Deciding to retain a contractor rather than an employee can be the right decision depending on the needs of a business. But there are risks. If a court determines that the relationship is in fact an employment relationship, the employer can be liable. Such was the case in M.A.P. (Mentorship, Aftercare, Presence) v. Minister of National Revenue (PDF) where the court determined that the Reverend retained by a non-profit was actually an employee. The non-profit was held liable for the failure to remit taxes on behalf of the Reverend.  


Mentorship, Aftercare, Presence ("MAP"), a non-profit organization providing services to recently released prisoners, entered into an agreement with Reverend Fritz Clarke to manage its operations. At the time Rev. Clarke was hired, MAP intended to retain him on a contract basis so it did not remit EI or CPP contribution amounts to the Canada Revenue Agency ("CRA") or make income tax source deductions.  

Under his initial agreement with MAP, Rev. Clarke was paid a fixed amount for a 42 hour work week, with no additional pay for overtime. A second agreement was entered into where Rev. Clarke would invoice MAP on a periodic basis at a fixed rate per day plus GST. However, there was no significant change in Rev. Clarke's hours or how he was paid for his work. During the course of his relationship with MAP, Rev. Clarke took on a number of additional duties that were essential to the management of MAP. The CRA ruled that Rev. Clarke was employed in pensionable employment and issued EI and CPP assessments to MAP for the years that they had not been remitted. MAP appealed the assessments before the Tax Court of Canada.  


The Tax Court applied the previous decision in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc. (PDF). While the Supreme Court of Canada in Sagaz cautioned that "there is no magic formula", it set out a number of factors that will be considered in making a determination of whether there is an employment relationship:

  • the level of control the employer has over the worker's activities;
  • whether the worker provides his or her own equipment;
  • whether the worker hires his own helpers;
  • the degree of financial risk taken by the worker;
  • the degree of responsibility for investment and management held by the worker; and
  • the worker's opportunity for profit in the performance of his or her tasks.  

The Tax Court's Findings

The Tax Court agreed that Rev. Clarke was an employee of the organization based on the fact that Rev. Clarke's services were essential to MAP's core function. The Court pointed to his dealings with donors and the level of control he had over the allocation of funds. In addition, the Court said that Rev. Clarke was essentially paid a fixed salary which was not dependant on the number of hours worked, nor was there any way that he could have made a profit through the sound management while performing his duties. He was working full time such that he had no time to carry out any other business activities. As such, notwithstanding MAP's stated intention and the language of the agreement, Rev. Clarke was an employee of the organization and MAP was required to remit the EI and CPP contribution amounts to the CRA and make source tax deductions.

Take Away for Employers

If the CRA is not sympathetic to a Reverend engaged by a non-profit, they likely won't be any more sympathetic to other employers. It may be tempting to classify a worker as a contractor. In fact, workers often request this arrangement. In the proper circumstances such a relationship is appropriate and mutually beneficial; however, it is not based on preference alone. A contractor cannot simply be an employee who chooses a different payment method. Careful consideration must be given to the objective relationship and facts such as those in Sagaz should be assessed. Also appreciate that significant risk lies with the employer as it is the employer's obligation to remit taxes. Further, any purported contractor relationship should include an obligation to indemnify the employer if the relationship is deemed employment by the CRA.