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Leader of Tim Hortons dissident franchisees settles with parent firm

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Friday, September 14, 2018 – Page B1

The parent of Tim Hortons has come to a settlement for an undisclosed amount with the leader of an unhappy group of its franchisees after the company had abruptly locked him out of his four Alberta restaurants.

David Hughes, a long-time Tim Hortons franchisee in Lethbridge, Alta., was pushed out of his restaurants by parent Restaurant Brands International Inc. (RBI) on the Sunday evening of the Labour Day weekend, getting just five-minutes notice from the company that it was changing the locks on his stores.

He said in an interview at the time RBI's action was "pure intimidation" because of his role as president of the Great White North Franchisee Association (GWNFA) - a claim the company denied.

RBI confirmed on Thursday it had come to an agreement with Mr. Hughes, who had considered seeking a court injunction to get back his restaurants. "Both parties have agreed that Mr. Hughes has left the Tim Hortons business and an agreement was reached that is satisfactory to both parties," company spokeswoman Jane Almeida said in an e-mail.

"Due to a confidentiality agreement, we have nothing more to add." Mr. Hughes and his lawyer did not respond to phone and e-mail messages.

Tensions have been rising since GWNFA was formed in early 2017 to challenge what many franchisees call corporate mismanagement and excessive cost-cutting that they say is hurting the Tim Hortons brand and franchisees' profits.

The latest ouster of the most outspoken of the rebellious franchisees raises questions about the future of GWNFA and its effectiveness in winning changes from the company.

Still, the GWNFA said in a private message to members this week that under the leadership of franchisee Mark Walker and other members of the GWNFA board of directors it will continue to represent restaurant owners' needs.

"David Hughes has resigned from the GWNFA," says the letter, dated Sept. 11 and obtained by The Globe and Mail. "His reasons for stepping down are many. As always, he put the GWNFA first. He did not want his situation to affect the ability of the GWNFA to represent members and nonmembers. He believes as strongly as ever on the need for an association if franchisees want their voices heard."

The letter, sent by the GWNFA board, says that without Mr. Hughes having led the association, it would have collapsed.

"His passion for the brand and the success of franchisees have resulted in the creation of better conditions for franchisees all across the company," it says. "We want our members and all franchisees to know that it is our goal to try to work with RBI and the advisory board to make Tim Hortons the brand that it has always been and a better place for franchisees. David would not want it any other way."

The advisory board is elected by franchisees although the GWNFA has said it has no real power and simply rubber-stamps company decisions. The company has refused to acknowledge the GWNFA and instead communicates with the advisory board.

Mr. Hughes is the second prominent GWNFA activist to be bought out by the company; last month, RBI came to a settlement for an undisclosed amount with Mark Kuziora, a Tim Hortons franchisee in Toronto who had signed his name to an association lawsuit against the company, seeking class-action status in alleging RBI was improperly using franchisees ad funds.

RBI denies the claim.

Mr. Hughes had considered asking for a court injunction to force the company to give him back his stores amid a fight over what the GWNFA said were shattering coffee and teapots that were injuring employees. The company has denied the accusation. Instead of seeking an injunction, Mr.

Hughes negotiated with RBI over the past 10 days or so and came to a settlement.

David Kincaid, managing partner of consultancy Level 5 Strategy Group, said the latest settlement could weaken the GWNFA. "It sends a clear signal about what will be accepted and what won't," Mr. Kincaid said. "I think this limits the mandate and efficacy of the association."

Ben Hanuka, a franchise lawyer at Law Works, said the GWNFA could still keep on going under another leader and be effective in fighting for changes at Tim Hortons.

"Ultimately it boils down to how engaged the other franchisee members of the association are with the issues that they want to pursue," Mr. Hanuka said. He said the effectiveness of the GWNFA would also depend on how legitimate or legally grounded the issues are.

The spat with Mr. Hughes underscores the growing friction between GWNFA, which says it represents more than half of Canadian restaurant owners, and RBI, which is controlled by the Brazilian private equity firm 3G Capital and has been tightening spending at the coffee and doughnut chain since it acquired it in late 2014 and merged it with its Burger King division to form RBI, based in Oakville, Ont.

RBI has posted improved profits but disappointing sales at Tim Hortons, prompting it to hire new top executives at the chain and introduce or test initiatives such as allday breakfast, digital ordering kiosks, takeout deliveries and a children's menu.

The company insists it didn't terminate Mr. Hughes's licences because of his position in the GWNFA. Rather, it said Mr.

Hughes violated his franchise agreement by sharing confidential company information with the media and harming the company or the Tim Hortons brand, RBI's Ms.

Almeida said last week.

The GWNFA last year lodged another lawsuit seeking class-action status and claiming the company was trying to interfere with franchisees' right to associate. The company denied the accusation.

Peter Sklar, retail analyst at BMO Nesbitt Burns, said in a note last week Tim Hortons president Alex Macedo is taking a step in the right direction in trying to patch up strained relationships with franchisees by reaching out to them with bi-weekly conference calls. But Mr. Sklar warned it will take time "to meaningfully repair the tensions with franchisees."

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