This document provides an overview of employment law considerations for franchises. It discusses how failing to meet workplace responsibilities can damage a brand and outlines best practices for managing leaves of absence and protecting competitive business information. The presentation notes that restrictive covenants in employment contracts and policies around social media use can help franchisors maintain brand integrity when employees leave. It emphasizes avoiding direct control of franchisee workplaces while assisting them to meet legal obligations.

1. PRACTITIONER SESSIONS
ON FRANCHISE LAW
February 8, 2016
Cynthia C. Ingram
Senior Associate
Rudner MacDonald LLP
EMPLOYMENT LAW
CONSIDERATIONS FOR THE
FRANCHISE

2. DISCLAIMER
The user is authorized to use this presentation for the
user’s own needs only, and is not authorized to make
copies thereof for sale or for use by others.
The information provided in this presentation is in respect
of the law of the Province of Ontario only and is intended
as general legal information only. This presentation is not
provided for the purpose of providing legal advice or a
complete statement of the law on the particular
topics. Every situation is unique and involves specific
legal issues.
If you would like legal advice with respect to the topics
discussed in this presentation, we would be pleased to
assist you.
2

3. YOUR BRAND
 Companies come in all shapes and sizes, across
various industries
 Brand is used to differentiate your company from
your competitors
 Brand includes carefully defining what your business
represents
 Brand also helps with delivering a consistent
experience every time
 A well and commonly known brand is what attracts
potential franchisees
3

4. AWARDING FRANCHISES
 We do not SELL franchises
 We AWARD franchises!
 Franchisees are not buying anything except the
“physical store assets”
 Franchisees do not own ABC Franchise. They are
granted the privilege of utilizing the name and the
BRAND (a.k.a. goodwill) of the Franchisor
 Strong brand identity benefits both the Franchisor
and the Franchisee, who gains a proven business
strategy with a known and trusted name
4

5. BRAND PROTECTION
“The brand is the most valuable piece of your
organization and without proper care and attention it
could become damaged or disappear completely.”
 Maintaining the integrity of your brand is the
responsibility of both the Franchisor and the
Franchisee
 Brand is much more than your product and the
customer experience
5

6. BRAND PROTECITON
 If the only protection that a Franchisor relies on is
enforcement of the commercial aspects of its
franchise agreement, it risks damage to its BRAND
 Franchisors must also protect their “Employer
Brand”
 By protecting your “Employer Brand” and taking
reasonable steps at the Franchisor level, you ensure
that the Franchisee maintains the integrity of your
corporate brand and image at the regional and
community level
6

7. IDENTIFYING THE RISK
 Franchisors seek to establish integrity and uniformity in their
brand and customer experience
 Poor employees can lead to poor service experiences at the
franchise location, which leads to the customer avoiding the
company elsewhere
 Happy employees = Superior service = Happy customers
 Despite standard policies and procedures for business
operations, Franchisors often have little control over the
employees working for the Franchisee
 Brand should be top of mind with Franchisees in every
employment decision: hiring, evaluating performance,
discipline and termination
7

8. HARDWARE STORE vs. THE CARPENTER
 Failing to meet workplace and employment
responsibilities can have serious consequences for an
employer
 If that employer is part of a franchise, these
consequences can be felt by the ENTIRE BRAND!
 Your brand can be further impacted by litigation or
administrative claims commenced by employees for
alleged wrongful conduct by the employer
 Franchisors can be named in lengthy litigation, which
also exposes it to further negative publicity, as well as
costs
8

9. EMPLOYMENT TOOLS
 Franchisor employment tools are logical steps to
continually reinforce the brand to the Franchisee and
maintain the brand within the franchise system
 Address Franchisor-Franchisee relationship concerns
that may negatively impact your brand and the
goodwill of the brand
 Franchisor is not micro-managing the Franchisee’s
relationship with its employees
 Challenge for Franchisors – Avoid activities which can
be interpreted as having “fundamental control” of
the employees and their working life
9

10. FUNDAMENTAL CONTROL
 In determining whether a Franchisor has become
responsible as the employer of the employees
working for the Franchisee the court or tribunal will
look at the facts of each case
 The control of the employment decisions of the
Franchisee cannot be so onerous that the Franchisee
and its employees are seen by the government or
the courts to be “employees” of the Franchisor
 The key is to understand your role as the Franchisor
– NOT the Employer
10

