Canadian Employment Law Today

The ever-increasing liability of mischaracterizing employees as contractors Legislative changes and case law are increasingly lowering the boom on employers who ignore the reality of relationships with certain contractors BY ALEXANDER KOWAL W hile the liability associated with misclassifying workers as contractors has existed for a long time, courts and legislators have taken steps to expand the scope of this liability, all culminating in the British Columbia Supreme Court's recent decision in Pasche v. MDE Enterprises Ltd. One of the first steps was creating the common law construct of a dependent contractor: a hybrid relationship that was part contractor and part employee, with the consequence that reasonable notice of termination was required to terminate such a relationship. Seminal cases related to dependent contractors include Jacks v. Victoria Amateur Swimming Club, McKee v. Reid's Heritage Homes Ltd., and, more re - cently, Keenan v. Canac Kitchens and Glim- hagen v. GWR Resources Inc. As identified by the court in Glimhagen, the key indicia of a dependent contractor relationship in- clude: "1. Whether the agent was largely limited exclusively to the service of the principal. 2. Whether the agent was subject to the control of the principal, not only as to the product sold but also as to when, where and how it was sold. 3. Whether the agent had an investment in or interest in the tools necessary to per - form his service for the principal. 4. Whether by performing his duties the agent undertook risk of loss or possibility of profit apart from his fixed rate remu - neration. 5. Whether the agent's activity was part of the principal's business organization — in other words 'whose business was it?' 6. Whether the relationship was long stand - ing — the more permanent the term of ser- vice the more dependent the contractor. 7. Whether the parties relied on one another and closely co-ordinated their conduct. In applying these factors, if the relation- ship "bears more resemblance to, or is akin to, an employer/employee status the rela- tionship will be treated as an employee/ employer relationship for the purpose of implying an obligation to provide reason- able notice." Using these indicia, the courts in Canac Kitchens and Glimhagen awarded signifi- cant reasonable notice awards to workers who were misclassified as independent con- tractors, a status of workers who are typical- ly not eligible for common law reasonable notice — 26 months reasonable notice in the Canac Kitchens decision and 12 months in the Glimhagen decision. Legislative changes e second key step has been legislating protections for dependent contractors or penalties associated with misclassifying employees as independent contractors. Namely, both Ontario and Alberta have implemented changes that create poten- tially significant liability for those com- panies who misclassify workers. rough its Fair and Family-Friendly Workplaces Act, Alberta changed the definition of employee as of Jan. 1, 2018, to include dependent contractors who work for one employer. e change, in essence, provides contractors the right to union- ize and bargain collectively. Similarly, in Ontario, through the government's Fair Workplaces, Better Jobs Act, employers are expressly prohibited from misclas- sifying employees as independent con- tractors, with penalties and compliance orders to be levied if they do. e most recent and succinct analysis re- lated to this intermediary designation can be found in the Pasche decision. e worker worked for the employer, MDE, as a sheet metal estimator. He commenced work in 1997 and continued working until he was terminated in 2015. During his time at MDE, the worker was paid an hourly wage, invoiced MDE plus GST for hours worked — which generally exceeded 40 hours per week. e worker consistently worked overtime hours without written approval — required for MDE employees — was paid straight time for all hours and was not required to submit timesheets —again, re - quired for MDE employees. e worker set his own hours and also worked from home 20 to 30 per cent of the time, a privilege not afforded to MDE employees. e worker worked exclusively for MDE, although this was not a requirement imposed on him by the company. MDE provided the worker with a workspace, desk, desktop computer, filing cabinet and access to a phone; how - ever he used his own laptop, with his own estimation software and paid for his own parking spot near MDE's office. e work- er worked with MDE staff on a daily basis and was listed along with MDE staff on the company's printed phone lists, promotional materials and had business cards indicating he was a staff member of MDE. During his 18-year tenure, the worker reported direct - ly to MDE's owner and he considered him his boss. He did not receive any minimum statutory entitlements, including vacation pay, public holiday pay or sick pay, nor were any statutory deductions deducted from his earnings. e worker claimed his earnings as busi - ness income on his tax returns and deduct- ed various business expenses during the entirety of his tenure. In 2013, the Canada Revenue Agency (CRA) contacted MDE to advise that it was performing an audit of the worker's earnings from 2012. Following their review, the CRA ruled that the worker was a 'self-employed worker.' Prior to his termination due to the closing of MDE's 4 Canadian HR Reporter, a Thomson Reuters business 2018 CASE IN POINT: EMPLOYMENT CONTRACTS MANY EMPLOYERS use contractors as a way to cut costs and streamline administration, as they have fewer legal responsibilities towards independent contractors as they would with employees. However, in their enthusiasm to avoid employment standards-related considerations, some employers don't realize that the employment relationship they have with certain contractors may not be what they want or say it is. More and more, legislatures and courts are looking to protect workers who may have a closer relationship than employers think. BACKGROUND

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