On January 19, 2018, the Government of Ontario issued a proposal to amend existing gift card rules under the Consumer Protection Act, 2002 (Ontario). The existing gift card rules, among other things, prescribe certain disclosure requirements and impose limitations on fees and expiry dates. The proposed amendments are intended to clarify the scope of such rules and follow the ban of on expiry of points in Ontario that came into force on January 1, 2018 as discussed on this blog. Ana Badour provides an overview of the proposal here.
On January 25, 2018, the Ontario Court of Appeal (the “OCA”) released its much-anticipated decision in Raibex Canada Ltd. v. ASWR Franchising Corp. In a business-friendly decision overturning the lower court’s decision, the OCA narrowed the availability of rescission for franchisees, reinforcing the importance of recognizing the distinction between “no disclosure” and “imperfect disclosure”, and further re-focusing the test for the availability of rescission under s. 6(2) of the Arthur Wishart Act (Franchise Disclosure) (the “Act”) to an analysis of whether the franchisee was effectively deprived of the opportunity to make an informed investment decision.
There are four key takeaways from the OCA’s decision.
First, the availability of the two-year rescission remedy under s. 6(2) of the Act will now be considered under a different legal test. According to the OCA, the fundamental question for two-year rescission is “whether the franchisee has been effectively deprived of the opportunity to make an informed investment decision”.
Prior to this decision, the OCA applied an arguably broader test of whether the disclosure document contained a “material deficiency”: see Mendoza v. Active Tire & Auto Inc.. This clarification in Raibex appears to narrow the availability of the two-year remedy by focusing on the effect the deficiency had on the franchisee’s ability to make an informed decision.
Second, the OCA rejected the lower court’s finding that a disclosure document will be fatally deficient simply because a location for the franchise has not yet been determined. On the facts of Raibex, the OCA found that the absence of a location and head-lease did not necessarily deprive the franchise of the ability to make an informed decision. The Court held that this was particularly so where, as in Raibex, the franchise agreement required the franchisor to consider the franchisee’s interests before securing a location and further afforded the franchisee a right to opt-out of the franchise agreement and receive a release and full refund of all monies paid to the Franchisor, less the Franchisor’s reasonable costs in granting the franchise, if a suitable location was not secured within 120 days of the franchise agreement being signed. The OCA found that these “safeguards” provided a complete defence to the Franchisee’s complaint that the Franchisor’s failure to disclose the head lease justified rescission under s.6(2) of the Act because they allowed the franchisee to proceed with the franchise grant without a location and head-lease being available, with the comfort of an available exit if the location ultimately selected was not agreeable.
This finding is consistent with a long-standing industry practice of providing non-site specific disclosure, pending the identification of a suitable site. As a result of this finding, it is likely that franchisors may continue the industry practice of granting franchises prior to a location being selected, provided they offer similar safeguards to franchisees in their franchise agreements.
Third, the OCA made important findings concerning the requirement to disclose to a franchisee the costs associated with establishing the franchise. In Raibex, the franchisee took issue with the fact that the disclosure document only disclosed the costs associated with building the franchise from scratch, rather than the costs associated with converting an existing location to the franchisor’s system. The OCA rejected this concern, finding that the franchisee was able to make a fully informed decision. The OCA emphasized a number of factors, including that the disclosure document provided the “a strongly worded warning that cost estimates associated with a conversion could vary greatly from site to site”. The OCA also emphasized the franchisor’s evidence that there was a “wide variance in the costs associated with the Franchisor’s three prior conversions”, concluding that disclosure of this information would have not have significantly improved the Franchisee’s ability to make an informed decision.
This finding suggests that, in future cases, the adequacy of a franchisor’s disclosure of establishment costs will be analyzed holistically, based on whether any omitted information would have “significantly improved” the franchisee’s ability to make an informed decision. It also suggests that appropriately phrased disclaimer language and express warnings in a disclosure document may minimize a franchisor of liability where it can be established that the franchisee had notice that the costs associated with its particular location may vary from the numerical estimates disclosed. The OCA also suggested that a disclosure document should contain estimates that provide a “useful reference point against which to measure the upper range of possible costs associated with” the franchisee’s particular location. Of course, the danger here is that reliance on such disclaimers as a defence to erroneous or misleading establishment costs, may result in the equivalent of no disclosure being provided if the franchisee cannot reasonably rely on the estimates contained in the disclosure document as being accurate estimates of its anticipated costs. The equity and application of this proposition will need to be carefully evaluated on the specific facts of each case, on a case by case basis.
