An important judgment handed down on August 18 by the Quebec Court of Appeal in Comité paritaire de l'entretien d'édifices publics de la région de Québec v. Modern Concept d'entretien inc.(which you can read by click here) brings back to the forefront a question that affects all franchisors offering micro-franchises or franchises in which only one or a few people work, i.e. the franchisee himself and, sometimes, a few of his close relations(his wife, child, etc.): Is the franchisee really, legally and fiscally, an independent contractor, or is there a risk that he or she will be qualified as an employee of the franchisor?
Although this judgment primarily concerns the application to a franchisee of Modern Concept d'entretien inc. of a decree adopted under the Act respecting collective agreement decrees (which somewhat broadens the notion of "employee" to include "artisans".), some of the comments made by the majority of the Court of Appeal may well apply in a number of other situations, most notably for micro-franchises or service franchises in which the franchisee has no, or very few, employees.
The franchisor in this case, Modern Concept d'entretien inc. operates a network of commercial building maintenance franchises.
This franchisor himself signed the maintenance contracts with the customers concerned (for example, banks and operators of commercial premises), and subsequently assigned each contract to one of its franchisees for execution.
However, the assignment of each maintenance contract provided that, at least with respect to the customer, Modern Concept d'entretien inc. remained responsible for compliance with the contract originally entered into with its customer, and also included clauses allowing Modern Concept d'entretien inc. to take over the contract, and then reassign it to another franchisee, if the franchisee failed to meet its obligations under the contract with the customer or, alternatively, under its franchise agreement with Modern Concept d'entretien inc.
Obviously, and in particular because of its responsibility to the customer, Modern Concept d'entretien inc. reserved for itself, through the franchise agreement, a certain number of means of controlling its franchisee's compliance with its obligations to the customer and to Modern Concept d'entretien inc.
It was against this backdrop that the Comité paritaire de l'entretien d'édifices publics de la région de Québec instituted proceedings against Modern Concept d'entretien inc. to claim the sums provided for in the Décret sur le personnel d'entretien d'édifices publics de la région de Québec claiming that the franchisee of Modern Concept d'entretien inc. was not really an independent contractor, but rather an employee within the meaning of the Act respecting collective agreement decrees.
At first instance, this action was dismissed by the Court of Quebec on March 10, 2016, the judge having concluded that the Modern Concept d'entretien inc. franchisee was indeed an independent contractor, and not an employee.
However, the Comité paritaire de l'entretien d'édifices publics de la région de Québec sought, and obtained, permission from the Quebec Court of Appeal to appeal this judgment, hence the decision handed down by that court on August 18.
In a lengthy 48-page judgment, by a majority of two judges to one, the Quebec Court of Appeal overturned the Court of Quebec's ruling and concluded, after a complete review of all the contractual relationships between each customer, Modern Concept d'entretien inc. and Modern Concept d'entretien inc.'s franchisee, that the latter (the franchisee) was not an "independent independent contractor "but rather an "employee "within the meaning of the Collective Agreement Decrees Act.
Although, as I wrote above, this judgment primarily concerns the application of a decree adopted pursuant to the Act respecting collective agreement decrees which somewhat broadens the notion of "employee". employee "to include artisans "The Court of Appeal made the following comments, which could equally well apply to franchise networks not governed by this law:
"133] Certainly, says the appellant, Mr. Bourque assumed risks, but he did not have the necessary tools to develop his business with a view to generating a profit. The appellant maintains, for example, that the franchisee and his spouse "did not own the housekeeping contracts [because] they remained the property of the respondent". Furthermore, Mr. Bourque had no control over his expenses, was subject to direct supervision by the respondent-franchisor in the performance of his duties, and was not free to take on new contracts without her permission. [...]
