By: Sydney Greenspoon, Associate, Cassels Brock & Blackwell LLP

Artificial Intelligence (AI) is no longer a distant concept and has already begun reshaping how franchise systems operate. As AI tools for forecasting, recruitment, and customer engagement become more deeply embedded in day-to-day franchise operations, they offer franchisors meaningful opportunities to boost efficiency, consistency, and system-wide performance. Yet these same technologies introduce new legal, operational, and governance considerations. As automated tools play greater role in business decision-making, franchisors must consider how their use aligns with existing legal obligations and emerging regulatory expectations.

For franchisors, the question is no longer whether AI will affect their system, but how to integrate it responsibly by supporting compliance, transparency and system cohesion. This article outlines Canada’s evolving AI regulatory landscape and highlights practical considerations for franchisors evaluating the use of AI within their franchise systems.

Canada’s Evolving Approach to AI Regulation

Canada’s approach to AI regulation is steadily taking shape as governments refine how these technologies should be governed. Although no comprehensive AI-specific framework is currently in force, momentum continues to build across jurisdictions to define clearer expectations for responsible AI use.

Federal Developments

At the federal level, the government continues to emphasize the importance of AI to Canada’s economic growth while acknowledging the need for responsible and transparent use. Recent federal initiatives have focused on strengthening Canada’s AI ecosystem and domestic infrastructure, reflecting an approach that encourages innovation while putting appropriate safeguards in place.

Despite this focus, Canada does not yet have formal legislation on AI regulation at the federal level. The federal government previously introduced the Artificial Intelligence and Data Act (AIDA) as part of Bill C-27,[1] which would have created new obligations for “high-impact” AI systems and established oversight mechanisms for developers and deployers of AI. However, due to the prorogation of Canada’s Parliament in January 2025, AIDA and its associated legislation has died on the order paper. The government has since signalled a shift toward lighter, more targeted regulation, with current priorities focused on scale, adoption, trust and sovereignty.[2] Further guidance is expected from the AI Strategy Task Force in early 2026.[3]

Provincial Developments

Provinces are also moving towards increased regulation of AI. For example:

• Quebec’s Act Respecting the Protection of Personal Information in the Private Sector[4] imposes enhanced privacy obligations on private-sector organizations and requires notice where a decision is based exclusively on automated processing.
• Ontario’s Working for Workers Four Act,[5] amended the Employment Standards Act to require employers to disclose their use of AI in the hiring process, specifically where AI is used in the screening, assessment, or selection process for applications to a position. This requirement applies to employers with 25 or more employees and came into force on January 1, 2026.

Across Canada, other provincial initiatives have focused mainly on public-sector AI governance, but they highlight broader expectations around transparency, accountability, and responsible use, all of which are principles that franchisors may find helpful as they develop their own AI practices.

Canadian Regulatory Guidance on AI

In the absence of comprehensive AI legislation, regulators across Canada have issued guidance emphasizing transparency, accountability, and privacy protection in the use of AI systems. The most relevant guidance for franchisors includes:

• The Ontario Human Rights Commission’s (OHRC) Human Rights AI Impact Assessment[6] (November 2024): A practical question-based framework to help organizations identify, assess, and mitigate human rights risks throughout the AI lifecycle.
• The Office of the Information and Privacy Commissioner and OHRC’s Principles for the Responsible Use of Artificial Intelligence[7] (January 2026): Guidance outlining human rights and privacy-focused standards for responsible AI use. The principles emphasize that AI systems should be valid, reliable, safe, privacy-protective, transparent, human rights affirming, and accountable, providing a robust framework for assessing risk and embedding accountability throughout the AI lifecycle.

Why AI Regulation Matters for Franchisors

Canada’s regulatory landscape for AI is continuing to develop, and these changes have practical implications for franchisors as AI is increasingly being used to support core franchise functions. Understanding how these technologies are applied within a franchise system is a necessary starting point for assessing the legal and governance considerations that may arise.

Anticipated Uses of AI in Franchise Systems

AI is being used within franchise systems across a range of functions, including internal operations and consumer-facing activities. These uses vary depending on the role of the technology and the level of system control, with different considerations arising for franchisor-led and customer-facing applications.

AI Applications on the Franchisor Side

Within franchise systems, AI is commonly used to support administrative functions, system oversight, and planning activities that are led or coordinated by the franchisor. Applications may include:

• Operational Administration. AI can automate repetitive tasks such as inventory management, employee scheduling, and financial reporting that reduces human error and frees up time for higher-level priorities.
• Business Planning and Analysis. AI-enabled analytics can assist franchisors in reviewing operational and market data to identify trends and support decisions relating to pricing, marketing initiatives, and resource allocation.
• Personalized Marketing and Engagement. By analyzing consumer behaviour and transaction data, AI can enable franchisors to offer targeted promotions and loyalty programs, with the aim of enhancing customer relationships and engagement across the franchise system.
• Franchisee Support and System Oversight. AI-powered tools may provide franchisors with operational guidance, customized assistance, and training resources for their franchisees. These technologies can help franchisees resolve operational questions quickly and maintain brand standards without excessive oversight.
• Recruitment and Training. AI may also be used in franchisee recruitment and training, including tools that assist with candidate evaluation and adaptive training platforms that tailor instructional content based to the individual franchisee, while continuing to adapt to changing market conditions.

AI Applications on the Consumer Side

• Customer Service and Support. AI-powered tools such as chatbots and virtual assistants may be used to respond to customer inquiries, facilitate bookings or orders, and provide information in a consistent manner across franchise locations.
• Personalized In-Store or Digital Experience. AI can tailor menus, product displays, and application interfaces based on individual preferences and past purchasing patterns. In quick-service restaurants, digital kiosks may suggest add-ons aligned with a customer’s order history, while in retail franchises, AI-driven applications can highlight products most relevant to the customer upon entry.

