Labelling employees as contractors doesn’t necessarily make it so

Date: 2008
Author: Daniel A. Lublin
Publication: Metro

Written agreement not dispositive

The golden rule is that there are no golden rules. – George Bernard Shaw
Customs used to define Canadian employment law – not contracts.  When there was a workplace dispute, judges would decide cases based on what was reasonable or just or what the parties would have agreed to if they had thought about the issue from the outset.  Customs, however, have been replaced by comprehensive employment contracts and lawsuits for wrongful dismissal.  Now, instead of being asked to consider what’s most reasonable or fair, judges are asked whether a contract applies and, if so, what its terms represent.  But what happens when a contract doesn’t accurately portray the true nature of an employee’s job?  As La-Z-Boy Canada Ltd. recently learned, sometimes employees are not bound by the agreements they have agreed to.
Having landed on the wrong side of a government audit, finding that its commissioned sales agents were actually employees, La-Z-Boy needed to make a change.  All of its agents would be made to sign independent contractor agreements, confirming that they were not employees.
The new relationship made sense for La-Z-Boy.  It could avoid the overhead and costs associated with its outside sales staff and it could use the new arrangement to satisfy further audits.  As well, since the law requires that only employees, not contractors, are entitled to severance pay when fired, La-Z-Boy could avoid paying severance too – or so it thought.
Fourteen-year company veteran Gordon Braiden was one of its sales agents.  Braiden was told that, in order to continue at his job, he would have to sign annual agreements stating that he was not an employee but rather, a contractor and that he could be fired with only 60 days’ notice.  Despite the clause, Braiden signed his name and continued to work as before.
Nine years later, Braiden was fired.  La-Z-Boy gave him 60 days’ notice, according to the agreements.  However, believing that he was actually an employee and therefore entitled to more substantial severance, Braiden challenged La-Z-Boy’s agreements in court – and recently he won.
Although Braiden signed an agreement stating that he was a contractor, the court confirmed that the true test is not what a signed agreement states but rather the nature of the employer’s control and the employee’s vulnerability in the relationship.  Under the new agreements, Braiden still worked full time and La-Z-Boy continued to control which products he sold, how he sold them, where his sales territory was and what promotional methods to use.  Therefore, despite his label, the court found him an employee.
Labelling a worker as a contractor is not dispositive, even if the employee agrees.  The court will always consider the true nature of the relationship to determine how the parties actually behaved.
If you want to employ or be employed as a contractor, then do as follows:

  • Ensure that there is a clear separation between the employer’s business and the contractor.  Permit the contractor to perform services for others and to maintain genuine discretion over how and when to perform the job.  Even an airtight independent contractor agreement will not be reliable unless the parties stick to what it says.