Canadian Employment Law Today

with Colin Gibson Ask an Expert Have a question for our experts? Email Jeffrey.R.Smith@thomsonreuters.com 2 | August 31, 2016 Colin Gibson Ask an Expert HARRIS AND COMPANY VANCOUVER Canadian HR Reporter, a Thomson Reuters business 2016 Answer: When an organization is design- ing a contract for personal services, it must begin by determining whether the service provider is an employee or an independent contractor. is distinction is important because while independent contractor rela- tionships are generally subject only to basic principles of contract law, employment rela- tionships are governed by an extensive and complex common law and statutory legal framework. For example: • e common law implies certain terms into many employment contracts, such as the obligation to provide reasonable notice of termination of the employment relationship. • e minimum requirements contained in employment standards statutes apply to most employees, but not to independent contractors. • e employment-related discrimination provisions in human rights legislation ap- ply to employees, but may not apply to in- dependent contractors. • e defi nition of "worker" in workers' compensation statutes will apply to most employees but only certain independent contractors. • If a worker is an employee, the employer will be required to make the applicable statutory deductions and remittances for income tax, employment insurance and the Canada Pension Plan. ese requirements do not apply to independent contractors, who are responsible for looking after their own taxes and other remittances. e most serious risks associated with a worker being found to be an employee are: Workers' compensation: If a person pro- viding services is injured in a compensable accident and seeks compensation, and that person is found to be a "worker," assess- ments, costs and penalties can be imposed upon the engaging company. Statutory remittances: If a worker is found to be an employee, the company can be faced with a sizeable invoice from Canada Revenue Agency for income tax, employ- ment insurance and Canada Pension Plan assessments, plus penalties and interest. Employment standards claims: If a worker is found to be an employee, the em- ployer may be faced with a signifi cant claim for unpaid wages, statutory holiday pay, va- cation pay, termination pay, or unauthorized deductions. How is the line drawn between indepen- dent contractor and employee status? A con- tract of employment is said to be a "contract of service," while an independent contractor agreement is a "contract for services." It is not always easy to determine whether a worker is an employee or an independent contractor, because courts, tribunals and government agencies have identifi ed a variety of factors that will infl uence this issue, none of which will necessarily be determinative. Also, the fact that one tribunal or agency recognizes a worker to be an independent contractor does not mean that the same decision will be made by another. Nor will the parties' own characterization of their relationship be determinative, although the existence of a carefully drafted agreement will often be given signifi cant weight. In many situations, it will be obvious that a worker is either an employee or an inde- pendent contractor. An individual who is hired, works a full-time schedule, reports to a boss, has benefi ts coverage, and receives a regular paycheque will undoubtedly be an employee. At the other end of the spectrum, the contractor a homeowner hires to install a new roof on her house, who arrives with workers, tools, and supplies, and performs the work for a specifi ed price, will clearly be an independent contractor. In between these extremes lies a broad va- riety of relationships that can be less easy to characterize. A number of tests have been developed to determine whether a worker was an employee or an independent con- tractor, including: e control test. is test recognizes that in an employment relationship, the employ- er controls both the worker and the manner in which the work is performed. e em- ployer determines what work is to be done, which workers will do it, and how, when and where the work will be performed. e em- ployer also exercises control by setting the wages or other remuneration to be paid. e four-fold test. is test examines not only control, but also ownership of tools, chance of profi t, and risk of loss. Does the worker own the tools required to perform the work and pay the cost of their operation? Is the remuneration structured so that the worker has a chance of profi t or risk of loss? Does the worker have a fi nancial stake in the business, and cover business costs such as rent, offi ce expenses, and insurance? e organization or integration test: is test looks at whether the work per- formed by the worker forms an integral part of the company's business, or whether it is simply an accessory. Also important is whether the worker is economically depen- dent on the company for her livelihood. In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., the Supreme Court of Canada observed that "there is no one conclusive test which can be universally applied to de- termine whether a person is an employee or an independent contractor." e court de- scribed the key issue as follows: " e central question is whether the per- son who has been engaged to perform the services is performing them as a person in business of his own account. In making this determination, the level of control the em- ployer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides her own equipment, whether the worker hires her own helpers, the degree of fi nancial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profi t in the perfor- mance of his or her tasks." No single factor will be determinative. As the court noted in the Sagaz decision, the central question involves a determination of whether the service provider is in the busi- ness of providing the services in question. Where a contractor is hired for a fi xed pe- riod of time to perform specifi c services, this can be a factor that points toward indepen- dent contractor status. An indefi nite term contract, on the other hand, may be inter- preted as suggesting the service provider is integrated into the employer's organization and is in reality an employee. In the employment context, it has been held that where a fi xed-term employment contract is repeatedly renewed, the employ- ment relationship will at some point become one of indefi nite duration. Similarly, an in- dependent contractor agreement that is re- newed repeatedly may be found to show the contractor is really an employee because the relationship has become indefi nite in nature. Having said that, there are independent contractor relationships that can have an indefi nite term. An example would be a con- tractor that is hired to provide ancillary ser- vices to a business on an ongoing basis, such as an IT consultant or an outside accounting fi rm. In those circumstances, even repeated renewals of the independent contractor agreement should not result in the service provider being deemed to be an employee. See 671122 Ontario Ltd. v. Sagaz Indus- tries Canada Inc., 2001 CarswellOnt 3357 (S.C.C.). Colin Gibson is a partner with Harris and Com- pany in Vancouver. He can be reached at (604) 891-2212 or cgibson@harrisco.com. Renewal of independent contractor agreements Question: Is there a limit to how many times a contract can be renewed before the relationship with an independent contractor changes? Is there language that can be included to maintain an independent contractor relationship indefinitely?

• Cover