On May 23, 2017, Ontario’s long-anticipated Changing Workplaces Review Final Report (“Report”) was released. The Report contains 173 recommendations for changes to the province’s employment standards and labour relations laws.

The final recommendations would, if legislated, have a significant impact on the application of labour and employment laws to franchised businesses operating in Ontario. To help businesses prepare for the possibility of these significant reforms, we have summarized below the recommendations that would most significantly impact the franchise industry.

“Broader-Based Bargaining” under the Labour Relations Act

Recommendations regarding restructuring collective bargaining rights for employees of franchised companies are among the most profound recommendations set out in the Report.

Essentially, the proposed model would allow for the Ontario Labour Relations Board to order separate franchisees of the same franchisor to “bargain centrally” with certified or voluntarily recognized bargaining units represented by the same union. Similar to the model currently in place in the construction industry, an “employer bargaining agency”, composed of representatives of the separate franchisees, would represent the franchisees at the bargaining table with the union.

Any strike or ratification vote would involve the entire constituency of bargaining units (as opposed to individual bargaining units). However, each franchisee would have individual responsibility for compliance with the resulting collective agreement and would normally sign an agreement binding only its unionized employees.

The recommendations do not provide a franchisor whose franchisees may be subject to the central bargaining with the right to sit at the bargaining table during negotiations unless it operates company units or is otherwise the employer (or common employer) of employees who belong to certified or voluntarily recognized bargaining units. The Board would have the authority, if requested by a party involved, to direct that the terms of a collective agreement between a franchisee and a union be extended to apply, with or without modifications, to a newly certified bargaining unit involving the same union and a different franchisee (under the same franchise system).

To put these recommendations into perspective, it is important to understand it is already possible for franchisees and franchisors to be treated as a single employer for purposes of collective bargaining. However, current legislation requires that this only occur where there is “common control or direction” of franchise entities, which depends on how the particular franchise is structured and managed. What is significant about the above proposals is that separate franchisees could be ordered to bargain together regardless of whether there is “common control or direction”. The proposed change would therefore eliminate a significant barrier to “broader-based bargaining” among employees of franchised systems, and will have a significant impact on the organization of, and bargaining with, employees for a franchise system having multiple franchisees or company units in Ontario.

New “Related Employer” Definition Under the Employment Standards Act

Under the current Employment Standards Act, 2000 (“ESA”), separate entities are only treated as a single employer if the structure has the “intent or effect” of defeating the intent and purpose of the ESA. The Report recommends that the “intent or effect requirement” be eliminated, permitting separate entities to be treated as a single employer if they simply carry on associated or related business activities.

Eliminating the “intent or effect” test removes a significant barrier to establishing that separate franchise entities are “related employers”. In many cases, this would allow employees to file ESA complaints against the franchisor, the franchisee or both, as opposed to just the franchisee. This could also expand the Ministry of Labour’s jurisdiction to inspect franchisors, and to engage directly with franchisors on enforcement initiatives under the ESA, even when they are not operating company units in Ontario.

Incremental ESA Changes

In addition to the fundamental changes outlined above, the Report also recommends many incremental changes to employment standards that would significantly impact all franchise systems operating in Ontario, including:

  • requiring part-time, casual, temporary and seasonal employees to be paid the same rate of pay as comparable full-time employees of the same employer, subject to limited exceptions
  • providing certain employees with a “right to request” changes in their work hours or location, with protection from reprisal;
  • increasing vacation time to 3 weeks and vacation pay to 6% after 5 years of employment;
  • eliminating the student minimum wage and the liquor servers’ minimum wage;
  • revising the test for the manager/supervisor exemption for overtime entitlement;
  • eliminating the requirement to obtain approval before requiring employees to work between 48 and 60 hours in a week; and
  • limiting overtime averaging to a compressed work week, continental shift or other limited exceptions.

A formal response from the Ontario Government is expected within the next week. At this stage, it is not clear when, or if, proposed legislative changes will be introduced. It could take months or years before any of the recommended changes are legislated. The enactment of any amendments could also be impacted by Ontario’s next provincial election which is scheduled to be held on or before June 7, 2018.

The Ontario Report may be viewed as part of a broader trend in a number of countries (including the United States, Australia and France) to re-examine the employment relationship in the context of franchising through administrative, legislative and judicial action. As yet, no clear consensus has emerged.