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In a recent decision, Modern Cleaning Concept Inc. v. Comité paritaire de l’entretien d’édifices publics de la région de Québec, the majority of the Supreme Court of Canada (“SCC”) held that a cleaner who had a franchise agreement with a cleaning company was actually an employee, not an independent contractor. This “employee” determination, however, was in the context of a very particular legislative regime, which applied to the specific franchise relationship. Since the cleaner offered his cleaning services in public buildings, he was covered by a collective agreement, the Decree respecting building service employees in the Quebec region (“Decree”), which sets out minimum standards in the workplace (wages, hours of work, overtime, etc.) and is governed by the Act respecting collective agreement decrees (“Act”). With the scope of its provisions being “public order”, the Decree can apply to any contract where an individual is in a relationship determined to be that of “employee” within the meaning of the Act.

Key Takeaways

Franchisors should take note that the courts will always look beyond what is written in an agreement to ascertain the true nature of the relationship between franchisee and franchisor. However, this decision must be assessed in context: it was statute-specific and fact-specific, and revolved largely around a “triparty” contractual business relationship between client, franchisor and franchisee, which is not the norm in Canada. Additionally, given that the Decree was applicable to this case, the statutory definition of “employee” was broader than that set out in civil or common law. That said, franchisors should assess the particular circumstances of their relationship with franchisees and customers or clients to ensure that all possible steps are taken to avoid a similar determination.

The Facts and Appeal History

In 2014, Mr. Bourque entered into a franchise agreement with Modern. Under Modern’s business model, it negotiates a master cleaning contract with its clients, which permits assignment of the performance of cleaning services to a franchisee, such as Mr. Bourque, but ultimately holds Modern responsible for the quality and performance of services. The business relationship was thus tripartite: the client requests cleaning services, Modern guarantees the quality and provision of services, and Mr. Bourque performs the services.

After approximately five months of working with Modern, Mr. Bourque terminated the franchise agreement due to his frustration at his lack of profits and inability to develop his business. After the franchise agreement was terminated, the Committee responsible for overseeing the Act investigated the relationship between Mr. Bourque and Modern. The Committee subsequently commenced proceedings against Modern for unpaid wages and other benefits, which the Committee claimed Mr. Bourque was entitled to.

The trial judge found that Mr. Bourque was an independent contractor and was therefore not entitled to the amounts claimed by the Committee. However, the Quebec Court of Appeal overturned this decision, holding that Mr. Bourque was in fact an “employee” within the meaning of the Act.

SCC Decision

The majority of the SCC upheld the Court of Appeal’s finding that the trial judge made a palpable and overriding error by failing to consider: 1) the nature of the “imperfect” assignment of the cleaning contracts from Modern to Mr. Bourque, and 2) the effect of this tripartite relationship. The majority found that the fact Modern remained contractually liable to clients for quality and performance of services meant that Modern, and not Mr. Bourque, ultimately bore the business risk (i.e. the risk of profit and loss).

The SCC also looked closely at the remedial purposes of the Act and its definition of “employee”. Since “employee” also included an artisan (who generally has more autonomy), the definition of employee under the Act was broader than under the Civil Code of Quebec.

Other factors that supported the finding that Mr. Bourque was an employee included: his inability to negotiate the terms of the franchise agreement, Modern’s ongoing supervision of his work, and the fact that Mr. Bourque’s clients paid Modern who then paid Mr. Bourque. Importantly, the SCC held that Mr. Bourque’s status as a franchisee was not determinative.

The Dissent

The dissenting members of the SCC held Mr. Bourque was in fact an independent contractor. In coming to this conclusion, the dissent noted the following:

  • The fact that the assignment of service contracts between Modern and Mr. Bourque was “imperfect” (i.e., that Modern still had some liability) did not significantly affect the business risk assumed by Mr. Bourque: it was sufficient that Mr. Bourque assumed a business risk, even though it was not “the” business risk in its entirety. As such, there was no palpable and overriding error warranting interference with the trial judge’s assessment of the evidence and analysis;
  • Mr. Bourque genuinely intended to “pursue a cleaning services business venture” and to “do business” with Modern; and
  • The franchise agreement included an indemnity clause to the effect that Modern could recover from Mr. Bourque and so the latter retained ultimate liability for breach of the service contracts.

– Many thanks to Shereen Aly for her assistance with this article.