A cleaner who had a franchise agreement with a cleaning company was an employee and not an independent contractor pursuant to Quebec’s Act Respecting Collective Agreement Decrees, the Supreme Court of Canada ruled today in a 6-3 decision.
“The relevant question in this appeal is whether Mr. Bourque assumed the business risk and corresponding ability to make a profit that would qualify him as an independent contractor,” Justice Rosalie Abella wrote, with Chief Justice Richard Wagner and justices Michael Moldaver, Andromache Karakatsanis, Clément Gascon and Sheilah Martin concurring.
“The presence of a franchise agreement cannot function to disguise the presence of a relationship between an ‘employee’ and ‘professional employer’ as those terms are defined in the Act [respecting collective agreement decrees],” the majority concluded.
Modern Cleaning Concept Inc. is a franchisor serving commercial, industrial and institutional customers in the Quebec City region. Francis Bourque was an independent contractor who had been operating his own cleaning business when he signed a franchise agreement with Modern in 2014. Bourque terminated the franchise agreement several months later, but he continued cleaning for the same customers, including one in the public sector, through his personal business.
The provision of cleaning services in public buildings located in the Quebec region are covered by a collective agreement, the Decree Respecting Building Service Employees In The Québec Region, which sets out minimum standards in the workplace and is governed by the Act Respecting Collective Agreement Decrees. The act makes the Comité paritaire de l’entretien d’édifices publics de la région de Québec responsible for overseeing compliance with this decree, and the committee accordingly brought an action claiming wages from the appellant on the grounds that Bourque and his spouse, who assisted him in his business, had been employees and not independent contractors of Modern.
Modern’s agreement was tripartite, between client, franchisee and franchisor. Modern would enter into an initial service contract with a customer with multiple locations to be cleaned, which contract would then be assigned, as to each location of the customer, to that specific franchisee whose area of service included such location. Under the franchise agreement, Bourque could owe up to 43 per cent of his revenues to Modern.
On appeal from Quebec’s superior court, the Court of Appeal of Quebec found that, despite the assignment of these service agreements to its franchisees, the franchisor remained wholly liable for the non-performance of the services under the contracts and, in doing so, assumed in practice all the business risk of the venture.
The majority of the Supreme Court agreed.
“In this case, the trial judge’s failure to consider the effect of the imperfect assignment of the cleaning contracts from Modern to Mr. Bourque caused him to err in his application of the Desjardins/Coger test,” Abella wrote.
“At all times, both the cleaning services contract and franchise agreement governed Modern’s business model. The effect of Modern’s business model was that it, notMr. Bourque, assumed the ‘risk and profit’ of the business. Because of its tripartite business model and ongoing liability to its clients, Modern placed extensive controls on Mr. Bourque to limit its own business risk. Mr. Bourque did not assume the business risk and therefore it cannot be said that he was an independent contractor.”
In dissenting reasons, Justice Suzanne Côté, also writing for justices Russell Brown and Malcolm Rowe, found that although the assignments of contract between Modern and Bourque were imperfect, that did not significantly affect the business risk assumed by Bourque, who the minority saw as having the ultimate liability to customers. Nor did the minority see Modern as being a “professional employer” pursuant to the act, as Modern did not have the degree of control and supervision over the work done to be characterized as such, it found.
The minority took the view that, “Ultimately, the franchisee is where the buck stops,” says Bruno Floriani, a partner in Lapointe Rosenstein Marchand Melançon, LLP in Montreal, who practises business law with a focus on franchise. “Even though the customer might first turn to the franchisor, the franchisor would turn to the franchisee if there was a problem, and the franchisee would have the ultimate liability for it,” which, for the minority, was sufficient to establish that the business risk really lay with the franchisee.
However, he says, “Both the Supreme Court and the [Quebec] Court of Appeal, interestingly, in their reasons, cite the same kind of factual occurrences that seem to have tipped the scale” in favour of the respondent. In one instance, a customer had complained about the quality of service done by Bourque, and the franchisor, which, receiving payment directly from the customer and then funnelled part of that to the franchisee, deducted a penalty from the franchisee without even talking to him about it.
“That’s one example,” says Floriani, that the majorities on the Supreme Court and the Quebec Court of Appeal cited as “the types of controls that went beyond what is normally controlled for the purposes of ensuring protection of the brand and of the network.”
Across Canada, most franchise agreements are not structured in the tripartite fashion that Modern’s was, says Floriani, noting that the majority had deemed the case highly fact-specific. However, in certain industries in which the franchisor is the one point of contact for the customer, “and franchisees are quasi-independent workers performing services in different locations . . . this is a significant warning call to pay careful attention to the degree of controls that franchisors exercise in the franchisee’s performance of their contract.”