Chapter 12: Who is the employer under the Labour Relations Act, 1995?

One of the most difficult questions we have had to grapple with is the identity of the employer under the LRA. We have considered whether the tests for determining the identity of an employer should be altered at all, and if so, whether they should be altered on a broad application or tailored to more specific and narrow circumstances. In response, we have generally determined to maintain the status quo, with one exception, tailored for a specific circumstance.

In our Interim Report, we set out some of the issues that were raised with us, the approach that had been taken in recent decisions by the U.S. National Labor Relations Board (NLRB),^{footnote 502[502]} and the options that have been put forward and considered.^{footnote 503[503]} The question of who should be treated as an employer for the purposes of the LRA is important in the context of changing workplaces because of the growing incidences of a triangular relationship between assignment workers, assigned by temporary help agencies to work at the workplaces of, what we refer to as, their enterprise/clients, and because of the growth of franchising and the question of whether franchisors should be treated as employers in respect of their franchisees’ employees.

The area is difficult because the range of commercial circumstances in which related and joint employer issues may arise is quite broad, the American jurisprudence – where there is ongoing controversy – is complex, and the jurisprudence of the OLRB is extensive.

It appears that there are significant differences between the statutory framework under the LRA and the LRA, which have led Ontario and the U.S. federal jurisdiction to take somewhat different jurisprudential approaches to the resolution of the issues. There are, however, important elements of commonality. The LRA does not have an equivalent statutory provision to section 1 (4), the related employer provision of the LRA. Instead, the NLRB applies three related but different concepts to the issue of who is the employer, namely, the single employer, alter ego and joint employer doctrines.

In the U.S., a "single employer" will be found to exist where two apparently separate entities operate as one integrated enterprise. The NLRB examines a number of factors, including common ownership and control, common management, centralized control of labour relations and whether there is a functional integration, or interrelationships, in the operations of the business. It has been said that a lack of an arms-length relationship characterizes these cases.^{footnote 504[504]}

The NLRB’s alter ego test examines whether different entities have substantially the same management, business purpose, customers, equipment and other factors, but an important element of the test is whether there was any anti-union animus in the creation of the arrangements.^{footnote 505[505]}

The third doctrine in the U.S., that of the joint employer, is quite different from the first two as it assumes that the entities are independent. However, it is designed to apply where the independent entities jointly share or co-determine terms and conditions of employment. One does not need to show there is a common enterprise.^{footnote 506[506]}

The concept of a joint employer is a long-standing one in American law. There is significant controversy over a purported change to the NLRB’s test for a joint employer in the recent Browning-Ferris case (BFI).^{footnote 507[507]} In BFI, in determining whether a potential joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining, a majority of the NLRB overruled earlier cases in which it was found that the control had to be direct and immediate and held that it was sufficient for the control to be indirect, including through an intermediary or even a reserved right to control, whether or not that right is exercised.^{footnote 508[508]}The reason for the controversy is not simply that this change could alter the relationships between franchisors and franchisees or temporary help agencies and clients; the majority’s approach was also criticized in the dissenting reasons because of the alleged potential for its wide application, which could have the effect of broadening who might be found to be an employer. This decision is currently being appealed in the U.S. courts.

In Ontario, as we described in the Interim Report, in situations where more than one entity could potentially be the employer, the OLRB often approaches the issue of employer status in two different ways. It can declare two or more entities to be related employers under section 1 (4) of the LRA, or it may determine that one of the entities is the true employer for the purposes of the LRA.

The OLRB has the power under section 1 (4) to treat related or associated businesses as a single employer for the purposes of the LRA, where they carry on associated or related activities under common control or direction. These activities need not be carried out simultaneously and there is no need to establish that the businesses were structured for anti-union purposes. Where these criteria are met, the OLRB also has the discretion to determine whether to make a related employer declaration or grant other relief, having regard to the labour relations policies and purposes that may be at stake on the facts of each case. These considerations could include, preventing the erosion of bargaining rights, ensuring there are viable collective bargaining structures, and allowing employees to bargain with the real economic power, not merely the nominal one.

