Tim Hortons franchisees launch $500M class-action suit against parent company

A group of Tim Hortons franchisees have launched a $500-million class-action lawsuit against the parent company for mismanagement of the brand, accusing the chain's owners of making it harder for them to stay in business.

The group of franchisees, who call themselves the Great White North Franchisee Association, say that ever since the firm Restaurant Brands bought the iconic coffee and doughnut chain and merged it with Burger King in 2014 their costs have increased, but the new owners haven't allowed them to raise prices to recoup those costs.

They went public with their complaints earlier this year, but after working with management behind the scenes to try to address their concerns, they launched the class-action lawsuit on Monday, seeking $500 million in damages.

"Since its acquisition," the statement of claim reads, "[Restaurant Brands] has used various strategies to extract more money out of the Tim Hortons franchise system at the expense of franchisees."

The suit is on behalf of one franchisee, 1523428 Ontario Inc., which owns two Tim Hortons franchises in the Toronto area, but seeks other plaintiffs to join the court action.

The class-action lawsuit must be certified before proceeding, which means a judge must decide whether a class action is the appropriate course of action, from a legal perspective.

"Changes instituted by RBI over the past two years have shaken the system, threatened the brand and affected the ability of franchisees to carry on viable business," the group says on its website.

Marketing money misspent

Among the allegations in the statement of claim is that the parent company is misusing the millions of dollars that franchisees pay for marketing.

As per the terms of their franchise agreements, Tim Hortons franchisees are required to contribute 3.5 per cent of their net sales every year into a fund used to market the chain collectively.

Since Restaurant Brands bought the chain, Canadian franchisees have contributed a total of $700 million to the so-called ad fund.

The statement of claim says that since the RBI takeover, franchisees have little say in how that ad fund is spent, and they allege some of the funds in it are being spent on things that don't help market the chain.

"RBI has funnelled this money to itself, TDL and the individual defendants at the wrongful expense of the franchisees," the statement of claim says.

The suit is launched against the corporate entities of Tim Hortons and Restaurant Brands, but also individual executives including Tim Hortons president Elias Diaz Sese, and Restaurant Brands CEO Daniel Schwartz.

For its part, the companies told CBC News in a statement that "it is very disappointing that a few restaurant owners have opted to take actions against us when our focus remains on protecting and enhancing the brand."

"We vehemently disagree with and deny all the allegations that have been made about our business and the brand. We remain committed to working together with our restaurant owners to ensure the incredible Tim Hortons brand continues to be strong for many years to come," the statement reads.

Tim Hortons' Canada President Sami Siddiqui sent a letter to all Canadian franchisees on Monday, echoing that tone. "

"We vehemently disagree with and deny all the allegations that have been made about our business and the brand," Siddiqui said. "It is very unfortunate that certain owners have chosen to make these public accusations given that we have offered to let any owner come in and review the numbers with us, line by line, as we have done in the past. 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."