Canada trending toward enhanced protections for independent contractors, says employment lawyer

For years, employers have been able to avoid certain employment costs by working with independent contractors, rather than employees protected by the Employment Standards Act.

The gig economy employs 8.75 million Canadians – 28 percent of Canadian adults, according to a study from H&R Block. That is up from 13 percent last year, and nearly three-quarters of those 8.75 million workers say their gig job is in addition to their primary source of income.

For employers, while the party is not quite over, says Nancy Shapiro, it is last call. She says recent legal developments indicate that employers should be strategizing on how they intend to absorb increased labour costs as gig workers achieve enhanced protection.

Shapiro, a partner at Koskie Minsky LLP whose civil litigation practice is entirely devoted to employment law, will appear at Canadian Lawyer’s upcoming Employment Law Masterclass. The event takes place April 25, and focuses on “terminations, hybrid policies, and workers’ rights.” The Law Society of Ontario has approved the Masterclass for four hours and 35 minutes of professionalism content. Shapiro’s program is at 3:35 pm EST and titled “Emerging legal issues in the gig economy.”

For businesses, the draw of gig workers was the ability to skirt Employment Standards obligations, including minimum wage, withholding of employment insurance and Canada Pension Plan, and vacation and statutory holiday pay. Some provinces also have a health premium that employers are required to pay.

Governments and courts have been interested in cases of mischaracterization for a long time, says Shapiro.

In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, the Supreme Court of Canada provided a test used to determine whether someone who has been classified as an independent contractor is really an employee. The factors include the employer’s level of control over the worker’s activities, whether the worker has their own equipment, whether the worker hires their own helpers, the worker’s financial risks, and the degree of responsibility the worker has over investment and management.

“There were these avenues of recourse for people who wanted to fight and assert their rights, and we're seeing more and more people doing that,” says Shapiro.

The Canada Revenue Agency has also been cracking down on companies that mischaracterize their relationship with their workers. By treating an employee as an independent contractor, the employer is not withholding that worker’s taxes. For mischaracterization, the company can be liable to pay those taxes to CRA. There is also liability for the EI and CPP contributions, and the CRA can levy fines and penalties for interest too, she says.

“It's always been a high-stakes game mischaracterizing your relationship.”

Shapiro says that the courts also assisted workers by creating a third category for “dependent contractors.”

The 2009 Ontario Court of Appeal case, McKee v. Reid's Heritage Homes, placed this third category in the middle of the spectrum between employees and independent contractors by finding that the contractors at issue were entitled to the same reasonable notice of termination as an employee.

McKee emboldened independent contractors to fight for their rights, says Shapiro, because it eliminated the risk of adverse tax filings being directed against them if they sued the company.

On top of the caselaw, legislative developments are also emerging that are aimed at giving independent contractors more protections. This includes legislation from the federal government, British Columbia, and Ontario.

“We're talking about stat holidays. We're talking about vacation pay – things like that,” says Shapiro. “I think we're going to see a wholesale move, across the country, eventually, perhaps renaming ‘employee’ to just ‘worker,’ as we've seen in occupational health and safety,” she says. “So that you're not concerned with whether or not someone's technically on the payroll or not, but you're still going to give them some basic minimum protections.”