Corporate liable for franchisee decisions

What does the shock McDonalds labour board judgement means for Canadian franchises? More work for HR, for one thing.

Corporate liable for franchisee decisions
Corporate offices of franchises could be held liable as a joint employer in an on-going legal case in the U.S., according to a recent labour board decision.
The General Counsel of the National Labour Relations Board ruling has the potential to radically undermine the employment-related advantages of franchising arrangements in the United States, Tom Gorsky from Sherrard Kuzz LLP said.
“McDonald’s had historically avoided liability for its franchises’ employment practices by giving each franchisee control over working conditions and wage rates,” he said. “If the General Counsel’s ruling is upheld workers employed by more than 12,000 McDonald’s franchises in the United States could be deemed to be direct employees of McDonald’s – opening up McDonald’s to potential employment-related liability and even a national unionization drive.”
But what does that mean for Canadian franchisors? In a case earlier this year McDonald’s Restaurants of Canada Ltd was named as a co-respondent in a human rights complaint in Ontario.
“Canadian courts, employment standards adjudicators and human rights tribunals have shown receptiveness to the possibility of imposing liability on a franchisor for the actions of its franchisees,” Gorsky says. “Generally speaking, the greater the level of control exercised by a franchisor over the actions of a franchisee, the more likely the franchisor may be jointly liable for the franchisee’s employment practices.”
This could be a major concern for HR leaders. Many franchisees do not have full time or properly trained HR support, so are often unaware of the major risks. Your organization could end up involved in a lengthy and expensive lawsuit because of one franchisee’s mistakes.
So what can you do to protect the brand and minimize risk?
“There are important reasons why a franchisor may find it necessary to exercise control over its franchisees, such as the need to protect the brand and maximize franchise value,” Gorsky said. “However, control can come at a cost.”
Gorsky suggests assessing franchise agreements to ensure the level of corporate control is no higher than necessary. For example, oversight could reduce over time as the franchise reaches specific performance or time-based benchmarks.
He also said control should be exercised strategically. When corporate control reduces the risk of a workplace complaint, it will also reduce the risk of a finding of joint-liability.
“It makes good business sense that every franchisor proactively consider how it can support its franchisees to implement workplace best practices and avoid complaints,” he said. “By helping to educate franchisees about the legal obligations owed to employees, the likelihood of employment-related liability—for either the franchisee or franchisor—can be greatly reduced.”

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