Franchising communities in Quebec and elsewhere in Canada have been eagerly awaiting a Supreme Court of Canada decision on whether an unincorporated franchisee operating a two-person cleaning services business in Quebec as part of a cleaning services franchise network qualified as an employee. While the court's ruling may be worrisome to franchisors in certain industries, there are several mitigating factors to consider.
The Supreme Court of Canada recently reiterated the fact that franchise agreements are relational contracts and are therefore subject to a heightened duty of good faith pursuant to Quebec civil law. This decision is in line with a series of recent Quebec civil law decisions that have broadly interpreted, and arguably extended, the duty of good faith owed by a franchisor to its franchisees.
It has become common practice to include alternative dispute resolution (ADR) provisions in franchise agreements. A recent decision by the Ontario Court of Appeal serves as a stark reminder to franchisors to ensure that ADR provisions contained in a franchise agreement are properly drafted so that the commencement of disputes thereunder triggers the running of the applicable limitation period.
The issue of whether a franchisee is an employee or an independent contractor has been debated on numerous occasions and was once again raised in a recent Quebec Court of Appeal decision. In its decision, the court emphasised that when analysing whether a franchisee qualifies as an employee or an independent contractor, the courts should look beyond the terms of the agreement between the parties. While this decision may worry certain franchisors, there are a number of mitigating factors to consider.
Franchise arrangements often involve a three-way relationship whereby franchisors enter into commercial leases with landlords and then sublease the rented premises to franchisees. Such leases often contain an exclusivity clause limiting the landlord's ability to lease nearby commercial space to competitors of the franchise network. The Superior Court of Quebec recently confirmed that exclusivity clauses must be interpreted and applied restrictively so as not to unduly interfere with the parties' freedom of contract.