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USING INDEPENDENT CONTRACTOR STATUS TO AVOID LAWS

It is amazing how many companies out there still think they can avoid all the obligations that go with employees by simply having a contract signed that says the person that works for them is an independent contractor and then having the employee render invoices for their time.
 
If you stop to think about it, if it was that easy, none of us would be employees. There would be no health tax deductions, no Canadian Pension Plan or Employment Insurance deductions. There would be no obligation to withhold taxes and send them to the government.
 
The Employment Standards Act would not apply. If you want to terminate somebody, just tell them they’re gone and given them their last pay cheque (sorry, pay their last invoice). If your independent contractor tries to take a maternity leave, just tell them that the contract is over. People think that all of these obligations and minimum rights can be avoided through a little bit of paperwork. It’s just not that easy.
 
A woman we will call Anne was a certified physiotherapist assistant. A rehabilitation company hired Anne to go to a nursing home in Hamilton and carry out the treatment prescribed by a physiotherapist. The company gave Anne an invoice form for her to fill out twice a month. She would list the treatment she had rendered and be paid a set fee for each treatment. No deductions were made and the invoice was simply paid.
 
Anne developed a friendship with one of the elderly residents of the nursing home and from time to time would visit her in her off hours. The resident’s children didn’t like this friendship and told the nursing home they wanted it to stop. The nursing home told the rehab company it had to stop.
 
The company told Anne that she could not use her job at the nursing home to gain social access to its residents. She refused to end the friendship.
 
What the company did not do was tell Anne that the children of the resident objected to the friendship and allow her to approach them directly. The company also failed to communicate simply to Anne that if she kept visiting she would lose her position.
 
The children of the resident complained again and the company told Anne she was finished. Anne sued, claiming that she should have been given reasonable notice of the termination given her seniority and level of responsibility.
 
The problem is, if you are truly an independent contractor, no notice is required.
 
Despite the fact that Anne was called an independent contractor, she had no discretion as to who she treated, when she treated them or the days or hours of her work. She had no discretion with respect to which treatments were rendered. She basically worked a full time work week which left her no opportunity to find work elsewhere.
 
These are not the only factors that a court will look at but they are some of the major ones. At the end of the day, there is no simple way to tell whether somebody is truly an independent contractor.
 
Ultimately, if it looks like a duck and quacks like a duck, it’s a duck.
 
In this case, the judge found that Anne was almost a duck. She was a dependent contractor. Not an employee in the traditional sense, but somebody so dependent on the relationship as their livelihood that they are entitled to reasonable notice of a termination without just cause just like an employee would be.  
 
This was a nice result for Anne because she got to have her cake and eat it too. She was entitled to notice of her termination but since the judge did not find that she was an actual employee at law Revenue Canada will likely not be showing up at her door and recalculating her tax returns for the last five years.
 
Although the rehabilitation company probably was not happy about losing this case, things could have been worse. If Anne had been found to be an actual employee and Revenue Canada got wind of it,  the company would likely have had two pay both the employee and employer contributions it should have remitted for at least the last two years of the relationship and perhaps a penalty on top.
 
In this case, the judge found there was not just cause to end the relationship. The rehab company had been a poor communicator and could have avoided this entire case if it had simply written a one line letter saying, “If you do not stop visiting the resident on a social basis, your contract will be terminated.” It’s that easy. You don’t need a lawyer to write it. After five years of doing this work, the judge awarded Anne six months pay in lieu of notice and of course, the rehab company paid most of Anne’s legal costs.
 
Generally speaking, if you think you’ve come up with a bright idea as to how to avoid laws that protect workers, it’s usually not such a bright idea. You will not be the first one to have thought of it. The people who enforce those laws, whether they are judges, Employment Standards Act officers or from Revenue Canada have already been there and done that. They look beyond the paper work.
 
As published in the Hamilton Spectator, June 29, 2009
Ed Canning
Ed Canning
P: 905.572.5809
ecanning@rossmcbride.com