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
the level of control the employer has over the worker's
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.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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