Practical Implications for Franchisors

Integrating AI into franchise systems introduces a range of compliance, governance, and operational considerations for franchisors, particularly where AI affects regulated activities and where system-level tools shape franchisee’s  AI use.

Regulatory Compliance and Disclosure Obligations

Ontario’s new hiring disclosure requirements requires employers to state in publicly advertised job postings where AI is used to screen, assess, or select applicants.[8] In many systems, franchisees will be responsible for meeting this obligation, but franchisors that provide or recommend AI-enabled recruitment tools should ensure their guidance supports franchisee compliance. Reviewing recruitment practices and offering clear and consistent direction can help maintain conformity across the system and mitigate associated risks.

Maintaining System Standards and Consistency

Introducing AI can affect how system standards are applied across locations. Variations in how franchisees use AI may lead to inconsistent practices or outcomes. Updating operational manuals, policies, and system guidance to address AI use can help ensure uniformity across the franchise network.

Training, Oversight, and Support

Providing franchisees with clear expectations around AI use, along with training and ongoing support, can help ensure these tools are used appropriately in day‑to‑day operations. Proactive oversight helps maintain compliance and alignment with system standards.

Legal Considerations for Franchise Systems

AI adoption also raises legal considerations that intersect with existing franchise agreements, statutory duties, and risk allocation within the system. Many of these issues are being addressed through existing legal frameworks rather than AI-specific legislation and require careful consideration as AI tools are introduced or expanded.

Franchise Agreements and Statutory Duties

Franchisors should consider how AI fits within existing agreements and obligations. Particularly, the statutory duty of good faith and fair dealing requires franchisors to act honestly, reasonably, and fairly toward franchisees. The use of AI in operational decision-making or service delivery may raise additional considerations under this duty, especially where automated processes influence outcomes that affect franchisees. Reviewing agreements and system practices can help ensure that AI use remains consistent with these obligations.

Data Governance and Privacy Compliance

AI tools often rely on operational, customer, or franchisee‑level data. Franchisors should understand how data flows through the system and what information is shared with third‑party providers. Clear expectations around data use and access can help reduce disputes, support compliance with privacy laws, and protect the integrity of the franchise system.

Intellectual Property Considerations

The use of AI within a franchise system can raise intellectual property (IP) considerations where proprietary materials, data, or brand assets are used to train or operate AI tools. Since Canadian law requires human involvement for IP protection, AI-generated content or innovations cannot independently secure patent or copyright rights.[9]

For franchisors, this underscores the need to maintain control over how AI tools are used within the system and establish clear policies addressing ownership, confidentiality, and compliance with copyright and trademark obligations.

Algorithmic Bias and Responsible AI Use

AI systems may reflect or amplify biases in their training data, potentially leading to unfair or inconsistent outcomes in areas like hiring, performance evaluation, or customer engagement. Establishing appropriate oversight, vetting AI tools carefully, and regularly reviewing outcomes can help reduce bias‑related risks and protect the reputation and integrity of the franchise system.

Next Steps for Franchisors

AI is increasingly shaping how Canadian franchise systems operate, and its use will continue to raise practical, legal, and governance considerations for franchisors. While Canada’s AI regulatory framework is still developing, existing legal obligations already affect how AI tools are deployed within franchise systems. By taking a thoughtful and measured approach to AI use, franchisors can support consistency, manage risk, and position their systems to adapt as technology and regulatory expectations continue to evolve.

ABOUT THE AUTHOR

Sydney is an associate in the Franchise Law and Business Advisory Groups at Cassels. Her practice focuses on providing practical, business‑oriented guidance to franchisors on all aspects of Canadian franchise law, including disclosure obligations, compliance, system structuring, and ongoing advisory matters. She works closely with clients operating in a wide range of industry sectors, supporting both emerging and established franchise systems. Sydney brings a thoughtful, commercially focused approach to her work and is committed to helping franchisors navigate regulatory requirements while supporting their strategic growth objectives.

[1] Bill C-27, Digital Charter Implementation Act, 2022, 1st Sess, 44th Parl, 2022 [Bill C-27].

[2] Josh Scott, “”Light, tight, right” regulation: Minister Evan Solomon unpacks how Canada plans to support domestic AI and quantum computing” (25 June 2025), online (blog): <“Light, tight, right” regulation: Minister Evan Solomon unpacks how Canada plans to support domestic AI and quantum computing | BetaKit>. Ankesh Chandaria, “A Canadian blueprint for trustworthy AI governance” (25 July 2025), online (blog): <A Canadian blueprint for trustworthy AI governance>.

[3] Adam Froman, “Kicking Off 2026: Canada’s AI Task Force Has a Rare Chance to Lead With Confidence” (5 January 2026), online (blog): <Kicking Off 2026: Canada’s AI Task Force Has a Rare Chance to Lead With Confidence – TheFutureEconomy.ca>.

[4] Act Respecting the Protection of Personal Information in the Private Sector, CQLR, c P-39.1.

[5] Working for Workers Four Act, 2024 S.O. 2024, c. 3.

[6] Ontario Human Rights Commission, “Human Rights AI Impact Assessment” (November 2024), online (PDF): <Human Rights AI Impact Assessment>.

[7] Information and Privacy Commissioner of Ontario, “Principles for the responsible use of artificial intelligence” (21 January 2026) online (IPC): <Principles for the responsible use of artificial intelligence | Information and Privacy Commissioner of Ontario>.

[8] Working for Workers Four Act, 2024 S.O. 2024, c. 3.

[9] Thaler (Re), 2025 CACP 8.