Accounting for Law
Franchise

Employment-related regulation not domain of franchisors

Recent examples of individuals seeking to hold franchisors accountable for the actions of their franchisees — particularly in employment-related matters — demonstrate the increasing confusion around how the relationship actually works, Toronto franchise lawyer Joseph Adler tells AdvocateDaily.com.

Adler, a partner with Hoffer Adler LLP, explains that one of the key benefits of the franchise relationship is that it is not an extension of the franchisor corporation, but rather an extension of the brand by a franchisee — an independent contractor who has its own distinct corporate identity.

As such, there is a wide consensus that there is a distinct ‘line’ drawn for franchisors when it comes to employment-related matters, he adds.

“A franchisor would stay away from hiring, firing or disciplining employees — that is the domain of a franchisee,” Adler says. “The domain of the franchisor is to protect the brand. There are occasions where sometimes those two matters overlap, however, and that’s where it becomes more difficult.”

For example, in a 2017 case before the B.C. Human Rights Tribunal, an employee alleged that both the franchisee and franchisor were liable for discrimination in employment on the basis of physical disability. The franchisor applied to dismiss the action, arguing that it was not a proper respondent to the complaint as it was never the complainant’s employer, and the franchise is independently owned and operated.

The tribunal, however, denied the franchisor’s application to dismiss the complaint, concluding that “it is settled law that discrimination can be established in the absence of an employment relationship because the subject of the complaint has the ability to interfere with or influence the employment relationship.”

In this case, the decision notes, the franchisee alleged that the franchise agreement allowed it to use the franchisor’s business model, services and name, conveying to the public that the company’s services conform to the franchisor’s business model. The complainant noted that correspondence regarding employment was on franchisor letterhead and she was paid via franchisor cheques.

“These are all things that, arguably, franchisors should try to avoid — they shouldn’t permit franchisees to use cheques with their brand logo because it conveys a misconception," Adler says.

At the same time, he says this does not necessarily mean that a franchisor encouraged a franchisee to breach human rights legislation or is responsible for all acts of a franchisee.

“Using the same rationale, they can go after individuals that have incorporated a company because they are in control of the corporation,” he notes.

“If you simply say that because the directors control the affairs they are liable for any acts of the corporation, then you lose one of the primary purposes of the business structure. I think that’s true as well in the case of a franchisee and a franchisor.”

Adler says the B.C. case is similar to the recent matter involving several Tim Hortons franchises in Ontario. The Globe and Mail reports that individual franchisees decided to roll back benefits offered to employees as a result of the recent increase to minimum wage. In this instance, he says, the public largely took the move “as a call to arms” and found the company, as a whole, at fault.

“The public has misunderstood the distinction between the franchisor and the franchisee. The franchisor didn’t tell its franchisees that they had to roll back benefits. They are independent contractors,” Adler says. “That is not something that the franchisor dictated, as far as I know, but the general public is commingling the franchisor and the franchisee.”

The franchisees are doing it, not the franchisor, he says, and it’s not the brand per se. “These are individual businesses and I think this is another example of the confusion arising in the field of franchising,” he adds.

Given the uncertainty in this area, Adler expects to see this line of reasoning being pursued more often in cases that seek liability against franchisors.

As such, he says franchisors should continue to exercise control and protection in areas such as brand value and trademarks but should stay away from employment-related regulation of their franchisees, as that is their domain.

“They should exert control where necessary and not go beyond that — don’t necessarily exert control because you have the right to,” Adler says. “Where you impose guidelines upon your franchisees that really are beyond your scope — for example, in employment — then you’re just asking for trouble.”

Recent examples of individuals seeking to hold franchisors accountable for the actions of their franchisees — particularly in employment-related matters — demonstrate the increasing confusion around how the relationship actually works, Toronto franchise lawyer Joseph Adler tells AdvocateDaily.com.

Adler, a partner with Hoffer Adler LLP, explains that one of the key benefits of the franchise relationship is that it is not an extension of the corporate asset base, but rather an extension of the brand by a franchisee — an independent contractor who has its own distinct corporate identity.

As such, there is a wide consensus that there is a distinct ‘line’ drawn for franchisors when it comes to employment-related matters, he adds.

“A franchisor would stay away from hiring, firing or disciplining employees — that is the domain of a franchisee,” Adler says. “The domain of the franchisor is to protect the brand. There are occasions where sometimes those two matters overlap and that’s where it becomes more difficult.”

For example, in a 2017 case before the B.C. Human Rights Tribunal, an employee alleged that both the franchisee and franchisor were liable for discrimination in employment on the basis of physical disability. The franchisor applied to dismiss the action, arguing that it was not a proper respondent to the complaint as it was never the complainant’s employer, and the franchise is independently owned and operated.

The tribunal, however, denied the franchisor’s application to dismiss the complaint, concluding that “it is settled law that discrimination can be established in the absence of an employment relationship because the subject of the complaint has the ability to interfere with or influence the employment relationship.”

In this case, the decision notes, the franchisee alleged that the franchise agreement allowed it to use the franchisor’s business model, services and name, conveying to the public that the company’s services conform to the franchisor’s business model. The complainant noted that correspondence regarding employment was on franchisor letterhead and she was paid via franchisor cheques.

“These are all things that, arguably, franchisors should try to avoid — they shouldn’t permit franchisees to use cheques with their brand logo because it conveys a misconception," Adler says.

At the same time, he says this does not necessarily mean that a franchisor encouraged a franchisee to breach human rights legislation or is responsible for all acts of a franchisee.

“Using the same rationale, they can go after individuals that have incorporated a company because they are in control of the corporation,” he notes.

“If you simply say that because the directors control the affairs they are liable for any acts of the corporation, then you lose one of the primary purposes of the business structure. I think that’s true as well in the case of a franchisee and a franchisor.”

Adler says the B.C. case is similar to the recent matter involving several Tim Hortons franchises in Ontario. The Globe and Mail reports that individual franchisees decided to roll back benefits offered to employees as a result of the recent increase to minimum wage. In this instance, he says, the public largely took the move “as a call to arms” and found the company, as a whole, at fault.

“The public has misunderstood the distinction between the franchisor and the franchisee. The franchisor didn’t tell its franchisees that they had to roll back benefits. They are independent contractors,” Adler says. “That is not something that the franchisor dictated, as far as I know, but the general public is commingling the franchisor and the franchisee.”

The franchisees are doing it, not the franchisor, he says, and it’s not the brand per se. “These are individual businesses and I think this is another example of the confusion arising in the field of franchising,” he adds.

Given the uncertainty in this area, Adler expects to see this line of reasoning being pursued more often in cases that seek liability against franchisors.

As such, he says franchisors should continue to exercise control and protection in areas such as brand value and trademarks but should stay away from employment-related regulation of their franchisees, as that is their domain.

“They should exert control where necessary and not go beyond that — don’t necessarily exert control because you have the right to,” Adler says. “Where you impose guidelines upon your franchisees that really are beyond your scope — for example, in employment — then you’re just asking for trouble.”

To Read More Joseph Adler Posts Click Here
Lawyer Directory
Janus ConferencesToronto Lawyers AssociationMKD InternationalFeldstein Family LawInfoware Canada Morrow Mediation Shekter Dychtenberg LLPJanice Quigg International Inc.