Ontario’s Changing Workplace Review

Q&A with Frank Zaid.

Article originally published on September 5, 2017 in the Canadian Business Franchise Magazine.

Q: How will the recommendations in the final report from the special advisors to Ontario’s Changing Workplaces Review affect franchising in the province?

A: The final report, which was released on May 23, 2017, recommends a process that would force enhanced collective bargaining rights for employees of franchisees of the same franchisor, but rejects the concept of a ‘joint employer’ in franchise systems, pointing out a new legislative test in this regard would be controversial and unclear in its application. More pertinent, however, is the new bill introduced by Ontario’s government in response to the report.

Cause for concern
Back in February 2015, when the review was initiated, its stated objectives were to (a) consider issues affecting workplaces and (b) assess how Ontario’s current labour and employment law framework addresses current trends and issues, with a special focus on the Labour Relations Act and Employment Standards Act.

An interim report released in July 2016 caused enormous concern in the franchising community over the possibility the final report would recommend making franchisors and their franchisees ‘joint employers’ of the franchisees’ employees. Such a recommendation could result, for example, in employees of multiple franchise units being considered to have a single employer in the franchisor, allowing for single union certification and bargaining on behalf of those employees. As mentioned, however, the final report rejected this concept, instead suggesting the issue should continue to be considered on a factual basis by using established legal principles, rather than creating a new one.

Addressing collective bargaining
The final report states “structural weakness in the current legislation” has resulted in employees of franchisees not having the opportunity to bargain collectively in a meaningful way. To address this issue, the report recommends the following requirements:

  • Bargaining units of different franchisees of the same franchisor, with the same union in the same geographic area, would be required to bargain together centrally.
  • An ‘employer bargaining agency,’ made up of representatives of the franchisees as employers, would represent the franchisees at the bargaining table with the union.
  • Unless the franchisor were also an employer within the affected geographic area, it would not have a seat at the bargaining table.
  • The Ontario Labour Relations Board (OLRB) would be given the authority to require the formation of an employer bargaining agency and set its terms,
    if necessary.
  • The franchisees’ obligation to bargain centrally would remain so long as the union held bargaining rights.
  • Multiple locations owned by the same franchisee could be consolidated as a single bargaining unit by the OLRB in appropriate circumstances. That franchisee would also participate in central bargaining.
  • Any strike or ratification vote would involve all bargaining units, not individual bargaining units.
  • The OLRB would have the authority, if requested by an involved party, to direct the terms of a collective agreement between a franchisee and a union to be extended to apply, with or without modifications, to a newly certified bargaining unit involving the same union and a different franchisee within the same franchise system.

General recommendations
There are also other, more general recommendations in the final report that would affect franchise operations, such as the elimination of a current lower minimum wage for restaurant servers and a direction for government agencies to exercise more attention in addressing the apparent misclassification of franchise employees as independent contractors. (This  type of reclassification has occurred with increasing frequency in the past few years among some franchise systems, particularly in the commercial cleaning industry. It is a key distinction, as the report rejects the notion that independent contractors should be entitled to the benefits or protections of employment legislation, as they are not economically dependent on one employer and are conducting their businesses on their own account.)

The report also recommends an enforcement process under which any employer with multiple sites would be required to investigate wide-scale violations in the workplace.  For franchising, this could mean a franchisor would be responsible for ensuring its franchisees are complying with employment standards legislation. The report points out such top-down compliance strategies are not based on concepts of joint liability, but instead suggest the top industry players (i.e. the franchisors) have a stake in protecting the reputation of their brands.

The government’s reaction
Ontario’s government reacted very quickly to the final report by introducing Bill 148, the Fair Workplaces, Better Jobs Act, on June 1, 2017. The bill contains specific provisions in response to certain recommendations in the report. At press time, a public consultation process was being undertaken.

