If it looks like an employee, talks like an employee and acts like an employee… guess what? It’s probably an employee! How to classify a worker – Independent Contractor vs. Employee – is one of the most complex and challenging issues in today’s workplace. If you are one of our clients who has dealt with this issue, you no doubt have heard our notorious example of the plumber contacted for a service call. Mr. Plumber comes to your house equipped with his own tools, his own clothing, at a time that is most convenient for him. Following his visit, Mr. Plumber also provides you with his own invoice outlining his fee for the services he has provided. You do not control Mr. Plumber’s working schedule, nor are you his only client. Would you consider Mr. Plumber to be your employee? Doubtful. Based on the evidence, it seems Mr. Plumber is an Independent Contractor.
Last week, the Toronto Star published an article about a man named Haidar Omarali, who spent a year and a half working as an “Independent Contractor” for Just Energy, a multi-million-dollar utilities retailer. Despite receiving a pre-written script dictating what to say to customers, wearing company branded clothing, and having been trained, supervised and disciplined by Just Energy, the company failed to classify Omarali as an “employee”. The result? Omarali and his lawyers are pursuing a class action lawsuit against Just Energy on behalf of approximately 7,000 sales agents that are in the same boat.
Although the outcome of the case is yet to be decided, it is a good reminder for Employers to turn their attention to their respective workplace and review the makeup of its workforce. Specifically, how are individuals being classified? Remember – any misclassification may raise potential, serious legal consequences.
The Potential Costs
In Braiden v. La-Z-Boy Canada Ltd., a former employee of La-Z-Boy Canada Limited was awarded twenty months’ pay in lieu of notice by the Ontario Court of Appeal. La-Z-Boy had terminated the employee after 23 years of service by providing him with only sixty days’ notice, in line with his so-called Independent Contractor Agreement. The Court disagreed with the company’s classification of the individual as an independent contractor and found that the facts of the relationship clearly pointed to the existence of an employment relationship.
The risk of a Wrongful Dismissal Claim is real. A so-called independent contractor who is terminated may later claim he or she was an employee and come back to the company claiming wrongful dismissal. Companies often believe, mistakenly, that a written agreement alone will offer full protection against any such claim. However, if a court finds that the individual was in fact an employee, an Independent Contractor Agreement will typically be found to be unenforceable in this regard.
Of course, there are also the employer’s duties under the Ontario Employment Standards Act to consider. Employees are entitled to various protections under the ESA that employers are obligated to provide and abide by. However, these protections do not legally apply to a true independent contractor (like Mr. Plumber). ESA benefits, such as overtime pay, vacation pay, minimum wage, termination and severance pay, pregnancy and parental leave must be taken into consideration when a misclassification occurs. In these cases, the Ontario Ministry of Labour may order payment of these employer obligations. Furthermore, an employee who did not receive a statutory leave of absence based on a misclassification may also be entitled to bring forward a discrimination complaint before the Human Rights Tribunal.
Employers should also consider the significant Canada Revenue Agency risks and implications. If the employer did not deduct income tax at source, along with required EI and CPP deductions for an individual that is later reclassified as an employee, the employer will be on the hook for not only the unremitted taxes, but also the employer and employee’s share of any premiums owing, plus penalties and interest (and potential legal costs to defend a claim).
Are you currently engaged in an agreement with an “Independent Contractor”? If so, is the arrangement legitimate? The following are some of the factors considered by our courts to make that determination:
- Control: what is the level of control the company has over the worker?
- Tools and Equipment: who provides the tools and equipment?
- Financial risk: who bears the financial risk in the relationship?
- Investment: what is the degree of responsibility for investment and management?
- Profit: what is the worker’s opportunity for profit in providing the services?
While all of the above factors will be reviewed when classifying an Independent Contractor and each case will be assesses based on its unique, individual circumstances, the level of control that the company has over the worker is the overarching factor to be mindful of.
It is also important to note that while a written agreement will be relevant in an assessment, it will not be the determining factor.
It is critical that companies get proper legal advice before engaging in an Independent Contractor model with an individual. A proper assessment of the relationship along with well-written agreements could prove to save the company from significant potential liability down the road.
If you would like to review the current working models in your organization or conduct a review of the agreements currently in place, contact us today to learn how we can help.
Disclaimer: this post is intended for educational and non-commercial purposes only and is not intended to be a source of legal advice to any person in respect of any particular legal issue; it does not create a solicitor-client relationship with any readers. If you have a legal issue or possible legal issue, please contact us.