Franchise dispute: Spina et al. v. Shoppers Drug Mart Inc. (Ontario proceeding, national class excluding Quebec)

The Court of Appeal for Ontario has upheld, and expanded, the finding of liability against the franchisor, Shoppers Drug Mart Inc., in favour of the Ontario Class of franchisees. 

On August 29, 2024, the Court of Appeal released its decision on the appeal and cross-appeal of the summary trial of the common issues. A copy of the Court’s reasons is available here.

The Court of Appeal has affirmed that Shoppers Drug Mart Inc. breached the 2002 version of its franchise agreement by failing to remit any Professional Allowances to Ontario franchisees (known as Ontario Associates) under the 2002 agreement from and after January 1, 2008.

In addition, the Court of Appeal agreed with the Ontario Class that Shoppers Drug Mart Inc. understated the Professional Allowances it received, which were largely in respect of patient care services performed by the Ontario Class. The total amount of Professional Allowances Shoppers Drug Mart Inc. received over the entire class period, as found by the Court of Appeal, is $1.084 billion. In particular, the Court found that the franchisor, Shoppers Drug Mart Inc., “diverted” $129 million “to enrich itself at the Associates’ expense.” The Court found that Shoppers Drug Mart Inc.’s conduct was “not fair dealing”, it was “not made in good faith”, it was “not honest or transparent” and it “undermined the terms” of the franchise agreement.

The breaches of contract run from January 1, 2008 until the end of the term of the 2002 Associate Agreements. This means that Shoppers Drug Mart Inc. was contractually required to include Professional Allowance revenue in the profit-share calculations for Ontario Associates made under the 2002 Associate Agreement starting in 2008.

These are significant findings in favour of the Ontario class, after many years of hard-fought litigation. 

Ontario Associates (former or current) who were Associates as of January 1, 2008 or later, and who signed a 2002 version of the Associate Agreement are encouraged to contact Class Counsel as soon as possible at shoppersdrugmartclassaction@paliareroland.com.

While the Court of Appeal declined to award aggregate damages in favour of the Ontario Class, the Court has encouraged the design of a “procedurally efficient process” to assess damages “in the most expeditious and least expensive way that is consistent with access to justice”. The Court dismissed the Class’s appeal that Shoppers Drug Mart Inc. also breached the 2010 version of the franchise agreement by failing to remit any Professional Allowances to Ontario Associates under that version of the agreement. We are continuing to review the Court’s decision carefully and will provide further updates on this page.

In 2023, the Superior Court of Justice dismissed the other claims of the national class noting, however, that individual class members across the country may have claims pertaining to Shoppers Drug Mart Inc.’s implementation of its distribution centre policies and practices, including, for example, Mass-Order Generations. These issues were not subject of the appeal or cross-appeal. The details of the process have not yet been determined for how interested class members may make claims relating to the implementation of distribution centre policies and practices in respect of their stores arising during the following time periods: (a) between November 2008 and July 2013 for Associates in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador, and (b) between November 2004 and July 2013 for Associates in Prince Edward Island, Yukon, Northwest Territories, and Nunavut. Further updates will be provided on this page.

Overview
Shoppers Drug Mart operates a large system of franchised pharmacy stores across Canada. Each of these stores is independently owned and operated by franchisees (called “Associates”). Associates are required to enter into standard form franchise agreements with Shoppers Drug Mart (the “Associate Agreement”). The claim is brought on behalf of Associates across Canada, excluding Quebec.

The claim alleged that Shoppers Drug Mart breached certain terms of the Associate Agreement, as well as its statutory and common law duty of good faith and fair dealing regarding the operation of the franchise system.

In respect of all Associates, excluding Quebec, the claim sought damages for excessive charges by Shoppers Drug Mart in respect of store fees and equipment rentals and leasing, as well as commercially unreasonable procurement and inventory policies.

The action also sought compensation for Ontario Associates for damages suffered by them as a result of Shoppers Drug Mart’s failure to remit professional allowances to them.

For Associates governed by the 2002 Associate Agreements, the claim alleged that they have been inappropriately charged the Optimum Program Fee.

Certification
This action has been certified as a class proceeding. The class members are:

• All current or former Shoppers Drug Mart Associates resident in Canada (save for Associates with franchised businesses located in Quebec) who entered into an Associate Agreement with Shoppers Drug Mart Inc. and/or Shoppers Drug Mart (London) Limited dated between January 1, 2002 and January 1, 2010 (the “2002 Agreement Class”), and
• All current or former Shoppers Drug Mart Associates resident in Canada (save for Associates with franchised businesses located in Quebec) who entered into an Associate Agreement with Shoppers Drug Mart Inc. and/or Shoppers Drug Mart (London) Limited dated between January 1, 2010 and July 9, 2013 (the “2010 Agreement Class”).

The certification motion was argued in two parts. Copies of the court orders and the decisions can be accessed under the “Documents” tab.

This website will be updated when significant events occur in this proceeding.

This action is receiving financial support from the Ontario Class Proceedings Fund.

The Fund pays for some of the disbursements incurred in the course of prosecuting this action, and it will pay any adverse court costs that might be ordered payable by the representative plaintiff.

There will be a levy payable to the Fund that will reduce the amount of any settlement or judgment award to which the class may become entitled. The levy will be comprised of repayment of any disbursements paid by the Fund and 10% of the net award or settlement funds.