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Are independent contractors entitled to overtime pay? • Does suspension equal constructive dismissal?

Are independent contractors entitled to overtime pay?

Question:
Is an individual working as an independent contractor entitled to overtime pay if she works more than 44 hours in a week?

Answer: The first issue which must be considered is whether or not the individual is actually an independent contractor as opposed to an employee.

Corporations often create relationships with individuals who, for various business reasons, it wishes not to be considered employees but rather independent contractors. Those individuals often have provisions within their contracts that explicitly refer to them as independent contractors. Some employers believe those individuals are not employees and thus not entitled to certain protections and entitlements that employees have under employment standards legislation.

The law surrounding independent contractors can be challenging for employers to navigate. It is important to first note that an individual working for a company can be characterized as an independent contractor for certain purposes and as an employee for other purposes.

For example an individual may be able to classify herself as an independent contractor for taxation purposes but actually be found to be an employee under provincial and federal employment statutes for purposes such as minimum wage, holiday pay, vacation pay and overtime eligibility.

Employers must remember that the courts have consistently found the purpose of employment legislation is for the protection of vulnerable workers. Canadian courts have shown a tendency towards a liberal interpretation of who is an “employee” for the purposes of employment standards legislation and various acts dealing with the payment of wages.

Therefore, if an individual is working for a company for 44 hours in a week, you must first determine whether this individual would actually be more appropriately classified as an employee for the purposes of employment legislation. Canadian courts have found that one indicator of an employer-employee relationship is if the individual works solely for the employer. Intuitively if an employer is questioning whether a particular individual qualifies for overtime, that individual likely will work either solely for the company or at least be dedicating the vast majority of her time to one corporation.

There is case law in Canada where individuals who have contracts in which they are referred to as independent contractors were nevertheless found to be employees and were owed holiday pay, vacation pay and overtime from the employer.

In these cases the individuals worked full-time and had a contract structure in which they worked solely for the benefit of the corporation but did not get an hourly wage. When challenged, courts determined these individuals should be classified as employees for purposes of employment standards legislation and were entitled to the minimum wage and overtime pay.

If an employer has an independent contractor working full-time hours, serious questions should be asked about whether the other elements of an employee-employer relationship exist, in particular the amount of control the employer has over the individual and how integrated she is in the employer’s business. There are two main tests which Canadian courts have developed in order to determine whether an employment or an independent contractor relationship exists.

The first is the four-fold test which considers the following elements:

•control;

•ownership of the tools;

•chance of profit; and

•risk of loss.

In certain circumstances the four-fold test has been found to be inadequate so the courts have also a developed a test referred to as the “integration” or “organizational” test. This test is premised on the concept that an employee’s work is done as an integral part of the business whereas an independent contractor’s work, although done for the business, is not integrated into it.

If an individual can be more appropriately classified as an employee rather than an independent contractor, as per the definitions in relevant employment standards legislation and an application of the relevant tests, then she will most likely be entitled to overtime pay, regardless of the language in her contract for services, unless she is otherwise exempt from the overtime provisions in the act.



Does suspension equal constructive dismissal?

Question:
Is the act of suspending an employee for punitive reasons enough to constitute constructive dismissal, for either a paid or unpaid suspension?

Answer: According to traditional common-law contract principles, the employer has no right to impose unpaid suspensions unless the employment contract explicitly includes provisions allowing the employer to do so or it had been implied into the employment contract through the past practices of the employer.

Unfortunately, though, this contractual model stands in stark contrast to recent trends in employment law towards “corrective discipline” in which employers are expected to impose less serious sanctions against employees for lesser forms of misconduct. According to the Supreme Court of Canada employers are expected to impose lesser forms of discipline, and not immediately dismiss employees, when employees act in ways that do not cause the employer serious harm.

With this in mind some Canadian courts have expressed opinions that perhaps reasonable suspension clauses should be seen as an implied standard term in all employment contracts. Therefore it appears there may be a move in Canadian law towards finding that a disciplinary suspension, if reasonable in the circumstances, is not a constructive dismissal.

However this is not yet the law and a prudent employer should take a number of steps to protect itself from claims of constructive dismissal from suspended employees.

Employers should include provisions in all employment contracts which specifically allow the employer to impose disciplinary suspensions in reasonable circumstances.

Employers should also make their employees aware of the practice of disciplinary suspensions, through orientation and training manuals and other publications dealing with workplace standards and expectations.

Peter Israel is the head of Goodman and Carr LLP’s Human Resource Management Group. He can be reached at (416) 595-2323 or [email protected]. Address questions to [email protected].

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