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Author: Anthony Pugh, Law Works P.C.
Editor: Ben Hanuka, Law Works P.C.
In Modern Cleaning Concept Inc. v. Comité paritaire de l’entretien d’édifices publics de la région de Québec, a decision released on May 3, 2019, a 6-3 majority of the Supreme Court of Canada decided that a cleaning franchisee was also an employee for the purposes of Québec’s Act respecting collective agreement decrees (the “Act”) because the franchisor was the party who assumed the business risk.
The Decree respecting building service employees in the Québec region (the “Decree”), which is governed by the Act, provides for certain minimum standards for cleaners of public buildings, including wages. The Comité paritaire de l’entretien d’édifices publics de la region de Québec (the “Parity Committee”), a committee of employers and unions formed under the Decree, alleged that the franchisee cleaner, Francis Bourque, was an employee of Modern Cleaning Concept Inc. (“Modern”), and was owed $9,219.32 in unpaid wages.
Mr. Bourque was the owner of a cleaning business. In 2014, he signed a franchise agreement with Modern to provide cleaning services exclusively under its brand.
Under the franchise agreement, Modern was to acquire cleaning contracts with clients and assign some of these contracts to Mr. Bourque. Mr. Bourque agreed to perform cleaning services exclusively through the franchise agreement and not to compete with Modern’s franchise system. The agreement required Mr. Bourque to report any new cleaning opportunities to Modern so that Modern could negotiate the terms of the contract.
If a customer made a complaint, Mr. Bourque was required to report it to Modern. He was also required to terminate any of his employees that Modern or a client deemed unacceptable. Mr. Bourque himself had very limited interaction with clients.
Modern billed clients for the cleaning services in Mr. Bourque’s name. It then paid to Mr. Bourque a direct deposit, after deducting various franchise fees, which could be up to 43% of revenue.
After about five months, Mr. Bourque terminated the franchise agreement because he was not generating a profit and could not develop his business to his satisfaction. After termination, the Parity Committee investigated the franchise relationship. It concluded that Bourque was an employee of Modern under the Act and was entitled to certain unpaid wages under the Decree. The Parity Committee started proceedings for those unpaid wages.
The trial judge concluded that Mr. Bourque was an independent contractor and was not owed any unpaid wages. The Court of Appeal of Québec allowed the appeal, holding that the trial judge committed a palpable and overriding error by failing to consider the tripartite nature of the contractual relationship between Modern, Mr. Bourque, and the client. It concluded that Mr. Bourque was an artisan under the Act, a type of employee, because Modern imperfectly assigned contracts to Mr. Bourque, remained contractually liable to clients and assumed the business risk and the attendant chance of profit.
Artisans are employees under the Act
The Act defines employees as “any apprentice, unskilled labourer or workman, skilled workman, journeyman, artisan, clerk or employee, working individually or in a crew or in partnership” (emphasis added). The Supreme Court held that this was a broader definition than the definition of employee in the Civil Code of Québec, and was inclusive of some individuals who may be independent contractors under tax or other law.
The Supreme Court followed the Court of Appeal of Québec’s reasoning, as well as previous decisions by that court, deciding that the primary difference between an artisan and an independent contractor under the Act is who has the business risk, and, flowing from that, who has the chance to make a profit. Independent contractors accept the business risk and have the chance of making profit, whereas artisans do not.
Perfect and imperfect assignments
There is a distinction between perfect and imperfect assignments in Québec law. In a perfect assignment, the assignor transfers all its rights and obligations to an assignee, and is released from the assigned contract. In an imperfect assignment, the assignor has continuing obligations under the contract.
In this situation, the clients agreed to the assignment of services to Mr. Bourque but did not consent to releasing Modern from the contract. The client retained two parties that it could pursue for performance of the cleaning services: Modern and Mr. Bourque. The majority of the Supreme Court therefore held that Modern imperfectly assigned the cleaning contracts to Mr. Bourque. This is different from most franchise relationships, where the franchisee contracts directly with the client.
Mr. Bourque was an artisan because he did not assume the business risk
The Supreme Court took Modern’s business structure as a whole in considering whether Modern or Mr. Bourque assumed the business risk and the prospect of making a profit. The majority agreed with the Court of Appeal that the business relationship was tripartite in nature. Modern contracted both with the client and Mr. Bourque. Mr. Bourque purchased the cleaning contract from Modern and agreed to perform the work in accordance with terms agreed to by Modern. Modern guaranteed the quality and provision of services.
The dissent held that Mr. Bourque held the business risk because he had the ultimate liability to clients through an indemnity in the franchise agreement, and that, in any event, Modern was not a professional employer as defined by the Act. The dissent would have allowed the appeal and restored the trial judge’s decision in favour of Modern.
According to the majority, the risk that Mr. Bourque assumed was limited and was not equivalent to the business risk. From the client’s perspective, Modern assumed the liability. Modern’s ongoing liability to a client explained the significant controls that it placed on Mr. Bourque in an attempt to limit these risks, including ongoing supervision and control over payment. Mr. Bourque received something similar to a salary from Modern, rather than business revenue. Modern was rewarded for assuming the business risk through up to 43% of the revenues.
Modern argued that the franchise agreement merely set out terms required for it to comply with its obligations as franchisor to enhance the brand and support franchisees. However, the majority held that this did not answer the question of who assumed the business risk.
Because it held that Modern assumed the business risk, the majority determined that Mr. Bourque was an artisan. It, therefore, upheld the decision of the Court of Appeal in favour of the Parity Committee in finding that Mr. Bourque was an employee under the Act. Mr. Bourque was therefore owed the $9,219.32 in unpaid wages.
***Tags : Franchise System, Termination, Damages
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