Fourth and finally, the OCA provided some guidance and clarity around requiring alleged “de facto directors” not listed on a franchisor’s constating documents to sign the franchisor’s Certificate of disclosure warranting the contents of the disclosure document when there is no evidence of this individual exercising any control over the franchisor or holding him/herself out as a director. This finding will provide comfort to senior management employees of franchise systems who may hold officer and director titles, without intending those titles to classify them as “de facto directors” of the franchisor obligated to sign disclosure Certificates and thereby assume joint and several liable with the franchisor for breaches of the Act.
Raibex is among the most business-friendly of the OCA’s decisions on franchise disclosure and should provide franchisors with comfort in continuing to employ the common disclosure practices that the lower court decision brought into question. This decision will also be important in restoring some balance in the radically swinging pendulum of franchise disclosure cases.
On January 1, 2018, new consumer protection regulations came into effect in Ontario that generally prohibit the expiry of royalty or rewards points due to the passage of time alone (the “expiry ban”). The new rules stipulate that, with certain exceptions, any provision in a consumer agreement that purports to have rewards points expire due only to the passage of time will be unenforceable. As expected at the time the Bill 47 – Protecting Rewards Points Act was enacted (see our previous post from December 2016), the expiry ban has retroactive effect to any points (earned at any time) that expired between October 1, 2016 and January 1, 2018.
The regulations provide for some exemptions to the expiry ban. First, for the expiry ban to apply, the points must be “rewards points” which are defined as points that are accumulated based on purchases, over time and that can be exchanged for goods or services at a later date. In addition, the regulations provide that the expiry ban will not apply in the following circumstances:
- Points redeemable for a specific good or service – If the reward points can be redeemed against only one specific good or service identified at the outset. For example, if a spa offered a frequent customer card entitling the holder to a free manicure following the purchase of ten manicures, neither the frequent customer card nor the free manicure reward would be subject to the expiry ban;
- Low value points – If the rewards points can only be redeemed against single items having a value under $50 (i.e. the rewards are all low value);
- Third party points – If the rewards points are issued by a third party pursuant to a relationship between the consumer and another supplier, and the agreement with the supplier does not entitle the consumer to those third party rewards points. For example, if a health tracking app awards its users with app-based reward points when they make a purchase at a smoothie bar (and if the smoothie bar had not indicated to the consumer that they would receive such rewards points), the expiry ban would not apply to the app-based reward points;
- Points for which no purchase required – If the consumer is not required to purchase goods or services from the issuer or a third party, either upon entering into the agreement or during the entire term of the agreement, including to earn rewards points, unless such issuer or third party has entered into at least one other consumer agreement with any consumer that requires the consumer to purchase goods or services to earn rewards points;
- Gratuitously issued points – If the points are awarded gratuitously and not as a result of any purchase of goods or services by the consumer, and the points issuer (i) gave notice at the time of the award that the gratuitous points would expire; and (ii) the expiry date is no earlier than 30 days after the points were awarded;
- Wound up or terminated points program – If the points are awarded pursuant to a rewards program that, prior to December 8, 2016, was announced to be winding up, or if the points were awarded pursuant to an agreement that (i) the consumer requested be terminated; or (ii) had terminated (or notice of termination had been provided) prior to October 1, 2016; or
- Expiry due to inactivity – If the customer agreement provides that points expire in accordance with the agreement when the consumer has not earned or redeemed any points for a specified extended period of time. The Ontario government has advised consumers, as a precautionary measure, to maintain good records of points balance statements to ensure issuers are abiding by the new rules.
- Any points that purport to expire in contravention with the expiry ban must be returned or reinstated by the issuer. The regulations also prohibit issuers from terminating an existing agreement as a whole simply to replace it with a substantially similar agreement with more restrictive rewards point provisions, unless they obtain the consumer’s explicit consent to do so.
Retailers and other entities with rewards point programs should review their program to ensure compliance with these new rules and reach out to the authors of this post if they have any questions about their rewards programs.
