Lexpert Magazine

LEXPERT MAGAZINE | MARCH/APRIL 2018 45 | FRANCHISE WAGES | Tightening the franchisees' noose even further is the standard clause in franchise contracts that requires franchisees to con- form to applicable laws and regulations. "Typically, a franchise agreement has lengthy provisions making it clear that the franchisee is solely responsible for hiring and firing and complying with all labour and employment laws," Dolman says. It's unlikely, then, that franchisors will be chipping in directly to mitigate franchi- sees' increased labour costs. "If a franchisee comes to a franchisor for help, there's no way that the franchisor will do anything that creates the risk of being characterized as a joint employer," Shaw says. e upshot is that there's no doubt where the burden of the higher minimum wage falls. "It's the franchisee, not big busi- ness, that's going to get squeezed," Wein- berg says. But would it were all that simple: aer all, franchising isn't all about fran- chise agreements any more than marriage is all about marriage contracts. "A franchise agreement is an asset that talks back," says woodwork, especially because the statutory requirements are so technical and in some aspects so strictly enforced," says Ned Lev- itt at Dickinson Wright LLP. Raibex aside, franchisors who signed up franchisees while the proposals for work- place and labour laws were in their early stages, but being bandied about publicly, may be at particular risk. "If a franchisee was aware that changes might be com- ing and didn't disclose that, the failure to disclose — especially in a labour-intensive business — might rise to the level of mate- riality that could risk rescission of the fran- chise agreement," Levitt says. Generally speaking, rescission is avail- able as a remedy only in a franchisee's first two years of operation. But other remedies, like misrepresentation claims for damages, are not so limited. Dick says good franchi- sors won't allow things to go in that direc- tion. "Franchisees most frequently consult their lawyers when something has broken down and the franchisor has lost control over the problem," he says. "Good fran- chisors don't want that because they want their franchisees to thrive and think about investing in more units. So they, like the franchisees, will realize that higher mini- mum wages are an issue that they need to address together." e emphasis, as Teasdale points out, is on all sides pitching in. In other words, franchisees cannot avoid stepping up to the plate. "Because the relationship is not a ver- tical one, franchisees need to get to work as well," Teasdale says. "Unfortunately, not all of them are always up to the challenge." Many franchisees, for example, will have to review their employment contracts to ensure they accord with the new regulatory environment. Otherwise, franchisors and franchisees will have to consider the viabil- ity of raising prices. "e public will have to be convinced that the rise in prices is a Kathleen Wynne [Ontario's Premier] tax on consumers and not just a money grab by retailers," Dick says. "A phase-in might be the best way to go." Weinberg warns parties about the Com- petition Act. "It's certainly legal for a fran- chisor to dictate prices, but franchisees can't get together and combine in further- ance of a common price approach," he says. "Requests from individual franchisees to the franchisor will pass muster, but if the Weinberg. "Franchisors need co-operation, so they can't rule with an iron fist." From a purely legal perspective, the Québec Court of Appeal's 2015 decision in Dunkin' Brands Canada c. Bertico sug- gests that franchisors have a fundamental, ongoing, continuing and successive obliga- tion to support their brands. But the extent to which the decision impose significant obligations on franchisors to keep up with developments in the business world is un- clear, as is the applicability of the case to the common law provinces. "e fact remains, however, that Dunkin' Donuts was held li- able to its franchisees because the company wasn't working hard enough to try and help them deal with the competition from Tim Hortons and elsewhere," says Teas- dale, who represented Dunkin' Donuts. Legalities aside, the practical reality is that employment law reform is as much the franchisors' problem as it is an issue for their franchisees. "e good franchi- sors, who are the ones with the business expertise, will be looking for solutions and options with which they can help the franchisees," Teasdale says. "If they don't, the pressure will build and may eventually blow up in their faces." Unfortunately, some franchisors are risking it. "We are aware of franchisors tell- ing franchisees that the new employment laws are their problem," Dick says. "So what they end up with are discontented people, and discontented people do things." What they frequently do first is call their lawyers, and the first thing lawyers do is start combing the franchise agreement and disclosure documents by way of "look- ing for loopholes," as the comedian W.C. Fields, known for his fiery atheism, was said to have remarked when caught reading the Bible just before he passed away. "Once lawyers start looking at these transactions, it's amazing how many de- fective disclosures or defective delivery of disclosure documents crawl out of the PHOTO: SHUTTERSTOCK JENNIFER DOLMAN > OSLER, HOSKIN & HARCOURT LLP "…The Ontario government's recent employment law reforms did not include provisions deeming franchisors to be joint employers — as many franchisors had feared."

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