Canada: From Franchisor To Joint Employer – Update On Potentially Increasing Liabilities Of Franchisors For The Employees Of Their Franchisees

Last Updated: August 10 2016
Article by W. Brad Hanna, FCIArb., Michael E. Reid and Linda Yang

Co-authors: Brandon Deans, Temporary Articled Student, Grace Shaw, Temporary Articled Student

Franchise agreements typically provide franchisors with the ability to exert significant control over several aspects of their franchisees' businesses, from setting the prices of supplies as well as goods and services sold by franchisees, establishing various operational standards and requirements, to imposing standards with respect to the hiring, training and firing of employees. Recent labour and employment law developments in both the United States and Ontario, however, threaten to expand the scope of franchisor liability with regards to the employees of their franchisees. These developments, which in some cases stem from the mere ability of franchisors to exercise control over the employment practices of their franchisees, could expose franchisors to claims by the employees of their franchisees for wrongful dismissal, human rights violations and wage and overtime class actions, among others. This bulletin summarizes these recent developments and addresses the risk that franchisors may be held to be "joint" or "related" employers of their franchisees' employees.

Franchisors as Joint Employers - Recent Developments in the U.S.

Two significant developments regarding the law of joint employer status have occurred in the United States in the past couple of years.

First, in the summer of 2014 the U.S. National Labor Relations Board ("NLRB") recommended that McDonalds USA LLC be named as a joint employer with several of its independently owned franchisees in connection with 43 complaints, brought by employees of the franchisees, alleging violations of the National Labor Relations Act. The NLRB did so because, in its view, McDonalds as a franchisor controls the working conditions of its franchisee employees to such an extent (from stipulating questions to be asked when interviewing and hiring employees, to dictating the food order-taking process and restaurant cleaning procedures employees must follow) that McDonalds could be held responsible for what happens to workers subject to those conditions. No decision on the merits has been made, so it remains unclear as to whether any of the alleged wage and labour violations occurred or whether McDonalds will be found to be a joint employer (and on what basis) with its franchisees.

Second, in 2015 the NLRB revised the standard for determining joint employer status for the purposes of collective bargaining. Under the prior standard, the NLRB considered whether the alleged joint employer possessed, and in fact exercised, direct and immediate control over the terms and conditions of employment. In Browning-Ferris, however, the NLRB relaxed the standard – such that an entity can be considered a joint employer if it possesses control over employment matters, either indirectly or by reserving its authority in that regard, and regardless if it ever in fact exercises that authority.1

Although Browning-Ferris did not involve a franchise relationship (it considered whether Browning-Ferris was a joint employer of workers provided by a staffing agency under a temporary labour services agreement), the NLRB's relaxation of the joint employer test in that case coupled with its approach involving McDonalds (noted above) has created much uncertainty in the United States. Many are concerned about the potentially far-reaching implications of these changes, and what they mean for franchisors.

Are U.S. Style Joint Employer Developments Coming to Canada?

It is not just franchisors in the U.S. who are worried about the potential expansion of joint employer liability and its consequences. While more cases will need to be resolved in the U.S. before we know the extent to which franchisors will be held liable as joint employers, there is reason to believe that such expanded liability may be coming to Canada. In fact, the Canadian Franchise Association has identified the joint employer issue as one of the top five issues that will impact franchisors in 2016.

Canada, of course, already has a common law principle known as the "common employer" doctrine. It is most frequently used in circumstances where a dismissed employee sues the legal entity that employed him or her, as well as one or more companies who are closely affiliated with that entity. If there is a sufficient nexus between the different entities, and if they function as one integrated unit, those entities may be held responsible for the employee's wrongful dismissal together with the legal entity that employed the individual. While it would likely be a stretch to apply this common employer doctrine to franchisors (as franchisees are typically independent and not affiliated with their franchisors), it is not beyond the realm of possible.

In addition to the common law, Ontario and other provinces also have labour and employment standards legislation that are used to determine whether a company is a "related employer" with another. For example, the Ontario Labour Relations Act permits the Ontario Labour Relations Board (the "OLRB", being the Ontario equivalent of the NLRB) to declare that companies are "related employers" if they are engaged in related businesses and fall under common control or direction. Being declared a "related employer" in Ontario is similar to being found a "joint employer" in the U.S. – the related employers will be deemed to be a single employer and bound to any collective bargaining obligations of their related entities. The OLRB has been asked to treat franchisors and franchisees as related employers in a few cases, and it has done so in some, but not all, of them.

As another example, the Ontario Employment Standards Act provides that companies may be treated as one employer if associated or related businesses are carried on by an employer and one or more persons and the "intent or effect of their doing so is or has been to indirectly or directly defeat the intent or purpose" of the legislation.

Moreover, the Ontario Human Rights Tribunal (the "OHRT") has considered whether franchisors could potentially be held liable for harassment and discrimination claims made by employees of franchisees. Similar to the NLRB, the OHRT has ruled on several occasions that it will not remove a franchisor from a complaint at the preliminary stage on the basis that the franchise agreement (or the franchisor's exercise of controls under the agreement) may have been a factor that caused the alleged discrimination.

