<p>A customer stops at a Tim Hortons restaurant drive-thru window in Newcastle, Ontario on Sunday Feb. 11, 2018. A group of Quebec Tim Hortons franchisees are taking the brand's owner to court over financial losses they claim are due to constraints in its licensing agreements. THE CANADIAN PRESS/Doug Ives</p>

MONTREAL - Several Quebec Tim Hortons franchisees are taking the brand's owner to court, blaming what they describe as unreasonable constraints in the company's licensing agreements for lower-than-expected profits.

In a lawsuit filed in Quebec Superior Court on Thursday, 16 companies with Tim Hortons franchise licences allege the TDL Group Corp.'s contracts "place it in a position of absolute dominance" over their combined 44 restaurants.

"Through these Tim Hortons licence agreements ... TDL controls every essential lever involved in the running of a restaurant," from deals with suppliers to equipment," the plaintiffs allege in their application.

TDL also sets prices for both menu items and the ingredients restaurants need to make them, the lawsuit contends.

Yet TDL's policy of fixing prices didn't adapt to the market, the franchisees assert. They argue the franchisor's rules leave them "no room for manoeuvre" and impose costs they are unable to match in sales. A resulting blow to their profits has reduced the value of their restaurants and made it difficult for them to bear the cost of renovations and other investments that TDL expects, they say.

Before 2019, the franchisees' profitability mostly aligned with the forecast TDL provided them, the lawsuit states. But profits began to fall after that. And between 2021 and 2023, the 16 franchisee companies say they lost out on a combined $18.9 million.

Meanwhile appeals for reform, such as flexibility to set prices for some products within an agreed upon range, were unsuccessful, the statement of claim says.

The lawsuit argues TDL has therefore violated its contractual obligation to help and partner with the franchisees.

"As a result of TDL's breaches, the plaintiffs are unable to generate the adequate profitability to which they are entitled to expect," court documents read. "TDL has failed to help the plaintiffs and to act in a reasonable and diligent manner to work in concert with the franchisee to attain their common objectives."

The franchisees are seeking compensation from TDL to cover the 2021-2023 losses.

Tim Hortons has rejected the claims in the lawsuit, which have not been proven in court.

"Tim Hortons franchisees operate one of the most profitable and loved restaurant concepts in Canada and in Quebec," the company said in an emailed statement. "Just in the last three years, we have seen 24 Tim Hortons franchisees buy 77 restaurants in Quebec – because it is well known that franchisees have the opportunity to earn substantial profits when they operate the restaurants well and according to our brand standards."

Lawyers for the plaintiffs did not respond to a request for comment on Saturday.

This report by The Canadian Press was first published March 31, 2024.

News from © The Canadian Press, 2024