Tims U.S. franchisees, parent to go to court

Follows in wake of Canadian store owners

TORONTO • A group of Tim Hortons’ franchisees in the U.S. is taking parent company Restaurant Brands International to court, following in the footsteps of unhappy Canadian franchisees who have done the same.

The U.S. chapter of the Great White North Franchisee Association has filed suit in Miami, Fla. over a contract clause that they say forces all litigation between franchisees and their parent company to be handled in a federal count in Florida rather than disputing them in the states where the restaurant owners are based.

The suit will serve as a precursor to a broader franchisee lawsuit, the franchisees’ lawyer says, that alleges RBI has misused money from a franchisee advertising fund in order to defray its own overhead expenses and squeezed franchisee profits by artificially inflating the price of commodities that franchisees are required to buy from head office.

Last year, the corresponding group of Canadian franchisees filed two class action lawsuits against their parent company, alleging misuse of the ad fund and harassment and intimidation from head office. Both actions have yet to receive court certification.

“The (U.S.) franchise agreements all require the litigation to be filed in Tim Hortons’ principal place of business,” said Robert Einhorn, a Miami-based lawyer for the U.S. franchisee group, whose membership includes 50 per cent of the franchisees in the country.

“We don’t believe that Tim Hortons can force all of their litigation into their favoured court in Miami, Fla. These are state law issues and we don’t believe they belong in federal court.”

He said the corporation, formed in 2014 when Brazilian investment firm 3G Capital merged Tim Hortons with Burger King and relocated head office to the Canadian chain’s home of Oakville, Ont., purports to be a Canadian-based company in order to avoid U.S. taxes, “but when franchisees attempt to pursue legal claims … RBI takes a conflicting position and claims to be a Miami, Florida-based company.”

There are multiple ongoing court actions in the U.S. between the parent company and its franchisees over issues such as breach of contract.

Einhorn said the new lawsuit related to court venue “would certainly affect any future litigation. Whether it would impact existing litigation would be possible, but not a certainty.”

The U.S. lawsuit is the latest in a series of clashes between the conglomerate and franchisee association members. The acrimony came to a boil last month after the long popular brand took a clear reputational hit in several consumer surveys, and GWNFA alleged in a letter to the Canadian government that RBI had not lived up to promises it had made at the time of the 2014 merger.

Tim Hortons’ elected 19-member franchisee board lashed out in a letter to the splinter association of Canadian franchisees, and chief executive Daniel Schwartz told analysts and investors on RBI’s first-quarter conference call last week negative media coverage was hurting perceptions of the brand.

Canadian sales are also in a slump. Overall revenue at Tim Hortons grew by 2.1 per cent in the first quarter, including the chain’s international locations, but samerestaurant sales fell 0.3 per cent due to tepid performance at Canadian outlets, the sixth quarter in a row of weak or declining performance.

“We can’t comment on the specifics of any ongoing legal matters, however, these allegations are completely false,” Restaurant Brands International said Thursday.

“Together with our restaurant owners we are working hard to strengthen our brand, enhance long-term franchisee profitability, and provide the best possible experience for our guests.”