In 2003, is Anyone an Employee?
By Melynda Layton LLB
Presented in April 2003 as part of the 6 Minute Employment Lawyer Series
Introduction
Determining whether a worker is – or should be – an employee or an independent contractor is an issue receiving increased attention. It is also an issue of central importance to Canadian employment law, where “employee” status is the gateway to most (but not all) employment protection under both common law and employment-related legislation.1 Understanding the differences between working relationships is crucial for both employers and workers.
In recent decades Canada’s workplace has changed significantly; one key transformation has been the move to self-employment. In Canada, self-employment has grown from 1979 to 1997 to the tune of 77%.2 Between 1989 and 1997, the swelling ranks of self-employed workers accounted for approximately 80% of total job growth in Canada.3
Hand-in-hand with the move toward self-employment is employers’ growing reliance on the services of contractors, casual employees, temporary-help agencies, and part-time workers. These types of non-standard employment arrangements offer an array of benefits, like increased flexibility and controlled labour costs that benefit employers and workers alike.4 However, as employment relationships have grown more elastic, it has become increasingly difficult to determine whether a worker is an employee as opposed to an independent contractor, or intermediate worker.
Hence, the topic of this paper: “In 2003, is ANYONE an employee?” The answer to this question, in my view, lies in the answer to a different, but related question: “What are the legal characteristics of an employee in 2003?” Once we can identify the characteristics, we will know who, if anyone, is an employee in 2003.
Employer – worker relationships are a continuum, with employer-employee at one end, employer-independent contractor at the other, and the hybrid category of "intermediate" worker in the middle. When determining who falls into the category of employee the legal principles have not changed. The difficulty is in the application of those principles in the face of Canada’s transformed workforce.5 In the remainder of this paper we will review caselaw which addresses the characterization of the employer-worker relationship.
Discussion
Employee or Independent Contractor
The seminal case addressing whether a worker is an employee or an independent contractor is Wiebe Door Services Ltd. v. Canada (Minister of National Revenue).6 In Wiebe Door, the employer was in the business of installing and repairing doors. When providing these services to its customers, Wiebe Door relied on the efforts of door installers and repairers. There was an understanding between Wiebe Door, the installers, and the repairers that the workers ran their own businesses. Consequently, all service providers were responsible for remitting their own taxes, and contributions to workers’ compensation, employment insurance, and the Canadian Pension Plan.
During an audit the Minister of National Revenue found the installers and repairers were employees of Wiebe Door. The employer was therefore liable for payment of employment insurance premiums and Canada Pension Plan contributions.
Wiebe Door appealed. In concluding the installers and repairers were independent contractors, the Federal Court of Appeal confirmed the traditional control test was no longer the appropriate analytical tool to be relied upon in determining the status of a worker. The essential question guiding any determination of a worker’s status is whose business is it? Specifically, is the worker carrying on business for himself/herself, or for a superior?
Is the person who has engaged himself to perform these services performing them as a person in business on his own account? If the answer to that question is “yes” then the contract is a contract for services. If the answer is “no” then the contract is a contract of service.7
When answering this question the Court found all relevant factors must be considered with no one factor being determinative of the issue in isolation. In other words, when determining whether an employment relationship or an independent contractor arrangement exists, all of the relevant factors must be considered as a group,
[I]t is exceedingly doubtful whether the search for a formula in the nature of a single test for identifying a contract of service any longer serves a useful purpose...The most that can profitably be done is to examine all the possible factors which have been referred to in these cases as bearing on the nature of the relationship between the parties concerned. Clearly not all of these factors will be relevant in all cases, or have the same weight in all cases. Equally clearly no magic formula can be propounded for determining which factors should, in any given case, be treated as the determining ones. The plain fact is that in a large number of cases the court can only perform a balancing operation, weighing up the factors which point in one direction and balancing them against those pointing in the opposite direction. In the nature of things it is not to be expected that this operation can be performed with scientific accuracy.8
The Court implicitly accepted the following factors or tests must be considered when determining whether a worker is an employee:
(1) Degree or Absence of Control Exercised by the “Employer”
Employment relationships imply some supervision or control over the worker. The correct inquiry is not whether the alleged employer exercises control; rather, the question is whether the alleged employer has the right to exercise control.9 In assessing the degree, or absence of control, the court should examine whether:
a. the worker is mostly working on his/her own;
b. he/she is free to accept or refuse other work; and
c. the worker is required to work or attend the hirer’s place of business.
(2) Ownership of Tools
A worker will be considered an independent contractor if he/she owns his/her tools. The same is true even if the hirer provides special tools when required. Conversely, where all the tools required to complete the job are owned and supplied by the employer, it suggests the worker is an employee.