11. BUSINESS SYSTEMS vs.
EMPLOYMENT CONSIDERATIONS
“Inevitably, there are some provisions of the franchise
agreement according to which Coffee Time exercises
control over the franchisee. Such provisions are
regular and expected inclusions in a franchise
agreement. Franchise agreements by nature “entail
some degree of control by the franchisor, even though
the franchisee is generally an independent business
person operating the franchise”.
Toshi Enterprises Ltd. v. Coffee Time Donuts Inc.,
[2008] O.J. No. 5325
11

12.  Concerned with substance rather than form
 Any terms in the franchise agreement will not be
determinative – must look at the employment and
working relationship itself
“When it comes to a question of fundamental control
there is little which is more important than the beginning
of the relationship (hiring), regulating it (direction,
control and supervision), and ending it (termination).”
533670 Ontario Ltd. (c.o.b. Best Personnel Services),
[1997] OLRB Rep. September/October 841
12

13. CRITERIA
Criteria established by the Ontario Labour Relations Board
in York Condominium Corp., [1977] OLRB Rep. Oct. 645
a. The party exercising the direction and control over the
worker performing the work.
b. The party bearing the burden of remuneration.
c. The party imposing discipline.
d. The party hiring the worker.
e. The party with the authority to dismiss the worker.
f. The party who is perceived to be the employer by the
worker.
g. The existence of an intention to create the relationship
of employer and employee.
13

14. CANADA POST CORPORATION
 Application by the Canadian Union of Postal Workers for
representation of employees in Shoppers Drug Mart and
Pharmaprix stores
 Claimed Canada Post was the employer of the postal outlet
employees
 July 3, 2013-CIRB dismisses the application
 CIRB finds the real employer to be the stores, not Canada
Post
 Key was that each of the stores were responsible for hiring,
settling wage rates, making decisions on employee benefits,
granting leave requests, establishing work schedules and
hours of work, and maintaining all personnel and employment
records
14

15. CANADIAN vs. U.S. LEGAL ISSUES
 U.S. = Browning-Ferris Industries of California
• a joint employer simply needs to possess the authority
to control the terms and conditions of employment,
regardless of whether that authority is exercised
 Canadian law holds that the mere presence of control by
a franchisor over a franchisee does not, of itself,
determine that they are common employers – fact based
approach
 Why is this important?
• Virtually all franchise agreements contain forms of
control that franchisors can exercise over franchisees
15

16. McDONALD’S RESTAURANTS
 In 2014, McDonald’s Restaurants was involved in two labour
decisions we continue to watch – both preliminary rulings
 July 2014 – General Counsel of the NLRB rules 43 wage and
labour complaints can proceed against McDonald’s in the U.S.
 March 2014 – McDonald’s Canada and a franchisee named as
co-respondents in a HRTO discrimination complaint
 HRTO refused to dismiss the complaint against McDonald’s at
the preliminary stage
 HRTO could not determine “at this early stage whether [the
franchisor] was responsible for policies that the applicant
alleged were discriminatory”
16

17. COMMON EMPLOYER
 Dacosta v. 2383914 Ontario Inc. HRTO 2014
 Dacosta claimed discrimination against his employer (the
franchisee)
 Dacosta subsequently sought to add the Franchisor, Obsidian
Group, as a party respondent
 HRTO denied Dacosta’s request
“There must be something the applicant can point to that would either
suggest the franchisor was vicariously liable from a contractual
perspective or had itself committed an act that was arguably
discriminatory.”
 Exception– “national promotional event” that all Franchisees
were contractually obligated to participate in and applicant
alleged violated his/her rights under the Code
17

18. TAKE AWAY
 Including everything in the franchise arrangement may
sink the Franchisor in some cases.
 Follow a hands-off approach when it comes to
employees
 Take practical steps to assist your Franchisees to meet
their responsibilities and minimize the risk to your brand
18

19. Failing to meet workplace
responsibilities can be felt by the
entire brand
THE ESSENTIALS OF
EMPLOYMENT STANDARDS
REQUIREMENTS

