'It essentially removes the ESA protections for a certain group of employees'
When Working for Workers Act, 2022 was passed last year, much of the focus was on issues such as employee monitoring, the “right to disconnect” and non-competition covenants.
But one important change recently took effect, with “significant” implications for employees and employers.
As of Jan. 1, 2023, business consultants and information technology (IT) consultants newly defined under the legislation are excluded from the province’s Employment Standards Act (ESA)
It’s a “significant exemption,” says Mark Tector, a partner at Stewart McKelvey in Halifax. “It essentially removes the ESA protections for a certain group of employees if they fall within all the definitions and requirements.”
What the government is saying is you are an employee, but you don’t have all the other protections under the act, he says.
“So you can be an employee and qualify perhaps for EI, be able to receive EI if you ever went off on leave, pursuant to the federal regulations, but not have the leave protection which is under the ESA. So the employer might not have to re-employ you coming back from a leave.”
Broad definitions
According to the new legislation, “business consultant” means an individual “who provides advice or services to a business or organization in respect of its performance, including advice or services in respect of the operations, profitability, management, structure, processes, finances, accounting, procurements, human resources, environmental impacts, marketing, risk management, compliance or strategy of the business or organization.”
And an “information technology consultant” means someone “who provides advice or services to a business or organization in respect of its information technology systems, including advice about or services in respect of planning, designing, analyzing, documenting, configuring, developing, testing and installing the business’s or organization’s information technology systems.”
But to qualify as either consultant, the following requirements must be met by the individual:
- They must provide services through a corporation or a sole proprietorship.
- There is an agreement for the consultant’s services that sets out when and how much they will be paid, which must be at least $60 per hour, excluding bonuses, commissions, expenses and travelling allowances and benefits.
- The consultant is paid the amount set out in the agreement.
It’s important to note the focus on proprietorship, says Daniel Wong, partner at WeirFoulds in Toronto.
“My understanding is that's not a very difficult or arduous process, but it is one additional step,” he says. “Previously, it could just be ‘Sally Chan’ as a consultant with her personal name, just as a self-employed individual, without having to register a business name.”
It’s also interesting the government references benefits, he says.
“Benefits really are something that is not consistent, or at least in my experience, something that is not typically provided to a non-employee.”
Independent contractor considerations
The wording will receive close scrutiny because the usual default is an employee is subject to the ESA unless there's a clear exception, says Tector.
“It is important in the analysis, and… to appreciate that the independent contractor setup is still there. This doesn't really change that. And if you're an independent contractor, then you never were subject to, and you wouldn't be subject to, the ESA — you wouldn't get taxed, you wouldn't get CPP taken off, you won't get EI taken off — all that stuff.
“Now, you don't get to enjoy the benefits of going on EI and CPP, but presumably you're enjoying other benefits because you're operating as a business and… you're saving another way or saving taxes and working for multiple companies and this kind of thing.”
These changes might be addressing that concern about people being called independent contractors when they're not really because they're exclusive to an employer, and they’re given the tools for the job along with a schedule, he says.
“You're not really an independent contractor, and if that blows up, then both parties can be in trouble because both parties could be subject to an audit by CRA. And then there might be consequences — even though they entered into this agreement, and they both agreed… it doesn't make it that the courts will agree.”
The change under Bill 88 avoids the uncertainty of the independent contractor where it's really more like an employment relationship, says Tector, “so calling the duck the duck as opposed to trying to fancy it up and call it something else.”
Risks of misclassification
If a business or IT consultant doesn’t meet these new exemptions, then the Employment Standards legislation is going to apply, says Wong, with “monetary and/or operational implications for the organization.”
The risk for employers is if an individual isn’t properly defined and is treated like a consultant when, in fact, they are an employee, that could cause issues if someone goes on leave or is terminated, he says.
“The potential consequences of a misclassification can be quite significant. We've seen a lot of the class-actions for wage and hour overtime in the news. But [there are] additional monetary obligations with a minimum wage, vacation pay, stat holiday pay, overtime, as well as potential other obligations that may arise outside of the employment standards legislation, whether it's health and safety or human rights,” says Wong.
“All of those underscore the importance... for employers to make sure that they do classify their employees and workers properly. And if there's any doubt, they should be getting their legal counsel involved to assist them with that analysis.”
In Ontario, an employee has two avenues for bringing claims relating to alleged breaches of the Employment Standards Act, 2000 (ESA), including an alleged failure to pay wages or a wrongful dismissal claim, according to one legal expert.
Getting the agreement right
Plus, when the legislation talks about an agreement signed by both parties, “it is important and I would say incumbent upon the company who is retaining this consultant to be the one to prepare the agreement, or at least ask the consultant if they have a form of agreement they want to sign,” he says.
“Because in order for this exemption to apply, they need to have an agreement and, quite apart from the ESA requirement, I think it is always a good idea to have these type of business relationships and the terms of those relationships memorialized and captured in written form.”
Because these rules are brand new, anybody looking to set up the agreements needs to make sure they are carefully thought-out, says Tector, “given that it's pretty significant departure from the ESA.”
“You’re kind of venturing into the unknown — I'm not aware of any other province, other than Ontario, having this kind of exemption.”
If the employer has an existing relationship with an individual, and they want to transition to this arrangement, that can raise some legal issues, he says.
“You'd have to sometimes formally terminate the existing relationship, which might mean you have to give notice pursuant to the contract or something, and then set up the new agreement… that takes some strategy and some thinking.”
