a. New or Expected Developments
The trend in Canada in recent years, much like the trend elsewhere, has moved towards an increased use of independent contractors and short-term contracts. In Canada, this has led to a corresponding increase in the frequency of litigation at the Tax Court of Canada, as a greater number of workers classified as independent contractors are seeking entitlement to benefits only enjoyed by employees.11Consequently, issues pertaining to employment status have taken on more significance than ever before.
In at least one Canadian jurisdiction, the effect of the increased level of independent contractors has been studied to determine the effect on employees and on workplaces. In 2015, the Ontario Ministry of Labour commenced a “Changing Workplaces Review” to determine whether the current employment and labour legislative schemes need to be amended to reflect Ontario’s and Canada’s changing workplaces. The Ministry appointed two Special Advisors to study Ontario workplaces, and to devise recommendations to bring the legislation in line with current practices. On July 27, 2016, the Special Advisors issued a report based on public consultations and submissions. The report made a large number of recommendations relating to a variety of employment issues for public consideration. One set of recommendations pertains to the proliferation of independent contractors and a corresponding increase in the number of misclassified workers. The report found that the number of employees who were misclassified as independent contractors was increasing and that the legislation needs to respond to this growing area of concern. The Special Advisors’ recommendations to rectify the issue included: (i) an added burden on employers to prove that a person is correctly classified as an “independent contractor” when a dispute arises; (ii) an increase in the proactive education of workers so that they can determine whether they are employees themselves; and (iii) the inclusion of “dependent contractors” within the definition of “employee” under provincial employment legislation.
At this point in time, it is unclear whether the Special Advisors’ recommendations will gain traction in Ontario or elsewhere in Canada, but if adopted, they could have a significant impact on Canadian workplaces. It will be important to monitor any relevant legislative developments, and to monitor other Canadian jurisdictions to see if any others follow suit. A change in one province may signal a larger scale change on the horizon, which would have significant implications for Canadian legal practitioners, companies, and workers.
b. Recent Amendments to the Law
Generally speaking, the law pertaining to the classification of workers as contractors or employees has not changed significantly in recent years. Canadian Courts have consistently demonstrated a willingness to adopt the Wiebe Door factors in assessing how workers should be classified. Canadian Courts have also demonstrated a willingness to elaborate on the Wiebe Door factors by adding other factors to consider, and by commenting further on the third classification category, namely, the dependent contractor category.
Stated Intent of the Parties
Canadian courts have taken varying approaches with respect to the weight that should be given to written contracts in making status determinations. For instance, some decisions heavily favour a finding consistent with the written contract agreed to by the parties, while other decisions completely ignore the same.
Royal Winnipeg Ballet v MNR (2006 FCA 87) (“Winnipeg Ballet”) suggests that substantial weight should be given to the stated intention of the parties. In Winnipeg Ballet, the Federal Court of Appeal overturned a previous decision by the Tax Court, which had found that three dancers were employees and not independent contractors.
The evidence clearly indicated that both parties understood the dancers to be independent contractors, and that the parties acted in a manner consistent with this understanding. The dancers charged a Goods and Service Tax (GST) for their services, and the employer did not withhold taxes. The agreement contained no express provision regarding the dancers’ status. It set out, inter alia, minimum rates of pay, contributions to health care, and disability insurance. Dancers were required to pay for certain costs independently, including costs relating to rehearsal outfits and makeup, while the employer was required to pay for other costs, such as the purchase of costumes.
The majority of the Federal Court of Appeal held that “in determining the legal nature of a contract, it is a search for the common intention of the parties that is the object of the exercise”.12 The Federal Court of Appeal found that the Tax Court erred in failing to consider the parties’ intention, and should have considered the Wiebe Door factors in light of the evidence that both parties had understood and acted as though the dancers were independent contractors. The Federal Court of Appeal acknowledged that the understanding of the parties with respect to status is not necessarily determinative, and noted that if the parties’ stated intention is not reflected in the terms of the applicable contract and the practical reality of the day-to-day relationship in dispute, then the parties’ intention will be disregarded.