The OLRB emphasizes that it makes a purposive and contextual analysis when wrestling with the issue of determining the true employer in cases of triangular relationships between temporary help agencies, their enterprise/client and the employees.^{footnote 509[509]} There is no single factor that is determinative and no exhaustive list of factors to apply mechanically to a situation. The question to be asked is, having regard to all of the facts of the specific case, which entity should the union be required to bargain with and represent the employees with so that collective bargaining can be as effective and stable as possible?^{footnote 510[510]}

It appears to us that the Ontario related employer provision, section 1  (4), is applied, generally speaking, in the same kind of factual situations where the single employer and alter ego tests are applied in the U.S. However, the OLRB does not have a separate express joint employer doctrine that uses the precise test set out by the NLRB in the BFI case (either the new or the old test) for cases where there are two independent entities allegedly co-determining terms and conditions of employment. In temporary help agency cases, the OLRB most often looks to determine who the true employer is^{footnote 511[511]} and in both franchise and temporary help agency cases, it has used section 1 (4) to determine whether two or more entities should be treated as related employers, whereas the NLRB uses the joint employer doctrine for both situations.

As indicated above, the significance of these jurisprudential approaches and the source of the controversy lay in their application to two business models that are important commercial realities in the modern workplace, namely, temporary help agencies and franchising.

Both business models have grown significantly and both have an impact on vulnerable workers in precarious jobs.

Temporary help agencies have become ubiquitous in Ontario. (Please see the discussion on temporary help agencies in Chapter 7 which is also relevant here.) These workers are generally paid less than employees of the enterprise/client performing the same work.

Franchising has grown throughout the economy but its growth in sectors where there are many vulnerable employees in precarious work, such as fast food, restaurants and retailing, has lead the NLRB to consider whether the franchisor should be treated as an employer with the franchisee for purposes of collective bargaining.^{footnote 512[512]}

The BFI case involved a supplier of labour to an enterprise/client (BFI) where the supplier’s own supervisors purportedly directed its own employees while they were assigned to work at the enterprise/client. In deciding that it should reassess the legal test, the NLRB explicitly gave, as its primary reason, the fact that the diversity of workplace arrangements had increased, contingent work had grown substantially and the use of temporary help agencies, in particular, had increased, rising to a 2% share of the workforce.^{footnote 513[513]} The decision was clearly one aimed at the temporary help industry even though the particular facts may not necessarily have been typical. The NLRB found that the supplier of labour and enterprise/client were joint employers. The case is proceeding to review in the courts. In Ontario, most cases involving temporary help agencies appear to have been decided on the basis of which of the two entities, the agency or the enterprise/client, was the true employer.

With respect to franchising, there is ongoing U.S. litigation before the NLRB involving McDonald’s, where the NLRB is being asked to apply the same new joint employer test developed in the BFI case to this franchise situation and to find that both the franchisor and franchisee are joint employers. The issue of whether franchisors and franchisees are related employers has been considered in Ontario under section 1 (4) in a few cases over a long period, and the OLRB has determined that each case will be determined, on a case-by-case basis, on its own facts.

We have considered the desirability of adopting a new and different test for the determination of joint employers, which would be incorporated into the LRA, including the new test set out by a majority of the NLRB in the BFI case. We have determined that it is likely unnecessary and unwise to adopt a sweeping new legislative test, which would be extremely controversial and which may be unclear in its application. While we have no view on the correctness of the competing opinions expressed in the BFI case, we think the legislative adoption of a new test would be unhelpful and unnecessary in Ontario, at least at this time, and would create controversy and uncertainty. The uncertainty over how sweeping the test would be in its application is heightened by the uncertainty over whether the test will be accepted in the United States and how it will be interpreted by the courts there. That uncertainty, in turn, is compounded by the uncertainty over whether a reconstituted NLRB, under the current new American administration, will take a different view in the future, a likely outcome given the vigorous opposition by the business community there to the new test set out in the BFI case.

