Supreme Court Rules Franchisee is an Employee

Last week, the Supreme Court of Canada upheld a lower court’s ruling that despite the existence of a franchise agreement stipulating that the franchisee was an independent contractor, the franchisee was entitled to wages and benefits as an employee of the franchisor.

Facts

 Modern Cleaning Concept Inc. provides cleaning and maintenance services in the Quebec region through a network of franchises. It negotiates a master cleaning contract with its clients and assigns the contract for specific locations to its franchisees.

Francis Bourque owned and operated his own part-time cleaning business and entered into a franchise agreement with Modern on January 1, 2014. He terminated the franchise agreement himself after 5 months.

After the termination of the contract, the Comité Paritaire de l’entretien d’edifices publics de la region de Quebec investigated and found Mr. Bourque to be an employee and therefore entitled to be paid the mandatory wages and benefits. It started proceedings against Modern for unpaid wages and other benefits in relation to the cleaning services provided by Mr. Bourque.

Prior Proceedings

At the Court of Quebec, the trial judge found that Mr. Bourque’s intention had been to enter into the franchise agreement as an independent contractor in order to expand his business. Relying on the language of the franchise agreement he held that Mr. Bourque was not an employee.

The Quebec Court of Appeal allowed the appeal. The majority held that the trial judge misapprehended the tripartite contractual relationship between Modern, its clients and its franchisee, Mr. Bourque.

Judgment

Justice Abella, writing for the majority, agreed with the Quebec Court of Appeal. The existence of the franchise agreement and the stipulation within it that Mr. Bourque was an “independent contractor” is not determinative. The analysis requires the judge to look at the true nature of the relationship between the parties. If the franchisee did not assume the business risk and had no meaningful opportunity to make a profit, he or she is an employee.

In this case, Justice Abella held that Mr. Bourque was an employee because of the following:

• The business relationship was tripartite: the client requesting cleaning services, the franchisor Modern who guarantees the quality and provision of services, and the franchisee who actually performs them;

• Modern remained liable to its clients if the cleaning services were not delivered in accordance with the contract between Modern and its client;

• Modern placed extensive controls on Mr. Bourque’s ability to organize his own business and could pre-emptively recognize non-performance and assign the contract to another franchise;

• Mr. Bourque was not free to transfer the contracts by sale or assignment;

• Mr. Bourque was bound by a non-competition clause that prevented him from seeking and obtaining his own cleaning contracts.

Justice Abella dismissed the appeal and Modern was ordered to pay Mr. Bourque $9,219.32 in unpaid wages and benefits.

Takeaways

Courts continue to be willing to look beyond the language of contractual agreements to determine the true nature of the relationship between the parties in determining whether an independent contractor is an employee.

Companies need to be cognizant of the above and avoid boilerplate independent contract agreements that are not responsive to the facts of the situation.

In some cases, despite the intention of the parties to enter into an independent contractor agreement, companies may still be required to pay wages and benefits to contractors if the contractor is not assuming the business risk and/or does not have meaningful opportunity to make a profit.

If you require more information or have questions relating to any of the above, please contact Toronto employment lawyers at Sultan Lawyers by telephone at 416-214-5111, by here, or by filling out the form below.