Growing your retail business, or looking to set up shop in Canada? Check out Cross-Border: A Retailer’s Guide to Doing Business in Canada available now. This comprehensive resource offers an overview of the legal aspects of establishing and operating a retail business in Canada. It draws from the top-tier expertise developed by McCarthy Tétrault’s market-leading Retail and Consumer Markets Group and their unparalleled experience in the Canadian Consumer Products, Food, Beverage & Agribusiness, Franchise & Distribution, Hospitality and Retail sectors.
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In a consultation paper entitled “A New Retail Payments Oversight Framework” released on July 7, 2017, the Department of Finance proposed a federal oversight framework that would apply to payment service providers such as Fintech entities in the payment space as well as more traditional payment entities such as merchant acquirers. On McCarthy Tétrault’s Cyberlex Blog, Ana Badour and Kirsten Thompson provide an overview of the consultation paper.
Key elements of the framework which may be of interest to readers of the Consumer & Retail Advisor blog include the registration requirement for payment service providers, end-user fund safeguarding measures, operational standards and an increased emphasis on privacy. It is noteworthy that certain types of transaction, such as transactions made with instruments that allow the holder to acquire goods or services only at the premises of the issuing merchant (e.g., store cards) or within a limited network of merchants that have a commercial agreement with an issuer (e.g., shopping mall cards) are however specifically excluded.
Comments on the Consultation Paper are due October 6, 2017.
On July 4, 2017, the Ontario Court of Appeal dismissed the appeal by the Representative Dealer in a franchise class action commenced against General Motors Canada Ltd. (“GM”) relating to the restructuring of its dealer network in 2009. The Court focused on the narrow issue of whether the release and related wind down agreement which members of the dealer class signed was enforceable, thereby barring the class action. Since the Court found that the release was indeed enforceable, the claim was barred and the Court had no need to consider the other issues raised by the dealers on appeal.
The core issue on appeal was the applicability of s. 11 of the Arthur Wishart Act (the “Act“). Under this provision, any release or waiver of a right under the Act is void. The dealers argued that the release and related wind down agreement were void under s. 11 of the Act.
The Court was required to consider the applicability of s. 11 to the settlement of disputes. In the leading decision of Tutor Time (1518628 Ontario Inc. v. Tutor Time Learning Centres, LLC, 2006 CanLII 25276 (ON SC), 2006 CanLII 25276 (S.C.)), affirmed by Court of Appeal in the earlier decision of Midas (405341 Ontario Limited v. Midas Canada Inc., 2010 ONCA 478), the Court found that a franchisee’s settlement of a known and existing breach of the Act was enforceable despite s. 11 as long as the franchisee received independent legal advice.
In Trillium the Court considered whether the release and related wind down agreement signed by the dealers constituted the settlement of a known and existing breach of the Act, since the dealers acknowledged having received independent legal advice. The Court reviewed the factual record and found that there was no doubt in anyone’s mind that the release and wind down agreement was designed to release liability in relation to GM’s decision to non-renew the dealers’ agreements. On this basis, the Court found that the release and related wind down agreement did indeed release a known and existing alleged breach of the Act (in addition to non-statutory claims).
On this basis, s. 11 of the Act had no application, the release was enforceable and the claims were barred.
Trillium confirms the public policy in favour of the enforcement of settlements in Ontario. Courts will be reluctant to set aside a settlement and release, even in the franchise context, where there is evidence that the parties were informed as to their rights, knew the claims they were releasing, and had independent legal advice.
Electronic terms of service govern billions of relationships worldwide, whether a user is joining a social media service, shopping online or accessing a blog. In each case, a binding contract is formed, the terms of which are usually set out in the website’s “terms of service” . But when a contract is made over the internet and there is later a dispute, whose law governs? What is the “forum” for the resolution of the dispute? What if the contract expressly designates a specific jurisdiction as the appropriate “forum”? In Douez v Facebook, Inc. (“Douez”), the Supreme Court of Canada refused to uphold the forum selection clause contained in Facebook, Inc.’s terms of service.
The case involves Facebook, Inc. (“Facebook”) and the representative plaintiff in a proposed class action, Ms Deborah Douez. When Ms Douez joined and continued using Facebook, she agreed to terms of service which included committing to bring any claim against Facebook exclusively in Santa Clara, California.
