Potential Changes to Employment Legislation May Mean Increased Liability for Franchisors

Written by on February 28, 2017.

The Ontario Changing Workplaces Review’s final report is expected to be delivered in the next few weeks and, if some of the ideas contained in its interim report become law, franchisors may find themselves liable as employers of their franchisees’ employees, regardless of the franchisor’s actual level of control over the workplace.

The Review began as a Government of Ontario initiative in early 2015, with the Review’s terms of reference directing two Special Advisors to provide recommendations on how to amend Ontario’s Employment Standards Act, 2000 and Labour Relations Act, 1995 to address “the changing nature of [Ontario’s] workforce, the workplace and economy”.

Currently in Ontario, franchisors are not generally responsible for ensuring that their franchisees comply with minimum employment standards. Rather, franchisees are typically considered the “employer” for employment law purposes. In some circumstances, a franchisor may be found to be a “joint employer”, such as where it exerts significant control over a franchisee’s operations (i.e. terms and conditions of employment, hiring and firing of employees, etc.). However, even in those cases the franchisor will only be considered an employer where the intent or effect of the franchisor’s involvement was to defeat the application of the Employment Standards Act, 2000. That level of intent is often difficult to establish.

In the Review’s interim report, released in July 2016, the Special Advisors outlined a number of possible changes to Ontario’s employment legislation. One of the changes would deem franchisors liable for the employment standards violations of their franchisees in a variety of possible situations, including:

  1. in any type of franchise situation;
  2. only where the franchisor takes an active role;
  3. only in certain industries; or
  4. never.

It is not clear which, if any, of the above options the Special Advisors will recommend. Of course, the Ontario Government will not be required to accept the Special Advisors’ proposed changes; however, given the significant amount of political and media attention the Review has reviewed, we expect that the government will follow the Review’s lead.

In the event that legislative changes expand the situations where franchisors will be considered employers under the Employment Standards Act, 2000, the results could be wide-ranging. For example, if franchisors become more involved in their franchisees’ operations because legislative changes make them liable as employers in all situations, it may also become easier for trade unions to bring related employer applications against franchises operating in Ontario.

The Review’s final report is expected in the coming weeks, and we will provide an update as soon as more information is available.