Industry News | June 21, 2017 | By Danny Klein | QSR Exclusive Brief

Tim Hortons Franchisees File $500M Lawsuit Against RBI

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Restaurant Brands International Inc., the parent company of Burger King, could be facing a $500 million class-action lawsuit from a group of irate Tim Hortons franchisees. The Great White North Franchisee Association is seeking a class-action lawsuit against the company, which also owns Popeyes, for mismanaging money meant to go into an advertising fund and claiming a breach of contract.

The statement of claim, filed Monday in Ontario, says RBI is collecting money from Tim Hortons’ franchisees and funneling it toward interests unrelated to the brand, which Burger King purchased in August 2014 for a reported $11.53 billion.

“RBI has funneled the money to itself, TDL [the franchisor of Tim Hortons], and the individual defendants at the wrongful expense of the franchisees," reads the claim.

It was filed on behalf of franchisee Mark Kuziora, a member of the Great White North Franchisee Association, in Superior Court.

“Since the acquisition of TDL, RBI has used various strategies to extract more money out of the Tim Hortons franchise system at the expense of franchisees. One such strategy has been to use the Ad Fund in ways in which the fund had never historically been used or permitted,” it also reads.

Since RBI purchased Tim Hortons, the claim alleges, TDL has charged administrative and operational expenses to the fund. And as costs have increased, RBI hasn’t allowed franchisees to raise prices to balance the shift, according to the claim. The suit was filed on behalf of Kuziora, or 1523428 Ontario Inc., a two-unit franchisee, and is asking other plaintiffs to join. Back in April, the Great White North Franchisee Association went public with some concerns “regarding the mismanagement of Tim Hortons by RBI,” including a “lack of transparency in use of franchisee monies contributed for advertising/virtual elimination of local advertising and support, “abusive exploitation of its procurement powers to expropriate franchisee profits,” “imposition of subjective performance metrics designed to enable expropriation without compensation,” and “intimidation of franchisees and their employees.”

As noted by The Toronto Star, each franchisee contributed 3.5 percent of their gross sales to the fund to be used for advertising, marketing, and sales, according to the claim. This amounts to nearly $700 million since December 14, 2014.

RBI released a statement saying, “We vehemently disagree with and deny all the allegations.”

The suit is filed against corporate entities of Tim Hortons and RBI, as well as individual executives, including CEO Daniel Schwartz.

According to The Toronto Star, Tim Hortons Canada brand president Sami Siddiqui sent an email to restaurant owners saying, “As we have discussed many times before, these types of public accusations will only hurt the brand that all of you have worked so hard to build.”

The class-action lawsuit has not been certified and will be reviewed by a judge before the proper course of action is decided. The group is also seeking a declaration from the court that the ad fund at question be used only to advertise and benefit Tim Hortons franchised restaurants, as well as boost marketing and help generate revenue for Canada stores.