintech space – to be tested without having to fit into an existing regulatory framework.
A Sandbox can reduce or remove regulatory parameters for test purposes and even the eventual permanent removal of the requirements should the platform be approved for future use. The test environments typically have limits on the number of customers that are part of the test, maximum timelines on testing, risks to clients (i.e. minimal capital requirements of testing entity) and require testing under the regulator’s supervision. Sandbox applicant approval in most jurisdictions include criteria such as the benefit to consumers, the risks to the overall financial system and the degree of innovation the final platform can provide.
The primary driver of the Regulatory Sandbox concept is the realisation that traditional regulations and regulatory processes cannot keep up with the speed of today’s business demands for technology. Another major impetus for the Regulatory Sandbox is globalisation – where the right regulatory environment can invite investment in technology development in your country that can then be sold globally.
The Regulatory Sandbox has also been referred to as “agile regulation”, but that requires an “agile” regulator. As was cleverly captured in the US Nevada state Regulatory Sandbox proposal, you can only be as innovative as your least innovative regulator! Studies globally have concluded that governments play an essential role for innovation to happen.
A Regulatory Sandbox is a platform where regulators allow technology solutions – mostly in the fintech space – to be tested without having to fit into an existing regulatory framework.
A country’s regional regulators may also ultimately dictate a technology company’s ability to compete globally as we step into the 4th Industrial Revolution. Prime examples are the states of California and New York, which have an important impact within the US economy and conduct business globally. They are, however, two of most heavily regulated states and have seen an exodus of both people and businesses during the pandemic. There are a number of reasons contributing to this population shift; as an attorney who has worked with regulators in both these states, I would suggest that while the large populations and business concentrations have invited regulation, the heavy regulatory regimes may be a contributing factor to the exodus as innovative companies seek more accommodating geographies.
While Advanced Economies (AE) launched the concept like the UK’s FCA “Project Innovate” in 2016, Emerging Markets and Developing Economies (EMDE) are becoming quick followers, which we will speak to further as we unfold the World Bank Group study.
We need to give credit to the tech industry for introducing the Sandbox concept long before regulators adopted it. The term was first used to describe a testing environment that enabled users to run programs without adversely affecting the bigger application environment on which they ran. The technology sandbox concepts of testing with safety, visibility and accountability are also the foundation of Regulatory Sandboxes.
One of the most current global-reaching studies on Regulatory Sandboxes was released in November 2020 by the World Bank (WB). The mandate was a global review of digital financial service accessibility, with one of the objectives being to understand how fintechs and Regulatory Sandboxes could bring digital services to underserved populations. One especially revealing lens of the study was the “Type of Economy”, which they put into two categories: Advanced Economies and Emerging and Developing Economies. While there are many types of Sandboxes from medtech to envirotech, the WB study focused on fintechs. Its primary purpose was to explore how to leverage technology for consumer-centric products, offering alternatives to previously underserved populations.
The study determined that 57 countries worldwide were currently operating 73 Fintech Sandboxes. AEs were day one leaders in launching Regulatory Sandboxes, with the UK being one of the first countries to invite technology participants in 2016, but the EMDEs are quickly catching up. While the Sandbox concept took on a more global footprint in 2018-2019, driven by the opportunity to leverage fintechs, the COVID landscape has served to both invite and push the concept further as commerce and government adapt to meet societal needs in an emergency environment. COVID has forced regulators to respond by adaptive regulation in real time, even if on a temporary basis, enabling technology to benefit consumers – not just the institution using it to accommodate a changed business delivery model. This may be one upside to COVID!
While the WB report had many findings and recommendations, the three that jumped out for this writer were National Financial Inclusion Strategies, the different types of sandboxes and the surge of the sandbox in emerging markets and developing economies.
National Financial Inclusion Strategies (NFIS) have become an important part of many countries’ Sandboxes, including Bahrain, Malaysia, Sierra Leone and India, while others have made Sandboxes part of their NFIS, like Jordan and Mexico. These countries also include a mandate to improve the digitisation of government services in ways that will improve the lives of their citizens. The utilisation of technology to present business opportunities is not the focus but rather accommodating technologies that improve financial inclusion and access to government services. The first NFIS was launched in 2010, and by 2019 over 45 countries had launched one, with 39 others in the process of doing so. These strategies have all looked to fintechs and digital financial services as a way to further NFIS goals. In the WB study it was discovered that the 90 plus countries with NFIS all encouraged the use of fintech to achieve NFIS goals. While Regulatory Sandboxes have many purposes depending on the country and entity leading them, financial inclusion has found its way to being a key driver in EMDEs.