Instead of changing the test for determining common or joint employers in Ontario for all employers in all industries, in our view, we should concentrate on problem areas and consider whether any legislative changes are required. In our view, the two pressing problem areas facing vulnerable workers with respect to the identity of the employer, as concerns labour relations, are franchising and temporary help agencies, but the issues and experience in these areas are different and call for different approaches.

12.1 Franchising

The issue directly affecting franchising, is whether the franchisor and franchisee are common or related employers. Here we can see no pressing need, at this time, to amend current section 1 (4) or to legislatively mandate a different test. The Canadian Franchise Association opposed any change to section 1 (4). That section has been used for over thirty years to determine this issue but it has arisen in relatively few cases. We agree with the OLRB’s current approach that the issue should be determined on the facts of each case and that there is no presumption one way or another.^{footnote 514[514]} In some cases, franchisors will be found on the existing law to be related employers with a franchisee and a declaration will be made, while in others, they will be found not to be related employers or the OLRB will not exercise its discretion, having regard to the labour relations factors at play. We believe the issue is best left to the OLRB on the particular facts and in whatever labour relations situation presents itself at the time.

If the issue does come up with greater frequency in the future and if experience with respect to the collective bargaining of franchisees develops, revealing a gap in the jurisprudence or in the legislation and demonstrating that collective bargaining is not meaningful because of that gap, then legislative changes based on that experience can be contemplated at that time.

The franchise industry seems to want a rule that franchisors can never be the employer of persons employed in the franchisee’s operation. We do not agree. Such a rule would fly in the face of both the current law in Ontario and common sense. As the franchising industry has explained many times, the franchising model is used in a wide variety of industries with different franchisors taking varying approaches. Accordingly, no general rule or presumption can be applied, at least not at the present time.

The truly important structural aspect of franchising that needs to be addressed now is not the related employer issue, but the structural weakness in the current legislation, which effectively denies the employees of franchisees in multiple locations the opportunity to bargain collectively in a meaningful fashion. Under the current law, the employees in a franchise operation could be restricted to bargaining in each franchisee location(s) separately, as there is no legislative consolidation mechanism compelling collective bargaining to take place across the unionised operations of the different franchisees of the same franchisor. We deal with that issue below.

12.2 Temporary help agencies

The issues with respect to temporary help agencies, and the workers they assign, are different from the related employer issue with respect to franchising. The triangular nature of the relationship between the employee, the agency and the enterprise/client, along with the temporary nature of the employment, create an enormous vulnerability for the employee. The triangular relationship and the instability and the contingency inherent in that relationship results in some temporary help agency employees being among the most vulnerable and precariously employed of all workers. (Please see the discussion in Chapter 7 on the triangular relationship.)

The law, through the ESA, has tried to protect the worker from both the agency and the enterprise/client by putting different, and sometimes overlapping, responsibility on each. For the purposes of that Act, which imposes primary obligations on the agency for payment of wages, vacation, holiday pay etc., the worker is deemed to be an employee of the agency. Under the ESA, the enterprise/client is jointly liable for some, but not all, obligations. The employee’s status as employee of the agency, for the purposes of the ESA, makes sense because the employee may have a longer-term relationship with the agency wherein he/she is placed with various enterprise/clients. That relationship requires protection.

However, in the context of an application for certification by a union in respect of an enterprise/client, the fiction that while working in the enterprise at the direction of and for the benefit of the enterprise/client, the worker is not the employee of the enterprise/client but, rather, is employed by the THA, does not accord with the reality of most workplaces. The OLRB has recognized this by ruling, in most cases, that assignment workers from a temporary help agency are, in fact, employees of the enterprise/client.

Temporary help agencies are ubiquitous, prominent and a growing part of the economy. In many certification applications in factories, warehousing operations, and other workplaces where such employees exist, uncertainty and litigation regarding the status of these employees is common. Whether such employees are employees of the enterprise/client or the agency is an issue that is raised repeatedly. A certification application always raises the questions of the level of support the union enjoys and who is eligible to vote. Uncertainty over whether these persons are employees of the enterprise/client creates uncertainty for both the union and the company, and often results in expensive and time-consuming litigation where the facts and the law are argued repeatedly. The result is unwarranted delay that can easily adversely impact the application. The maxim, labour relations delayed is labour relations defeated and denied^{footnote 515[515]} certainly applies as a reason to try and deal with this issue in a decisive manner and to remove the uncertainty and litigation.