The Winnipeg Ballet decision has been applied with varying results in subsequent decisions. In considering this varying jurisprudence, the Federal Court of Appeal in Connor Homes (discussed above) recently clarified the test to be applied in determining the status of a worker, as outlined above. Specifically, at paragraphs 39 to 41 of Connor Homes, the Court endorsed the following two-step inquiry:
Under the first step, the subjective intent of each party to the relationship must be ascertained. This can be determined either by the written contractual relationship the parties have entered into or by the actual behaviour of each party, such as invoices for services rendered, registration for GST purposes and income tax filings as an independent contractor.
The second step is to ascertain whether an objective reality sustains the subjective intent of the parties. As noted by Sharlow J.A. in TBT Personnel Services Inc. v. Canada, 2011 FCA 256, 422 N.R. 366 at para. 9, “it is also necessary to consider the Wiebe Door factors to determine whether the facts are consistent with the parties’ expressed intention.” In other words, the subjective intent of the parties cannot trump the reality of the relationship as ascertained through objective facts. In this second step, the parties’ intent as well as the terms of the contract may also be taken into account since they color the relationship. As noted in Royal Winnipeg Ballet at para. 64, the relevant factors must be considered “in the light of” the parties’ intent. However, that being stated, the second step is an analysis of the pertinent facts for the purpose of determining whether the test set out in Wiebe Door and Sagaz has been in fact met, i.e whether the legal effect of the relationship the parties have established is one of independent contractor or of employer-employee.
The central question at issue remains whether the person who has been engaged to perform the services is, in actual fact, performing them as a person in business on his own account.13
Recent jurisprudence appears to adopt the reasoning set out in Winnipeg Ballet and Connor Homes and appears to support the proposition that the intention of the parties is a factor to be considered14. That said, it remains to be seen what weight adjudicators will ascribe to this factor relative to others in the future.
Dependence on the Employer
The Ontario Court of Appeal considered the differences between employees, dependent contractors and independent contractors in McKee v Reid’s Heritage Homes Ltd, 2009 ONCA 916. The plaintiff in that case carried on business through her company and even engaged her own employees. Her contract, although no longer binding, seemed to demonstrate an intention that she be considered a contractor. The plaintiff was paid by commission; however, she was economically dependent on the defendant company, as she had worked exclusively for the defendant for a number of years.
The Ontario Court of Appeal considered a number of factors, including the following:
- whether the person works exclusively for the employer;
- whether the person is subject to the control of the employer;
- whether the person owns the tools of the trade;
- whether the person has undertaken risk or loss/chance of profits, as distinct from fixed compensation; and
- whose business is it?
The Court concluded that the plaintiff was an employee rather than an independent con-tractor or a dependent contractor. Accordingly, the plaintiff was entitled to reasonable notice of the termination of her contract.
This case demonstrates that if the worker is in an economically vulnerable position vis-a-vis an employer, there is a risk that a court will find that an employment relationship or a dependent contractor relationship exists. This decision is also notable because it sheds greater light on the intermediate “dependent contractor” category. A dependent contractor is dependent on the employer for most or all of his or her business. Depen-dent contractors are entitled to notice of termination, although not to the same extent as employees.
As the concept of the dependent contractor catego ry has only relatively recently been adopted by Canadian courts, it will be interesting to see how the jurisprudence in this area continues to evolve, and how courts will endeavor to strike a balance between employees and independent contractors in the future.
Status Quo in the Legislation
It should be emphasized that the case law pertaining to employee classification is largely settled, and has not undergone significant change in recent years. The same can also be said of the applicable statutory regime. The statutes discussed above, including the Employment Insurance Act, the Canada Pension Plan, and the Income Tax Act, have not been significantly amended as they relate to independent contractors. The legislation’s application to independent contractors is minimal, especially compared to the degree to which provision is made for employees. It appears that Canadian legislators are satisfied with the status quo, and that they are satisfied with the minimal application to independent contractors.
As discussed above, it may be interesting to monitor legislative developments at both the federal and the provincial level to determine whether dependent contractors are brought within the scope of the applicable statutes. It may be reasonable to speculate that dependent contractors will eventually be brought within the application of a broad range of employment-related legislation, such that they will be entitled to the same or similar benefits as employees.