Contractors And Labour Laws

I can say that the use of a word like "associates" does not change the fundamental issue. It is just a word play by some firms like Walmart to make people feel like "team members".

Is there a specific set of facts that has caused you to raise the issue? That would help.

The fundamental point is that an employer can't change a worker into a contractor just by changing the name or even by signing some individual "contract". It's the real-life relationship which counts, and if a labour board finds that that relationship is one of economic dependence, then you're a worker, subject to labour standards legislation, entitled to join a union, etc.

ETA: Kirby M., if you want to run a specific scenario by us privately, feel free to send a PM or I'm sure munroe and/or cmkl would be willing to help as well.

[ 26 September 2007: Message edited by: unionist ]

quote: Employee or Independent Contractor?

The courts have found that the Employment Standards Act should be broadly and liberally interpreted. It is inclusive of both common law definitions and those set out specifically in it. The Act includes employees who may not be employees under common law. The Act may also exclude persons, by regulation, who may be employees under common law.

The courts have developed several common law tests to distinguish between employees and independent contractors. These tests have been adopted and refined by Labour Boards and Arbitrators.

The director will consider a number of tests, as outlined below, to find an employee/employer relationship. No test is exhaustive in exploring the relationship. All tests must be examined and considered together.

The director will consider a number of tests, including:
Control test
Four-fold test
Organizational or integration test
Permanency test
Specific Result test
Economic Reality test
These tests should be weighted in light of the purposes of the statute (s.2 of the Act).

Control test

One of the most important factors in distinguishing between an employee and an independent contractor is the nature and degree of control exercised by the payer over the payee. The “control test” determines whether one person is in a position to order not only what is to be done, but also how it is to be done. Where such control exists, the courts have generally regarded the relationship as that of an employer and employee.

There are four factors traditionally used in the control test:
Selection - the payer retains the power to select the worker.
Dismissal - the payer has the right to suspend or dismiss the worker.
Method of work - the payer has the right to control the method in which the job is carried out.
Remuneration - the payer sets the payment scale for wages or other remuneration to the worker.
Four-fold Test

This determines who in the relationship has:

Control — See Control Test above.

Ownership of tools — Does a person use tools, space, supplies, and equipment owned by another person? If so, this would indicate an employment relationship. In a clear-cut case of an employment relationship, employers provide all the necessary equipment and tools for the employee to do their job, including maintaining the equipment and purchasing supplies. Individuals who are forced to purchase and/or finance equipment through the company to retain or get work are generally employees. In other words, regardless of whether the individual owns their own equipment, because he/she has very little choice in critical matters, such as financing, they are an employee.

Independent contractors own their own equipment; if necessary, finance the purchase of equipment through a financial institution of their choosing; and, maintain the equipment as they see fit using service providers of their own choosing. Companies with whom independent contractors contract may, because of customer requirements, set specifications for equipment; however, may not establish brands, makes or colours.

Chance of profit — Does a person have little or no chance of profit? If so, this would imply an employment relationship.

An employee will generally receive a salary or wage rate based on a time period; that is, hourly, daily or monthly. An employee’s earnings are not dependent on whether or not the employer makes a profit. A person who is compensated in this manner has no chance of profit.

An independent contractor bidding on a contract for service has a chance of profit arising out of their ability to perform the tasks in a more efficient manner through controlling costs and increasing efficiencies, or by sub-letting the contract. The more control the independent contractor has over how and when the work is done, the greater the chance of profit.

A large capital investment in machinery or equipment has a direct bearing on entrepreneurial chance of profit.

Risk of loss — Does a person carry the financial risk involved in the provision of the work or services? If so, this would indicate a contractual relationship.

(Note: Commission or other forms of pay incentive do not indicate chance of profit or risk of loss.)

An employee generally will receive a salary or wage rate based on a time period; that is, hourly, daily or monthly. An employee’s earnings are not dependent on whether or not the employer makes a profit. A person who is compensated in this manner has no risk of loss.

An independent contractor bidding on a contract for service has a chance of profit arising out of their ability to perform the tasks in a more efficient manner through controlling costs and increasing efficiencies or by sub-letting the contract.

A large capital investment in machinery or equipment has a direct bearing on entrepreneurial risk of loss.

In general, the greater the degree to which the employer supplies goods and services, retains direction and control, or has economic dominance, the greater the likelihood of employment status.

Organizational or Integration Test

The organization or integration test determines if the work a person performs is integral to, or contributes to, the operation of the business. The more integrated the work is with the employer’s business, the more likely it is that the person is an employee.

Example

A pizza restaurant that also delivers pizza cannot operate without pizza delivery drivers. These drivers are employees of the restaurant.
Permanency Test

This test determines the duration of the relationship. The longer and more continuous the relationship, the greater chance that it is an employment relationship.

