Modern Cleaning Concept v Comité Paritaire: Franchisee, Employee or Both?
Can franchisees be legally considered employees of a franchisor? Prior to Modern Cleaning Concept v Comité Paritaire, 2019 SCC 28 [Modern Cleaning], we may have thought this possibility would be precluded by the business-to-business quality inherent to a franchise. However, in Modern Cleaning, the Supreme Court of Canada (“Court” or “SCC”) interprets Québec legislation to find a franchisee is also an employee of its franchisor and is accordingly protected by relevant employment standards.
Facts and Procedural History
Modern Cleaning concerned a cleaning franchisor called Modern Cleaning Concept (“Modern”) and one of its franchisees, Francis Bourque. Modern negotiated master agreements to provide cleaning services to businesses. It would then offer the contract with these businesses to one of its franchisees, who could purchase the contract.
Cleaning services in public buildings in Québec are subject to a collective agreement, the Decree respecting building service employees in the Québec region, CQLR, c D-2, r 16 [Decree]. The agreement sets out minimum standards of work, such as wages, hours of work, holidays, and overtime. The Decree is governed by the Act respecting collective agreement decrees, CQLR, c D-2 [Act]. Under the Act, the Comité paritaire de l’entretian d’édifices publics de la region de Québec (“Comité”) is responsible for overseeing compliance with the Decree (para 2).
Mr. Bourque initially operated his own cleaning business, which was subcontracted by Modern to clean an SAQ (para 9). Several months later, Mr. Bourque became a franchisee of Modern. However, after about 5 months of this relationship, Mr. Bourque became frustrated with the franchise model and the limitations it imposed on his business. He terminated the agreement (para 15). The Comité later investigated Mr. Bourque’s relationship with Modern and commenced an action against Modern claiming that Mr. Bourque was an employee, entitled to $9,219.32 in unpaid wages and other benefits (para 17).
The trial judge found Mr. Bourque to be an independent contractor, not an employee (2016 QCCQ 1789). The determining factor for the trial judge was Mr. Bourque’s intention, which was determined to be to expand his own cleaning business (para 19). The Court of Appeal found the trial judge made a palpable and overriding error by not considering the nature of the tripartite agreements between Modern, Mr. Bourque, and the cleaning clients (2017 QCCA 1237, para 21). They reversed the lower court judgment and ordered Modern to pay the full $9,219.32. The issue before the Court was whether the relationship between Modern and Mr. Bourque was, in fact, that of employer-employee under the Act.
What is an Employee under the Act?
The main clauses at issue in the Act were ss. 1(g) and 1(j), which define “professional employer” and “employee”, respectively. In particular, under section 1(j), an artisan is included in the scope of an employee. Both the majority and dissenting justices agreed that the inclusion of the word “artisan” indicated that “employee” has a broader definition under this Act than what might come from an employment contract (para 26).
In the legal precedents dealing with the definition of “employee” and, in particular, the inclusion of “artisan” within that definition, the Québec Court of Appeal has held that the usual analysis of the worker’s dependence on their claimed employer may not apply. Instead, the degree of business risk is most important, as well as the worker’s ability to profit. Secondary considerations include the ability to set working hours and the ability to determine methods and manner of payments (para 31). Whether or not there is an employment contract becomes less important in these cases, and the courts are instead to focus on the way the relationship functions in reality (para 37).
The majority and the dissenting judgments interpreted the precedents slightly differently. Both agreed that the question of business risk is not a comparative question. However, while the majority asked, “which party actually assumed the risk of the business” (para 36, emphasis added), the dissent asked simply whether the worker bore a business risk. So for the majority, the fact that one party assumed some risk was not fatal to the question of whether or not they were an employee at law. These different interpretations led the Court to different conclusions on the question of whether Mr. Bourque is an employee.
Was Mr. Bourque an Employee?
The six majority justices upheld the decision of the Court of Appeal and found that Modern was a professional employer and Mr. Bourque was its employee. The majority found that the trial judge made a palpable and overriding error in judgment by failing to consider the nature of the business model and, particularly, the relationship between the two parties and the cleaning client. Analysing the business model, the Court identified an “imperfect” contract assignment from Modern to Mr. Bourque, whereby Modern remained bound by the obligations to the cleaning client and thus maintained a direct relationship with the client (para 45). The majority found that this imperfect contract “placed the business risk squarely on Modern’s shoulders” (para 45).