While current Canadian "common" and "related" employer principles could result in liability to franchisors for the wrongs committed by their franchisees, no clear line of cases has been developed in that regard.

However, potentially seismic changes may be afoot. The Ontario Ministry of Labour is currently in the process of reviewing Ontario's labour and employment legislation in a project called "The Changing Workplaces Review" and, on July 27, 2016, released its Interim Report. The purpose of the Changing Workplaces Review is to identify amendments to Ontario's Labour Relations Act and Employment Standards Act to better protect workers while supporting business in today's economy. The Interim Report summarizes the results of public consultation conducted over the course of 2015 with various stakeholders, and identifies numerous issues and various options for potential legislative reform.

With respect to the Labour Relations Act, the options identified in the Interim Report include:

" maintain the status quo;

" add a separate general provision permitting the OLRB to declare two or more entities to be "joint employers" and specify the criteria to be applied, even where the entities are not under common control or direction; or

" create a model for certification that applies specifically to the franchise industry, and introduce a new joint employer provision whereby the franchisor and franchisee could be declared joint employers: i) for all those working in the franchisee's operations; or ii) only in certain industries or sectors where there are large numbers of vulnerable workers in precarious jobs.

With respect to the Employment Standards Act, the options identified in the Interim Report include:

" maintain the status quo;

" create a joint employer test akin to the policy developed in the U.S.;

" make franchisors liable for the employment standards violations of their franchisees: i) in all circumstances; ii) where the franchisor takes and active role; iii) in certain industries only; or iv) in no circumstances; or

" repeal the "intent to defeat or effect of defeating the purpose of the legislation" requirement referred to above.

Some stakeholders who argue for expanded franchisor liability do so on the basis that, regardless of the amount of actual control exercised by franchisors over their franchisee operations, collective bargaining cannot be effective unless the real economic players in the enterprise are required to bargain with employees. They also argue that, because franchisors have overall control of the brand, the business model and many details of how the business operates, it is appropriate to make franchisors responsible for complying with employment standards legislation jointly with their franchisees.

Conversely, franchisor stakeholders argue that making them liable for the obligations of their franchisees is unnecessary, would be costly and burdensome and could threaten the franchise model in its entirety. In their view, the existing "related employer" provision is sufficient to address situations where a franchisor exerts significant control over, or has direct involvement in, decisions concerning a franchisee's employees.

Whether Ontario's legislation will ultimately be modified to expand franchisor liability for the labour and employment matters of their franchisees remains to be seen. The Ministry of Labour is asking for public comments and input on the issues and options identified in its Interim Report by October 14, 2016. At some point thereafter, a Final Report will be prepared with specific recommendations for legislative change.

At this point, there is no certainty about what, if any, amendments are coming to Ontario, let alone the rest of Canada. However, given the recent developments in the U.S., and the fact that the "Changing Workplaces Review" aims to better protect workers specifically, it is certainly a very real possibility that franchisors will face U.S style expanded liability in Ontario very soon.

Mitigating the Risks

Obviously, being found to be a joint, common or related employer, whether under the current legal regime in Ontario or under potentially more expansive future legislative amendments, can result in serious consequences for franchisors. Among other things, franchisors may face increased:

" liability regarding their franchisees' employment obligations, including for wages, overtime and benefits, severance pay and withholding taxes as well as exposure to wrongful dismissal and human rights complaints;

" risks that employees of their franchisees will become unionized, and that franchisors will be required to be involved in the collective bargaining process; and

" expenses and time burdens associated with making sure franchisees comply with labour and employment legislation.

While we await the results of the "Changing Workplaces Review" (and what may be similar developments in other Canadian provinces), franchisors would be well advised to review their franchise agreements and related operating manuals and policies to identify provisions that may be more likely to increase the risk of joint employer exposure. In short, although there is currently no bright line test in Canada, the more control a franchisor has or in fact exerts over the employment practices of its franchisees, the more likely it will be found to be a joint employer.

Franchisors would also be wise to consider better educating their franchisees about labour and employment laws and obligations with a view to reducing the likelihood of employee claims being brought against both their franchisees as well as themselves.

Moreover, franchisors should consider whether coverage is available under Employment Practices Liability insurance (which is often purchased by franchisors for their corporate-owned stores) to protect against employment-related actions brought by the employees of their franchisees. Such insurance policies can provide coverage against actions for wrongful dismissal, harassment and discrimination brought by the employees of franchisees.

McMillan's interdisciplinary team of franchise, labour and employment lawyers can assist franchisors in assessing their current exposure to joint employer issues, and to prepare for whatever legislative changes result from the "Changing Workplaces Review" in the near future.

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 2016

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

W. Brad Hanna, FCIArb.
Michael E. Reid
Linda Yang
Similar Articles
Relevancy Powered by MondaqAI
Dickinson Wright PLLC
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Dickinson Wright PLLC
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions