www.lexpert.ca/usguide-corporate/ | LEXPERT • June 2016 | 19
But no more uncertain than other important issues,
especially those touching on the balance between franchi-
sor control and franchisee rights. Towards the end of 2014,
the Ontario Superior Court decided, in Pillar to Post, that a
franchisor could enforce an arbitration clause precluding a
franchisee from participating in a class action. By contrast, the
Cora decision from the Ontario Court of Appeal, delivered just
a few months aer Pillar to Post, established that franchisors
could not rely on contractual provisions requiring franchisees to
release claims otherwise enforceable under Ontario law. Most
recently, the issue arose in the GM case, where the Ontario
Superior Court ruled that waiver by a franchisee of a right under
the Wishart Act will generally be void and unenforceable unless
the release is given by a franchisee with the advice of counsel in
settlement of a dispute for existing and fully known breaches of
the legislation. Finally, there are no cases on the emerging issues
arising from master franchise disputes, which tend to arise in the
context of foreign franchisors.
"Generally speaking, the jurisprudence has created a moving
target," says Helen Fotinos, who practices in the Toronto office of
McCarthy Tétrault LLP.
But there hasn't been a total absence of progress on the
certainty spectrum. "In a general sense, we are finally getting a
significant body of case law that provides franchisors and franchi-
sees with some guidance," says Ned Levitt of Dickinson Wright
LLP in Toronto.
But just in case the uncertainty arising from domestic legis-
lation and case law isn't enough of a headache for the franchise
business, developments in the US have raised the specter of a
serious new blow to the industry.
In 2015, the National Labor Relations Board suggested in
Browning-Ferris Industries of California that joint-employer
status could arise when a party had the contractual right to
control terms and conditions of employment. e previous test
required the actual exercise of such control. Under the new test,
franchisors could be liable as joint employers of their franchisees'
staff if the franchise agreement was draed to include or imply
control over employment, regardless of whether the franchisor in
fact exercised such control. Franchisors found to be joint employ-
ers could be held responsible for each of their franchisees' union
obligations and hiring and firing relationships.
Considering it is not binding, Browning-Ferris has caused
quite a stir in Canadian franchising circles. "e idea behind
franchising is to grow with partners who are independent
contractors and invest their own capital," Teasdale says.
"Making the franchisor a joint employer annuls that concept
because it means the franchisor becomes invested in the
business of the individual franchisee."
e prospect of joint employment in the industry is most acute
in Ontario, where the government is considering changes to the
Employment Standards Act and Labour Relations Act. "If joint
employment arrives anywhere in this country, it will be a game-
changer," Shaw says.
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 employ-
ment. "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 been no legislative or jurisprudential devel-
opments on this in Canada yet, franchise lawyers are taking a
preventative approach. "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 Ontario'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 contemplated, be liable for breaches of the law by their
franchisees, franchisors 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" include a franchisor.
Despite all this, franchising remains a business model
that has proven to be quite stable in Canada. Fotinos, a former
general counsel at Kia Canada Inc. and St. Louis Bar & Grill,
believes that a continuing inflow of US franchise systems will
fuel the Canadian 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, there will of course 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
franchisees that is so critical to the future of the sector. at's
where lawyers with the proper expertise come in.
"It's no place for amateurs," says Levitt.
"In a general sense, we are finally
getting a significant body of case
law that provides franchisors
and franchisees with some guidance."
Ned Levitt
Dickinson Wright LLP
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