HUMAN RIGHTS TRIBUNAL OF ONTARIO
B E T W E E N:
Virgin Elgin
Applicant
-and-
2112412 Ontario Incorporated o/a Bagel World Thornhill
and 2165235 Ontario Incorporated o/a Bagel World
Respondents
INTERIM DECISION
Adjudicator: Ken Bhattacharjee
Indexed as: Elgin v. 2112412 Ontario Incorporated o/a Bagel World Thornhill
APPEARANCES
Virgin Elgin, Applicant
Saron Gebresellassi, Counsel
2165235 Ontario Incorporated o/a Bagel World, Respondent
Kevin Sherkin, Counsel
Introduction
1The purpose of this Interim Decision is to decide whether the Application against the respondent, 2165235 Ontario Incorporated o/a Bagel World, which is a franchisor, should be dismissed because it has no reasonable prospect of success. The parties attended a summary hearing where they had the opportunity to make oral submissions and present documents and cases, which addressed this issue. I have decided to dismiss the Application against 2165235 Ontario Incorporated o/a Bagel World. The following are my reasons for the dismissal.
BACKGROUND
2The applicant is a Black woman. On January 17, 2011, she filed an Application under s. 34 of the Human Rights Code, R.S.O. 1990, c. H.19, as amended (the “Code”) against “Bagel World”, which alleged that Bagel World discriminated against her with respect to services because of her race, colour, ethnic origin, and sex. Specifically, she alleged that on March 18, 2010, she purchased a coffee at a Bagel World shop in Thornhill, but the manager would not allow her to sit and drink her coffee in the shop, even though there were other customers who were not Black who were sitting and drinking their coffee or other drinks in the shop. She also alleged that she called Bagel World’s head office on March 22, 2010 to complain about what had happened, and the person whom she spoke to, Michael, promised to call her back, but never did.
3In her Application, the applicant only named the Bagel World shop as a respondent. She provided an address in Thornhill, which was where a Bagel World shop was located, and described the respondent as an “establishment that I had visited to buy coffee.”
4The Bagel World shop did not file a Response to the Application, but in October 2011, the Tribunal received correspondence and a Request for an Order During Proceedings (“RFOP”) from counsel for the franchisor, which requested that the Tribunal order the applicant to properly name the company which was operating in the Thornhill location. However, counsel for the franchisor also noted that the company operating the shop in that location during the alleged incident at issue in the Application had ceased operations in June 2011.
5The Tribunal subsequently issued a number of Case Assessment Directions (“CADs”) and Interim Decisions seeking to clarify who the correct respondent(s) to the Application were. On December 24, 2012, the applicant filed a letter, which indicated clearly, for the first time, that she also wanted the franchisor to be named as a respondent.
6The Tribunal then issued a further CAD and Interim Decision seeking to further clarify who the correct respondents to the Application were.
7The hearing of the Application commenced on February 4, 2014. However, two problems arose. First, the franchisee, which operated the Bagel World shop in Thornhill, did not attend the hearing, and the applicant and the franchisor (which did attend) provided conflicting information about whether the franchisee was still operating. The applicant maintained that the franchisee was still operating. Second, the franchisor had not been properly named as a respondent. Accordingly, the Tribunal directed the franchisor to disclose the Franchise Agreement, recommended that the applicant obtain legal advice to ensure that she has named all the correct respondents, and adjourned the hearing.
8The applicant did not contact the Tribunal in the following the months. Therefore, on July 28, 2014, the Tribunal issued a CAD. The respondents named in the title of proceeding were the franchisee and franchisor named in the franchise agreement, namely 2112412 Ontario Incorporated o/a Bagel World Thornhill (the “respondent franchisee”) and 2165235 Ontario Incorporated o/a Bagel World (the “respondent franchisor”). The CAD directed the applicant or her legal representative to contact the Tribunal within one week and clarify what her intentions were with respect to pursuing her Application and naming the correct respondents.
9On December 17, 2014, the Tribunal held a conference call with the parties. During the call, after some prodding from the Tribunal, the applicant reluctantly admitted, for the first time, that she had consulted with a lawyer, who had informed her that the respondent franchisee is bankrupt.
