Marketing money spurs Tim Hortons class action suit

After broad marketing layoffs, a group of franchise owners alleges RBI is misspending the brand's marketing fund.

The contentious relationship between Tim Hortons’ parent Restaurant Brands International (RBI) and its franchise operators in Canada has boiled over into the courts as a number of those franchisees have filed a statement of claim for a class action lawsuit.

At the heart of the $500 million claim is the accusation that RBI has raised its franchise fees and prevented owners from charging customers more to offset that cost since acquiring the iconic QSR in 2014. The suit was filed by a Toronto-area franchisee on behalf of Great White North Franchise Association, which represents approximately half of all Tim Hortons’ franchise owners.

The suit also alleges the mismanagement of a marketing fund into which franchise owners must annually pay 3.5% of net sales. Since RBI’s acquisition, Great White North says this has totaled approximately $700 million.

In its statement of claim, Great White North says “since its acquisition of [Tim Hortons], RBI has used various strategies to extract more money out of the Tim Hortons franchise system at the expense of franchisees. One such strategy has been to use the Ad Fund in ways in which the fund had never historically been used or permitted [...] RBI has (sic) funnelled this money to itself, TDL and the individual defendants at the wrongful expense of the franchisees.”

At issue were charges RBI began making to the fund and an alleged lack of consultation with franchise owners, something that was routine under the previous management.

According to the statement of claim, RBI terminated “close to half of the employees responsible for advertising and promotional activities” who were paid from the fund. Those salaries previously accounted for 85% to 95% of the administrative expenses the fund previously paid. But even with the termination of those jobs, Great White North says the fund began to pay for more.

The statement says RBI began charging the fund for new, non-marketing expenses such as consultations with business analysts, training, management of the Tim Card pre-loaded debit cards and customer service functions, with no benefit to owners.

In response, Sami Siddiqui, Tim Hortons Canada brand president, sent a letter to franchisee owners responding to the allegations of fund misappropriation. “We vehemently disagree with and deny all the allegations that have been made about our business and the brand,” he 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,” he said. “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. As always, we will continue to listen to you, our restaurant owners, to get constructive feedback that will help drive growth for your businesses and the brand.”

RBI recently publicly chastised its franchise owners for spreading “false allegations and misinformation.”