Focus is on substance, not form
The Supreme Court of Canada released a highly-anticipated decision for professional partnerships, employers and employees today in McCormick v Fasken Martineau DuMoulin LLP. We commented previously on the facts of the case and the history of proceedings to the British Columbia Court of Appeal here.
In short, McCormick, a partner at a large law firm, claimed that the mandatory retirement provision in the partnership agreement was discriminatory and contravened the Human Rights Code. The case was eventually heard by the British Columbia Court of Appeal, which concluded that McCormick could not be both a partner and an employee of the partnership. The Supreme Court of Canada upheld the result in the Court of Appeal, but disagreed with the lower court’s following conclusion:
There can be no doubt that in Canadian law, a partnership is not a separate entity from its partners, and a partner cannot be an employee of, or employed by, a partnership of which he is a member.
The Court held that the Court of Appeal focused too much on the legal form of a partnership, rather than its substance. Rather, in determining whether an employment relationship exists, “control and dependency define the essence of an employment relationship for purposes of human rights legislation”. In assessing control and dependency, the test is:
[W]ho is responsible for determining working conditions and financial benefits and to what extent does a worker have an influential say in those determinations? The more the work life of individuals is controlled, the greater their dependency and, consequently, their economic, social and psychological vulnerability in the workplace…Ultimately, the key is the degree of control and the extent to which the worker is subject and subordinate to someone else’s decision‑making over working conditions and remuneration.
The Court found that, as an equity partner in the law firm, Mr. McCormick had significant control over his working life, including:
- an ownership interest in the firm;
- sharing of the partnership’s profits and losses; and
- participation in management, which included his ability to vote on and implement workplace policies,including the firm’s mandatory retirement policy.
In addition, the Court found that Mr. McCormick benefitted from other control mechanisms in his relationship as an equity partner, including:
- the right to vote for and stand for election to the firm’s board;
- the duty of other partners to render accounts;
- the right not to be subject to discipline or dismissal;
- the right, on leaving the firm, to his share of the firm’s capital account; and
- the protection of only being able to be expelled by a special resolution.
Ultimately, the Court saw Mr. McCormick “as someone, in control of, rather than subject to, decisions about workplace conditions”.
With the large and liberal interpretation that is given to human rights legislation, and the definition of “employment” in particular, parties to human rights complaints often find that application of discrimination in employment provisions in human rights legislation can be something of a moving target. We expect that employers and employees alike will benefit from the Court’s guidance that the essence of the employment relationship is defined by control by, and the resulting dependency on, another entity regarding the terms and conditions of employment.