20. EMPLOYMENT REQUIREMENTS
 Although the Franchisee has a stake in brand
reputation, the stake is not as great as that of the
Franchisor
 A Franchisee may have an incentive to ride on the
coat tails of the established brand, while cutting
corners to improve its individual bottom line
 Franchisors must protect their brand’s goodwill from
Franchisees who cut corners and run poor operations
 Franchisees need to know their rights and
responsibilities under employment standards and laws
20

21. SOURCE OF EMPLOYER
OBLIGATIONS
21
LEGISLATION
•Provincial Jurisdiction for Employment
•Employment Standards Act
•Occupational Health and Safety Act
•Accessibility for Ontarians with Disabilities Act
•Workplace Safety and Insurance Act
•Human Rights Code
•Quebec – The Civil Code
•Federal Regulation for certain organizations
FRANCHISE AGREEMENT
INDIVIDUAL AGREEMENTS
• Offer Letter
• Employment Contract
• Employment Policies and Employee
Manual

22. STATUTORY REQUIREMENTS
 Accessibility Policy, Training and Plan (AODA)
 Employment Standards (AODA)
 Harassment Prevention Policy and Training (OHSA)
 Health and Safety Policy and Training (OHSA)
 Violence Prevention Policy (OHSA)
 OHSA Training
Posters
 “Health and Safety at Work” (OHSA)
 “What you Should Know about the Ontario
Employment Standards Act”
 “In Case of Injury” (WSIB)
22

23. PROVINCIAL EMPLOYMENT
STANDARDS ACT
 Provincial Employment Standards Acts create the
floor by which minimum working conditions can
be measured
 General deterrence is important for business
system efficacy
 “EMPLOYER BRANDING” – recruit, hire and
retain top candidates
23

24. EMPLOYMENT STANDARDS
24
HOURS OF WORK MINIMUM WAGE
AND OVERTIME
VACATION TIME
AND PAY
PUBLIC HOLIDAYS LEAVES OF
ABSENCE
TERMINATION
NOTICE AND PAY

25. WHAT EVERY FRANCHISE
WORKPLACE SHOULD HAVE
1. All employees sign an employment contract
2. All employment contracts include a termination clause
3. Franchisees have the right to demote, transfer or suspend an
employee as a form of discipline
4. Franchisees have a computer use policy and a social media
policy
5. Franchisees keep the records required under the
Employment Standards Act and OHSA
6. Restrictive covenants regarding the business of the
Franchisee
7. Written policies and procedures regarding the right to
manage their workforce – including AODA policies
25

26. WHAT EVERY FRANCHISE
WORKPLACE SHOULD HAVE
8. Written agreements/contracts with all consultants and
contractors
9. Takes proactive steps to help terminated employees
obtain new employment
10. A written health and safety policy
11. A worker-elected health and safety representative
12. A joint health and safety committee
13. Training and enforcement of employee/employment
policies and procedures
14. Annual (regular) performance appraisals
26

27. EMPLOYMENT CONTRACTS
 A well-drafted and up to date employment contract limits
exposure and can potentially save a company the costs
of dismissal claims and termination pay
 A termination clause can be the most important clause in
an employment contract
 A termination clause can limit termination pay
obligations to the minimum notice periods set out in the
Provincial employment standards legislation
 Recommended that employment agreements provide
notice to candidates of policies for accommodation of
employees with disabilities
27

28. Workplace Violence and Harassment
Use of Internet and Technology
Leaves of Absence
Accommodation for Employees with Disabilities
Discipline
Termination
POLICIES EVERY FRANCHISE
SHOULD HAVE

29. ONLINE BRAND PRESENCE
 Remember that employees can be on-line brand
ambassadors, or executioners
 Customers sometimes see the employee as a
reflection of the company
 Employees can use the anonymity of the internet to
disparage your company and your brand, OR HELP
IT
29

30. SOCIAL MEDIA BRANDING
 Social media, including corporate blogs, Facebook
and Twitter, are an emerging force in branding
efforts
 It is important that your Franchisees include social
media policies in their Employee Policies and
Manuals
30

31. Avoiding litigation that can harm
your brand
BEST PRACTICES FOR
MANAGING LEAVES OF
ABSENCE

32. IDENTIFYING THE RISK
 Mishandled leaves or absences may harm
Franchisor’s brand
 may result in wrongful dismissal action, reprisal
complaint, or human rights complaint
 Understand leave requirements in each jurisdiction
 Help educate Franchisees but don’t intervene
directly in leave requests
 Policies and procedures for leaves and absences
32