Justice Abella, writing for the majority, reasoned that Modern assumed the real business risk of contractual non-performance, while Mr. Bourque was subject only to an indemnification clause. She further determined that Modern retained ultimate control over the cleaning contracts because, if the franchisee failed to perform, they could take the contract back and reassign it (para 48). She noted that Modern’s business was paid up to 43% of Mr. Bourque’s business revenues for assuming this risk: a significant reward (para 49).
Modern also significantly limited Mr. Bourque’s control over his business. He could not transfer his cleaning contracts to third parties, he did not ‘own’ the cleaning contracts, and he was subject to a non-competition clause. Additionally, Modern exercised ongoing supervision of Mr. Bourque’s work, and could enter his cleaning locations at any time. Finally, clients’ payments were made to Modern, who deducted franchising fees and loans before transferring the remainder to Mr. Bourque (paras 50-53). All of these factors supported Modern’s assumption of the business risk, since they retained control over these things in order to mitigate that risk.
In contrast, the dissenting justices found that the trial judge did not make a palpable and overriding error in judgment and that, even if the trial judge had considered the imperfect assignment of the cleaning contracts, Mr. Bourque was not an employee nor was Modern a professional employer. The dissent reasoned that an imperfect contract simply means there are two parties who take a business risk, and the fact of a second party bearing some risk does not detract from the first party’s business risk (para 108). In assessing Mr. Bourque’s business risk, they consider that he remained liable to clients under cleaning contracts; he sought out his own potential clients (even if he then had to purchase the resulting contracts from Modern); he could sell his franchise and hope for profit; he acquired necessary tools himself; he subcontracted certain tasks; and he planned to hire staff (para 114). From the dissent’s perspective, all of these things pointed to Mr. Bourque carrying some business risk, which was enough to exclude him from the definition of employee.
Was Modern a Professional Employer under the Act?
While the majority found that Mr. Bourque’s status as an employee substantiated Modern’s status as a professional employer, the dissent was resolved that an analysis of this question was still necessary. The dissenting justices was concerned that a person might be considered an employee under the Act, while the person who has hired them to do work would not be a professional employer, resulting in a one-sided employment relationship. For example, a hairdresser who works out of their own home may be considered an employee based on their work activities and relationship with their clients, but we would not want to then assume that their clients are a professional employer, subject to the Act. The dissenting justices directed that the relationship must at least resemble a relationship of subordination to establish a person or company as a professional employer (paras 123-127).
Looking again to the facts of this case, the dissenting justices saw the relationship between Mr. Bourque and Modern as a typical franchise relationship between two independent businesses. Modern’s supervision of Mr. Bourque’s activities was typical in a franchise agreement, such that Modern never controlled Mr. Bourque’s franchise. Mr. Bourque was free to do his work the way and time it suited him, he could subcontract work, and he could hire employees (paras 128-133). Further, Mr. Bourque did not economically depend on Modern, given that he was allowed to solicit new work, sell his franchise under certain conditions, and terminate his business relationship with Modern at any time to resume operating his cleaning business outside of the franchise agreement (para 136). Based on these facts, the dissenting justices found that Modern was not a professional employer.
Amidst growing concern for workers’ rights in the gig economy, this case represents a small relief. Although franchisees and gig workers are not technically the same, they bear similar characteristics. Franchisees pay an overarching corporation, the franchisor, to access their business model and offer their products or services to the public. Gig workers pay an online platform to access available short-term contracts to perform a service offered by the platform. Both are dependent on the overarching corporations for their income. In this case, the Court recognized that it is quite possible that relationships disguised as business-to-business relationships under a franchise agreement, or a similar agreement, may, by law, be an employment relationship.
On the other hand, the employment relationship in this case could be recognized because it fell within the jurisdiction of an Act with an unusually liberal interpretation of an employee, which included artisans. Further, the relationship was subject to the Decree, or a collective agreement that applied to all cleaning services provided to public buildings. The Decree was enacted in a different economic context in which collective agreements were becoming normalized and there was a greater public concern for workers’ rights. While in 1948, there were nearly 100 decrees in force under the umbrella of the Act, today only 15 remain (para 73). Fewer agreements suggest fewer direct applications of Modern Cleaning.
There are still numerous professions covered by the 15 remaining decrees, including hairdressing, automotive services, security services, cartage, metalwork, and building services. This decision has undoubtedly created a useful precedent for these workers, as even the dissenting justices conceded that there may be a franchise relationship that also constitutes an employment relationship. Outside of these professions in Québec, Modern Cleaning should serve as at least a warning for franchisors to ensure their relationships to franchisees cannot be construed as employment relationships under the relevant legislation. Small franchisees struggling under the thumb of a controlling franchisor may consider looking to the employment legislation in their jurisdiction for the possibility of claiming employee protections.