Canada: Mcdonald’s, And Not Just Its Franchisees, Liable For Worker Treatment Says National Labor Relations Board: Should Canadian Franchisors Be Concerned?

The general counsel of the United States' National Labor Relations Board (NLRB) recently ruled that McDonald's should be considered a joint employer with its franchisees.

This finding, if ultimately upheld, could pave the way for nationwide union organizing of franchisors. It could also signal a movement away from recognizing a legal separation for labour relations purposes between a franchisor and a franchisee. The question becomes, could this be a bellwether of similar developments in Canada?

Background

The NLRB is an independent US federal agency charged with overseeing employee rights to organize for the purpose of collective bargaining. It also makes decisions, like labour boards in Canada, regarding unfair labour practices alleged to have been committed by employers.

This general counsel ruling that McDonald's is a joint employer with its franchisees was a preliminary ruling and no written reasons were released. This ruling was made in the context of a decision on how many of the 181 cases brought forward by employees alleging that McDonald's violated their rights have merit. Of these 181 cases, 43 were found to have merit. If these cases proceed then McDonald's and its franchisees will be co-respondents.

Common employers in Canada – risks for franchisors

In Canada, labour boards have wrestled with this issue of whether to declare a franchisor and franchisee "related employers," a finding similar in effect to the "joint employer" finding recently made by the NLRB's general counsel regarding McDonald's.

The result of a related employer declaration would be to deem the franchisee and the franchisor to be one employer, bound to each other's collective bargaining obligations and liable for each other's conduct in respect of these obligations.

In Ontario, the Labour Relations Act, 1995, permits the Ontario Labour Relations Board (OLRB) to declare two or more entities "related employers" where they are engaged in associated or related activities or businesses and fall under common control or direction.

However, even if these criteria are met, the OLRB retains discretion not to make a related employer declaration. In deciding whether to exercise its discretion, the OLRB has considered a number of factors, including whether a declaration would serve to prevent an employer from avoiding collective agreement obligations and generally prevent the erosion of a bargaining unit. In other words, the OLRB will not seek to extend bargaining rights, but rather to preserve existing ones.

The OLRB has dealt with related employer applications in the franchise context on a number of occasions.

For example, in Second Cup Ltd, (1993), the OLRB held that the franchisor, Second Cup, and two of its franchisees were related employers. Accordingly, the collective agreement between the union and Second Cup extended to the franchisees in relation to renovations done on the coffee shops. The amount of control exercised by Second Cup as the franchisor over the renovations in the franchised coffee shops was a factor influencing the OLRB's decision in this case.

In Sobeys, (2001), however, when faced with an application to declare eight of Sobeys' franchised retail outlets to be related employers with Sobeys as franchisor, the OLRB decided that even if the statutory criteria were met, it would not exercise its discretion to make a related employer declaration. The OLRB noted in making this decision that there was no erosion of bargaining rights resulting from this franchise arrangement.

While each case is fact specific, it is safe to say a number of factors have emerged that are often considered by a labour board when deciding whether to grant a related employer declaration:

• common control and direction as between the franchisor and franchisee (including with respect to management, finances, operations, human resources and labour relations);
• common ownership of real property and assets;
• whether the franchise arrangement is being used to avoid collective bargaining obligations; and
• whether a related employer declaration would prevent the erosion of existing bargaining rights or whether it would actually serve to extend bargaining rights (i.e., bargaining rights would be extended to employees without the need for the union to organize those employees and certify a bargaining unit).

No one factor will be determinative and even if the above factors are present, there may be other issues or factors at play that lead a labour board to decide that a related employer declaration is not appropriate in the circumstances. However, as this recent case involving McDonald's demonstrates, the potential for a related employer declaration is a real one.

Takeaway for employers operating within a franchise structure

This recent decision by the NLRB's general counsel regarding McDonald's indicates a willingness to look behind a business structure to enforce employee claims and perhaps impose bargaining rights more broadly to include franchisors. Labour boards in Ontario, and across Canada, have similarly grappled with this issue. Some of the factors listed above are often those considered when a labour board is deciding a related employer application.

While the McDonald's ruling may be concerning for some franchisors and franchisees, it serves as a reminder to those operating within a franchise structure that liability and labour relations obligations may potentially be extended to encompass both a franchisee and franchisor. Those operating within such a structure are well advised to stay abreast of these developments and consider the likelihood of such a finding being made concerning their business.  

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