The WB study classified Sandboxes into four types: (i) policy focused; (ii) product or innovation focused; (iii) thematic, and (iv) cross-border. Policy focused Sandboxes use the process to evaluate specific regulation types or policies. Innovation Sandboxes encourage innovation by lowering the cost of entering the regulated marketplace, allowing firms to test the market viability of new business models. A thematic Sandbox’s objective is to accelerate the adoption of a specific policy or innovation, or products aimed at specific population sectors. Cross-border Sandbox objectives are to improve cross-border harmonisation and the fintechs’ ability to scale more rapidly on both a regional and global basis. These findings provide a very helpful starting point and potential road map for countries or regulatory bodies contemplating a Regulatory Sandbox.
While Regulatory Sandboxes have many purposes depending on the country and entity leading them, financial inclusion has found its way to being a key driver in EMDEs.
While AEs were the first countries to embrace the Sandbox, EMDEs are catching up with 70% of the open and active Sandboxes in 2020. The reasons behind this are not conclusive, but there are two emerging themes – these countries are highly committed to better NFIS or interested in encouraging investment more generally in their economy, with fintechs being a priority invitation. This could be done by regulation providing a clear but flexible path on government expectations. How ironic that regulation could be a tool to promote investment!
The Regulatory Sandbox is a wake-up call for the legal industry. The legal profession has for centuries protected individuals’ rights and served justice, going back to 41 AD when Roman Emperor Claudius first permitted fees to be paid to “advocates”. Today’s legal profession in most countries, while well intended to protect those seeking legal counsel, has professional and regulatory requirements that result in cost structures which discourage individuals from pursuing justice and protection. A recent response to alleviate this unintended consequence is the emergence of the Regulatory Legal Sandbox.
The UK has been a leader in this movement with the Solicitors Regulation Authority’s launch of “SRA Innovate” in 2018(3) to improve access to justice by making legal services more affordable. Other countries are embracing a similar approach by permitting the leverage of technology in delivering traditional legal services. This could be through a specific technology platform or by permitting the ownership of law firms and the delivery of select legal services by non-lawyers. The goal is to provide access to traditional legal services in a more financially and technology efficient way. North America has been a loud voice of late in this space formally embracing the Legal Regulatory Sandbox in the US and Canada. In the US, California just announced its “Closing the Justice Gap”(4) and Nevada’s Supreme Court introduced the Legal Services Sandbox(5) in 2021 – both with the purpose of increasing access to affordable legal services. Canada’s Law Societies in Ontario(6) and British Columbia(7) have also announced Legal Regulatory Sandbox pilots in the past six months. These are wake-up calls for our profession.
While the values of affordability and inclusion have been drivers of Regulatory Sandboxes, keep your eye on technology companies. Regulators are being forced to respond to what is emerging from technology companies. The real regulator may be technology itself.
References
Stephen Cheeseman is a Toronto-based lawyer admitted to practice in Canada, the USA and England and has advised on transactions across the globe. With added credentials in Anti-Money Laundering, Privacy and Cybersecurity, he is a frequent and passionate speaker on the intersection of technology and regulations. He has held legal and compliance roles in the delivery of financial services for global companies that include Foresters Financial and HSBC. In his current role as VP of Legal and Compliance for Canada Protection Plan he is providing leadership in the life insurance space with a focus on digital initiatives.
The US justice department has been pushing to extradite Huawei CFO Meng Wanzhou from Canada. In 2018, she was arrested on a US warrant at Vancouver airport on charges of fraud. Wanzhou’s detention enraged the Chinese government and has brought the relationship between Beijing and Ottawa to its lowest point in many years. Lawyers defending Meng Wanzhou now claim that internal emails and documents from British bank HSBC prove that there are no grounds to extradite Wanzhou to the United States.
The US has accused Huawei of utilising a Hong Kong shell company, Skycom, to make equipment sales to Iran in breach of US sanctions. The US says that Huawei’s CFO committed fraud by deceiving HSBC about the company’s business relationship with Iran. However, Meng Wanzhou’s lawyers have argued that the documents from HSBC demonstrate that Huawei was transparent about its connections with Skycom. Huawei Canada claims there is no evidence of fraud on HSBC and the company’s lawyers will now attempt to convince the Canadian court to allow the internal HSBC documents to be brought in as evidence.
Jamie Webster, Associate at Waterfront Law, explores the recent Supreme Court ruling that Uber drivers should be treated as “workers” and thus granted certain employment rights such as national minimum wage and paid holidays.
2021 has already been a significant year for the interpretation of worker status. In February, Uber lost the final round of a claim brought by some of its drivers and on Thursday the Independent Workers Union of Great Britain (“IWGB”) lost its appeal on behalf of some of Deliveroo’s riders. Both cases considered what constitutes a “worker” for key employment rights.
