Franchisors in Canada should pay close attention to a recent decision from Manitoba’s Appeal Commission, which determined that a franchisor had to pay assessment premiums for individuals with whom they have entered into franchise agreements.
Decision 99/2011 involved a firm which began business operations in Manitoba selling janitorial franchise licenses to independent operators of cleaning businesses. The Workers Compensation Board of Manitoba ("WCB") considered whether the firm’s franchisees were entitled to register as a separate business with the WCB. The Board ultimately found that they were not. This assessment was upheld on appeal to the Appeal Commission, based on a review of the franchise agreement that established a substantial degree of control exercised by the franchisor over the franchisee.
In this case, the Appeal Commission found that franchisees are more akin to employees and therefore entitled to WCB coverage, as opposed to independent contractors responsible for their own WCB coverage. The Commission acknowledged that the franchise agreement creates a unique relationship which does not fall squarely in either the category of a worker or that of an independent contractor. For this reason, the Commission relied heavily on the actual terms and levels of control found in the franchise agreement in order to come to its determination. The Commission found that the ongoing relationship between two equal bargaining parties, which is expected in an independent contractor relationship, is not present between a franchisor and its franchisee.
The distinction between workers and independent contractors in the franchise context has also been addressed by the Ontario Workplace Safety and Insurance Appeals Tribunal ("WSIAT"). In determining how a person should be characterized under the Workers’ Compensation Act ("WCA") for the purpose of determining entitlement to coverage, the assessment by WSIAT tends to be broader in scope than that of the WCB. While tribunals will look to a franchise agreement in order to assess the intention of the parties, other factors, such as the ownership of equipment, length of the relationship and degree of control are also considered in order to determine whether a claimant can be categorized as a worker or independent contractor under the WCA.
Most decisions uphold the traditional view that franchisees are considered independent contractors. However, this view is coming under attack in a number of jurisdictions, with findings like that of Manitoba’s Appeal Commission becoming too frequent from the perspective of franchisors. Going forward, franchisors must be mindful of both the terms of the franchise agreement and the other business aspects governing their relationship, the joint consideration of which will determine the exposure risk to the franchisor and the business independence of the franchisee. The issues arising out of WCB’s decision are significant to the franchise industry as a whole, as it may be foreshadowing of the view taken by other tribunals in future determinations regarding the business independence of franchisees.