Retail Gift Card Update

Although it has been several years since Ontario made important changes to the way retail gift cards are treated under Consumer Protection laws, there continues to be confusion in the minds of some shoppers. This article attempts to explain the changes that were introduced on October 1, 2007 to better protect consumers.

As a general rule, gift cards can no longer carry expiry dates. Exceptions are cards that are redeemable only for specific goods or services, such as a named treatment at a spa.

In addition, most fees have been banned. For example, with few exceptions, activation fees and “dormancy” fees can no longer be applied to gift cards.  Cards purchased from a shopping mall, rather than a retailer, may carry a one-time activation fee not to exceed $1.50, and must retain their full face value for at least 15 months. A small dormancy fee can be applied after that time. Fees are still permitted to replace a lost or stolen card, or to customize a card.

It is to be hoped and expected that by this time, retailers are fully aware of their obligations concerning gift cards, and that they will comply. But as in all things, a properly informed consumer is better able to protect him or herself.

Can you set your customer’s selling price?

Businesses such as manufacturers have long had what they considered a legitimate interest in the prices that sellers within their chain of distribution established to resell products. Public policy in Canada for decades disagreed with that perspective, and the Competition Act prohibited the practice. Indeed, it was a criminal offence to, by means of “promise, threat or agreement”, prevent resale of products at a price lower than a minimum established by the first seller of the product (usually a manufacturer).

Economists have in recent years offered varying opinions on the effectiveness and appropriateness of enforcing or prohibiting resale price maintenance. Enforcing minimum resale pricing schemes on downstream sellers discourages innovation that can lead to efficiencies and lower prices that benefit ultimate consumers.

Amendments introduced to the Competition Act in March, 2009 removed the criminal prohibitions of resale price maintenance, replacing them with a civil regime. The Competition Bureau can now treat a resale price maintenance practice as a reviewable matter, and can by means of an order prohibit the practice on a case by case basis if it determines there is a resulting adverse effect on competition. However, the Tribunal has no authority to impose fines.

An upstream seller can avoid the effects of the new provision if it can establish that any resale price is merely suggested, and the downstream customer will experience no negative impact in the business relationship if the suggestion is ignored. And, the new provisions apply only to supplier-customer relationships. Horizontal pressures to establish prices are not dealt with in the Act.

So – does this mean resale price maintenance is no longer illegal in Canada? Likely yes, but that doesn’t necessarily mean it’s legal either, based on the Tribunal’s ability to review the practice to determine if adverse effect on competition can be established. Business managers facing this circumstance would be well advised to seek legal advice before setting out on a course of resale price maintenance.

Letters of Intent – Good or Bad?

Before considering that question, it will be useful to examine just what a letter of intent is in a commercial context.

While there can be differences of opinion as to their use and format, many consider a letter of Intent to be a statement of the status of negotiations between parties at a point in time. It sets out the understandings of the parties to a proposed agreement, often (although not limited to) the purchase and sale of a business. The LOI helps to clarify what has been discussed and would form part of a definitive contract if negotiations proceed to conclusion.

In the view of many lawyers and commentators, a LOI should not be a binding agreement, since discussions are usually not sufficiently mature to warrant that status.

So, with that understanding in place, should they be considered good or bad, helpful or problematic?

In the view of the writer, a properly prepared LOI serves an important and useful purpose. It can help the parties focus on the issues on which they may be in accord, thereby also identifying those where further negotiation is required. The attempt to craft the LOI will clarify mutual understandings before extensive discussions, with the attendant time commitment, are undertaken, and before thorough due diligence has been committed.

Further, the LOI contributes to the negotiating process by creating a feeling of progress between the parties, enhancing the mutual commitment. And, on occasion, the LOI can be useful in discussions or dealings with arms’ length parties who may play a part in, or have some involvement in the deal, such as financers or agencies whose consent or permission may be required to complete the transaction.

And if all that is true, what can be the problems in using a LOI?

The effort to craft the LOI can take attention off the remaining discussions which would otherwise lead to the definitive agreement. However, in my view, this is a minor concern, and often plays no part at all. The true risk associated with the use of a LOI is in not drafting it properly. I subscribe to the theory that the LOI should be non-binding (except commitments to confidentiality and similar concerns), and so extreme care must be taken to ensure the risk of enforceability is avoided. If the LOI includes binding language, it can create legal obligations on either or both parties, and since the LOI is invariably much shorter than the ultimate agreement, it inevitably omits many issues that should be thoroughly addressed in the agreement, and is often sketchy on the issues it does address, the risk of confusion and lack of detail is unavoidable.

That risk is avoided by ensuring that terms creating legal obligations are avoided – words such as “agree” and “agreement”, “will” and “shall”. Instead the LOI should say a party “would” do certain things, and clearly state that it sets out “our mutual understanding of our discussions to date”, which “are subject to further negotiation and the settlement and execution of a definitive agreement”.

On balance, I believe a Letter of Intent can be an important component of a commercial transaction when used properly. But I always recommend the involvement of a legal professional accustomed to working in the commercial field to ensure it is used properly.

Late-in-Life Marriage – Protect Your Family

Al and Eileen met at their local seniors’ centre. Both were widowed; both loved to dance; both occasionally dealt with nagging health problems; both were in their eighties.

For two years, they kept each other company, helped each other with medical appointments, and encouraged each other through bouts of cancer. Then they decided that they wanted to spend their remaining days together, and so they planned to marry.

