Are there risks for a franchisor that is involved in a franchisee’s employment practices?
Yes. A franchisor’s involvement in a franchisee’s employment practices could result in the franchisee being considered an employee of a franchisor if the franchisee’s business is found not to be independent. The franchisee or a third party may claim that the franchisor is the employer if various events occur – for example, a labour relations application for union certification or unfair labour practice, a complaint under human rights or employment standards legislation, an investigation under occupational health and safety legislation or on the termination of the franchise relationship. In each situation, the applicable adjudicator will consider a number of factors, including the extent to which the franchisor exercises control over the operations of the franchisee’s business, particularly in respect of hiring, firing, disciplining and directing the franchisee and its employees, as well as labour costs, scheduling, hours of work, the establishment of policies and procedures, and the extent to which the franchisee has direction to control aspects of its operations that directly affect profitability. Similarly, a franchisor could also be found to be a common or “co-employer” of a franchisee’s employees, given the extent of control asserted by the franchisor over the franchisee’s employees. A finding that the franchisor is an employer or co-employer could result in significant financial exposure for the franchisor or additional liabilities and obligations not previously contemplated.