Ms Douez’ dispute with Facebook started when she found her name and image being used in Facebook’s “Sponsored Stories” product. She initiated proceedings under BC’s Class Proceedings Act with a proposed class of the approximately 1.8 million British Columbians who appeared in Sponsored Stories. The claim was based on Section 3(2) of BC’s Privacy Act:
(2) It is a tort, actionable without proof of damage, for a person to use the name or portrait of another for the purpose of advertising or promoting the sale of, or other trading in, property or services, unless that other, or a person entitled to consent on his or her behalf, consents to the use for that purpose.
Facebook brought a preliminary motion to dismiss the claim, citing the forum selection clause, which read as follows:
You will resolve any claim, cause of action or dispute (claim) you have with us arising out of or relating to this Statement or Facebook exclusively in a state or federal court located in Santa Clara County. The laws of the State of California will govern this Statement, as well as any claim that might arise between you and us, without regard to conflict of law provisions. You agree to submit to the personal jurisdiction of the courts located in Santa Clara County, California for purpose of litigating all such claims.
Facebook obtained a favorable decision from the British Columbia Court of Appeal. Ms Douez appealed to the Supreme Court of Canada.
Summary of the Majority Decision
A narrow 4-3 majority of the Court found that Facebook could not rely on its forum selection clause.
The Court did unanimously affirm that forum selection clauses should continue to be considered under the test established in Z.I. Pompey Industrie v ECU-Line N.V., 2003 SCC 27 (“Pompey”). The Pompey test involves two steps. First, the party seeking to rely on a forum selection clause must prove that it is clear, valid and enforceable as a matter of contract law. Second, once the forum selection clause is accepted as valid, the party asking the Court to not enforce the clause needs to show a “strong cause” for doing so based on “all the circumstances.”
The Court’s consensus ended at Pompey. Three members of the Court, Justices Karakatsanis, Wagner and Gascon, decided that Facebook had satisfied the first step of Pompey and that the forum selection clause was valid. However, they found Ms Douez had shown a strong cause for not enforcing the clause.
The strong cause was based on two main factors. First, the power imbalance inherent in a unilaterally imposed contract (known as a contract of adhesion) between one individual consumer and one of the largest companies in the world. This power imbalance was increased by the fact that “unlike a standard retail transaction, there are few comparable alternatives to Facebook.”
Second, the Privacy Act was described as “quasi-constitutional”, because it was intended to protect the privacy rights of individuals. The decision explained the importance of adjudicating constitutional and quasi-constitutional rights in Canada:
Canadian courts have a greater interest in adjudicating cases impinging on constitutional and quasi-constitutional rights because these rights play an essential role in a free and democratic society and embody key Canadian values. There is an inherent public good in Canadian courts deciding these types of claims. Through adjudication, courts establish norms and interpret the rights enjoyed by all Canadians.
In addition to the power imbalance and the quasi-constitutional nature of privacy legislation, the three Justices cited two additional factors. First, it was in the interest of justice for the case to be adjudicated in BC, where there Privacy Act would be enforced and the Court would be well-positioned to understand the intention of the Legislature. The decision also cited the “comparative expense and inconvenience” of advancing the claim in BC, rather than California, which again favored a strong cause.
A strong cause was not even required for Justice Abella, who wrote a separate decision that ultimately “broke the tie” amongst the seven justices and allowed Ms. Douez’ appeal to succeed. She found that Facebook had not met the first Pompey step of showing the clause to be enforceable as a matter of contract law. Justice Abella concluded that the forum selection clause was void relying on public policy, inequality of bargaining power and unconscionability.
In a dissenting opinion, Chief Justice McLachlin and Justices Moldaver and Côté were prepared to enforce the forum selection clause, finding that Ms Douez had not shown a strong cause.
Impact for Businesses
- Forum selection clauses are still enforceable, even if they are not a silver bullet against being brought into litigation in unexpected places. Had Ms Douez been advancing a claim that did not impinge on “constitutional and quasit-constitutional rights” like those engaged in the Privacy Act, the forum selection clause may have been upheld. Indeed, six out of seven Supreme Court Justices were prepared to enforce Facebook’s forum selection clause, save for the existence of a “strong cause” in this instance.