But each was concerned about how to protect the assets accumulated with their first spouse for the benefit of their children from that first marriage. After all, they were quite happy to share what they had with each other while they remained together; however, they agreed that that it wouldn’t be appropriate or fair to see a lifetime’s worth of wealth, accumulated in a first marriage, be diverted from the children of that marriage, and end up with the children of the “new” spouse.

So they decided to visit a lawyer and ask what could be done.

The answer was found in the way their new wills were to be prepared. They didn’t use the normal spousal wills which leave everything to the spouse on death. Instead, Al’s new will set out a distribution scheme providing gifts directly to his three children, and to his grandchildren if any of his children predeceased him. Eileen’s new will was similar. This way, their respective families would find themselves in the same positions they would have been in absent this late-in-life marriage.

As it turned out, Al’s wealth was greater than Eileen’s, and so he was quite prepared to shoulder more of the household expenses during their marriage. And, he wanted to provide some help for her after his death, should that occur first. But how could he do that without compromising his plan to have his estate go to his children?

Again, the answer was to be found in his new will. The will established a trust in a specified amount in favour of Eileen for the balance of her life, with the income from that trust being used to benefit Eileen. After her death, the funds in the trust would revert to the residue of Al’s estate, and be distributed among his family in the same manner as the balance of his estate would be on his death.

Now Al and Eileen were content that their wishes would be respected, and they could once again dance the nights away at the seniors’ centre.

The Importance of Small Business

A recent newspaper article in a national business publication highlighted a new trend among Canada’s large, multiple-office law firms. Apparently, they’ve discovered the importance and value of start-up and smaller business enterprises.

Their approach to attract and service these businesses as clients includes assigning younger, less experienced lawyers to have charge of the initiative, and finding ways to reduce or waive their fees.

At the Burgess Law Office, we have always recognized the importance to the economy (especially the local economy outside major urban centers) of start-up and smaller businesses. In fact, our office was established with a view to serving these business operators. Our business client base consists almost exclusively of small and medium sized enterprises (SME’s), and we have assisted with the legal components of more business start-ups than we can count.

Our experience as a business owner and operator (see “Why Choose Us”) has provided knowledge and expertise that allows strategic input and guidance that, in many cases, extends beyond just legal advice.

It’s encouraging to see the national law firms recognizing that SME’s and start-up businesses represent a niche market of interest to them – something that Burgess Law Office has known since we opened our doors.

Buying a Business – Why Use a Lawyer?

You, or someone you know, is buying a business. The purchase price – your investment – is modest, $50,000, maybe less. You’ve heard legal fees on this kind of deal will be $5,000 to $10,000. That’s 10% or 20% of the investment – it seems too costly!

Before you decide to go it alone, consider the risks of not having legal advice on your business purchase.

A recent experience of this office demonstrates how trying to scrimp on legal advice can cost your entire investment.

The transaction involved the purchase of certain production assets, inventory, goodwill and common law trademarks, as well as the assignment of a lease of premises, at a total purchase price of about $35,000. Sounds like it should be simple. But it wasn’t.

One of the key assets used in the business was leased, a fact that could have been easily discovered by a lawyer conducting standard searches. Since it wasn’t owned by the vendor of the business, it couldn’t be sold to the purchaser. And since it wasn’t assigned to the purchaser, it remained under the control of the vendor. The purchaser obtained, and had, no rights in respect of that asset. So when the vendor stopped making lease payments, and the lessor pursued payment or repossession, the purchaser of the business was in no position to rectify things. The by-then unco-operative vendor refused to make payments, or to assign the lease of the equipment to the purchaser. So that asset, which was essential to the day-to-day operation of the business, was lost to the purchaser.

The second issue that arose concerned the lease of premises. As with any commercial lease, there was a restriction on assignment of the lease, requiring the landlord’s consent. The vendor assured the purchaser that the landlord had orally agreed to the assignment – an assurance which turned out to be wrong, either erroneously or fraudulently. Either way, the purchaser now faced a situation where the landlord insisted that he vacate the premises, as the restrictive provision of the lease had been breached.

So at that point the purchaser had lost the business’ key operating asset, and had no location in which to carry on the business, meaning the business failed and the investment of $35,000 was lost. All because the purchaser felt that it would be too expensive to obtain legal advice on the purchase.

The proper perspective for professional advice, whether legal, accounting or otherwise as may be relevant for a particular business, is that the cost of that advice is actually an investment, just as the acquisition of the assets of the business is. With that perspective, a business person won’t be tempted to cut back on professional advice to save money, but will understand that the advice is essential to the success of the business.

What does the executor under a will do?

The short answer to this question is – a lot!

First, a point of clarification. What we have been accustomed to calling an Executor (or Executrix, if a woman) is now known as an Estate Trustee. For this article, we’ll call this person an ET.

The ET has many significant responsibilities. The first of these is the responsibility to arrange the funeral and burial of the deceased. When a deceased has prearranged funeral details, or has specified such details in a will, there would seem little reason not to comply.

After the immediacy of the funeral, the ET’s job really begins.

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I don’t have a will

How many times have you heard someone say that? You may have said it yourself. People who are organized in their professional lives, successful in business, who update their business strategies each year, often haven’t taken the steps necessary to plan for the final distribution of their assets.

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Dress code in the workplace

Questions often arise about whether an employer can enforce a dress code on employees. And the answer is – there is no simple answer. As with so many legal matters, the answer is influenced by the facts and the circumstances of each particular case. This article will attempt to provide some guidance.

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