Who is an employee: the definition is changing
With more and more people working from home, consulting or freelancing, who is and is not an employee in the eyes of the law is becoming an increasingly complex question.
But why does it matter?
Many are happy to be an independent contractor, claiming their expenses against their income and increasing their take-home pay. Many don’t mind giving up benefits coverages, CPP contributions, Employment Insurance coverage or vacation pay. That is they don’t mind until something goes wrong.
Usually these situations explode when somebody is terminated as an independent contractor with no notice or perhaps 30 days’ notice and is desperate to find a way to support their family while they look for new work. Alternatively, they become ill and suddenly realize giving up the right to Employment Insurance sick pay might not have been a great idea. Lastly, a maternity or paternity leave is desired and taken but the “client”, by the time the leave is over, has moved on and is taking the position that since you were not an employee they don’t have to take you back. Of course no EI was received during that leave either.
The courts have indicated that there is no single conclusive test which can be universally applied to determine if somebody is an employee or an independent contractor. What the courts will try to look at is the totality of the relationship to determine whether the person was, in fact, engaged to perform services as a person in business on his own account, or not.
Although it is not an exhaustive list, there are several major factors the court will look at. The first is the level of control the employer has over the worker’s activities. If you only attend at the client’s place of business once every week or two and mostly work on your own in hours of your choosing, you smell like a contractor.
The second factor is whether the worker provides his or her own equipment. In the vast majority of circumstances, these days, “equipment” simply means a computer and perhaps a printer and phone. If you are going into the office every day and sitting in a cubicle with your name on it, using all the company’s resources, you start to fail the test. Company business cards, attendance at company social events, regular work hours in the workplace and a thousand other little things that make up what an employee looks like can all contribute to a finding that someone was an employee and not a contractor.
The third test is whether you hire your own helpers. If you are retained to deliver a particular service or project and are free to hire who you want to help you do that, that’s a strong indication that you are an independent contractor even if you do have a cubicle at the office assigned to you.
The fourth indicator is the degree of responsibility for investment and management held by the worker. If you have a significant capital investment in your business as an independent contractor, something more than a cellphone and a laptop, the needle starts to point back towards contractor rather than employee. If you have no capital investment and no overhead costs for your business, there is really not any chance of you losing money on the deal and you start to smell more like an employee.
The fifth factor is the level of integration into the client’s business. If you are supervising some of your client’s employees for more than just a short-term period, you start to look strongly like an employee.
The last and sixth major factor is duration. If you are just going in for three months to assist with a particular project or deliverable and then you’re gone, even if all the other factors point to you being an employee, you may be able to escape that designation if that’s what you are trying to do.
Be aware that asking the government to look into your status may trigger a re-assessment of your tax returns and consequences for the employer for not making appropriate deductions.
My advice to employer when these issues arise is always the same: If the individual is anywhere close to being an employee, treat them as an employee. If you do not, you are handing them a hammer to hold over your head when and if the relationship goes sour. Suddenly you’ve got Service Canada knocking at your door to assess the entire situation, see if they were an employee, slap your hand for not making appropriate deductions and make you pay deductions that should have come off the “employee’s” pay cheque in the first place. It’s not worth the grief or the worry.
Ed Canning is a partner practicing in the Labour & Employment Group at Ross & McBride LLP.
As published in the Hamilton Spectator, March 24, 2014