- When engaging with personal information, consulting local privacy counsel is a must. Privacy legislation varies from province to province and failing to appreciate even slight differences can result in class action claims.
Impact on the Future of Internet Law
The only thing that can be said for certain is that the interaction of the internet and the law is likely to produce more decisions like Douez. In fact, the Supreme Court just released Google Inc. v Equustek Solutions Inc. et al., which addresses if and when a Canadian court can order a search engine to delist certain websites globally.
Further, Douez is unlikely to be the last word on the specific issue of forum selection clauses. The Pompey test may open future debates about “strong cause” in the context of consumer contracts. The opinions of the divided Court in Douez could be used to provide supporting arguments for both sides in a situation where the facts are just slightly different.
Lastly, this decision is just the end of the first chapter of the Douez saga. Facebook’s preliminary motion was rejected but the class action has yet to be certified, so there is more internet law to come.
A recent decision of the Ontario Court of Appeal confirms the strict nature of the disclosure requirements under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the “Act”).
In Mendoza v. Active Tire & Auto Inc., 2017 ONCA 471, the Court of Appeal made the following five key findings:
1. First, the Court reviewed the case law on the test for whether a disclosure document is fatally deficient under the Act, thus entitling the franchisee to rescind the franchise agreement within two years of the date that the franchise agreement is signed. The Court confirmed that where a disclosure document is “materially deficient,” it amounts to “no disclosure”, thus providing the franchisee with a two-year rescission window.
The “material deficiency” test – which has been applied by lower courts in Ontario – suggests that any omission to include a material fact in a disclosure document, or a deficiency on a material issue, amounts to no disclosure having been provided.
2. Second, the Court held that a disclosure document is fatally deficient where the financial statement provided with the disclosure is not from the most recent fiscal year.
On the facts of the case, the disclosure document was provided to the prospective franchisee in early 2015 and included the financial statement for the 2013 fiscal year. This was because the franchisor’s 2014 financial statement was not yet complete. While the Regulation under the Act permits a franchisor to use the previous fiscal year’s financial statement where “180 days have not yet passed since the end of the most recently completed fiscal year and a financial statement has not been prepared and reported for that year”, the 180-day grace period had already passed when the disclosure was delivered.
The Court held that the franchisor could not deliver a valid disclosure document in such circumstances. Since the 180-day grace period under the Regulation had already passed, any disclosure document delivered by the franchisor would be fatally deficient until such time that the 2014 financial statement was finalized.
This is a caution to franchisors to ensure they provide up-to-date financial statements (unless they are within the grace period).
3. Third, the Court confirmed that statutory rescission under the Act is available to a franchisee whether or not it reviewed the disclosure document at the time it was delivered and whether or not the deficiency at issue is linked in any way to the franchisee’s ultimate financial performance.
According to the Court, a franchisor’s obligations under the Act “do not change depending on the actions or reactions of a particular franchisee. Nor are those obligations diminished when a franchisee does not study the contents of the disclosure document.” The Court also confirmed that statutory rescission “is not dependent on … [the] conduct of the franchisee”.
4. Fourth, the Court held that a disclosure document is fatally deficient where the certificate of the franchisor included with the document is only signed by one officer or director. According to the Court, where a franchisor has more than one officer or director, the omission of a second signature is fatal to the document.
While this decision remains consistent with other Ontario case law on franchise disclosure, it is another caution to franchisors to develop robust disclosure practices. The Court of Appeal’s reversal of the lower court ruling may also signal a reluctance to accept evidence that the franchisee had sufficient information to make an informed decision, despite the deficiencies in the disclosure document, as being relevant in evaluating franchisor liability.
Premised on the theory that vulnerable workers and precarious employment exists in Ontario and needs to be addressed, the Final Report of the Changing Workplaces Review contains 173 recommendations, many of which focus specifically on the retail sector. Below we identify ten recommendations that are likely to have a significant impact on retailers.
As previously mentioned on this blog, the Government of Ontario has now released the Final Report of the Changing Workplaces Review, which recommends a number of changes to Ontario’s Employment Standards Act, 2000 (“ESA”) and Labour Relations Act, 1995 (“LRA”). The Final Report specifically identifies the retail sector as an area for reform because of its high concentration of low-wage earners in part-time, temporary and/or contract employment. Accordingly, many of the recommendations are specifically designed to address the apparent problem of vulnerable workers in precarious employment.