An employee who is hired and paid by one company and assigned to work under the control of a second company may become an employee of the second company. This relationship will depend on many factors, including the duration of the stay, the degree of control of the employee, and the control and direction between the two companies.

If the assignment is temporary, the employee remains employed by the first employer, unless there is another agreement. A contract of employment cannot be transferred from one employer to another without the employee’s consent.

Specific Result Test

This test attempts to determine whether a contract is for a single service leading to a specific result or whether it is for general services. Two factors must be considered under the specific result test:
Specific Work

If it is agreed that certain specified work would be done for the payer, the payee is an independent contractor. It is an employer/employee relationship where the payee agrees, for either a period of time or indefinitely, to work for the payer, either full or part-time.

Personal service

A contract of employment normally requires a specific individual to place his/her own services at the disposal of the payer. An independent contractor’s only obligation is to see that a certain agreed-upon task is completed. In other words, it doesn’t necessarily matter who actually carries out the work.
An employee/employer relationship usually has an employee putting their personal services at the disposal of an employer during a given period of time, without reference to a specific result and, generally, the work is done on an ongoing basis.

Where a person agrees to perform certain specified work on behalf of someone else, it may be inferred that they are an independent contractor.

Economic Reality Test

This test examines the relationship between the parties in order to determine whether a particular individual is carrying on business for himself/herself. There are five criteria normally used in the assessment of the relationship:
Control - see Control test
Risk - see Four-fold test
Financial investment - is there a capital outlay by the person performing the contract?
Lasting relationship - is there a permanent relationship between the person providing the service and the person paying for the service?
Diversity - is the person performing the service permitted to provide similar services to other parties and actively involved in searching out other work?
Generally where the payee receives direction from the payer, supplies no capital in the form of equipment, takes no financial risks, has no liability, has formed a lasting relationship and does not have the opportunity to render services to others, it is generally held that he/she is an employee.

This test looks at the question of employee/employer relationships not by defining who is an employee but from the viewpoint that all employed people are either employees or self-employed (including independent contractors).

A self-employed person includes:
a person who employs themselves; and
a person who is employed but on his own behalf. That is the individual doing the work in the course of their business on their own account, not for someone else.

BC Employment Standards Bulletin

Thank you for all the responses so far, they have been very helpful.

quote:Originally posted by Jabberwock:
kropotkin, that is excellent information. We are having issues with this at work, but I work in a Federally regulated industry. Do you happen to know where (and if) I can find a comparable explanation in the Canada labour code?

The tests are basically the same in all jurisdictions. But the grey areas can get quite grey.

Here's an excerpt from the Report by Harry Arthurs which was commissioned to consider changes to federal labour standards (Part III of the Code). If you scroll down to the section entitled "Workers on the Margins of Part III: Independent Contractors and Autonomous Workers", you'll get an idea of the state of things federally as well as Arthurs' proposals for change.

From a review of the case:

quote:Judge Shore cited the statement of the Federal Court of Appeal in Gallant v. Canada (Department of National Revenue), [1986] F.C.J. No. 330 (QL) that "[t]he distinguishing feature of a contract of service is not the control actually exercised by the employer over his employee but the power the employer has to control the way the employee performs his duties."

There are lots of grey areas as referred to. For example, company ownership of tools tends to say the person in question is an employee/dependent contractor. But the opposite is not the case. Its very common for carpenters who provide their own tools down to the air guns would be an employee on every other test if they work on a site with other workers, and any juridiction or body would rule them to be an employee.

That said about grey areas, and that they are different in the different jurisdictions- the basic principles/tests are the same verywhere [and in the US]. It's also the same tests whether we are talking labour laws or tax laws.

And MOST cases it is going to be clear cut. I think a lot of the mythology out there on what employers do or might do to turn everyone into a contractor is rooted in fact that there is so little enforcement. So what employers get away with turns into a mythology about what they can do.

By the way, I don't see any substantive difference in that definition of 'dependent contractor' and employee. I think the BC body just made that dependent/independent contractor to end run the word games with employers- "but she's a contractor of mine".

Essentially what they are saying is: "you call them a contractor, here is the test whether they are dependent or independent." [Unspoken subtext: and the 'dependent contractor' is for all intents and purposes treated as an employee.]

quote:Originally posted by KenS:
And MOST cases it is going to be clear cut. I think a lot of the mythology out there on what employers do or might do to turn everyone into a contractor is rooted in fact that there is so little enforcement. So what employers get away with turns into a mythology about what they can do.

Fully agree.

The lesson is, if you're doing work for someone and feel that they have the upper hand economically, assume you're an employee and fight for that status. Otherwise you've given up without a fight.