In the “Uber” case the Supreme Court ruled that Uber drivers should be treated as “workers” and thus granted certain employment rights such as national minimum wage and paid holidays. In the “Deliveroo” case, the Court of Appeal ruled that Deliveroo drivers should not be treated as workers and thus able to bargain collectively via a trade union. These judgements may seem contradictory, but both were based on specific and differing facts and considered different aspects of the legal test for worker status.
In the UK there are three types of employment status. A person can be employed, as most of us are when working in traditional businesses and roles, and employees enjoy the greatest legal rights and protections. A person can be self-employed and, again, most of us understand what this means in practice, but the self-employed have little or no statutory rights. The third status is that of a worker, which is akin to self-employment, but the law affords some of the rights enjoyed by employees to those who are workers.
Uber and Deliveroo both treat their drivers as self-employed and the claimants in both cases sought to assert that this was not correct and that the drivers should be treated as workers.
For Uber’s drivers to succeed they had to show that they were contracted to perform work or services for Uber. Uber said that this was not the case because it only provided a technology platform and acted as an intermediary, whilst the drivers provided their services to the app’s users. The Supreme Court disagreed with this analysis for a number of reasons, in particular:
For the IWGB to succeed they had to show that Deliveroo riders were required to personally carry out their work and could not send a substitute on their behalf. The IWGB had argued that riders were required to provide services personally because the setup of the Deliveroo app made the use of a substitute “unnecessary and undesirable”. Deliveroo argued that it was irrelevant whether the setup made “good business sense” and that what mattered were the terms of the agreement (in writing and in practice).
The Court of Appeal ruled that:
The Uber decision was a resounding loss for the company, which has no further right of appeal. Back in February, Uber pointed out that since the claim was first issued it has changed the way it does business. However, a month later it went on to announce a minimum wage, holiday, and pensions for all of its 70,000 UK drivers, whilst insisting that fares would not increase.
Conversely, the Deliveroo judgement was a success for that company and it remains to be seen whether IWGB will seek to appeal to the Supreme Court. The Deliveroo riders, on whose behalf the claim was brought, are not entitled to bargain collectively with the company via a trade union.
But what do these decisions mean for others who engage a workforce on a self-employed basis? Here are three things to note:
The Federal Trade Commission (FTC) and a coalition of state attorney generals launched the antitrust lawsuit against Facebook. The case was introduced in December by the US government alongside 48 states. They accused the social media giant of abusing its market power to trump its smaller competitors.
However, on Monday in Washington DC, US district judge James Boasberg dismissed the claims in a substantial blow to the regulators. Judge Boasberg said that their claims failed to prove that Facebook was a monopoly. Although the regulators’ complaint was dismissed the case was not, meaning that the FTC could potentially refile another complaint against the social media giant in the near future.
The ruling led to a surge in Facebook’s share price, taking it beyond the $1 trillion mark for the first time and making it the last of the “big five” US tech giants to pass the milestone.
In a statement, the FTC said that it is reviewing the opinion closely and will consider the best option forward. The regulators have 30 days in which they can file a new complaint.
The investigation is Europe’s fourth into Google, with Google-owned video-sharing platform YouTube catching the investigator’s attention this time around.
As part of the European Commission’s antitrust probe, the “obligation” to use Google services, such as the Good Ads platform to purchase online display ads, will be examined. The European Commission has also stated that it will assess the “obligation” to use Google Ad Manager. The platform facilitates the sales and purchases of ads across several ad networks, serving online display on YouTube. YouTube has a strong market position, with its ads constituting around $6 billion of Alphabet’s first-quarter profits this year. The figure is 11% of Google’s total income over that period.
Google has said it will continue to engage constructively with the European Commission whilst demonstrating the benefits of its products and services to businesses across Europe.
Johnson & Johnson did not admit liability or wrongdoing in the settlement with New York. The $230 million payment will remove the firm from a trial that was due to begin on Tuesday and in which numerous large opioid manufacturers and distributors are defendants. Johnson & Johnson have said that the settlements were consistent with a previous agreement to pay out $5 billion.
As part of the settlement, Johnson & Johnson will also stop selling opioids nationwide. Although they can be purchased as legal prescription medications to block pain, the powerful drug is also used illegally as a recreational drug. Within America, addiction to both legal and illegal opioid has been a serious and ongoing problem for many years. Between 1999 and 2019, there were almost 500,000 deaths from overdoses.
Johnson & Johnson, AmerisourceBergen, Cardinal Health, and Mckesson - the largest distributors of drugs in the US - have proposed a payout with a combined total of $26 billion to bring an end to thousands of opioid lawsuits.
