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A rose by any other name

Calling someone a 'contractor' meaningless — courts will look beyond agreements to true nature of work, a notion proven again in recent Tax Court of Canada ruling

By Stuart Rudner

I have commented in the past on the widespread misclassification of workers, and specifically the misuse of the “contractor” designation in situations where the individual is truly an employee in all but name.

Such a misclassification can expose both parties to potential liability, as well as depriving them of rights they would otherwise have.

Most recently, the issue was considered by the Tax Court of Canada in Integranuity Marketing Ltd. v. M.N.R. The company was a provider of direct sales services for large organizations, including financial institutions and telecommunications firms. Its employees would go door-to-door, attend events and work kiosks in public places. The employee at issue, Ian Leslie, provided door-to-door sales for Shaw Communications and was paid on a strictly commission basis. When he commenced working, he signed a standard form of agreement that confirmed he was engaged as an independent distributor and, among other things, would not be entitled to employment benefits such as minimum wage, workers compensation or employment insurance.

The court reviewed some of the existing case law, including factors such as ownership of equipment, control over working hours, ability to assign tasks, degree of financial risk/potential for reward and integration into the organization and wrote “the essential question, then, is whether Mr. Leslie was carrying on business on his own account.”

The court then reviewed the evidence. The court confirmed the wording and terms of the contract suggested the relationship was more consistent with an independent contractor relationship. Among other things, the contract confirmed Leslie was to have significant freedom regarding how to perform his assigned tasks and had to bear expenses relating to the work to be done. However, the court found the reality was not consistent with the relationship described by the contract.

Leslie gave evidence that he was not able to work independently, but had to work in teams. Furthermore, he had to commence work each day at a set time at Intragranuity’s offices, where the workers were told about the applicable promotions for the day and given a list of houses to visit. At the end of the day, the team returned to Integranuity’s offices to review the daily results. The evidence also showed that Integranuity sent someone from the company to join some teams in their door to door sales.

Ultimately, the court found Integranuity exercised significant control over most aspects of how the work was performed. While Leslie was not reimbursed for expenses, the reality was that such expenses were modest and therefore the factor was not significant. The court found the other factors tended to be neutral as between an employment relationship and an independent relationship.

The court went on to conclude as follows: “After considering the factors as a whole, I have concluded that the relationship was not consistent with the intention expressed in the contract. In my view, Mr. Leslie was engaged as an employee.”

This case is a reminder that parties should not assume that calling their relationship an independent contractor makes it so in the eyes of the law. Even in situations where they have an independent contractor agreement, and the worker has his own company, those factors are not determinative of the issue. Courts and government agencies can and will look behind the parties’ description of the relationship and assess the reality of the situation. If they find the relationship is more consistent with that of employment, then the parties may have obligations they did not otherwise anticipate. Among these would be obligations regarding employment insurance premiums, pension contributions and minimum work requirements as set out in the applicable employment standards legislation.

While it may be tempting for organizations to accommodate workers who ask to be paid as contractors, it’s usually a short-sighted approach undertaken without a full understanding of the implications.

Stuart Rudner is a partner with Miller Thomson LLP in Ontario, specializing in employment law. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at (905) 415-6767 or srudner@millerthomson.com. You can also follow him on Twitter @CanadianHRLaw, join his Canadian Employment Law Group on LinkedIn, and connect with him on Google+.

Stuart Rudner

Stuart Rudner, Employment Lawyer and MediatorStuart Rudner is the founder of Rudner Law (RudnerLaw.ca), a firm specializing in Employment Law and Mediation. He can be reached at stuart@rudnerlaw.ca, (416) 864-8500 or (905) 209-6999, and you can follow on Twitter @RudnerLaw.
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