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Whether you are characterized as an employee or on contract can have serious financial implications for both you and your employer.
While independent contractor status may seem attractive because you can write off business expenses for tax purposes, there are trade-offs. For example:
- You won’t get a benefits package.
- You will have to pay employer and employee CPP/QPP contributions.
- You forgo employment standards protections such as minimum hourly wages, vacation pay and notice of termination and severance.
When assessing the true nature of a working relationship, courts and tribunals use a four part test:
- Who has control?
- Who owns and bears the cost of using necessary tools?
- Who bears the chance of profit/risk or loss?
- How integrated is the worker in the payer’s business or commercial activities?
In two recent decisions a tribunal and a court applied these criteria and found commissioned salespeople were employees and not independent contractors. In the first case, Ian Leslie was engaged in door-to-door sales for Integranuity Marketing Ltd. on behalf of Shaw Communications. He signed a standard form contract which stated he was an independent distributor and did not qualify for benefits such as minimum wage, workers compensation or employment insurance.
The contract also said Leslie had opportunity for profit and risk of loss; control over the place, time and way products were offered for sale; and, that he could select his own days and hours of work.
In fact, the reality was very different than the contract provisions. Leslie testified that he worked six days a week and workers operated in teams and not independently. Every day they had to appear at the office at a pre-set time to pick up “lead sheets” and the team traveled to and from the designated area in one of the workers’ vehicles.
The Minister of National Revenue ruled that Leslie was employed by Integranuity Marketing Ltd. and the company was responsible for remitting employer and employee Employment Insurance and Canada Pension deductions. On appeal, the Tax Court of Canada noted (March 2012) that that the control factor strongly pointed to an employment relationship and confirmed the original decision against the employer.
Similarly, Deena Schiller worked for P&L Corporation selling Ottawa Citizen subscriptions door-to-door. In July 2009 she signed a contract which described her as an independent contractor. She sometimes earned less than minimum wage and was not paid overtime, vacation pay or for public holidays.
In December 2009, she was fired because of complaints she was knocking on the doors of people who already received the Ottawa Citizen. She was rehired in April 2010. When she asked to be paid minimum wage based on a hand-written list of the hours she worked in April and May 2010, she was fired.
Schiller brought a claim against her employer under the Ontario Employment Standards Act for minimum hourly wages and vacation pay. Initially she was turned down by an Employment Standards Officer so she appealed to the Ontario Labour Relations Board.
In March 2012 the Board found that Schiller was not soliciting subscriptions on her own account and her manager exercised substantial control over her activities. He provided the script and the list of potential subscribers she was to visit. She could not negotiate with the Ottawa Citizen for a different commission and she could not enhance her earnings by doing work at different times in other neighbourhoods.
Based on her May 25th summary of hours worked the Schiller was awarded the difference between the minimum wage plus vacation pay for the 75 hours she worked and commissions received. Because her termination was also viewed as reprisal for requesting minimum wages, she was entitled to three months of additional wages plus vacation pay.
These cases illustrate that just because you or the company you work for describes you as an independent contractor doesn’t mean a court or tribunal will agree. If you have any doubt when entering into a working relationship, seek independent legal advice to ensure you get everything you are entitled to and you are not exposed to potential liability for unpaid taxes or source deductions.