HR Saskatchewan - Spring/Summer 2016 - (Page 20)
The Use of Contract Workers Can
Create Hidden Liabilities for Employers
By Kevin C. Wilson, Q.C., MacPherson Leslie & Tyerman LLP, Saskatoon
COURTS AND LABOUR TRIBUNALS
typically categorize workers using two terms:
independent contractors and employees. For the
purposes of liability, organizations are generally
held liable for unpaid payroll taxes, are at risk for
wrongful dismissal claims and are required to provide the minimum standards under the applicable
employment standards legislation to employees.
Independent contractors are generally not entitled
to these same protections. They also enjoy some
tax advantages that employees do not. As a result of
those tax advantages, individuals often have a preference to be designated as independent contractors.
Unfortunately, simply designating or declaring an individual as an independent contractor is
not sufficient to avoid the above noted employee
There is no set formula to determine if someone is an employee or an independent contractor.
Canadian courts have provided numerous factors
which are to be taken into consideration. Some of
these factors include:
1) The degree or absence of control exercised
by the worker;
2) Ownership of the tools used to complete the
3) Whether the worker has a chance of profit or
risk of loss;
4) The level of integration of work into the
employer's business; and
5) The parties' intentions.
Adjudicators will examine the real substance
of the relationship as it operates on a day-to-day
basis. Generally speaking, if an individual is acting
in their own business, exercises a great amount of
control over the work completed, owns the tools
that are used to complete the work, bears the risk
of loss and chance for profit and the work is merely
an accessory to the employer's business, they will
typically be viewed as an independent contractor.
Conversely, if an individual has little to no control
over the work performed, is performing work that
is an essential part of the employer's business,
bears no risk of loss or chance for increased profit
and does not own the tools or equipment used,
they are likely to be categorized as an employee.
A party may be liable for significant wrongful dismissal damages if it has improperly
20 Spring/Summer 2016 * www.sahrp.ca
characterized the contractual relationship as one
of independent contractor when in reality it was
employment. To further complicate things, even if
it is not determined to be an employment relationship, damages similar to wrongful dismissal severance can still occur, if a court determines that
the relationship is one of "dependent contractor."
For example, in Keenan v Canac Kitchens Ltd,
2015 ONSC 1055, the Ontario Superior Court
held Canac Kitchens Ltd. liable for $124,484.04
in wrongful dismissal damages for terminating
independent contractors that the Court found
were in reality more properly characterized as
"dependent contractors." Lawrence and Marilyn
Keenan had worked for Canac as employees from
1976 until 1987 installing kitchen cabinets. In
1987 they were told by Canac that they would
carry on their work for Canac as independent
contractors. The Keenans signed an agreement
characterizing them as subcontractors.
The Keenans never incorporated their own
business but did register a business name
"Keenan Cabinetry." They obtained the insurance required by their agreement with Canac
and registered with WCB. Although the Keenans
were responsible for cutting cheques to the
installers they supervised, the installers were
not their employees. Further, "Keenan Cabinetry"
never registered as an employer with the Canada
Revenue Agency. With the exception of a few
jobs on weekends, the Keenans worked almost
exclusively for Canac.
The Keenans considered themselves loyal
employees of Canac. They enjoyed employee discounts, wore shirts with company logos and had
Canac business cards. To the outside world and,
in particular, to Canac's customers, the Keenans
were Canac's representatives. In March 2009, the
Keenans were told that Canac was going to close
its operations and that their services would no
longer be required. Canac took the position that it
was not required to give the Keenans reasonable
notice that their services were being terminated
because they were independent contractors.
The Court found that the Keenans were not
independent contractors but rather "dependent contractors" entitled to reasonable notice of
termination, similar to employees. Lawrence and
Marilyn, respectively, were found to have given
Canac 32 and 25 years of service. The court concluded that a somewhat astounding 26 months'
severance was reasonable for each. On January
27, 2016, this decision was upheld on appeal in
Keenan v. Canac Kitchens Ltd., 2016 ONCA 79.
To mitigate or reduce the risks of an improper
classification such as what occurred with Canac,
a contracting party has two main options. First,
the relationship can be characterized as that of an
employee/employer from the outset if that is the
accurate description. This places additional financial and administrative burdens on the employer,
and minimizes certain tax advantages that may
be available to the worker, but allows for certainty
that the above noted risks will not unexpectedly
come into play. Severance and notice of termination obligations can be included in the employment agreement to avoid dispute and litigation
on those issues.
Second, the worker can be hired as an
independent contractor and the contracting
party can structure the relationship and day-today activities so that a majority of factors listed
above support the conclusion that the relationship
is truly one of an independent contractor. The
contracting party should also attempt to protect
itself through contractual indemnities given by
the independent contractor.
continued on page 22
Table of Contents for the Digital Edition of HR Saskatchewan - Spring/Summer 2016
Letter to the Editor
From the Editor
Leadership Styles: Helping or Hindering Engagement?
Building an Accountable and Self-Directed Workforce
Is Distance Learning Meeting Your Training Needs?
Advancing Women in Leadership
Spotlight: Stan Slap – the King of Culture
Saskatchewan HR Trends Report, Spring 2016
Legal Corner: The Use of Contract Workers Can Create Hidden Liabilities for Employers
The Resource Room
HR Saskatchewan - Spring/Summer 2016