10On December 22, 2014, the Tribunal issued a CAD, which found that the Application against the respondent franchisee cannot proceed because proceedings under the Code against the respondent franchisee are stayed pursuant to s. 69 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended. The CAD also directed the parties to attend a summary hearing to determine whether the Application against the respondent franchisor should be dismissed on the basis that there is no reasonable prospect that the Application will succeed.
11The summary hearing took place by teleconference on June 18, 2015. Both parties filed written submissions and case law in advance of the hearing, and made oral submissions at the hearing.
ANALYSIS
12Rule 19A of the Tribunal’s Rules of Procedure provides for a summary hearing, following which an application may be dismissed, in whole or in part, if the Tribunal finds that there is no reasonable prospect that the application or part of the application will succeed. The approach to deciding whether an application has a reasonable prospect of success following a summary hearing was explained as follows in Dabic v. Windsor Police Service, 2010 HRTO 1994 at paras. 8-9:
In some cases, the issue at the summary hearing may be whether, assuming all the allegations in the application to be true, it has a reasonable prospect of success. In these cases, the focus will generally be on the legal analysis and whether what the applicant alleges may be reasonably considered to amount to a Code violation.
In other cases, the focus of the summary hearing may be on whether there is a reasonable prospect that the applicant can prove, on a balance of probabilities, that his or her Code rights were violated. Often, such cases will deal with whether the applicant can show a link between an event and the grounds upon which he or she makes the claim. The issue will be whether there is a reasonable prospect that evidence the applicant has or that is reasonably available to him or her can show a link between the event and the alleged prohibited ground.
13The applicant is not alleging that the respondent franchisor itself committed an act of discrimination against her. Rather, she is arguing that it is vicariously liable for the discriminatory act allegedly committed against her by the manager of the respondent franchisee. Section 46.3(1) of the Code provides that for the purposes of the Code, with certain exceptions, any act or thing done or omitted to be done in the course of one’s employment by an officer, official, employee or agent of a corporation shall be deemed to be an act or thing done or omitted to be done by the corporation.
14The parties agree that the respondent franchisor can be held liable for the act of discrimination alleged in the Application if it had a degree of control over the Bagel World shop in Thornhill sufficient to conclude that it provided services in the shop and/or employed the staff in the shop. A sufficient degree of control means that the respondent franchisor exercised substantial control over the day-to-day operations of the shop and its employees. See Maycock v. Canadian Tire Corp., 2004 BCHRT 33 (“Maycock”) at para. 45-46.
15In Maycock, the complainant filed a complaint, which alleged that he was discriminated against on the basis of disability when the manager of a Canadian Tire store ordered him to remove his service dog from the store. The franchisor and the franchisee were both eventually named as respondents. The British Columbia Human Rights Tribunal (the “BCHRT”) reviewed the Dealer Contract (the franchise agreement) and other evidence before it, and dismissed the complaint against the franchisor on a preliminary basis for the following reasons at paras. 51-55:
[T]he logo is the trademark that establishes the franchise. It cannot, however, be solely indicative of what entity is providing the service. There must be more, that is, what occurs on a day-to-day basis.
In accordance with the Dealer Contract, Sales is required to purchase its inventory from CTC, and without prior consent cannot offer for sale any merchandise that has not been purchased from CTC. However, the Dealer Contract is equally clear that ownership and title to all merchandise purchased from CTC is the Dealer's (3(c)). Further, the Dealer Contract provides that although Sales is not entitled to charge higher prices than represented in material published by CTC, it can control prices to the extent it may offer merchandise for sale at lower prices (6(c)). It is therefore Sales that purchases, owns and sells the merchandise at the Squamish store.
Further, the evidence is that CTC is not involved in the day-to-day business of Sales; Sales operates independently of CTC. It is Sales that manages the operations, purchasing inventory and selecting and developing staff in order to provide a service at the Squamish store. I therefore conclude that it is Sales alone that is offering the service and employing the staff at the Squamish store.
I have examined the Dealer Contract between CTC and Sales and considered the evidence provided by CTC and Sales. I conclude that CTC has certain control over Sales as a franchisee to protect its trademarks, trade names and private branded products. It does not, however, exercise direction or control over Sales on a day-to-day basis.