(3) Chance of Profit and Risk of Loss
If the worker has a financial investment in the business over and above providing his/her labour, this is considered to be a strong indicator that an independent contractor arrangement exists. Unlike an employee, whose weekly salary is constant, an independent contractor’s income fluctuates with the amount of work completed.10
(4) Integration of the “Employee’s” Work into the “Employer’s” Business
Is the worker an intrinsic part of the organization or merely adjunct to it? Under a contract of service (i.e. employer – employee relationship), a worker is employed as part of the business and his/her work is done as an integral part of the business. In contrast, under a contract for services (i.e. employer – independent contractor relationship), an individual’s work, although done for the business, is not integrated into it but only ancillary to it. That said, it is possible to have an independent contractor arrangement where the independent contractor works exclusively for the hirer.11
Canadian Courts are clear; a consideration of all four factors is essential when determining the nature of the working relationship between parties.12
Recently, in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.,13 the Supreme Court of Canada considered the test for determining when someone is an independent contractor. The Court confirmed the principles enunciated in Wiebe Door. In Sagaz Industries, the worker in question was involved in a bribery scheme. The employer would have likely been vicariously liable for his actions if he was an employee as opposed to an independent contractor.
Mr. Justice Major, speaking for the unanimous Court, confirmed there is no conclusive test that can be universally applied to determine whether a person is an employee or an independent contractor. Rather a search for the total relationship of the parties, with the central consideration being whether the person who was hired to perform the services is performing them as a person in business on his or her own account,
The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.
… [T]he above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case.14
It is clear: no one factor is determinative of the relationship of employer-employee or worker-independent contractor. The central inquiry is whether the person who is engaged to perform the services is performing them as a person in business on his or her own account. If the answer is “yes”, he or she is an independent contractor. If the answer is “no”, he or she is an employee. Sagaz Industries, confirms that both the inquiry, and the factors relevant to that inquiry remain the same today.
Intermediate Workers
In the seminal decision of Carter v. Bell & Sons,15 the Ontario Court of Appeal concluded there is a third category of worker falling between employee and independent contracted, called an “intermediate worker”. In Carter it was held terminated intermediate workers are entitled to reasonable notice. It was also noted the workers owe a duty of fidelity in favour of the employer.
In Carter, the Plaintiff was employed by the Defendant company as its supervisor of sales for the provinces of Manitoba and Saskatchewan. Under the agreement between the parties the Defendant agreed to pay the Plaintiff for his services on a commission basis. The period of the contract was indefinite. The Plaintiff moved his family from Ontario to the West in order to perform his duties. The Plaintiff was in the process of building up a sales staff when he was dismissed from the Defendant's service without notice.
In discussing the nature of the relationship, Middleton J.A. explained,
There are many cases of an intermediate nature where the relationship of master and servant does not exist but where an agreement to terminate the arrangement upon reasonable notice may be implied. This is I think such a case. The mode of remuneration points to a mercantile agency pure and simple, but the duties to be performed indicate a relationship of a more permanent character. The choice of sub-agents and their training , the recommendation of them to the company for appointment, the supervision of these men when appointed, all point to this more permanent relationship.16
The following factors were cited as demonstrating the permanency of the relationship. The Plaintiff: (i) chose the sub-agents and their training; (ii) recommended them to the company for their employment; (iii) was endeavoring to create a market for the Defendant’s products; (iv) was the exclusive agent; (v) entered a new territory as representative of the Defendant; and (vi) relocated with his family to the new territory.
The principles set out in Carter have recently been confirmed by the Ontario Court of Appeal in Job v. Remax Metro-City Realty Ltd.,17 and the British Columbia Court of Appeal in Marbry v. Avrecan International Inc.18
In Job, it was held a real estate agent was an intermediate worker and therefore his contract with Remax could only be terminated upon reasonable notice. The Court concluded an employer – employee relationship did not exist. There was no element of control relating to the fundamental aspects of the business which would meet the usual tests for an “employee”. Nonetheless, the Court noted there are cases, of an intermediate nature, such as the present one, where although the relationship of employer – employee does not exist, the duties to be performed are of a permanent character and thus an agreement to terminate the arrangement only upon reasonable notice is to be implied.19
The following factors were cited as demonstrating the permanency of the relationship: (i) the agreement between the parties was exclusive in that the agent was required to place all listings obtained by him through Remax; (ii) all purchase agreements were also required to be processed exclusively through Remax; (iii) the agreement was renewable on each anniversary date for a year; (iv) the agreement provided that Remax could only terminate if dissatisfied with the agent’s performance; (v) the agreement could only be terminated by the agent with 30 days notice, otherwise, a penalty applied; (vi) the nature of the business required the agent to engage in extensive advertising identifying himself with the broker; and (vii) the agent had to purchase all advertising materials.
