Employer and workers signed contracts stipulating workers were independent contractors, but they ended up in employment relationship: Court
Signed contracts stipulating three workers were independent contractors were not sufficient to avoid an employment relationship, the Federal Court of Appeal has ruled.
Connor Homes operated foster and group homes for children with serious behavioural and development disorders. The company signed Rollie Allaire to a contract dated July 7, 2008, that specified Allaire would be an independent contractor providing child care and area supervisor services. She was paid hourly by submission of invoices. The contract term was indefinite but allowed either party to terminate it with 14 days’ notice. The contract also stipulated that “nothing in this agreement shall be construed so as to restrict in any way the freedom of the independent contractor to conduct any other business or activity for his/her individual profit.”
Jodi Greer and Zoe Fulton also signed similar contracts with Connor Homes on Jan. 5, 2007, and May 15, 2008, respectively. Greer’s contract was for five years ending on Jan. 1, 2012, with a 60-day written notice termination clause.
However, despite the wording of the contracts, the Canada Revenue Agency ruled all three workers were employed in insurable and pensionable employment. Connor Homes appealed to the Tax Court of Canada, which found Connor Homes “exercised significant control over the workers, there was no chance for the workers to increase their income by reducing expenses or producing more, and only a few tools were required from the workers, mainly a cellphone and access to a computer.” These factors made Allaire, Greer and Fulton employees, not independent contractors, said the tax court.
Connor Homes appealed again, this time to the Federal Court of Appeal.
The appeal court noted deciding the matter was fairly straightforward.
“The ultimate question to determine if a given individual is working as an employee or as an independent contractor is deceivingly simple,” said the appeal court. “It is whether or not the individual is performing the services as his own business on his own account.”
The appeal court found this required a two-part test: the intention of the parties in the contract and the objective reality of their relationship.
As to the first part of the test, the appeal court found Connor Homes drafted contracts — which the workers agreed to and signed — stipulating the workers would be providing their services as independent contractors. Allaire also reported her income as earned as an independent contractor and, though it wasn’t clear, the court assumed Greer and Fulton did as well without evidence to the contrary.
However the appeal court found that “despite the intent of the parties to characterize their relationship as that of independent contractors, the facts of this case suggest otherwise.” The appeal court agreed with the tax court’s finding that Connor Homes exerted a “significant degree of control” over the tasks and ability to profit of the three workers and there was no significant financial risks or investments on the part of the workers.
The appeal court found the workers were required to follow Connor Homes’ policy and procedures manual, imposed mandatory attendance at staff meetings and provided instruction on how to manage clients. The workers’ duties were the same as those of regular Connor Homes employees, said the appeal court.
Connor Homes also controlled the workers’ schedules — and therefore their pay — which limited their opportunities for other work.
Though the Connor Homes intended to employ Allaire, Greer and Fulton as independent contractors and they agreed, the reality of the relationship was that of an employment one, said the appeal court. The Tax Court decision that the three workers were employees employed in insurable and pensionable employment was upheld and Connor Homes’ appeal was dismissed.
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