Written by Avinash Pillay, 1L, Queens Faculty of Law
The COVID-19 outbreak has had a paralyzing effect on Canada’s economy, particularly in the areas of labour and employment. Prior to being declared a pandemic by the World Health Organization (WHO) on March 11, Canada’s national unemployment rate was an estimated 5.6%. That rate had soared to 13% by April as a result of COVID-19. Canada lost 1 million jobs in March and another 2 million in April. The need to litigate employment issues is paired to these statistics, as governments have expressed a concern that employees have been denied benefits, renumeration and various other necessities that they would have otherwise been provided. Many of the protections which have been paramount during the COVID-19 outbreak are inextricably linked to protections that arise as a result of one’s status as an employee. In a recent case, the Supreme Court of Canada provided some clarity on how courts differentiate between employees and independent contractors in the context of a franchise agreement.
Protective employment-related standards legislation in Canada grant employees various protections related to overtime, leaves, vacations, layoffs, wages, and termination, among other issues. Canadian governments have also indicated that employers are responsible for the health and safety of their workers, including during COVID-19, social distancing measures. In order to file a claim for these protections, the claimant must first establish that they qualify as an “employee” under the legislation. Although this distinction may appear intuitive, it has been a topic of considerable confusion in Canadian jurisprudence. The question of whether a worker is an employee or an independent contractor has deep roots but has attracted considerable renewed attention in recent years with the increased “fissurization” of work relations, including the rise of the “platform” economy and the growth in franchising. Companies intent on avoiding employment-related responsibilities have attempted to draft contracts that shield them from employment status exclude them from liability. With the rise of COVID-19, the question of whether someone is an “employee” takes on added importance as the distribution of risk and responsibility to implement safety measures may turn on the distinction.
In July 2019, the Supreme Court of Canada released a landmark decision on the case of Modern Cleaning Concepts v Comité paritaire de l’entretien d’édifices publics se la region de Quebec. The central issue of this case was how courts should differentiate between an employer and an independent contractor. Modern Cleaning Concepts (“Modern”) provides office cleaning services to Quebec businesses through the use of smaller cleaning agents who are contracted and dispatched to clients through a franchise agreement. Francis Bourque was a small-time cleaning business owner who became a franchisee in 2014. The agreement between Modern and its franchisees provided that:
- Bourque has complete control over his operations, meaning that he is liable for all risks and Modern is in no way a guarantor of profitability.
- Modern would assign Bourque all of his cleaning contracts.
- Bourque is defined as an “independent contractor”
- Modern has indemnity from all lawsuits related to the franchise agreement
- Modern does not need to give Bourque advanced notice of his cleaning contracts being cancelled
- Bourque’s services will be exclusive to his work with Modern
- Bourque will not compete with Modern in any way
- Bourque must use his own equipment to conduct the cleaning
- Bourque must identify himself as a member of Modern at all times
- He must report and client complaints to the franchisor
- If Modern deems that any of Bourque’s employee’s need to be terminated, this must occur
- Modern can perform quality control checks without notice
- Any new business opportunity that presents itself must be reported so that Modern can negotiate and assign contractors as they please
- Bourque’s name will be on all billing to clients
- Modern will pay Bourque through direct deposit, and will take a fee of up to 43%
An interesting aspect of the case for the rest of Canada is that Modern Cleaning was covered by a a “decree” (Decree respecting building service employees in the Quebec region) pursuant to Quebec’s unique “Decree” model (see Act respecting collective agreement decrees). The “decree” extends a collective agreement to cover all building service companies and their “employees”. Therefore, the issue in the case was whether Bourque was an “employee” and therefore covered by the decree. Modern Cleaning argued that Bourque, as a franchisee, was not its employee.
After being contracted to clean a government office and four bank branches, Bourque terminated his agreement over a lack of profits and flexibility. Bourque believed that Modern’s franchise agreement was so restrictive that he was essentially their employee despite the clear wording in clause 3. As an employee, he would be entitled to the aforementioned benefits that he was being denied. At trial, it was held that Bourque was not an employee due to his motive of expanding his own business and the clear wording of the contract. The Quebec Court of Appeal overturned this decision, holding that Bourque was an employee of Modern. At the Supreme Court of Canada, this decision was upheld.
In their analysis, the Supreme Court indicated that the definitions of employer and employee require a large and liberal interpretation since The Decree’s purpose is remedial in nature. The SCC affirmed that simply using the term “contractor” is not dispositive of Bourque actually being one. It was reasoned that what truly matters when making this distinction is the contracts substance, not form. To determine if someone is an employee or a contractor, a court must conduct a fact-specific inquiry that pays careful attention to the meaning and context of the agreement. The factor which is of primary concern is who bears the risk and ability to make profit. It was held that if the worker bears the brunt of the risk and in return reaps increased profits, they are an independent contractor. It is natural for workers to have some degree of risk in their work, but this is not equal to “business risk” as defined by the SCC. Modern’s agreement was classified as a “Tripartite Business Arrangement”. The two types of assignments available in Quebec are a “perfect assignment” (the assignor releases all obligations and the assignee is bound to the client) and an “imperfect assignment” where the assignor does not release their obligations. The fact that Modern uses a Tripartite Business Arrangement paired with an imperfect assignment indicates that Bourque is an employee rather than a contractor. The payments Modern made to him were more in line with a salary than personal business revenue.
The takeaway message from Modern Cleaning Concepts is that workers should not be discouraged from fighting for their rights merely because their employment contract lists them as a “contractor”. Rather, workers should pay attention to who bears the risk and reward of the work to determine if they are in fact an employee. If a worker operating as a franchisee feels that a franchisor has locked them into an agreement that restricts them from conducting business and earning profits, there is a chance that they are protected under employment standards legislation. Having access to legal protections designed to protect employees is especially important for workers today, many of whom are facing potentially life and death decisions each day they report to work during the COVID19 pandemic.
Avinash Pillay, “Supreme Court of Canada on Employment Status, Franchising, and the Quebec Decree Model” (May 13 2020): http://lawofwork.ca/?p=12491