Fitness Franchise Fails To Obtain Injunction To Stop Rebranding Of Fitness Studio During The Pandemic

• Published date: 17 June 2021
• Subject Matter: Corporate/Commercial Law, Coronavirus (COVID-19), Franchising, Operational Impacts and Strategy
• Law Firm: Gardiner Roberts LLP
• Author: Mr James R.G. Cook and Kevin Mooibroek (Articling Student)

The COVID-19 pandemic has been particularly hard on businesses operating gymnasiums and personal training studios since public health authorities have deemed it unsafe for groups of people to workout indoors. While some workout classes have migrated online, the lack of members being able to attend in-studio activities has had devastating effects on the cash flow of indoor athletic facilities. At the same time, however, their expenses continue, including any required by franchise agreements.

In Greco Franchising Inc. v. Franco Milito, 2021 ONSC 3950 (CanLII), the Honourable Justice C.T. Hackland considered whether the plaintiff, Greco Franchising Inc., which operated "the Greco System of fitness studios" franchise, was entitled to an injunction to force a fitness studio to maintain its agreement to operate under the "Greco Fitness" banner.

The defendants had acquired a Greco Fitness studio franchise in an Ottawa suburb in October 2015 under a Franchise Agreement. As part of the Franchise Agreement, the corporate franchise chain had limited day-to-day involvement in the operations of the fitness studio. The studio operators recruited members, set prices, and collected revenue while remitting a franchise fee back to Greco.

The defendants objected to the Greco franchise's handling of the business during the COVID-19 pandemic and various lockdowns. Following the onset of the pandemic, Greco introduced an online fitness program titled the Greco Method At-Home ("GMAH") and marketed it directly to the franchisee's members. Under the GMAH, Greco imposed fees and collected them directly from members after which they were split 50/50 with the franchisees. Greco prohibited the franchisees from developing or marketing their own at-home fitness programs.

The position of the defendants was that the GMAH imposition violated the terms in the Franchise Agreement which entitled each franchisee to "the exclusive right to a defined territory," the right to collect revenue from members and set prices, amongst other terms. The defendants argued that the imposition of the GMAH constituted a fundamental breach of the Franchise Agreement bringing their relationship with the plaintiff to an end.

Negotiations between the parties as to how the studio would "debrand" its location were ongoing when the operator of the studio sent a mass email to its members advising that the location was being converted from a Greco Fitness Studio to TG Athletics. Greco considered this action to be a...