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[170] This business model, which differs from traditional franchising, is not unique to Modern Concept or to the Quebec market. In the United States, for example, in "janitorial services franchises", like the contractual scaffolding at the heart of the dispute here, the question arises as to whether the business relationship with the principal changes the franchisee's status vis-à-vis the franchisor. More specifically, and although the question is controversial, the qualification of maintenance franchisees as independent contractors may be defeated if the control exercised by the franchisor exceeds, economically and legally, what is necessary simply to ensure the protection of the franchisee network. Of course, each factual context and legislative environment has its own particularities, but it should be noted that elsewhere in Canada, this tripartite business relationship where the maintenance franchisor contracts directly with the client calls for caution in qualifying the franchisee's status as an independent contractor.
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[199] It goes without saying that if Mr. Bourque were an independent entrepreneur in the full sense of the term, with genuine powers to organize his business with the aim of making a profit, he would be free to retrocede the maintenance contracts without hindrance. However, the respondent-franchisor cannot allow Mr. Bourque this latitude, since, due to the imperfect assignment, the respondent-franchisor would remain liable to the client for the performance of the maintenance contract after any retrocession. What's more, the respondent-franchisor risks "losing the customer" if the new purchaser is not bound by the franchise contract.
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[202] What's more, the imperfect assignment of maintenance contracts, as used in this case, enables the franchisor to exercise sustained control over its franchisee's activities, a control that goes beyond what is usually seen in a franchise agreement where the franchisor is not, as here, directly liable to the customer for the franchisee's non-performance of the contract. The aim is to limit the franchisee's freedom of movement - and thus his organization to make a profit as he sees fit - so as not to jeopardize the relationship between franchisor and client, a relationship that endures despite contract assignments.
[203] The franchise agreement severely limited Mr. Bourque's ability to do his own bookkeeping. According to articles 7.3 and 7.3.1, as well as the related administrative agreement, administrative matters were the responsibility of the respondent-franchisor. While it is true that the franchisee accepted this approach when he signed the membership contract, he nevertheless loses effective control over the management of his business when he deals with the franchisor.
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[212] In the circumstances, it cannot be said, in the words of Jacques J. in Desjardins, that Mr. Bourque's business was organized for profit. Taking into account the acceptance and remuneration of the business risk divided, according to the tripartite business model, between the franchisee, the franchisor and the client, Mr. Bourque was not an independent contractor, but an artisan included in the definition of "employee". [...]
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[217] In order to manage its own risk, the respondent equipped itself with control tools in its dealings with Mr. Bourque, which deprived him of any real chance to organize his business with a view to making a profit.
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[255] In short, although the text of the contract uses terminology that might indicate that Mr. Bourque was an independent contractor who worked at his own risk, the mechanism set up by the respondent, through its standard franchise agreement, rather reflects a desire to treat Mr. Bourque, at the time, as a "craftsman", and therefore as an "employee" within the meaning of the public order provisions of the Act."
This judgment therefore highlights two essential criteria (but not the only ones) that distinguish an "independent independent contractor "from an employee "(i) the fact that an "independent independent contractor "assumes a business risk " (going beyond the risk associated with the performance of his work), and (ii) the fact that an independent contractor has an organization that enables him to make a profit from his business (which also goes beyond the mere remuneration for his work).
Other criteria used in legislation and case law include (i) ownership by the independent contractor of the equipment and tools of his business, and (ii) the absence of direct and immediate control by a third party (the employer) over the performance of his work (for example, over working days and hours).
It is also important to note that simply asking a franchisee to incorporate is not enough, on its own, to protect the franchisor from an allegation that the franchisee is an "employee" of the franchisor. employee ". On the other hand, the fact that the franchisee's company itself has some "real real employees makes it difficult to allege that the franchisee is an "employee". employee "since, by the very nature of his role as a performer, an " employee "generally has no employees of his own.
For franchisors of micro-franchises or networks in which each franchisee personally performs all or most of the work, it is important to obtain adequate advice and guidance to avoid the risk that, at one time or another, their franchisees may be, by decision of a government authority (such as CNESST or a revenue agency) or a court of law, to be classified as "employees" of a company. employees "or "salaried "The consequences for the franchisor and its franchisees can be far-reaching, especially if the qualification is made several years later.
