Canada: ‘Changing Workplaces Review' Interim Report May Have Significant Implications For Franchisors And Franchisees

On Wednesday, July 27, 2016, the Special Advisors for the Ontario Ministry of Labour's Changing Workplaces Review released their Interim Report discussing policy options on how to possibly amend the Labour Relations Act, 1995 (LRA) and the Employment Standards Act, 2000 (ESA), which may have significant implications for franchisors and franchisees.

For the purposes of understanding the nature and scope of the Interim Report, it should be recalled that the Terms of Reference given to the Special Advisors included the following:

The Changing Workplaces Review will consider the broader issues affecting the workplace and assess how the current labour and employment law framework [in Ontario] addresses these trends and issues with a focus on the LRA and the ESA. In particular, the Special Advisors will seek to determine what changes, if any, should be made to the legislation in light of the changing nature of the workforce, the workplace, and the economy itself, particularly in light of relevant trends and factors operating on our society, including, globalization, trade liberalization, technological change, the growth of the service sector, and changes in the prevalence and characteristics of standard employment relationships.

The Interim Report is meant as the way in which the Special Advisors table and outline certain policy options that were submitted to them over the course of their deliberations, including submissions they received from interested groups, such as trade associations and labour unions. Throughout the Interim Report they discuss ways in which the LRA and ESA may be amended, and in particular, the Interim Report covers topics including: (i) Education and Enforcement; (ii) Scheduling Provisions; (iii) Labour Certification Rules; (iv) Sector Exemptions; (v) Joint/Common Employers; (vi) Sectoral Bargaining; and (vii) Minimum Standards and Non-Standard Employment.

Most of the areas covered will be of interest to, and may ultimately affect, any business in Ontario. However, a number of policy options outlined by the Interim Report should be of special concern to both franchisors and franchisees, because if enacted, they would have the effect of fundamentally and detrimentally altering the relationship between franchisors, franchisees, and the employees of franchisees.

Policy options surrounding the joint employer designation are outlined in Sections 4.2.2 and 5.2.2 of the Interim Report. While the Special Advisors do mention the status quo as one option, the balance of the discussion suggests the Special Advisors' view that the close relationship between franchisors and franchisees may warrant classifying both parties as joint employers of the franchisees' employees. For this reason, the Interim Report suggests in Section 4.2.2 that franchisors may warrant being forced to collectively bargain on behalf of all of its franchisees' employees for labour relations purposes. Additionally, Section 5.2.2 of the Interim Report suggests that franchisors should perhaps be jointly liable for their franchisees' employment violations under the ESA, which would likely include for instance, liability for such things as unpaid overtime. The Interim Report suggests that this liability could apply to franchisors in all circumstances where its franchisees violate the ESA, or only in limited situations where the franchisor takes an active role or for situations in specific industries.

Section 4.6 of the Interim Report also discusses a related but separate threat to franchising, referred to as "broader-based" or "sectoral" bargaining systems. These systems would attempt to centralize bargaining relationships in Ontario by allowing for multi-employer or multi-unit bargaining. At present, the current legislation permits this form of centralized bargaining only through mutual agreements between each participating employer and bargaining agent. The Interim Report, however, suggests the potential for adopting a multi-unit bargaining model that would allow the certification of one or more separately owned franchised units of a single "parent" franchisor, to cause subsequent franchise units to be brought into the initial bargaining agreement automatically or through another mechanism.

The impact on franchising, if such policies actually become law, are immense. For instance, they may ultimately cause franchisors to provide less support to franchisees in order to minimize the risk of being considered "joint employers" or part of a multi-location bargaining model. Or they may force franchisors to forego franchising altogether, in light of the responsibility they may need to assume for unit level employees. Additionally, it may also remove the franchisees' ability to act independently from the franchisor, which is one of the primary benefits of the franchise business model. The combined effect may result in less support and interest in the franchise business model in Canada, which accounts for approximately 10% of gross domestic product. Unfortunately, the Interim Report makes no effort to address the concerns on how these changes will negatively affect franchising, which has been a small business success story in Canada for the last 50 years or so.

At this point in time it is unclear what policy options in the Interim Report will become the recommendations of the Special Advisors in the Final Report. It is also unclear whether any of the Final Report recommendations will be enacted into law by the Ontario government. So there is still time to influence the direction taken by the Changing Workplaces Review, and interested franchisors and franchisees should make their views known to the Special Advisors during the consultation period, by emailing or mailing submissions to the Ministry of Labour on or before October 14, 2016, and should also contact the Canadian Franchise Association, who is involved in these efforts.

Similar efforts regarding joint employment are being made in the United States, where pro-labour groups are advocating for changes to existing laws and practices in order for franchisors to be deemed as joint employers of their franchisees' employees. So, what is transpiring in Ontario should be taken seriously. It should also be noted that some of the academic research relied upon by the Ontario Special Advisors is from the United States.

Future Franchise Law Group e-LERTs will address developments in this important area.

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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