Supreme Court of Canada examines employee vs. independent contractor distinction

In the recent decision of Modern Cleaning Concept Inc. v Comité paritaire de l’entretien d’édifices publics de la région de Québec, a majority of the Supreme Court upheld the Quebec Court of Appeal’s decision in determining that, based on the totality of the relationship between the parties, the franchisee at issue was an employee. Modern Cleaning Concept Inc. (Modern), a cleaning company operating in Quebec, provides services to its clients through its franchisees, of which Francis Bourque was one. Mr. Bourque’s interests were represented in the litigation by Comité paritaire de l’entretien d’édifices publics de la région de Québec (Comité), an organization that oversees compliance and enforcement of the Decree respecting building service employees in the Québec region (Decree), and, by extension, the Act respecting collective agreement decrees (Act). The Decree and the Act provide various protections to employees, such as the payment of minimum wage. Pursuant to an investigation, in 2014 Comité found that Mr. Bourque was an employee of Modern and subsequently commenced litigation for Mr. Bourque’s unpaid wages. Modern, however, argued that Mr. Bourque was an independent contractor.

The court of first instance determined that Mr. Bourque was an independent contractor. The Court of Appeal overturned the trial court’s decision, with a majority of the Supreme Court upholding the appellate court’s ruling. In finding that Mr. Bourque’s status as a franchisee was not a determinative factor, the Supreme Court stressed that the emphasis in an employment relationship analysis must be on the nature of the relationship between the parties, regardless of the terms and labels used in an agreement. Agreeing with the Court of Appeal, the Supreme Court stated that Modern’s business structure as a whole must be analyzed to determine who assumed the business risk and associated possibility of making a profit. In this scenario, the court found that Mr. Bourque never assumed the business risk in the relationship; rather, his assumed risks were related to working conditions. Moreover, the court found that the nature of the relationship between Modern and Mr. Bourque limited Mr. Bourque’s ability to organize his business and, ultimately, limited his revenue generating potential. On these grounds, the court found that Mr. Bourque was, indeed, an employee.

Businesses across many industries are utilizing contractors more now than ever before. However, this ruling should provide caution that, despite labels or words contained in a contract, an individual’s employment relationship will be assessed by the courts by examining the totality of the relationship between the parties. Outside of this specific case in Quebec, employers may have a variety of legal obligations to employees that do not extend to independent contractors. Complicating the issue is the additional classification of dependent contractors, wherein workers have characteristics and associated rights of both employees and independent contractors. As such, the distinction between the three worker classifications is extremely important for employers to understand and appreciate. Employment practices liability (EPL) insurance provides financial protection to employers from claims brought by past, present and prospective employees regarding employment policies, practices or conditions. EPL policies with the broadest wording will trigger should an independent or dependent contractor sue their employer for a covered peril under the policy; however, some policies impose the qualification that contractors must be indemnified in the same manner as other employees in order for the employer to benefit from coverage. Moreover, many policies still only reference independent contractors specifically, leaving ambiguity as to whether lawsuits brought by dependent contractors would trigger the policy. Coverage for claims involving contractors is far from standard in the EPL insurance marketplace, and insureds should consult with their broker to understand the limits of their coverage should their workforce include either independent or dependent contractors.