Employment lawyers are often asked to consider whether an individual is an "employee" or an "independent contractor". This is an important distinction for employers as the consequences for misclassification can be significant. If independent contractors are misclassified, employers may face liabilities relating to (i) entitlements under applicable employment standards legislation – including unpaid wages, overtime pay, vacation pay and holiday pay; (ii) wrongful dismissal damages (i.e. pay in lieu of notice); (iii) Canada Pension Plan deductions and remittances; (iv), Employment Insurance deductions and remittances; (v) penalties, and interest, for failure to make income tax withholdings and failure to issue T4s; and (vi) retroactive workers' compensation premiums and penalties.
The decision of the British Columbia Court of Appeal (the "BCCA") in Beach Place Ventures Ltd. v. Employment Standards Tribunal, 2022 BCCA 147 [Beach Place], is a reminder to employers that the employment relationship is determined by considering all relevant contextual factors. Further, Beach Place is an example of how the same worker may be considered an "employee" in one statutory context but not another. Beach Place turned on whether three taxi drivers were employees or independent contractors. An earlier Tax Court of Canada decision, Beach Place Ventures Ltd. v. The Queen, 2019 TCC 24, was decided on similar facts and classified one of the drivers as an independent contractor for the purposes of Employment Insurance. Despite this, the BCCA agreed with the lower decisions: the drivers were employees for the purposes of the Employment Standards Act (the "ESA").
In 2016 and 2017, the three taxi drivers filed individual complaints with the Director of Employment Standards (the "Director") under section 74 of the ESA. Generally, the complaints alleged that the employers, Beach Place Ventures Ltd. and Black Top Cabs Ltd., breached the ESA by failing to pay regular wages, overtime, statutory holiday pay and vacation pay. At stake was a substantial amount of money for alleged unpaid wages.
The employers' business structure created ambiguity in the employment relationships. None of the three drivers owned their taxi or taxi licence: one driver leased a taxi and the other two paid fees to acquire a license to operate the taxis for periods of time. After deducting the cost of the lease or licence fee, the drivers kept the fares earned while driving during their lease or licence period. Black Top's shareholders own and operate the taxis, and Black Top holds the taxi licences on behalf of its shareholders. Black Top is also Beach Place's sole shareholder. Beach Place provides administrative, accounting, and dispatch services to Black Top taxis.
Despite the lease and licence structure of the business, the Director found the taxi drivers to be employees for the purposes of the ESA. The Employment Standards Tribunal (the "Tribunal") upheld the Director's determination on appeal. And the Supreme Court of British Columbia (the "BCSC") dismissed the employers' application for judicial review.
Decision of the BCCA
The BCCA agreed with the BCSC and dismissed the employers' appeal: the taxi drivers were found to be employees for the purposes of the ESA.
Two broad issues arose on appeal: (1) whether the Tribunal erred in refusing to follow the Tax decision, and (2) whether the Tribunal's interpretation of "employee" in the ESA was patently unreasonable?
On the first issue, the BCCA saw no merit in the employers' argument: the Tribunal was not bound by the Tax Court's earlier decision. The BCCA found that the definition of "employee" "must always be assessed in the context of the particular scheme being scrutinized" and if res judicata could bind decisions from different legislatively mandated authorities, the Tax Court could effectively undermine the authority and integrity of the Tribunal.1
On the second issue, the BCCA found the Tribunal's decision was not patently unreasonable. The BCCA rejected the employers' insistence on the need for a general conception of employee and instead concluded the existence of an employment relationship is best determined by looking at factors, not by stating and applying a precise legal test or definition.
Different factors apply at different times, depending on the context. The BCCA concluded that whether someone is an employee under the ESA must be framed by the ESA's statutory definition, the ESA itself, and the case law. Insisting on a conceptually consistent definition of employee is at odds with the Supreme Court of Canada's ("SCC") decision in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59 [Sagaz]. In Sagaz, Justice Major stated: "there is no one conclusive test which can be universally applied to determine whether a person is an employee or an independent contractor" and the "relative weight of each [factor] will depend on the particular facts and circumstances of the case."2 In Sagaz, the SCC concluded that the central question is whether the person is performing services as a "person in business on his own account."3
Factors to Assist in Determining the Working Relationship
Beach Place confirms that there is no universal test to determine whether a worker is an employee or an independent contractor; however, there are a number of factors adjudicators will consider in determining whether a worker is an independent contractor:
- whether the worker provides their own equipment, tools and supplies;
- whether the worker hires their own employees or sub-contractors;
- 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 their tasks;
- whether the worker has a high degree of freedom in the manner in which the services contracted for are provided to the company;
- whether the worker sets their own hours;
- whether the worker has the ability to work for several companies or competitors;
- whether the worker is an incorporated business, invoices the company, remits GST and is paid without deductions for EI and CPP;
- whether the worker is hired for a set time or specific project; and
- whether the terms of the agreement state the worker is an independent contractor.4
The foregoing list is not exhaustive, and a worker does not have to satisfy all of the above criteria to be considered an independent contractor. However, the more factors that are present that weigh in favor of being an independent contractor, the greater the likelihood the worker will be considered an independent contractor.
Takeaways for Employers
- Beach Place is a good reminder that employment relationships are determined contextually – there is no fixed test.
- A worker can be an employee for the purposes of the ESA but an independent contractor for the purposes of Employment Insurance. Previous decisions, using the same facts in different contexts, are not binding on administrative decision makers.
- The potential liability associated with misclassification of independent contractors can be significant and include: (i) entitlements under applicable employment standards legislation – including unpaid wages, overtime pay, vacation pay and holiday pay; (ii) wrongful dismissal damages (i.e. pay in lieu of notice); (iii) Canada Pension Plan deductions and remittances; (iv), Employment Insurance deductions and remittances; (v) penalties, and interest, for failure to make income tax withholdings and failure to issue T4s; (vi) and retroactive workers' compensation premiums and penalties.
If you have any questions about this decision or would like assistance in assessing whether your workers are misclassified as independent contractors, please contact one of the members of McCarthy Tétrault's Labour & Employment group.
1. Beach Place at para 35, citing McCormick v. Fasken Martineau Dumoulin LLP, 2014 SCC 39 at para 25; Beach Place at para 37, citing Penner v. Niagara (Regional Police Services Board), 2013 SCC 19 at para 31.
2. Sagaz at paras 46-48.
3. Beach Place at para 46, citing Sagaz at para 47.
4. It is a common misconception that a worker who has signed a written contract intending to make the worker an independent contractor will be determinative, however, the wording of an agreement does not necessarily depict the actual relationship. The intention of the parties is only one factor adjudicators will consider.
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