In 1997, the Supreme Court of Canada commented on the legislative gap in Canadian law as a result of the tripartite relationship:

Unfortunately, tribunals and courts must often make decisions by interpreting statutes in which there are gaps. The case at bar shows that situations involving tripartite relationships can cause problems when it comes to identifying the real employer if the labour legislation is incomplete in this regard. The tripartite relationship does not fit very easily into the classic pattern of bilateral relationships. The Labour Code was essentially designed for bipartite relationships involving an employee and an employer. It is not very helpful when a tripartite relationship like the one at issue here must be analysed. The traditional characteristics of an employer are shared by two separate entities — the personnel agency and its client — that both have a certain relationship with the temporary employee. When faced with such legislative gaps, tribunals have used their expertise to interpret the often terse provisions of the statute. In the final analysis, however, it is up to the legislature to remedy those gaps. The Court cannot encroach upon an area where it does not belong.^{footnote 516[516]}

The Court pointed out that, up to 1997, in applying collective labour relations legislation similar to that in Quebec, Canadian administrative agencies determined the essential test for identifying the employer in a tripartite context to be fundamental control over working conditions. In applying that test, the Court found that the OLRB and the (former) Canada Labour Relations Board have generally, but not always, concluded that the client is the temporary employee’s real employer.^{footnote 517[517]} This result has been just as common in the last 20 years.^{footnote 518[518]} The fact is that when this issue has been litigated before the OLRB, in most of the cases, the enterprise/client has been found to be the employer.^{footnote 519[519]} Frankly, this accords with the common sense understanding of the law shared by most practitioners and adjudicators.

The comments by the Supreme Court of Canada about the legislative gap are apt and the legislature should address the issue in the statute. We have been urged to recommend a rule with respect to the employee status of temporary help agency workers, to discourage uncertainty and litigation. We agree that there ought to be a rule and we have rejected other options.

We considered but recommend neither a legal rebuttable presumption that THA workers are employees of the enterprise/client nor a legal rebuttable presumption that they are employees of the THA. We also reject a rule that deems both the agency and the enterprise/client to be joint employers.

In our view, the creation of a rebuttable presumption will do little to discourage litigation. Moreover, litigation involves delays, which almost always harm the chances of a successful certification application and impair access to meaningful collective bargaining and the long-term bargaining relationship. We also reject recommending a rule that the enterprise/client and the THA are joint employers. To do so would not serve any purpose or add value to the collective bargaining process. The presence of the THA is not required for effective bargaining.

In our view, there are good reasons to create a rule that deems THA workers assigned to work at an enterprise/client to be employees of the enterprise/client for the purposes of the LRA.

First, the experience of the last 40 years shows that this is the common result in any event. There have been many cases before the OLRB where, in a variety of different business settings, the facts of the triangular relationship have been explored in great detail. In the vast majority of those cases, the enterprise/client has been found to be the employer for the purposes of the LRA. This result makes sense because the workers are present at the request of the enterprise in order to match operational needs, they are working at the business of the enterprise/client, and they are typically controlled and directed by the enterprise/client.

If the fundamental policy question for the statute is the same as the one addressed by the OLRB in individual cases, namely, which entity should the union be required to bargain with so that collective bargaining can be as effective and stable as possible, there is no question that the answer is the enterprise/client. The tripartite relationship is decided upon and mainly serves the interests of the enterprise/client, which makes use of workers supplied by the THA as it sees fit, in the context of its human resources plan and operation of the enterprise/client. The enterprise/client’s policies and work and the interests of the enterprise/client in having the work completed as it requires, are at the center of the entire relationship with employees assigned by a THA. The relationship between employees and the THA is fragile and contingent. The THA does not normally play any real role in determining the work to be done, the underlying rate for the work performed for the enterprise/client, or any of the other important working conditions that relate to that particular workplace. Form cannot triumph over substance.

