In the recent decision of 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue) (Connor Homes), the Federal Court of Appeal (FCA) unanimously held that the shared intent or understanding of a worker and the organization that engages his or her services is not determinative of the worker’s legal status as an independent contractor or employee. The parties’ subjective intent is relevant as a starting point for the analysis but must be confirmed by an objective evaluation of the factual nature of the work relationship. As stated at para. 40 of Connor Homes, “the subjective intent of the parties cannot trump the reality of the relationship as ascertained through objective facts.”
The decision in Connor Homes seeks to reconcile the recent trend of emphasizing the importance of the parties’ stated intent regarding a worker’s legal status with case law from the Supreme Court of Canada (SCC) requiring consideration of the factual circumstances of the work relationship.
The FCA was asked to determine whether the Tax Court of Canada (TCC) judge had erred in finding that three workers were employed in pensionable and insurable employment under the Canada Pension Plan and the Employment Insurance Act, respectively. The three workers were engaged as child and youth workers and area supervisors for two Ontario companies that operated or provided services to foster and group homes for children with serious behavioural and developmental disorders. All three workers had signed contracts confirming the parties’ mutual understanding that the workers would be providing services as independent contractors. The companies appealed the ruling of the TCC judge on the grounds that the TCC judge had failed to give appropriate weight to the parties’ stated intention, which, if given effect, would relieve the companies of any responsibility to deduct and remit Canada Pension Plan contributions and Employment Insurance premiums.
Mainville J.A. for the FCA began by observing that the ultimate question with respect to the legal status of a worker is whether the worker is performing services “as a person in business on his own account”: 1671122 Ontario Ltd. v. Sagaz Industries Canada Inc. (SCC) (Sagaz) at para. 47. In making this assessment, there are a number of factors that will usually be relevant, as set out in both Sagaz and Wiebe Door Services Ltd. v. Canada (Minister of National Revenue) (FCA):
- The level of control exercised by the employer over the worker’s activities
- Whether the worker provides his or her own equipment and hires his or her own helpers
- The degree of financial risk assumed by the worker
- The degree of responsibility for investment and management assumed by the worker
- The worker’s opportunity for profit in the performance of his or her tasks
In addition to this test, Mainville J.A. at para. 30 acknowledged the development of a new “jurisprudential trend” in recent years that “affords substantial weight to the stated intention of the parties.” He identified as the chief authorities in this vein Wolf v. The Queen (FCA) and Royal Winnipeg Ballet v. Canada (Minister of National Revenue) (FCA).
Mainville J.A. held that the determination of a worker’s legal status as an employee or independent contractor cannot be left to the discretion of the parties due to the significant consequences attached to this classification. In particular, he noted that the proper characterization of a worker’s legal status will impact claims of vicarious liability against the employer organization in tort law, as well as tax matters, labour relations, and worker eligibility and financial contributions required for social programs, such as Canada Pension Plan and Employment Insurance.
Instead, Mainville J.A. established at paras. 39 and 40 the following analytical framework for determining the legal status of a worker:
- Identify the subjective intent of each party with respect to the work relationship. This determination can be made either on the basis of written contractual provisions or the actual behaviour of each party. The behavioural component may include actions on the part of a designated independent contractor such as providing invoices for services performed, obtaining a valid GST registration number and filing income taxes appropriately.
- Determine whether the objective reality supports the subjective intent of the parties. This step of the analysis involves consideration of the factors identified in Sagaz and Wiebe above.
Analysis and Outcome
Mainville J.A. upheld the ruling of the TCC judge finding that the workers were properly characterized as employees, despite the existence of contractual provisions stipulating that the workers would be providing services as independent contractors. He determined that this contractual intent was not reflected in the factual circumstances of the work relationship, in particular the following:
- The workers were required to abide by the workplace policies and procedures manual and were subject to the day-to-day control and supervision of the employer companies
- The workers performed the same duties as the recognized employees of the employer companies
- The workers were paid either a fixed hourly rate or per diem rate per child, with little ability to increase the remuneration received due to employer controls on the scheduling of work hours
- The workers were not required to assume significant financial risks or make investments in their business beyond the requirement to have a cellular telephone and access to a computer
The FCA’s decision in Connor Homes brings a measure of clarity to an area of law that is often difficult to navigate when it comes to classifying workers on the ground. The ruling clearly establishes that it is insufficient, without more, to state in a contract that a worker is an independent contractor or to rely on a mutual understanding between the parties to this effect. Connor Homes serves as a reminder to organizations to ensure that the factual circumstances of a worker’s engagement support the designation of the worker as an independent contractor.