33. STATUTORY LEAVES
 Entitlement varies by jurisdiction
 Challenging to develop policies across the country
 Common characteristics
 Unpaid
 Job-protected
33

34. 34
ESA Amendment Act, Passed and in effect as at October 29, 2014
• Family caregiver Leave
• Critically Ill Child Care Leave
• Crime-Related Child Death and Disappearance Leave

35. BEST PRACTICES FOR MANAGING LEAVES
 Consider all leave requests in good faith
 Request/obtain additional information when required
 Ensure compliance with applicable statutory leave
requirements
 Develop leave of absence and accommodation
policies
 Follow policy and/or terms of collective agreement
 Document communications with employees
 Act reasonably and provide accommodation where
necessary
35

36. Restrictive Covenants
How can they help protect your brand
when employees leave?
TACTICS AND STRATEGIES FOR
PROTECTING YOUR
COMPETITIVE BUSINESS
INFORMATION

37. IDENTIFYING THE RISK
 Employees can be your biggest brand strength…
…or, they can be your biggest vulnerability
 Restrictive covenants
 protect your business information and systems
 can help your brand
 help you stay competitive
37

38. IMPLIED vs. EXPRESS TERMS
 What the law “gives us”
– Implied Terms
 act honestly and faithfully during employment;
 respect employer’s business interests; and,
 not use confidential information or trade
secrets, acquired during employment, for profit
against former employer
– Fiduciary Obligations (if applicable)
 act in best interest of employer
38

39. IMPLIED vs. EXPRESS TERMS
 What survives the end of employment
 Confidentiality
 Fiduciary obligations (if applicable)
 Why require restrictive covenants? (Express
contractual terms)
 Bridge gaps when
employees depart
39

40. NON-COMPETITION and
NON-SOLICITATION
 Non-competition clauses seek to protect against
departing employee
– Directly or indirectly carrying on competitive
business
 Non-solicitation clauses seek to protect against
departing employee
– Soliciting customers and clients
– Soliciting employees
– Maintaining contact with your key business
people
40

41. LEGAL ISSUES
Requirements for enforceable restrictive covenants:
1. Employer must have a proprietary interest
2. Reasonable in scope (breadth of activity, territory,
duration)
3. Specific enough for departing employee to know
what conduct is restricted
 limit territory, prohibited activity, and customers
to work performed by employee and known
customer relationships
41

42. LEGAL ISSUES
When is a restrictive covenant not enforceable?
1. Non-competition clause required when non-
solicitation sufficient
2. Clause broader in scope and/or more restrictive
than necessary
3. Clause is ambiguous
4. Scope cannot readily be determined at time of
departure
42

43. BRAND ISSUES
 How can you help utilize restrictive covenants to
protect your brand?
– Educate franchisees
– Ensure restrictive covenants are used by
Franchisees where appropriate
– Ensure Franchisees review/revise template
employment agreements
– Draft with precision - court will strike rather than
revise
43

44. AUDITS
 Most franchise agreements require the Franchisee to
comply with all federal, provincial and municipal
laws with regard to the franchise business
 To protect the integrity of your brand and the
goodwill you have established, it is important to
investigate and monitor Franchisee compliance with
employment standards
 Monitoring your Franchisee’s compliance with
employment standards allows you to better identify
and address issues before they become a problem
44

45. AUDITS
 As a Franchisor you can monitor compliance by:
 Conducting periodic audits of personnel and
employment records to ensure Franchisees are meeting
their record-keeping obligations
 Providing Franchisees with information and tools to
conduct “self audits” and report back their results
 Keeping Franchisees updated about their obligations
under workplace, labour and employment laws and
statutes
 Requiring Franchisees to notify the Franchisor of
employee complaints, investigations and audits
 Secret Shoppers
45

46. 46
EMPLOYMENT LAW CONSIDERATIONS FOR THE
FRANCHISE
CYNTHIA C. INGRAM
RUDNER MACDONALD LLP
cingram@rudnermacdonald.com
416.640.6402
Web: www.rudnermacdonald.com
Twitter: @CindyIngramLLB
LinkedIn: Connect with me, and visit the Rudner MacDonald Page
Blog: Rudner MacDonald Blog
YouTube: Rudner MacDonald channel