In Marbry, ESA and Marbry Limited entered into an oral agreement whereby ESA granted Marbry the exclusive right to sell Reebok products in certain areas of British Columbia in 1982. After some corporate restructuring including an amalgamation, Abrecan had exclusive rights to distribute Reebok products in Canada. Marbry continued to be Reebok’s sales agent in British Columbia on the same terms. In January 1993, a Reebok sales manager advised Marbry that it should not take on any other non-Reebok product lines so that it could concentrate solely on representing Reebok products. Marbry complied. Then, in May of that same year, the Defendant terminated the agreement on one month’s notice. The majority of Court of Appeal held the relationship fell into the intermediate category where reasonable notice of termination was required.
In coming to this conclusion Braidwood J.A. noted the four factors listed above (see Wiebe Door) should be considered when determining whether a working relationship is one of employee – employer or independent contractor – employer. However, the “intermediate category” involved different aspects and therefore additional considerations came into play. The following non-exhaustive list of factors are helpful in such cases,20
Duration/permanency of the relationship. The longer the duration of the relationship or the more permanent it is militates in favour of a reasonable notice requirement. Amongst other evidence, the purchase and maintenance of inventory, which contains a permanency aspect, should be considered.
Degree of reliance/closeness of the relationship. As these two interrelated sub-factors are increased the more likely it is that the relationship fall on the employer/employee side of the continuum. Included in this factor is whether the sale of the defendant’s products amounted to a significant percentage of the plaintiff’s revenue.
Degree of exclusivity. An exclusivity relationship favours the master/servant classification.
The case law indicates characterization as an intermediate worker is reserved for workers who are neither employees, nor independent contractor. In such a situation, the Courts will then decide whether reasonable notice is nevertheless required before such a relationship can be terminated.
The concept of intermediate worker does not help determine who is or is not an employee only after it is determined a worker cannot be characterized as an employee does the possibility he or she is an intermediate worker arise. At that point intermediate status has been found to exist in situations where there are relatively high levels of subordination and/or economic dependency, and where there is evidence that the arrangement between the parties was intended to be permanent.
Conclusion
In the past, most workers fell either into the category of employee, or independent contractor. The myriad of complex employer – worker relationships in existence today has resulted in an increased number of workers falling into the intermediate category. A worker who has the characteristics of an independent contractor, but who is also dependent on his or her employer, is an intermediate worker. Because of this idea of dependency, many workers are being pulled out of the independent contractor category and are being given employee like protections such as reasonable notice. At the end of the day the idea of who is an employee has expanded.
To ask a question or for further advice please contact Melynda at melyndalayton@careerlaw.ca or by telephone at 613-225-4400
1 G. England et al., Employment Law in Canada, 3rd ed., loose leaf (Markham: Butterworths, 1998) at sec. 2.1.
2 M. Manser and G. Picot, “Self-employment in Canada and the United States,” (1997) Perspectives on Labour and Income, Vol. 11, No. 3 at 37.
3Ibid at 39.
4 J. Fudge, “New Wine into Old Bottles?: Updating Legal Forms to Reflect Changing Employment Norms” (1999) 33 U.B.C. L. Note 1 at 139.
5 Marbry, infra note 18 at para. 9: “All relationships in the workplace setting can perhaps be thought of as existing on a continuum. At one end of the continuum lies the employer/employee relationship where reasonable notice is required to terminate. At the other extremity are independent contracting or strict agency relationships where notice is not required. The difficulty obviously lies in determining where upon that continuum one is located.”
6Wiebe Door Services Ltd. v. Canada (Minister of National Revenue), [1986] 3 F.C. 553 (F.C.A.) [hereinafter Wiebe Door].
7 Ibid at para. 17.
8 Ibid at para. 15.
9 S. Ball, Canadian Employment Law, loose leaf (Aurora: Canada Law Book, 2000) at sec. 3.10.2.
10 Vulcain Alarme Inc. v. Canada (Minister of National Revenue) (1999), 249 N.R. 1 at 9 [hereinafter Vulcain Alarme].
11 Ibid at 8.
12 See e.g. Brown v. Western Legal Publications (1997), 36 C.C.E.L. (2d) 138 (B.C.S.C.) at 140-141.
13671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] S.C.J. No. 61 [hereinafter Sagaz Industries].
14 Ibid at para. 47-48.
15 Carter v. Bell & Sons, [1936] O.R. 290 (C.A.) (QL) [hereinafter Carter].
16Ibid at (QL) 5.
17 Job v. Remax Metro-City Realty Ltd., [1999] O.J. No. 5029 (C.A.) [hereinafter Job].
18 Marbry v. Avrecan International Inc. (1999), 171 D.L.R. (4th) 435 (B.C.C.A.) [hereinafter Marbry].
19Supra note 17 at para. 38.
20 Supra note 18 at para. 38.
