Background
Grocery giant Sobeys Capital Inc. began converting some of its unionized Safeway stores into FreshCo locations operated by individual franchisees. The United Food and Commercial Workers International Union, Local 1518, which represented Sobeys employees, applied to the B.C. Labour Relations Board to have Sobeys and the new franchisees declared a single “common employer” under s. 38 of the Labour Relations Code. Such a declaration would bind the franchisees into a single bargaining unit with the much larger franchisor.
The Board granted the Union’s application, finding that Sobeys exercised “substantial control” over the franchisees’ operations through its franchise agreements. Sobeys and the franchisees challenged this, first in a reconsideration application to the Board and then on judicial review to the B.C. Supreme Court. They argued that a common employer declaration requires not only control by the franchisor over the franchisees, but also evidence of common control or direction between the franchisees themselves.
The reconsideration panel and the reviewing judge both sided with the Union. They held that the Board’s decision was not “patently unreasonable”—the highly deferential standard for matters within the Board’s expertise. The franchisees and Sobeys then appealed to the Court of Appeal, making the same argument that the lack of inter-franchisee control was a fatal flaw in the Board’s original decision.
The Court’s Holding
The Court of Appeal for British Columbia dismissed the appeal, affirming the decisions of the lower court and the Labour Relations Board. The court held that the Board’s decision to declare Sobeys and its franchisees a common employer was not patently unreasonable. The court deferred to the Board’s interpretation of its own governing statute.
The central legal question was the meaning of “common control or direction” in s. 38 of the Code. The appellants argued this required a “rim on the wheel”—a link between the franchisees (the spokes), not just a connection from each spoke to the hub (the franchisor). The court rejected this interpretation, finding nothing in the language of s. 38 that required proof of control as between the franchisees. It was sufficient that all entities were under the common control or direction of Sobeys.
The court found it was within the Board’s exclusive jurisdiction to develop its analytical framework. The Board was entitled to find that substantial top-down control by a franchisor was enough to meet the statutory test. It appropriately considered the lack of connection between franchisees as a factor in determining whether there was a “labour relations purpose” for the declaration, rather than as a mandatory prerequisite for the “common control” element itself.
Key Takeaways
- In British Columbia, a franchisor and its franchisees can be declared a single “common employer” for labour relations purposes without proof that the franchisees exercise control over each other.
- Substantial control by a franchisor over its franchisees’ financial, contractual, and operational affairs can be sufficient to meet the “common control or direction” test in the Labour Relations Code.
- Courts will apply a highly deferential “patent unreasonableness” standard to Labour Relations Board decisions interpreting core labour law concepts, respecting the Board’s specialized expertise.
Why It Matters
This decision is a significant affirmation of union power in the franchise sector. It provides a clear mechanism for unions to prevent the erosion of bargaining rights that can occur when a large, unionized company spins off its operations to smaller, independent franchisees. By grouping the franchisor and its franchisees into a single entity for collective bargaining, the ruling ensures that the economic power remains centered on the franchisor, preventing a “race to the bottom” on wages and conditions among the franchisees.
For franchisors, the ruling highlights the labour relations risks inherent in business models that exert a high degree of control over franchisees. To avoid being declared a common employer, a franchisor may need to grant its franchisees more genuine independence, creating a different set of business risks. The decision forces franchisors to carefully weigh the balance between control and liability in their franchise systems.