Notably, the bill does not include provisions to adopt any of the report’s recommendations that were specifically directed at franchise systems. It does not, for example, require multiple franchisees of the same brand operating within the same geographic area to bargain together centrally with local employees towards one collective agreement, nor for an employer bargaining agency to represent franchisees at the table with the union.

The bill does propose changes to labour legislation in general that may increase union activities and successful applications for union certification for both franchisors and franchisees. The OLRB will be able to change the structure of bargaining units with a single employer, thus making it easier for employees of such an employer operating multiple businesses to be certified as one unit. This change could affect (a) multi-unit franchisees and (b) franchisors with multiple corporate stores in close geographic proximity to each other.

Trade unions in the building services, home care, community services and temporary help agency industries can now apply for certification without a representation vote. (The term ‘building services industry’ is broadly defined in the bill and includes such categories as cleaning, food and security services, all of which are frequently franchised.) The OLRB will have the discretion to certify a union if it is satisfied more than 55 per cent of the employees in the bargaining unit are members of that union. The OLRB will also have discretion to dismiss applications for certification without a representation vote if it finds, upon application by an ‘interested person,’ there is evidence such an application does not likely reflect the true wishes of the employees.

If no trade union has been certified as a bargaining agent and no collective agreement is in place, a union may apply to the OLRB for an order requiring an employer to provide a list of its employees. If the order is obtained, the trade union can then use the list in a campaign to establish bargaining rights.

Changes for all
Bill 148 contains a number of other labour and employment changes that will affect franchised businesses, including new shift scheduling rules, equal pay for equal part-time work provisions and, the most highly publicized, an increase in the provincial minimum wage.

The current minimum wage in Ontario is $11.40 per hour. With phased increases, it will rise to $14 on January 1, 2018, and $15 on January 1, 2019.

Equal pay will be mandated for part-time workers doing the same job as full-time workers. An employer will be required to pay an employee three hours of wages if the employer cancels a shift with less than 48 hours’ notice.

All employees will be given 10 personal emergency leave (PEL) days per year, with a minimum of two of those days paid, and the 50-employee threshold for PEL requirements has been removed. Also, after five years of working for the same employer, an employee’s minimum vacation entitlement will increase from two to three weeks per year.

Other proposals by Ontario’s government that will have an effect on franchises and other businesses include the following:

  • Card check certification for the building services, home care and community services industries.
  • Allowing unions to access employee lists and certain contact information, provided they can demonstrate they have already achieved the support of 20 per cent of the employees who are involved.
  • Allowing the OLRB to change the structure of bargaining units within a single employer, where the existing units are no longer appropriate for collective bargaining.
  • Allowing the OLRB to consolidate newly certified bargaining units with other existing units under a single employer, where those units are represented by the same bargaining agent.
  • Eliminating certain conditions for remedial union certification, allowing unions to more easily become certified when an employer engages in misconduct that contravenes the Labour Relations Act.
  • Making access to first contract arbitration easier and adding an intensive mediation component to the process.
  • Increasing maximum fines under the Labour Relations Act from $2,000 to $5,000 for individuals and from $25,000 to $100,000 for organizations.

Good news for franchising
The provisions of Bill 148 should be viewed as good news for franchising and for most franchisors and franchisees. The Ontario government has not singled out franchising for any special treatment as was recommended in the Changing Workplaces Review’s final report.

Changes to Ontario’s Franchise Legislation

Q&A with Frank Zaid

Originally published in the Canadian Franchise Business Magazine on February 13, 2017.

Q: What changes have been made recently to Ontario’s franchise legislation and what further changes are expected in the future?

A: Ontario’s franchise legislation, the Arthur Wishart (Franchise Disclosure, 2000) Act, was recently amended to allow for the electronic delivery of franchisors’ disclosure documents to franchisees. In addition, a newly established business law advisory council has made recommendations that could further modernize the act in several ways.

