A vast majority of people calling themselves independent contractors — and whose “employers” happily play along — are employees in the eyes of the law.
Sometimes it’s genuinely difficult to assess, but on other occasions, the distinction between the two categories is blurred because one or both parties are trying to ‘game’ the system.
A worker might wish to enjoy the freedom of being an independent contractor, which allows them to set their own schedule and gives them the freedom to complete a job as they see fit. Most importantly, the ability to make deductions for business expenses for travel, tools and even a home office for tax purposes.
An employer might also wish to call an employee an independent contractor, and even require them to sign agreements saying so, to save money by not paying minimum wage, apart from vacation, holiday and overtime pay, and more. Genuine, independent contractors can’t even claim wrongful constructive dismissal when the relationship ends.
But getting it wrong can lead to serious financial consequences, particularly for employers.
An employee who has been treated like an independent contractor, but isn’t, could bring a lawsuit and oblige the employer to retroactively pay overtime, vacation pay and more.
The employer could be required to pay large penalties, and interest on outstanding payroll deductions. Indeed, employers in Ontario could be fined by the Ministry of Labour.
Uber Inc. is a massive company that “employs“ likely over one hundred thousand Canadians.
So, when the Supreme Court of Canada’s released its Heller v Uber decision, it was potentially big news.
It could ultimately lead to massive financial consequences for Uber and alter the gig economy forever, forcing companies that rely on these workers to change their model or exit the jurisdiction as online food delivery company Foodara did when its workers in Canada attempted to unionize.
Heller was a driver for UberEats who argued that he was an employee, not an independent contractor. That meant Uber owed him overtime, vacation, holiday pay, as well as other entitlements.
The Supreme Court didn’t answer the question of whether Heller and other Uber drivers were employees or not, so in that respect the real issue lies ahead. But it did remove an important roadblock, paving the way for a potentially $400 million lawsuit.
Tucked away in the contractor agreement that every Uber driver must sign before they can start working is an arbitration clause.
The clause required drivers to bring any problems to arbitration in Amsterdam, the Netherlands, and not to an Ontario court. The arbitration in Amsterdam would cost around $14,000 in administrative fees up front, as well as the cost of transport and legal representation in the Netherlands. Something no Uber driver could even possibly afford. Take Heller himself, who earns around $400 to $600 a week for 40 or more hours of work.
The Supreme Court’s decision that the arbitration agreement was unconscionable was, therefore, no surprise. Indeed, it would have been astounding if it had ruled otherwise. After all, judges, even those at the Supreme Court, are people too. It agreed that this created a clear unfairness for those working for Uber and could never afford to fly to Amsterdam to challenge the massive tech company.
The question of whether or not Heller and others like him are employees will now be decided by an Ontario court. Heller has now had his easy win, with the real test of employment versus independent contractor status still lies ahead.
If they are employees, the cost consequences for Uber and companies like it are astronomical. The gig economy in Ontario and likely the rest of Canada would be completely reshaped as companies would have to pay workers for unpaid vacation time and public holiday pay, overtime, and severance pay.
How do you know whether you, or someone working for you, is an employee or not?
The basic test is the same for multi-billion dollar tech giants as for your local hardware store.
How much control does the company have over the worker’s activities? The more genuine, not titular, freedom a worker has to set their own schedule and choose how they will complete the job, the more likely that they are not an employee.
Can the worker hire others to do the work for them, or do they have to do it themselves? Does the worker provide his or her own equipment? As an example, it will be very relevant that in Heller’s case, Uber drivers provide their own vehicles and smartphones.
How much financial risk does the worker take on and what chance does he or she have to profit or lose money? Is there genuine entrepreneurial risk?
Sometimes, the distinction between employees and independent contractors can be almost negligible. But for employers, the costs of not knowing are too high to ignore.
Got a question about employment law during COVID-19? Write to me at email@example.com.
Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers. He practises employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada.