Amendment to the BC Recycling Regulation Impacts Small Businesses and Franchisees 

publication 

July 2014

Environmental Law Bulletin
Robin M. Junger, Annik Forristal, Matthew Burns, Summer Student
In our March 2014 Bulletin entitled "New BC Recycling Requirements for Paper Products Coming into Force Soon", we reviewed the new obligations arising under the BC Recycling Regulation1(the "Regulation") which required that, as of May 19th, 2014, producers of designated packaging and printed paper ("PPP") implement an approved stewardship plan for such PPP products. The new requirements garnered significant media attention, particularly regarding the burden that these new obligations placed on small business owners. In response, on May 23rd, 2014, the Government of British Columbia adopted BC Regulation 269/2014 amending the Regulation (the "Amendment") to alleviate the burden on small businesses and franchisees. Specifically, the Amendment revised the Regulation in two important ways:
  1. Introduction of a "small producer" category that exempts certain businesses from the obligation to implement an approved stewardship plan for PPP products; and
  2. Clarification of the obligations of franchisors under the Regulation.

Further to our March 2014 Bulletin, the following discussion summarizes the amendments to the Regulation and how they may affect small businesses including franchisees operating in BC.

Are you a small producer?

The Amendment provides that those business qualifying as a "small producer" are not obligated to submit or implement a product stewardship plan for the PPP product category. Thus, small producers are exempt from the new obligations under the Regulation for these PPP products. A company qualifies as a small producer under the Regulation if it satisfies any one or more of the following four criteria:

  1. The company is a registered charitable organization under the Income Tax Act2
    To qualify as a small producer by virtue of this provision, a registered charitable organization must operate exclusively for charitable purposes, must have been approved by the Canada Revenue Agency and must have a charitable registration number.3

  2. The company has a gross revenue of less than $1,000,000 in BC in the most recent calendar year4
    To determine if a company qualifies as a small producer pursuant to this criteria, the company's gross revenue for the preceding calendar year (as opposed to the preceding 365 days) must be determined to be less than $1,000,000. Gross income resultant from activities outside of BC is excluded from this calculation.

    Significantly, the Amendment provides that, for the purposes of the definition of "small producer", if the producer is operating under a franchise agreement, the producer, the franchisor and all other franchisees are deemed to be a single producer. As a result, when determining its gross revenue for a calendar year, a franchisee must include not only its own gross revenue in BC, but also the gross revenue of all other franchisees and the franchisor in BC. Consequently, it is highly unlikely that a franchisee will qualify as a small producer under this provision. 

  3. The company manufactured less than one (1) tonne of packaged and printed paper products in the most recent calendar year that have been or will be sold, offered for sale, distributed or used in a commercial enterprise in BC5
    To determine if a company is a small producer by satisfying this criteria, the total weight of PPP products sold, distributed or used by that company in the preceding calendar year (as opposed to the preceding 365 days) must be determined to be less than one (1) tonne. The PPP product category is very broad in scope and includes any printed paper product that uses text or graphics as a medium for communicating information (excluding text books and literary works)6. Notably, PPP products sold, distributed or used outside of BC are not included in this calculation.

    Once again, franchisees are unlikely to qualify as a small producer on this basis as they are deemed to be a single producer with other franchisees and the franchisor. Thus, when determining the total weight of PPP produced in a calendar year, a franchisee must include not only the weight of its own PPP sold, distributed or used in BC, but also the weight of all PPP of other franchisees and the franchisor sold, distributed or used in BC.

  4. A company does not have more than one point of retail sale in BC7
    To qualify as a small producer by virtue of this provision, a company must have only one point of retail sale in BC. Significantly, a company with a gross annual revenue of greater than $1,000,000 or that manufactures more than one (1) tonne of PPP products per year may still qualify as a small producer if it satisfies this criteria.

    Franchisees are highly unlikely to satisfy this criteria in order to be considered a small producer as they are deemed to be a single producer with other franchisees and the franchisor. As a result, when determining the total points of retail sale in BC, the franchisee must include its own point of retail sale as well as those of other franchisees and the franchisor in BC. Consequently, as long as there is more than one franchisee operating a retail outlet in BC, the franchisee will have more than one point of retail sale in BC.

What are the obligations of a franchisor?

Perhaps in recognition of the burden placed on franchisees by the new obligations under the Regulation with respect to PPP products, and given that most franchisees will be unable to qualify as small producers for the reasons described above, the Amendment introduced a new provision which provides that if a franchisor and a franchisee are operating under a franchise agreement and are producers of the same product, the duty to develop and implement a stewardship plan for such PPP products must be carried out by the franchisor8. Thus, the amended Regulation arguably excludes franchisees from the obligation to develop or implement a stewardship plan for PPP products.

If so, significant questions regarding the practical application of this new provision. For instance, in certain situations this could result in no stewardship plan being implemented at all for PPP products produced by franchisees. For example, in the event that a franchisor fails to comply with its stewardship obligations under the Regulation, this new provision could possibly be interpreted to provide that this is of no concern to the franchisees who are not obligated to have a plan in first instance. Further, as referenced in our March 2014 Bulletin, both the Ministry of the Environment ("MOE") and Multi-Materials British Columbia ("MMBC")9 appear to date to interpret the Regulation, including the Amendment, as applying only to those entities that are resident in BC (even though this residency requirement is not imposed under the Regulation itself).

As described above, determining a company's stewardship obligations under the Regulation, including whether a company qualifies as a small producer, can be difficult and complex. In particular, determining the obligations of a franchisee or franchisor under the Regulation is challenging. As a result, it is recommended that organizations seek assistance in confirming their obligations to ensure compliance.

by Robin Junger, Annik Forristal, Brittnee Russell and Matthew Burns, Summer Student

1 BC Reg 449/2004 (the "Amendment").

2 Section 1(b)(a) of the Amendment.

3 http://www.cra-arc.gc.ca/chrts-gvng/chrts/pplyng/rgstrtn/rght-eng.html

4 Section 1(b) of the Amendment.

5 Section 1(b) of the Amendment.

6 Section 1 of Schedule 5 of the Regulation.

7 Section 1(b) of the Amendment.

8 Section 2 of the Amendment.

 Multi-Material British Columbia ("MMBC") is the industry-led organization whose stewardship plan has been approved by the province and is administered by MMBC on behalf of its registered members.
 
a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014