THE EMPLOYERS' EDGE
DUCK, EMPLOYEE OR INDEPENDENT CONTRACTOR: HOWEVER IT IS DESCRIBED, IT IS THE NATURE OF THE RELATIONSHIP AND NOT THE TITLE THAT MATTERS
The Ontario Superior Court’s decision in Marschall v Marel Contractors, 2019 ONSC 4692 serves as an important reminder for employers that simply calling employees independent contractors does not automatically make them independent contractors.
The worker was a foreman. He worked for the employer (a drywall contractor) from 1981 to 2014, save only for the years between 2001 and 2009 when he had his own business. When the employer turned the business over to his sons in 2014, the worker was dismissed. The worker took the position that he was an employee and therefore entitled to reasonable notice. The employer’s position was that the worker was an independent contractor.
Nature of the Employment Relationship
In determining whether or not a worker is an employee, the various adjudicative bodies (Superior Court, OLRB, Federal Government) each have slightly different tests that consider and weigh various factors differently; however, the one common thread is that adjudicators will always look past the legal constructs or description and instead look to the nature of the relationship between the employer and the worker, essentially applying the “Duck Test”. In this case, the worker acted exclusively for the employer and was under their direct supervision. The worker used the employer’s tools and vehicles and was provided with a truck, cell phone, and transponder. The worker also had health benefits that were paid directly by the employer. The worker’s pay was set, regardless of the number of projects completed or hours worked and he did not share in the profits or losses of the projects that he worked on. It was also understood that the worker would be dismissed if he tried to work for someone else.
In arriving at its decision, the Court reiterated that where an individual is providing services pursuant to an agreement, the fact that the individual is paid through his or her corporation is not determinative of whether an employment relationship exists with the individual. Furthermore, a statement in an agreement that purports to establish the nature of the agreement is not determinative of the issue.
Although there is no one conclusive test that can be applied universally to identify whether a worker is an employee or an independent contractor, the Court cited both the Supreme Court of Canada’s decision in 671122 Ontario Ltd. v Sagaz Industries Canada Inc., 2001 SCC 59 (Sagaz) and the Ontario Court of Appeal’s decision in Belton v Liberty Insurance Co. of Canada, 2004 CanLII 6668 (ON CA) (Belton) in identifying useful criteria for resolving this issue.
In Sagaz, the Supreme Court of Canada wrote:
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 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
In Belton, the Ontario Court of Appeal identified five principles which were modelled after the Supreme Court’s decision in Sagaz:
1. Whether or not the agent was limited exclusively to the service of the principal;
2. Whether or not the agent is subject to the control of the principal, not only as to the product sold, but also as to when, where and how it is sold;
3. Whether or not the agent has an investment or interest in what are characterized as the "tools" relating to his service;
4. Whether or not the agent has undertaken any risk in the business sense or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission;
5. Whether or not the activity of the agent is part of the business organization of the principal for which he works. In other words, whose business is it?
Fundamentally, the fifth principle – whose business is it? – is at the heart of the inquiry. Was the individual carrying on business for him or herself or was the individual carrying on the business of the organization from which he or she was receiving compensation?
Unsurprisingly, the Court determined in this case that the worker was an employee and not an independent contractor. The Court stated that “while the relationship was structured differently for the purposes of taxation and benefits, the circumstances make clear that this was not meaningfully different than any other employer-employee relationship” (para 22). As a result, the employee was entitled to reasonable notice.
In determining the appropriate amount of notice, the Court found that employee’s previous service from 1988 to 2001 was irrelevant. The relevant length of service for calculating notice was the period between 2009 and 2014. Consequently, the Court awarded 6 months’ notice given the employee's age, length of service, the position held, and the availability of comparable employment.
The takeaway for organizations is: regardless of whether you employ ducks or contract to roosters, the team at CCPartners can help you not only differentiate between the two but, also make sure your organization is protected either way with properly drafted agreements.
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