Is Your Employer Wrongfully Treating You as an Independent Contractor to Avoid Employment Standards?

There’s a story in the Toronto Star this morning about the launch of a campaign called Stop Wage Theft by the Workers’ Action Centre in Toronto.  The Toronto Star piece focuses on the story of a group of workers who claim unpaid wages from a company called Com-Kote Inc.   Com-Kote says it doesn’t have to pay ESA requirements because none of these people are their employees.  They are all “independent contractors”.  They are self-employed painters running their own businesses.  Com-Kote entered into a commercial contract with these other businesses.  So there is no employment contract at all.  And since there is no employment contract, Com-Kote can withhold payment for services performed whenever it decides it doesn’t like the quality of work.

This is a common situation.  Many businesses try to avoid the obligations associated with employing people by treating workers as independent contractors.  It often works, since in most cases the workers will just accept that arrangement in order to get the work, because they like the idea of being in business for themselves, or because they don’t realize that they would be entitled to employment standards protections if they are “employees”.  However, when the workers do challenge the arrangement to obtain their ESA entitlements, they are often successful because many of these arrangements are shams. As the saying goes (sort of), if a person walks like an employee, and quacks like an employee,  they’re probably an “employee”.

The Com-Kote story reminds me of a decision of the OLRB from a few years ago called Ilaris Corp v. Gadzevych.  Ilaris was also in the construction industry, and hired workers and called them “independent contractors”.   In fact, Ilaris had about 45 people working for it yet claimed only 3 were employees:  the owner, and two directors.  Everyone else doing work for Ilaris was in business for him or herself.   After the work was performed, Ilaris withheld payment from some workers because it said the work was unsatisfactory.  Two of Ilaris’s workers filed ESA complaints claiming unpaid wages.  Ilaris argued, just like Com-Kote, that the workers were not their employees and therefore they could withhold payment if they like.

The Labour Board ruled that the two Ilaris workers were “employees” within the meaning of the ESA.   The definition in the ESA is not very helpful.  It says this:

“employee” includes,

(a) a person, including an officer of a corporation, who performs work for an employer for wages,

(b) a person who supplies services to an employer for wages,

(c) a person who receives training from a person who is an employer, as set out in subsection (2), or

(d) a person who is a homeworker,

and includes a person who was an employee;

In the Ilaris case, the Board reviewed the various tests that have been used over the years to decide if workers are employees or independent contractors.  It started by noting that the ESA is intended to be interpreted broadly, so as to include as employees as many people as possible.  A key question is:  Whose business is it?

A person who is self-employed usually looks like they are in business for themselves.  That means, for example, that they get their own customers, they can hire other people to do the work for them, they can do work for various clients, they own their own tools and equipment, they determine how work is performed.  These conditions are not always present, but the more they describe the situation, the more likely the person is self-employed.  In the Ilaris case, the workers showed no indicia of being in business for themselves.  Here’s what the Board ruled:

In my view, it is clear that Mr. Chorikov was not an independent contractor but rather an employee who was being paid on a piece rate basis.  His labour was an integral part of Ilaris’ business.  Ilaris… found the work, bid on the work, and contracted to perform the work.  Ilaris provided the materials.  While Mr. Chorikov was hired for a fixed amount per project, and not on an hourly rate, he was not free to substitute someone else to perform the work.  Indeed, Ilaris… assigned Mr. Chorikov to perform specific tasks.  Mr. Chorikov did not hire or supervise others.  There is no sense in which he can be described as being in business for himself.  Rather, his activities were controlled by Ilaris. Accordingly, I find that he is an employee within the meaning of the Act and not an independent contractor.

If workers are “employees”, then the ESA applies.  That means all wages must be paid, including overtime, holiday pay, and termination and severance pay.  It also means that wages cannot be withheld on the basis that the employer doesn’t like the quality of the work. Section 13 of the ESA prohibits employers from withholding wages for “faulty work” (s. 13(5)(b)).  An employer must pay the wages, but it can dismiss the worker for poor performance.

Note also that a clause in a contract saying “You are not an employee.  You are an independent contractor” usually means very little.  Otherwise, an employer could just call everyone an independent contractor completely avoid employment laws, as the Labour Board noted in another recent case called Greypoint Properties:

an employer cannot decide that a person is an independent contractor, any more than an employer and an employee can agree that the relationship is one of “independent contractor”.  Whether someone is an “employee” or an “independent contractor” is a legal conclusion, based on a determinations made from the factual circumstances, having regard to the purposes for which the question is being asked.

That’s some good news for employees confronted by one of the companies that wants to have no employees.  If an employee is given a contract saying they are an “independent contractor”, and they fear that arguing about it will cause them to lose the job, they can agree to the contract but later file an Employment Standards Act complaint alleging that they are in fact an “employee”.   The fact that the employer would like you to be an independent contractor means nothing.   If you look and feel like an employee, there is a good chance that you are, regardless of what your employer calls you.