Electronic delivery of disclosure documents
Since the act was passed in 2000, the only allowable methods for franchisors to deliver their disclosure documents to franchisees were (a) personal delivery or (b) registered mail. Both of these methods had significant flaws, such as limitations on the weight of a document that can be served via registered mail. The legislation also quickly became antiquated because it did not permit electronic delivery. So, effective July 1, 2016, the act was amended expressly to allow franchisors to deliver their disclosure documents electronically and by prepaid courier.

To the latter point, while many franchise lawyers took the view personal delivery could already be achieved through the use of a courier, provided the courier delivered the disclosure document directly to the prospective franchisee in person, the new amendment expressly allows courier delivery, provided the franchisor pays the cost of delivery. (Incidentally, the amendments also include a change relating to a franchisee’s delivery of a notice of rescission to its franchisor. Effective July 1, 2016, Ontario’s legislation permits the delivery of a notice of rescission by courier, in addition to the previously permissible methods of personal delivery, registered mail or fax.)

For a disclosure document to be delivered electronically within Ontario, the following conditions must be met:

  • The document must be delivered in a form that enables the franchisee to view, store, retrieve, and print it.
  • The document may not contain any links to other external content.
  • The document must contain an index for each of the separate electronic files—if any—of which it consists, the index must set out each file’s name and, if such a filename is not sufficiently descriptive of the subject matter dealt with in the file, the index must contain a statement of the file’s matter.
  • The franchisor must receive a written acknowledgment of the document’s receipt.

Given these conditions, some franchisors and legal counsel have expressed the view the changes do not go far enough, in that it is imperative for the franchisor to obtain a written confirmation of receipt from a prospective franchisee after delivery of the disclosure document by electronic means, even though it could probably be established the document was transmitted to and subsequently opened or downloaded by the franchisee.

At any rate, the amendments allowing electronic delivery have helped bring Ontario’s legislation into conformity with all other Canadian provinces that have franchise legislation, allowing greater consistency of franchise business practices across the country, with some very minor differences.

In New Brunswick, for example, electronic disclosure document delivery is the same as in Ontario, except there is no requirement to obtain acknowledgment of receipt. Prince Edward Island, meanwhile, has the most variations from Ontario’s legislation, in that it does not require an index and also requires the disclosure document to (a) be delivered as a single, integrated, document or file, (b) contain no extraneous content beyond what is required or permitted by law and (c) conform, as to its content and format, to the requirements of the law. The franchisor must also keep records of its electronic delivery of disclosure documents (although this is a recommended practice for all franchisors).

Manitoba’s legislation is substantially the same as Ontario’s, except for some minor wording differences. It states the prospective franchisee must be able to “retrieve and process” the disclosure document, rather than “view, store, retrieve and print” it.

Alberta’s franchise legislation does not contain any specific delivery requirements. As such, electronic delivery of disclosure documents is already a regular practice in that province.

Finally, British Columbia’s Franchises Act—which received royal assent in 2015 and is now pending publication of the final regulations—expressly provides a disclosure document may be delivered personally, by e-mail or by any other prescribed method.

Recommendations for modernization
Ontario’s ministry of government and consumer services established a new business law advisory council in March 2016 for the purpose of making recommendations for modernizing the province’s corporate and commercial statutes.

The council made its first recommendations the following fall, with a report posted by the ministry that also solicited input and feedback from the general public and business and legal stakeholders. Among other statutes, the report puts forward amendments for Ontario’s franchise legislation and general regulations made under it.

Definitions of terms
For one, the council recommends amending the act’s definition of the term ‘franchise’ to (a) clarify which types of intellectual property may form the basis of a franchise and how such intellectual property may be licensed to or owned by a franchisor and (b) ensure franchisors that have the right to exert significant control over—or provide significant assistance in—the franchisee’s methods of operation are not exempted from the act’s legal protections simply because they may fail to exercise that right.

