In a recent case, the Federal Court of Appeal (“FCA”) was asked to review a finding that an individual was an employee and not an independent contractor. In determining that the individual was in fact an employee, the FCA noted the amount of litigation before the Tax Court of Canada on this issue and the difficulty in applying what appears, at first instance, to be a fairly simple test.
What is the question?
The ultimate question that the court must consider when deciding whether an individual is an employee or an independent contractor was stated in Wiebe Door, a decision of the FCA, and affirmed in Sagaz Industries Canada Inc., a decision of the Supreme Court of Canada from 2011.
This question is: Does the individual perform the services as his/her own business on his/her own account?
The FCA recognized that the answering of this one “deceivingly simple” question can be complicated by the variability of each workplace (Sagaz, para. 46). As a result, the specific particularities of each relationship must be carefully reviewed.
Answering the question
After reviewing the applicable law, the FCA in 1392644 Ontario Inc. o/a Connor Homes, applied a two-step test:
1. What did the parties intend?
This first step requires an understanding of the subjective intent of the parties. While this won’t be determinative in and of itself, the FCA stated that it is through “the prism of [the parties’] intent” that the parties’ relationship will be evaluated and determined.
2. What is the objective reality?
The second step requires a review of the relationship to determine if the “objective reality sustains the subjective intent of the parties.”
All aspects of the specific relationship at issue are considered to determine if the person is in business on his/her own account, including potentially:
- who owns the equipment?
- does the individual hire his/her own helpers?
- is the individual able to contract work out to other contractors?
- can/does the individual provide services to other entities?
- is the individual a part of the organization?
- does the individual report to the workplace daily/regularly?
- has the individual made any financial investments?
- is the individual exposed to personal financial risk in carrying out the work?
- is there opportunity for profit or risk of loss?
- does the individual have to report absences from work?
- does the individual have to submit reports each day or each week?
- how is the individual paid?
- who establishes the performance obligations?
- is the individual monitored or supervised?
In the end, while parties may intend to define their contract in a specific way, the potential legal implications of that definition in areas such taxation, employment insurance, etc. requires a review of the day-to-day reality of the relationship.