Just because you call yourself a contractor, or you treat your worker as one, does not make it so. As one of my Canadian HR Law blog posts discusses, even if both parties choose to define the relationship as one that is independent, our courts, tribunals and government agencies will look beyond the contract or label and assess the reality of the circumstances. Ultimately, the question to be answered is whether the worker is in business for themselves (a contractor), or is a part of the organization (an employee). Too many “contractors” are really employees in all but name; organizations that choose to treat employees as contractors unwittingly expose themselves to liability for damages, fines and penalties.
Many individuals want to be treated as contractors because of the perceived tax benefits. Unfortunately, many organizations go along with this, seeing potential savings with respect to items such as employment insurance premiums and Canada Pension Plan premiums, but failing to consider the potential risks and liabilities. And, in many cases, individuals that are quite happy to be treated as contractors change their views when they discover that they do not have all of the protections that employees receive, particularly the right to significant notice of dismissal or severance pay. It is not unusual for a contractor that has been “let go” to file a wrongful dismissal claim and allege that they were truly an employee.
The most recent case law on this point comes from the Ontario Labour Relations Board in the case of 8959757 Canada Inc. v. Jane. This was an application under section 116 of the Employment Standards Act, 2000 pursuant to which the employer, which operates as New Jenny Nail & Spa (”New Jenny”), sought review of an Order to Pay $1,109.84 on account of failure to pay the minimum wage rate for all hours worked, public holiday pay and vacation pay. Jenny Nail argued that Coa was an independent contractor.
Typically, workers that are treated as “contractors” can become disenchanted when they realize that they are not entitled to statutory holidays, vacation, overtime pay, or other benefits that employees are. In this case, due to the nature of the work, the individual found that she was actually being paid less than the prevailing minimum wage, and filed a claim pursuant to employment standards legislation. The initial decision upheld the claim, and this finding was confirmed on appeal.
According to the decision of the Vice-Chair, the relevant facts included the following:
- Coa worked at New Jenny from April 11, 2015 to May 19, 2015 performing manicure and pedicure services;
- She was paid 50% of her gross sales;
- New Jenny set the prices that Coa charged the customers;
- New Jenny was open for business from 10:00 a.m. to 7:00 p.m. each day;
- There was some dispute regarding Coa’s hours of work, with Coa testifying that t she worked 5 days a week with from 10:00 a.m. until 7:00 p.m. while New Jenny submitted that Coa often did not start until 10:30 a.m. and frequently left before 7:00 p.m.;
- Clients would book appointments in advance with New Jenny, or in some instances, simply walk in;
- Coa did not have any clients of her own;
- Coa performed her work on the premises of New Jenny using a table and chair supplied by New Jenny;
- New Jenny supplied some chemicals and nail polish;
- Coa supplied certain tools including nail clippers and a nail pusher;
- New Jenny provided a uniform although Coa did not always wear it;
- Coa had a key to the premises
Historically, several different tests have been used in order to distinguish contractors from employees. To add to the confusion, recently, a third category of “Dependent Contractors” has been recognized.
The Vice-Chair provided a useful review of this area of law, which can be quite complex. He quoted from the Ontario Labour Relations Board decision in Warren v. 2006515 Ontario Inc.:
37. The test to be applied in determining whether an individual is an employee or an independent contractor at common law was recently reviewed by the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.,  2 S.C.R. 983 … The Court noted the difficulties that have emerged from the application of each of these tests. Of note, with respect to the “organization test”, the Court referred favourably to the following statement by MacGuigan J.A. in Wiebe Door Services Ltd. v. M.N.R.:
…We must keep in mind that it was with respect to the business of the employee that Lord Wright [in Montreal v. Montreal Locomotive Works Ltd.,  1 D.L.R. 161] addressed the question “Whose business is it?” [Emphasis added]
38. The Court concluded (at paragraph 46) that: “there is no conclusive test which can be universally applied to determine whether a person is an employee or an independent contractor”. The Court continued, however, as follows:
para. 47 Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra [Market Investigations Ltd. v. Minister of Social Security,  3 All E.R. 732]. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks. [Emphasis added]
39. …The intention of the parties is relevant only to the extent that it is reflected in the actual arrangements they have made with each other in structuring their relationship. Put another way, the parties cannot by their “agreement” render the relationship of an employee an independent contractor or vice versa:
Ultimately, the Board found that Coa was an employee of New Jenny, referencing that
New Jenny was responsible for determining the working conditions and financial benefits under which Coa performed her work. New Jenny supplied the premises and much of the equipment used by Coa. It supplied the work through the booking of appointments. Coa had no independent source of work. New Jenny determined what Coa would be paid and the hours that she worked. There is no question that Coa was in a position of dependence on New Jenny.
In some cases, we have seen individuals that have
- A title on the organization chart
- An office within the corporate building
- An assistant
- A corporate email address
- A parking spot, and
- A corporate phone and laptop
Some either manage teams of employees, or are managed and subject to performance reviews. In some cases, they are listed on the corporate website as a member of the “Team”. To suggest that they are in business for themselves and not integrated into the organization is preposterous.
As we often advise our clients, it is a mistake to treat an employee as a contractor. Sometimes, organizations justify this approach by saying they want to limit their severance obligations. This can be achieved through employment agreements. Of course, some workers are truly independent and should be treated as such. But as a wise man once said,
If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.
Don’t try to dress your ducks up as sheep and hope that courts, tribunals, or the Canada Revenue Agency will be fooled. The bottom line is that there is little or no benefit for organizations who treat workers as contractors when they are not, but lots of risk. Proactive employers should also contact one of our lawyers for advice when about to embark upon such an endeavour, as are any individuals looking to enter into a contractor arrangement.