Temporary workers: A potential trap for employers

A look at the legal risks, pitfalls to consider
By George Waggott
|Canadian HR Reporter|Last Updated: 10/20/2014

In the current economy, many employers are constrained for economic or organizational reasons from hiring new employees. The result is the increasing use of temporary workers.

Since the recession, temporary work has grown at more than triple the rate of permanent employment, with more than two million Canadians engaged annually as temporary workers, according to Statistics Canada.

While temporary positions are most prevalent in the education, culture and the hospitality sectors, these arrangements are used across the economy in virtually every sector.

Temporary work arrangements give employers a more flexible workforce; however, hiring these workers is not always the preferred solution and there are legal risks employers must consider. Many of the pitfalls associated with temporary workers can be traced to commonly held misconceptions about who is and is not an "employee."

Many of us have heard all too often the refrain that someone working "is not an employee, only contract." Others often make incorrect distinctions between "contract employees" and "regular employees." These approaches oversimplify the issues and ignore the legal obligations associated with being an employer. The law looks beyond self-serving labels used by organizations and considers the substantive relationship, with a particular focus on control and integration.

It’s very important to carefully consider the legislative and common law regime that prevails in the jurisdiction where the work is being performed. To properly assess the legal framework applicable to a worker, merely reviewing or drafting documents is not sufficient — there must also be a close review of applicable statutes and cases, together with relevant facts regarding the work actually being performed.

Even in cases where a third-party agency either recruits or notionally employs temporary workers, the party receiving the benefit of the services does not automatically escape liability under workplace laws.

In practice, temporary employees are almost always covered by some of the laws that apply to regular employees. This will generally include the relevant employer obligations with respect to employment standards rules, human rights protections, health and safety, and workers’ compensation.

While the concept of temporary employment should in theory involve work for a set period of time, many organizations engage temporary workers as an alternative workforce. Some jurisdictions have attempted to address these issues and mitigate against perceived abuses of temporary agencies as a means to avoid legal obligations. For example, Ontario adopted detailed temporary help agencies rules in its Employment Standards Act in 2009.

While the rules are complex, key changes to so-called "assignment employees" included an elimination of the finder’s fee being charged where an agency employee has been working for the client company for more than six months, and clarification about the obligations to pay terminated employees their applicable statutory termination amounts.

Even with legislated rules in place, temporary staffing agencies offer a number of benefits. If properly documented and administered, an arrangement can be established where the temporary worker is employed by the staffing company and not the organization receiving the benefit of the work.

In a typical arrangement, the HR, payroll and discipline processes can also be handled by the agency. The client company can often benefit from the opportunity to restrict the number of assigned hours and, in most cases, there will be a right to have the employees "returned" to the agency without further obligation.

Many employers decide to forego a temporary agency and instead source and hire temporary workers directly. Perceived cost savings and available in-house recruiting and human resources expertise may be factors in support of this approach.

In this case, organizations should ensure any job postings or communications clearly indicate the position is temporary. Of equal importance, there should be a clear explanation of what the temporary position consists of, particularly in terms of the duration of the assignment and what benefits or other entitlements the position does not provide.

This should also be backed up by a clear offer letter or employment agreement.

In many cases, employers will attempt to avoid having to provide benefits to workers based on calling them "temporary" or "contractors." These labels are not determinative. Instead, any statutory benefit obligations will be based on the particular legislated benefits rules.

Additionally, any company-provided benefits will be based on the applicable company rules, handbook or policies.

Clear drafting and practices that are consistent with relevant documents are therefore crucial.

Even if a worker is truly temporary, the employer will want to make sure the employee is properly trained and oriented.

This will be required both for risk-management purposes, such as minimizing the risk of discrimination or health and safety claims, and to ensure knowledge of and compliance with applicable policies.

As with any worker, one of the key areas of potential dispute involves the right of the organization to terminate, and the relevant entitlements of the worker upon termination.

In some cases, the courts have held that a series of terms contracts can transform the employer-employee relationship into an arrangement of indefinite duration.

If this argument is successfully made out, the employer will be liable for common law notice based on the entire period the worker provided services.

One the most prudent ways to address the point is to stipulate and obtain worker agreement that rights arising upon termination will be limited to legislated amounts.

With our economy and modern workforces continuing to transform, the increasing use of temporary work is almost certainly going to continue. The result is that organizations will need to ensure they pay close attention to the legal pitfalls arising in this area and address legal risks responsibly.

George Waggott is a Toronto-based management employment lawyer at the law firm McMillan. He can be reached at (416) 307-4221, george.waggott@mcmillan.ca or, for more information, visit www.mcmillan.ca.