Here are ten ways the recommendations may impact the retail sector:
- More Certainty in Scheduling. The Final Report asserts that uncertainty of work schedules is a key contributing factor in making work precarious. As a result, it recommends that sector specific regulations be adopted to provide workers with more certainty in scheduling, prioritizing the retail and fast food sectors for change.
- Consolidation of Bargaining Units at Multiple Locations of Same Employer: The Final Report recommends the Ontario Labour Relations Board be given the general power to consolidate bargaining units employed by the same employer. The Final Report specifically notes that the intention of this recommendation is to target sectors with historically low union rates such as retail and food services, that generally have small bargaining units (if any), with the same employer, in multiple locations. It notes that this recommendation will provide employees and unions with increased bargaining power. This could have a profound impact on the proliferation and strength of unions in the retail sector.
- Equalization of Pay Between Part-Time and Full-Time Workers. Viewed by the Final Report as the epitome of “vulnerable and precarious employment”, it recommends that no part-time employee be paid at a rate lower than a comparable full-time employee of the same employer, unless the employer can establish a demonstrable reason for the difference.
- A More Proactive Model of Enforcement of Employment Standards: While many in the retail sector will be familiar with the Ministry of Labour’s (“MOL”) periodic “compliance blitzes”, the Final Report recommends a shift in the MOL’s mandate away from a complaints-driven model to one where spot-checks, audits and inspections at employer premises become the norm. It also recommends the MOL take on more of a prosecutorial role by engaging in more targeted and more public campaigns against high profile employers and those “top of industry”, who are , viewed to influence the compliance of those employers below them. The Final Report specifically lists major retailers, leading brands and those who manage supply chains as the intended target of such compliance measures.
- Change to the Managerial Overtime Exemption: Perhaps a more positive recommendation for the retail sector, if not all employers, the Final Report recommends the test for managers be changed to a “salaries plus duties” test where, in order to be exempt from overtime, a manager would have to perform defined duties and earn at least 150% of the minimum wage per week. The Final Report indicates that the current managerial test is not well defined and focuses on the wrong factors, such that positions that are obviously managerial in character could be excluded from the overtime exemption because of occasional situations where non-managerial duties are performed when stores or restaurants are busy.
- Changes to Wage Calculation: The Final Report recommends a number of changes that will affect the calculation of wages, including:
- Elimination of the Student Minimum Wage;
- Significant limitations on the use of overtime averaging agreements; and
- A change to the “three-hour rule” to ensure workers receive at least three hours at their regular rate of pay when required to report to work (as opposed to the higher of 3 hours at minimum wage, or the employee’s regular wage for time worked).
- Expansion of “Related Employers”: The Final Report recommends removing the pre-condition that affiliated businesses need not have the “intent or effect” of defeating the purpose of the ESA to be considered “related” for the purpose of the ESA. This may mean that many business models that were not considered related for the purposes of the ESA, such as parent-subsidiary relationships, may be captured by this expanded definition and therefore be open to more scrutiny.
- The Extension of Health and Dental Benefits to all Workers. While the Final Report does not recommend an equalization of benefits between part-time and full-time workers, it does recommend that the Government study how a minimum level of such benefits can be extended to all workers, regardless of employment status.
- A Complete Revision to Public Holiday Scheduling and Pay: While not providing specifics, the Final Report recommends that the standards regarding Public Holidays be revised so that they are simpler and easier to understand. The Final Report notes that the scheduling, pay and substitution elements of Public Holidays are not only unduly complicated, but that the requirement for premium pay is an added burden for retailers who need to be open on public holidays.
- Revisions to Personal Emergency Leave: The Final Report recommends that Personal Emergency Leve be extended to all employers in Ontario, including those with less than 50 employees. It also recommends the creation of a separate, 3 day, bereavement leave entitlement and an expansion of the entitlement to leave for family medical reasons.
It is important to repeat that these are only recommendations. It remains to be seen how the Government of Ontario will react and respond to the Final Report in the coming weeks. However, given the magnitude of the Changing Workplaces Review, there is an inevitability to significant changes being proposed to Ontario’s ESA and LRA, if not a total overhaul. We will provide our update as soon as we find out.