Therefore, I conclude any liability for discriminatory conduct is Sales and not CTC. In this case, it is Sales that may be liable for the acts or omissions alleged in the complaint. As a result, Sales is a properly named respondent. I cannot conclude, however, that CTC could be held liable for any alleged discriminatory conduct, and therefore, find that it is not properly named as a respondent in the complaint and therefore dismiss the complaint against it.
16See also Prasad v. Sunwood Drugs and others, 2011 BCHRT 165 (“Prasad”), which involved a complaint of discrimination in employment on the basis of sex (pregnancy) against a Shoppers Drug Mart store where the BCHRT refused to add the franchisor as a respondent for similar reasons. See also Toop v. Canadian Union of Public Employees, 2014 HRTO 145 at paras. 110-130.
17In my view, the Application against the respondent franchisor has no reasonable prospect of success because the Franchise Agreement between the respondent franchisor and the respondent franchisee and other evidence show that the former did not have a degree of control over the Bagel World shop in Thornhill sufficient to conclude that it provided services in the shop or employed the staff in the shop. The Franchise Agreement appears to be similar to the franchise agreements at issue in Maycock and Prasad. The applicant did not convincingly point to provisions of the Agreement, which would distinguish it from the agreements in those other cases, and show that the respondent franchisor exercised substantial control over the day-to-day operations of the Bagel World shop in Thornhill and its employees.
18The Franchise Agreement defined the legal relationship between the respondent franchisor and the respondent franchisee as one between independent contractors where neither was the master or servant of the other, and they were not in a relationship of partners or joint venture. (Article 17.6)
19The Agreement also provided that the respondent franchisor granted the respondent franchisee a license to operate a Bagel World shop in Thornhill and a non-exclusive license to use the Bagel World trademark, the respondent franchisee would pay the respondent franchisor an initial franchise fee, and the respondent franchisee would pay the respondent franchisor royalty payments on gross sales semi-monthly. (Articles 2.1, 3.1, and 3.2)
20The Agreement also provided that the respondent franchisor would train staff around the time of the opening of the shop, and continue to provide operating assistance from time to time, but that the respondent franchisee was responsible for hiring all persons to be employed, such persons would be solely the employees of the respondent franchisee, such employees would be under the exclusive control of the respondent franchisee, and the respondent franchisee would be responsible in all respects for the employees’ employment and conduct. (Articles 5.1, 5.2, and 6.1(d))
21The respondent franchisor filed an Affidavit from one of its principals, Michael Sherkin. The Affidavit described the relationship between the respondent franchisor and the respondent franchisee at paras. 3-5:
Pursuant to the Franchise Agreement [the respondent franchisor] provided the rights to the [respondent franchisee] to use the trademark Bagel World and the Bagel World system of operations.
The initial franchise term was for a term of 8 years with the right of the franchisee to renew. Granting of the franchise, pursuant to paragraph 5.1 of the Franchise Agreement, prior to opening we trained the staff of the franchisee relating to the Bagel World system, its purchasing and sales, and the like. Following same, the franchisor provides almost no control over the operations of the franchisee, but can be requested by the franchisee to provide consultation relating to a number of different items such as buying materials, operating the store, bookkeeping, accounting and inventory, but provides or exerts no control over such items. Under paragraph 6.1 of the Franchise Agreement, it outlines all of the obligations of the franchisee relating to its obligations to hire and fire staff, maintain the store. These would be internal obligations of the franchisee corporation over which we have no control.
I can advise the Tribunal that the franchisor has no control or participation in the operation of the location in issue. We had no participation in the day-to-day operations of the franchisee. In essence, what would happen on a monthly basis is that each and every month sales reports were provided to us which would outline the total gross sales and from that, a certain amount of royalty percentage would be paid to us in accordance with those sales. In addition, the franchisee was required to purchase supplies through authorized suppliers of the franchise and was required to contribute on a monthly basis to a funding relating to advertising and the like pursuant to the terms of Franchise Agreement. Other than that, we exercised no control nor were we asked to assist in any type of operations of the franchisee relating to any of its operations on a day to day basis of the premises, its hiring and firing of employees, its administration, payment of its rent, or its suppliers. In essence, the franchise in issue is an independent business which operates with the license of our trademark. We have no knowledge whatsoever about the incident in issue.
