Canadian Franchise Association

The Ontario Changing Workplaces Review: Impact on Franchising


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With over 78,000 franchise units in Canada, franchising contributes over $68 billion to Canada’s economy every year and helps thousands of Canadians realize their dreams of business ownership. At the heart of this business model is the independent nature of the franchisor-franchisee relationship. The franchisor grants a licence to the franchisee, giving the franchisee the rights to operate a business using the franchisor’s trademarks, brand and operating system for a specified length of time.

The Ontario government is currently considering changes to provincial labour legislation that could undermine the independent nature of the franchisor-franchisee relationship by making franchisors co-employers of – and therefore liable for – their franchisees’ employees.

Click on the headings below to learn more about joint-employer status and its potential impact on franchising in Ontario.

The Ontario government has appointed two Special Advisors to review the Labour Relations Act, 1995 (LRA) and the Employment Standards Act, 2000, (ESA) and submit a written report of recommended changes. Proposed changes being considered include:

  • Expanding the definition of “employer” to deem franchisors joint employers of their franchisees’ employees
  • Expanding the definition of “employee” to include independent contractors
  • Requiring benefits to be extended to part-time employees
  • Restricting flexibility in employee scheduling
  • Changing the collective bargaining process
    (Click here for a full overview of the proposed changes)

While all of these changes could impact small businesses in Ontario, of most concern to the franchise industry is the suggestion that franchisors be deemed joint employers of their franchisees’ employees.

Joint-employment refers to the sharing of control of an employee’s activities among two or more business entities. In Ontario, the current test used by the courts to determine joint-employer status looks at the amount of control exercised by one entity over another.

This test was not created with franchising specifically in mind, but it has operated effectively in franchise cases and the resulting case law has created guidelines franchisors can use to avoid a joint-employer designation.

Changes to labour legislation could mean a new, broader legal test to determine common-employer status, creating uncertainty in an area of law which already has long-established guidelines.

Even more concerning, the law could be changed to explicitly define franchisors as common employers of their franchisees’ employees, which would fundamentally change the franchise business model in Canada.

If a new test were adopted for determining joint-employer status, it would create uncertainty in an area of law which already has long-established guidelines. Franchisors might respond by reducing the operational support they provide to franchisees in order to avoid a joint-employer designation. This would negate one of the core benefits of becoming a franchisee, making it a less attractive option for prospective business owners.

If, on the other hand, legislation is changed to define franchisors as jointemployers, franchising would no longer be an attractive business model for either party due to:

  • Increased operating costs: many franchisees would no longer be eligible for small business tax rates and exemptions, while franchisors could become responsible for paying taxes, related fees, and benefits for all employees in their franchise system’s Ontario locations
  • Increased liability: franchisors could be exposed to employment, labour and collective bargaining risks
  • Increased legal costs: franchise agreements might become invalid and need to be re-written
  • Loss of franchisee autonomy: franchisors would become responsible for their franchisees’ employees, reducing the role of the franchisee to that of a middle manager with little control over the day-to-day operation of their business

Although the changes being considered would only impact businesses in Ontario initially, legislation is typically developed through jurisdictional analysis, where one law in a particular province is used as a base or template in formulating another. This means changes that come into effect in Ontario could set a precedent, with other provinces following suit and adopting similar legislation.

The Ontario Waste Diversion Act, 2002 (also known as Stewardship Ontario or the “Blue Box Law”) is an example of jurisdictional analysis in Canada. This Act, which put a curbside recycling program into effect in Ontario, served as a model for other stewardship acts across the country, and before long similar programs were implemented in other provinces.

If history tells us anything, it’s that if joint-employer legislation comes into effect in Ontario, it will set a dangerous precedent for the rest of the nation.

As the national trade association for franchising in Canada, CFA represents over 600 corporate members including some of Canada’s biggest franchise brands, and is therefore laser-focused on combatting joint-employer status.

In September 2015, we provided a submission to the Special Advisors of the Changing Workplaces Review to highlight the important contribution franchising makes to Ontario’s economy and the detrimental impact common-employer status would have on franchising. Click here to read CFA’s submission.

We will be making additional submissions to the Special Advisors prior to the final recommendations being made. In the meantime, we are pro-actively meeting with decisions-makers in government to ensure our concerns on this issue are heard.

In addition to these steps, CFA is also taking a leadership role as a member of the “Keep Ontario Working” Coalition, a group of employer organizations advocating on behalf of the business community-at-large to lobby the government about the Changing Workplaces Review.

Common-employer is just one of many issues arising from the Changing Workplaces Review that could impact franchisors, including employee benefits, scheduling provisions, sectoral bargaining and more. Although joint-employer is our top concern and we are taking a leadership role in contributing to the coalition with our expertise on the issue, we are committed to working with them on all other issues that could impact businesses in Ontario. Click here to learn more about the Keep Ontario Working Coalition.

CFA recommends that the true independent and contractual nature of the relationship between franchisor and franchisee be enshrined in the Employment Standards Act in order to preserve the franchise business model. This way, the franchisor can provide education and support within reasonable boundaries but also allow the franchisee (the actual employer and owner of the business) to continue to be responsible for the legal and regulatory responsibilities of their business, just like any other small business owner.

There are examples of U.S. amendments to legislation that specifically protects franchising and the contractual relationship of franchisor and franchisee as two independent businesses, which is central to the franchise business model.

By preserving the contractual and independent relationship between franchisor and franchisee in the legislation, the franchisor will be able to take a more active role in helping to educate and train their franchisees on how to comply with government regulations such as employment standards.

For more information on common-employer status, please contact Samantha Sheppard, Government Relations Specialist at ssheppard@cfa.ca or 1-800-665-4232 ext. 230. 

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