On May 3, 2019, the Supreme Court of Canada (“SCC”) confirmed that the test is substance over form in determining whether an individual is an employee or independent contractor.
In Modern Cleaning Concept Inc. v. Comité paritaire de l’entretien d’édifices publics de la région de Québec, Francis Bourque entered into a franchise agreement with Modern Cleaning Concept Inc. (“Modern”) that involved assigned cleaning contracts. Modern had approximately 450 franchises and negotiated master cleaning contracts directly with its clients. It assigned cleaning contracts to its franchisees to perform the cleaning services. Mr. Bourque was identified as an “independent contractor” in his franchise agreement with Modern who has “complete control over the management of his operations, which involves a business risk as in any other business”. On the other hand, Mr. Bourque had to perform his services exclusively through the franchise relationship, could not compete with Modern, was paid directly by Modern, had to report complaints immediately to Modern, had to fire employees if Modern requested, had to immediately report new cleaning opportunities and Modern could perform quality control checks on Mr. Bourque’s work at any time without warning. After becoming frustrated that he could not earn significant profits and build the business in the manner he envisioned, Mr. Bourque ended his franchise contract with Modern.
The SCC identified the following two key factors in its determination of whether Mr. Bourque was an employee or independent contractor:
- Degree of risk; and
- Ability to make a profit.
The SCC confirmed that there will be a highly contextual and fact specific inquiry into the nature of the relationship in order to determine which party bears the business risk. In this case, this included considering Modern’s contracts with its client as well as its relationship with franchisees such as Mr. Bourque. After assessing the relationships, it was clear that Modern bore the risk and corresponding ability to earn profit and Mr. Bourque was found to be an employee despite the language in the franchise agreement.
This should not be read as a warning to only franchisors or employers in Quebec, but as a reminder for all Canadian employers that Courts will look beyond the contract and focus on facts that point to which party bears the risk and corresponding ability to earn profit, and who truly controls the individual’s work. Accordingly, we recommend employers should
(1) properly identify the status of their workers based on a genuine evaluation of which party bears the risk and has the greatest ability to profit;
(2) in the case of independent contractors, avoid attempting to impose control over the contractor; and
(3) train management on the distinction between employees and contractors.