The council also recommends narrowing the definition of ‘franchise agreement’ to clarify only the agreement by which the franchise is actually granted to the franchisee (which is usually, but not always, the franchise agreement) can trigger the franchisor’s disclosure obligations and potential rescission claims by the franchisee and not for example, a deposit, confidentiality agreement or other ancillary agreements that tend to be entered into with a prospective franchisee before signing the actual franchise granting agreement.

Non-application of the act
Agreements between a licensor and a single licensee for use of a specific trademark, trade name or other commercial symbol, where such licence is the only one of its general nature or type to be granted by the licensor, are currently exempt from the act. The council recommends amending this provision to specify the relevant geographic scope of such a licence grant includes all of Canada. (There has been confusion to date as to whether the territory could be all or part of Canada.)

Financial information
In relation to disclosure obligations under the act, the council recommends deeming the generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS) of the U.S., the International Financial Reporting Standards (IFRS) and the International Auditing and Assurance Standards Board’s (IAASB’s) standards for auditing and review engagement, as adopted by other countries, acceptable as the basis for preparing, auditing or reviewing a franchisor’s financial statements that are required to be attached to the disclosure document.

This amendment is intended to reduce the regulatory burden for foreign franchisors that are considering entering Ontario, as they currently must determine whether or not their financial statements are prepared using accounting principles that are “at least equivalent to” Canada’s GAAP. Some foreign franchisors have felt it necessary to acquire—at considerable expense—a statement or opinion from their auditors confirming equivalency. The new change would eliminate any doubt.

Material change statement
Franchisors must disclose material changes, including any changes to their business, capital, control, operations and/or franchise system that could be reasonably expected to have a significant, negative impact on the value of their franchise. This type of disclosure is called a ‘material change statement.’

To ensure consistency in the information provided in a material change statement and certainty of compliance with the disclosure obligations under the act, the council recommends prescribing either (a) the content of the statement of material change or (b) the form itself to correspond to the prescribed content in the disclosure document certificate.

Exemptions from disclosure requirements
The council suggests amendments to four existing exemptions from Ontario’s franchise disclosure document requirements:

  • Officer or director exemption—This applies when a franchise is granted to a former officer or director of the franchisor, for that person’s own account. The council supports recommendations from the Ontario Bar Association (OBA) that the relevant subsection of the act be amended to (a) clarify the exemption ceases to be available on the expiry of a 120-day period after the prospective franchisee ceases to hold such position as director or officer and (b) confirm the exemption also applies when the prospective franchisee is a corporation owned by a former director or officer.
  • Fractional franchise exemption—This applies in the case of a ‘business within a business,’ whereby the franchise represents a relatively small part of the overall enterprise (i.e. anticipated to account for less than 20 per cent of total sales of the business). The period over which to calculate the anticipated percentage of sales is not specified. So, to ensure consistency in approach and certainty of compliance, the council recommends amending the relevant subsection of the act to explicitly state the period for calculating the anticipated percentage of sales is the first year of operation of the franchise.
  • Small investment exemption—This applies when the total annual investment a franchisee has to make to acquire and operate a franchise is less than $5,000. To add certainty to the calculation, the council recommends replacing the concept of the ‘total annual investment’ with the ‘initial investment to acquire and set up the franchise’ that is anticipated by the parties at the time of the signing of the franchise agreement. This recommended language is consistent with other disclosure obligation language.
  • Large investment exemption—At the other end of the spectrum, this applies when the prospective franchisee is investing $5 million or more to acquire and operate the franchise, also over a one-year period. Similar to the proposed amendments to add certainty to the small investment exemption calculation, the council recommends basing the calculation for the large investment exemption on the upfront investment amount, as calculated at the outset of the franchise relationship. And since the amendment would limit the prescribed amount to franchise acquisition and setup costs, as opposed to operational costs, the council further recommends reducing the threshold amount from $5 million to $3 million. This amendment would provide much relief and clarity in terms of understanding how the calculation should be made.