The federal government is looking into concerns raised by a dissident group of Tim Hortons franchisees about the potential violation of terms Ottawa placed on a deal that saw Canada’s most iconic restaurant chain taken over by a Brazilian firm.
The government will examine allegations that Tim Hortons owner Restaurant Brands International has failed to live up to promises it made to the federal government under the Investment Canada Act in 2014, said Economic Development Minister Navdeep Bains in an interview on Friday.
“I’ve asked my officials to look into the matter, to address the issues, to see what are the concerns being raised, the accuracy and validity of those issues, and to make sure we do our proper due diligence,” said Bains.
Under the Investment Canada Act, there are a variety of tools available to make sure conditions are met, he said, ranging from going to court to imposing penalties, but it’s premature to speculate on any outcome.
He said he was concerned about the issues raised in a letter sent to him earlier this month by lawyers representing the Great White North Franchise Association, which represents about half of Canadian Tims franchisees.
“Tim Hortons is a household name, Tim Hortons franchisees exist throughout Canada. These are many businesses that are owned and operated by families, so of course we’re concerned, we understand that this is an important issue. But at the same time we want to make sure that we do our due diligence and look at all the facts,” said Bains.
In the letter, the lawyers cite numerous commitments that Brazilian firm 3G Capital, which owns RBI, made to the federal government when it acquired Tim Hortons in 2014, including maintaining franchisee relationships, the rent and royalty structure for five years and keeping existing employment levels at Tims franchises across Canada.
They say the company has failed to live up to those commitments, and that “appropriate remedies” should be made to franchisees.
“The franchisees are increasingly concerned with RBI’s self-serving attempts to significantly increase its margins at the expense of the franchisees,” the letter stated.
The franchisees specifically say that the company has effectively changed the rent and royalty structure by saddling them with increasing costs and requiring them to renovate stores at their own costs.
RBI announced last month that the coffee-and-doughnut chain and its restaurant owners will invest $700 million to spruce up almost all of its Canadian locations over the next four years, but the franchisee group was quick to point out it believed the plan was ill-conceived and would cost individual restaurant owners about $450,000 each.
In response to word that the federal government is looking into the franchisees’ claims, a spokesman for Tim Hortons said the company hadn’t been notified of any official inquiries.
“What I can tell you, is that every year we have reported to the government on meeting our undertakings, without complaint,” said spokesman Patrick McGrade.
“We have always been and remain committed to doing good business in Canada.”
The federal government approved the takeover of Tim Hortons Inc. by Burger King Worldwide Inc. in December 2014. Then-industry minister James Moore signed off on the deal, but included several caveats, following a review of the agreement under the Investment Canada Act.
The dispute over the so-called “covenants” is the latest move in an ongoing dispute between Tim Hortons franchisees and the parent company, which they claim has been cutting costs and squeezing restaurant owners’ profits, most recently by refusing to raise prices to help them cope with Ontario’s minimum wage hike.
Earlier this week, the franchisees’ association vowed to “do everything in our power” to assist an outspoken member whose restaurant licence renewal is being denied amid his ongoing tensions with the fast food giant.
The board said Mark Kuziora, who is involved in a class action against RBI, was told by RBI in early April that he would be denied a renewal for one of the two Toronto Tim Hortons franchises he owns.
The class-action lawsuit lodged on behalf of Kuziora is over the company’s alleged improper use of a national advertising fund.