In the interim, the Labour and Employment Group at McCarthy Tétrault LLP has reviewed the Final Report and released a paper titled The Changing Workplaces Review & the Potential Effects on Employers. If you would like a copy of this paper, or have any questions about the Changing Workplaces Review and how it will impact your business, do not hesitate to contact Trevor Lawson and Matthew Demeo, or any lawyer in our Ontario Labour and Employment Law Group.
The Final Report has just been released for the Changing Workplaces Review, containing recommendations for legislative changes to Ontario’s Employment Standards Act, 2000 and Labour Relations Act, 1995. A number of changes are either specific to franchises or may have an impact depending on the sector of the franchise and the way the franchise operates. Here we have summarized recommendations that are most relevant franchisors.
Recommendations concerning the Ontario Labour Relations Act, 1995 (“LRA”):
- Broader Based Bargaining: The Final Report recommends that the Ontario Labour Relations Board be given certain powers to implement a model of centralized bargaining, where the terms of a collective agreement between a franchisee and a union could be extended to apply (with or without modifications) to a newly certified bargaining unit of another franchisee of the same franchisor. The Board would also have the power to require that the franchisee employers bargain centrally through one employer bargaining agency, much like in the Ontario construction industry. In other words, franchisees of the same franchisor would be treated in an analogous way as a single employer with multiple locations. There is no doubt that this will facilitate unionization for franchisees operating under the same banner. Currently, union bargaining rights attach to individual franchisees and typically cover one location.
- Related and Joint Employers: It is recommended that employees of temporary help agencies who are assigned to perform work for clients of the agency (e.g. a franchisee) be deemed as employees of the client/franchisee for the purposes of the LRA. This would mean a trade union could rely on the support of the temporary help employees to certify the client.
- Successor Rights: Another LRA recommendation is that union successor rights be applied to the building services industries (security, food services, cleaning), and that a regulation-making authority should be added to the LRA to allow for the possible expansion of coverage into other services or sectors in the future. If this recommendation is adopted, then a non-union franchisee that takes over a new contract and replaces a unionized contractor in a prescribed industry or sector could be bound to the union as the successor employer.
Recommendations concerning the Employment Standards Act, 2000 (“ESA”):
- Who is an Employee and Who is an Employer: The Final Report recommends removing the pre-condition that an arrangement needed have the effect (intended or not) of avoiding the ESA before two businesses could be associated or related. In effect, removing this pre-condition will make it much easier for franchisors and franchisees to be deemed “related or associated” for the purposes of the ESA because most franchises arrangements are not structured around avoiding employee rights. The net effect of this recommendation may well be that a franchisee’s ESA obligations towards its employees could easily transfer from the franchisee to the franchisor, almost as if the franchisor was a “joint employer” with the franchisee.
- A sector-specific approach to the regulation of scheduling has been recommended, including a review of the existing exemptions on hours of work, overtime, and related matters. And, as a priority, establishing a committee to consider a sector-specific regulation in the retail and fast food sectors – both sectors in which many franchises operate.
- The Report also recommends that the ESA should be amended to provide an employee with the right, after one year of service, to request changes to his or her schedule (hours of work, flexibility, location, etc.), and the employer should be obligated to respond to such request at least once a year. This recommendation, if implemented, could affect a franchisee’s flexibility and discretion in scheduling shift work, for example.
- Recommendations Regarding Payment of Wages: The following recommendations made in the report are also relevant to franchises.
- Part Time, Casual, Temporary and Seasonal Employees: The ESA should be amended to provide that no employee by paid at rate lower than a comparable full-time employee of the same employer.
- Call-In Pay: The ESA should be amended to provide employees with at least three hours pay when required to report to work.
- Temporary Help Agencies: After six months of employment, temporary assignment workers should be paid equally to a comparable employee of the client performing similar work.
The Ontario government indicates that it has reviewed the recommendations and will be announcing its formal response within the next week. We will provide you with an update on the Ontario government’s formal response upon its release. In the interim, if you have an questions, or would like a copy of our more detailed analysis of the Final Report’s key recommendations, please contact Tim Lawson (416-601-8172) or Pat Pengelly (416-601-8292) of our Ontario Labour and Employment Practice Group, both members of our National Franchise Group.