From a labour relations perspective, limiting the employer to being the THA would not make collective bargaining effective, stable or meaningful but, rather, would have the opposite effect. If not virtually impossible to organize, a THA is, at a minimum, highly unlikely to be organized because it assigns people to work for many clients. Even if a union was certified for THA employees, it may not be able to bargain effectively regarding the work in a particular workplace because the THA has virtually no role in determining those working conditions, which are typically controlled by the enterprise/client. Further, temporary help agencies have almost no experience in being certified in a bargaining relationship with their employees.^{footnote 520[520]} The link that the THA has to the work of the enterprise/client is tenuous; the contract with the agency can be easily terminated and a new THA brought in. If the OLRB were to certify a union to bargain with a THA for employees working at a location for the enterprise/client, there would be little to stop the enterprise/client from terminating its relationship with the THA, either at that time or later. What is required is a direct bargaining relationship between those persons providing the services to the enterprise/client and those who are subject to the control of the enterprise/client.

One of the important interests for us to consider is that of the most vulnerable workers. A rule that allows the inclusion of THA workers in a bargaining unit with other employees of the enterprise/client not only recognizes the reality of the role of the enterprise/client but also serves the interests of, and provides access to, meaningful collective bargaining for many vulnerable and precariously-employed people.

For these reasons, we recommend that persons assigned by agencies, to perform work for clients of the agency, shall be deemed to be employees of the clients for the purposes of the LRA.

This recommendation is not intended to preclude the possibility of an application for certification of a temporary help agency or other supplier of labour separate and apart from an enterprise/client. While it is unlikely that a certification application would be brought in respect of a THA, there are issues that could be bargained between a THA and its employees, such as terms and conditions relating to the selection of employees to be referred, and the terms of the referral. The issues potentially subject to collective bargaining may not be issues relating to the terms and conditions of work performed at the enterprise/client but, rather, to the relationship between the assignment employee and the THA. These are issues best left to the OLRB, if such an application is made.

One of the concerns we have in making this recommendation is that the rule could obstruct the ability of unions to organize establishments with large groups of workers made available through a THA. Their vulnerability, transitional attachment to the workplace, and numbers, may make organizing problematic. This recommendation, however, does not mean that assignment employees must always be included in a bargaining unit upon certification. The OLRB has a broad discretion to determine whether a bargaining unit is appropriate and there may be circumstances where the Board might decide to exclude these employees, given that their transitory relationship with the workplace may make them harder to organize. In our view, the OLRB should be sensitive to the realities of organizing and the workplace, as well as to the interests of the employees assigned by the agency and those on the payroll of the client/enterprise, when determining whether the persons assigned by the agency are included or excluded from the bargaining unit.^{footnote 521[521]}In that regard, the recommendations we are making with respect to the powers of the OLRB to consolidate bargaining units may be relevant as, if that change is made, excluding persons from a bargaining unit would not deny them collective bargaining rights, as they could be organized later and the unit description could be varied or bargaining units potentially consolidated into a larger unit.

We are not naïve in thinking that a deemed rule of this kind will end the issue of who is the employer in all situations. In some cases, there will be an effort to make THA arrangements look like true subcontracting or there will be new forms of arrangements for supplying labour that could raise issues, like those that have arisen previously, wherein efforts were made to subcontract core functions of an enterprise to a third party, engaging section 1 (4).^{footnote 522[522]} We are not attempting to regulate genuine subcontracting arrangements; it must be left to the Board to determine, on a case-by-case basis, whether the true employer doctrine or the related employer provisions of section 1 (4) apply in those circumstances. However, because THA arrangements are ubiquitous and well-understood, a clear legislative rule should remove much of the unnecessary litigation around this issue. In our view, the provision should apply not just to temporary help agencies, as defined in the ESA, but to suppliers of labour, generally, whether they meet the ESA definition of an agency or not.

Recommendation

161. Persons assigned by temporary help agencies to perform work for clients of the agency, or persons assigned by other suppliers of labour to perform work for a person, shall be deemed to be employees of the client or of the person, respectively, for the purposes of the Labour Relations Act, 1995.