A finding of joint employer status, where a franchisor is found
to be the joint or co-employer of its franchisees' employees,
is arguably the most significant threat to the franchise business
model today. We have already seen an increased risk of joint
employer status in the United States with the initial ruling of the
National Labor Relations Board involving McDonald's
Corporation, and the shifting legal landscape on joint employer
issues in Canada appears to be headed in the same direction.
1. Am I at risk of being considered a joint employer with my
Ask yourself, as a part of your
business model do you
Have any direct or indirect corporate affiliation with your
Set the cost of your franchisees' supplies?
Set the price of your franchisees' products and
Run training programs for your franchisees' employees?
Set incentives or awards programs for top performing employees
of your franchisees?
Require your franchisees to obtain your approval in hiring
employees or sub-contractors?
Set the hours of work or employee timetables at your
Require your franchisees to use a specific scheduling tool or
Support your franchisees in their on-site maintenance of
accounting and business records?
If you answered "yes" to any one or more of the above
questions, you could be at risk of being considered a joint
employer with one or more of your franchisees.
2. Why do I need to be concerned about being a joint
If you are found to be the joint employer of your
franchisees' employees, whether under the current legal test in
Canada, which is ultimately a fact-based inquiry into the control
of your franchisees' day-to-day operations, or under the new
proposed amendments to the Employment Standards Act 2000
(ESA) or the Labour Relations Act, 1995 (LRA),
the consequences could be significant to your current business
Direct and indirect impacts on your business may include the
increased liability in respect of your franchisees'
commitments to their employees, including liability for
wages, salaries, overtime, vacation pay and benefits
termination notice and pay in lieu of notice
severance pay and employment-related premiums
increased costs and operational burden to ensure your business
is compliant with statutory labour and employment obligations and
internal policies and practices
changes to the economics and incentives in your franchise
business model as you try to flow through these increased costs and
operational burden to your franchisees, and they, in turn,
experience a loss of autonomy over the operation of their
increased risk that employees of your franchisees will become
3. Why do I need to be concerned with this issue now?
The landscape of the Canadian workplace is changing. In
particular, public interest groups are lobbying for better
protections for non-standard workers, including part-time retail
workers. These efforts have resulted in the proposed protectionist
amendments to the ESA and the LRA. These proposed amendments
include a recommendation to deem a franchisor the joint employer of
its franchisees' employees for certain statutory purposes.
4. What can I do to mitigate my risk internally?
To best protect your franchise system, and mitigate your risk of
being found to be a joint employer, the time to take action is now.
Osler has developed a streamlined audit process to assess your
franchise system's exposure to joint employer claims through a
review of your key agreements, policies and operational practices.
Our fully integrated team of national franchise, labour and
employment and risk advisory experts are uniquely positioned to
help you avoid, and if necessary defend, these business critical
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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