In the recent case of France v Kumon, 2014 ONSC 5890
("Kumon"), the Superior Court of Justice found
that a franchisor was required to provide a longstanding franchisee
with 18 months termination notice on the basis that the
relationship was akin to an employment situation. Despite the
alignment of the franchise relationship to the employment context,
the Court squarely held that the franchisee was not an employee and
that the franchisor was not a fiduciary.
The bold statement by the Court affirms what many
franchisor-friendly commentators have espoused for years and
reinforces one of the hallmarks of the franchising business model:
franchisees are independent contractors, not employees. The
decision is released amidst the recent jurisprudential confusion
regarding the employee/independent contractor dichotomy.
In Kumon, the plaintiff franchisee brought an action
against the defendant franchisor claiming damages for wrongful
termination. The defendant, Kumon, is the franchisor of the
world's largest provider of after-school math and reading
programs. The plaintiff, Bobbie France, operated a Kumon
franchise from 1991 until her termination. In 2009, Kumon
gave Ms. France 12 months notice and in December 2010, the
franchise was terminated.
Kumon brought a summary judgment motion claiming it had the
right to terminate the franchisee. The Court agreed that
Kumon was entitled to terminate yet found that the 12-month notice
period was inadequate. The action was dismissed subject to
further submissions on the reasonableness of the notice period.
In supplementary reasoning on the notice period issue, the Court
disagreed with Kumon that the franchise relationship was akin to a
commercial relationship in the distributorship context; rather, the
franchise situation was more in line with an employer-employee
relationship. While these authors suggest that franchising is more
closely akin to distributor relationships, the key aspect of this
decision is that it is a pronouncement by the Ontario Superior
Court that it is not an employment relationship.
Notwithstanding the alignment of the franchise relationship to
the employment context, the Court was quick to note that
franchisees were independent contractors and not employees of the
franchisor. The Court stated that there "must be some
discount for the fact that a franchisee is still an independent
contractor, and must bear much of the risk associated with being an
independent contractor" and continued that "while a
franchisee is closer to an employee than to a distributor with
significant commercial power, a franchisee is still not an employee
– and a franchisor is not a fiduciary."
The decision is helpful for franchisors feeling the aftershock
of changes that question the nature of the franchisor-franchisee
relationship in both the US and Canada. Traditionally,
franchisors have not been treated as employers of their franchisees
so long as they do not cross a certain line of control and
involvement in their franchisee's operation. Recent
developments in both US and Canadian jurisprudence have confused
whether a franchisee, or an employee of a franchisee, is an
employee of the franchisor or an independent contractor. The
confusion on whether the franchisor and franchisee are joint
employers sets a dangerous precedent with serious implications for
franchisors, including the potential for franchisors to be held
vicariously liable for the actions of their franchisees and their
The statement of the Court affirms the longstanding common law
position that franchisors will not be treated as employers of
franchisees, so long as they do not exert significant control over
franchisees. Franchisors are reminded to continue to be
conscientious of crossing the line of control and involvement so
not to expose themselves to liability as an employer of the
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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