22The applicant did not challenge the factual statements in this Affidavit, except the statement that the respondent franchisor had no knowledge about the incident at issue. She alleges that she called to complain to Bagel World’s head office about the incident at issue, and that she spoke to a person named, Michael, who she believes may be the same person who signed the Affidavit.
23The applicant argued that the respondent franchisor had substantial control over the day-to-day operations of the shop and its employees because of the following provisions in the Franchise Agreement:
In establishing, managing and operating its shop, the respondent franchisee was required to follow a distinct “Bagel World System”, which only be modified by the respondent franchisor. (Articles 1.1(t) and 2.4)
The respondent franchisor could assist the respondent franchisee by providing “consultation and advice” on matters of equipment in the shop, hiring and training of employees of the shop, formulation and implementation of advertising, and support with numerous other administrative tasks (“bookkeeping, accounting, inventory control”). (Article 5.2)
The respondent franchisor had the right to inspect the shop, and if the respondent franchisee was not managing the shop in a proper manner, it had the right to send a representative to the shop, at the respondent franchisee’s expense, to assist the respondent franchisee in managing the shop. (Article 5.4)
The respondent franchisee’s employees were required to attend a training conducted by the respondent franchisor, and were required to redo the training if they failed it. Furthermore, the training was ongoing. (Articles 5.1 and 6.1(f))
24I disagree. These Articles have qualifying terms such as “from time to time”, and did not give the respondent franchisor substantial control over the day-to-day operations of the shop and its employees.
25The applicant also argued, relying upon case law from the United States, that the respondent franchisor is vicariously liable because of the “apparent agency theory”. Specifically, the applicant had a reasonable belief that the Bagel World shop that she went to was being run by the respondent franchisor, and she relied upon this belief to her detriment.
26I disagree. I do not accept that such a theory is applicable where the Franchise Agreement and other evidence shows that the respondent franchisor did not exercise substantial control over the day-to-day operations of the shop and its employees.
27Finally, the applicant argued that, because the respondent franchisee is bankrupt, the respondent franchisor should be vicariously liable because, otherwise, the applicant would have no remedy for the alleged discrimination that occurred at the Bagel Work shop in Thornhill. She stated that in Maycock, above, and other cases, the respondent franchisee remained in business, and the complainant was able to pursue a remedy for the alleged discrimination.
28I disagree. I do not see how the bankruptcy of the respondent franchisee can render the respondent franchisor liable for the conduct of the respondent franchisee’s manager where the Franchise Agreement and other evidence show that the respondent franchisor did not exercise substantial control over the day-to-day operations of the shop and its employees. I would also point out that the applicant filed her Application against the respondent franchisee 10 months after the alleged incident of discrimination occurred, which was within the one-year time limit in s. 34(1) of the Code, but if she had filed her Application immediately, she may have been able to obtain a remedy from the respondent franchisee for the alleged discrimination because it appears that the respondent franchisee did not cease operations until 15 months after the alleged incident occurred.
29In conclusion, I find that the Application against the respondent franchisor has no reasonable prospect of success because the Franchise Agreement between the respondent franchisor and the respondent franchisee and other evidence show that the former did not have a degree of control over the Bagel World shop in Thornhill sufficient to conclude that it provided services in the shop or employed the staff in the shop. The Franchise Agreement and other evidence do not show that the respondent franchisor exercised substantial control over the day-to-day operations of the shop and its employees.
30The respondent franchisee is bankrupt, and it appears that the applicant has taken no steps to bring a motion in court to have the stay of the proceeding under the Code against the respondent franchisee lifted. Within two weeks of the date of this Interim Decision, the applicant shall send the Tribunal’s Registrar and the respondents a letter or an email, which confirms whether or not she intends to bring a motion in court to have the stay of the proceeding under the Code against the respondent franchisee lifted. If she fails to follow this direction, the Tribunal will likely deem the Application against the respondent franchisee to be abandoned and dismiss it.
ORDER
31The Tribunal makes the following order and direction:
The Application against the respondent franchisor is dismissed.
Within two weeks of the date of this Interim Decision, the applicant shall send the Tribunal’s Registrar and the respondents a letter or an email, which confirms whether or not she intends to bring a motion in court to have the stay of the proceeding under the Code against the respondent franchisee lifted.
Dated at Toronto, this 10th day of June, 2016.
“signed by”
Ken Bhattacharjee
Vice-chair