Lexpert Magazine

LEXPERT MAGAZINE | APRIL 2016 49 | FRANCHISING LAW | What's problematic is that there's no bright line in the law as to the degree of control required to invoke a finding of joint em- ployment. "Franchisors have to be careful not to cross over the line, but the line is not definable," says Susan Friedman of DLA Piper (Canada) LLP in Toronto. So while there have yet been no legisla- tive or jurisprudential developments on this front in Canada, some franchise law- yers are taking a cautious, preventative ap- proach. "We've been advising some of our clients to scale back on some of the areas in their operations manuals and practices that touch on employment issues," Fotinos says. Control is also at the core of concerns regarding the impact on franchisors of On- tario's Healthy Menu Choices Act, which comes into force on January 1, 2017. e new legislation requires regulated food- service premises with 20 or more locations in Ontario that sell prepared, ready-to-eat food to post itemized caloric and other nutritional content on menus. Although the CFA successfully advocated for lawmakers to change the application of the Act so that franchisors won't, as originally con- templated, be liable for breaches of the law by their franchisees, franchi- sors will still have to be careful that they do not fit within the category of someone "who has responsibility for and control over the activities." e Act is specific in providing that such a person "may" in fact include a franchisor. QUITE APART FROM these dis- crete issues, the franchise industry is absorbed in many of the chal- lenges confronting other sectors of the economy. "Franchising is just a method of distribution, so franchi- sors and franchisees have to deal with the issues facing other businesses," Levitt says. So the franchise industry, like the rest of the business community, has to deal with the rapidity of change. Franchisors, however, face unique challenges in adapt- ing to change. "Franchisors are not dealing with em- ployees, they're dealing with independent businesses," Levitt says. "You can't just or- der them to change, and if franchisors want change, they have to want it for everyone, including the franchisees, because other- wise the competition will chew them up." But, for example, advances in technology aimed at enhancing business opportunities and productivity can be problematic for a franchise system. "Certainly in the case of less sophisticated franchisors who are look- ing to expand, issues such as knowing how to use technology to enhance business, the financial impact of investing in technol- ogy, and related issues, such as cybersecu- rity, privacy and social media, can present a problem," Teasdale says. Even sophisticated franchisors, however, see social media as a challenge, partly be- cause there has been a demographic shi to younger franchisees in an era where entre- preneurship has assumed a certain cachet. "Managing social media is a big issue for franchisors because you're getting a lot of franchisees who tweet, blog and Face- book," Friedman says. "ere's no question that franchisors want to market to young people but they also want brand uniformi- ty and marketing consistency, which raises control issues as well." en there's the influence of e- commerce and omni-channel distri- bution networks. "ese are the types of things that have radically altered the traditional franchise model, forc- ing everyone in the system to recon- sider things like territorial exclusivity, profit sharing and marketing," Foti- nos says. Change aside, however, franchis- ing remains a business model that has proven to be quite stable. Fotinos, a former general counsel at Kia Canada Inc. and St. Louis Bar & Grill, believes that the continuing inflow of Ameri- can franchise systems will fuel the Ca- nadian market. Friedman maintains that franchises will continue to be attractive propositions for an aging popula- tion not quite ready for retirement but with retirement packages in hand. However that may be, it will be a host of business considerations that will determine the future of franchising. But as history has shown, what the legislators and the judges do could have a profound impact on the balance between franchisors and franchi- sees that is so critical to the future of the sector. at's where lawyers with the prop- er expertise come in. "It's no place for amateurs," says Levitt. Julius Melnitzer is a freelance legal-affairs writer in Toronto. "You always have to take the equities into consideration in a different way than you would if you were dealing with parties of equal bargaining strength. It becomes a key piece of what you're doing." MICHAEL MELVIN MCINNES COOPER

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