Date: January 22nd, 2012
Author: Daniel Lublin
Owning a business within a business is not dispositive
It’s workplace law’s newest phenomenon: employers, happy to unburden themselves from the various costs and liabilities associated with their employees, increasingly hire “contractors” to perform the same services their employees did before. However, this arrangement is often in dispute. Government agencies and courts are apt to find that many contractors are truly employees. No surprise there as the word “contractor” seldom represents more than a label. What really matters is how the parties behave. So when is a contractor actually an employee?
Despite signing an independent contractor agreement and incorporating his own company, Gordon Braiden was not self employed. Braiden, a sales agent, worked full time and exclusively for La-Z-Boy, which controlled which products he sold, how he sold them, where his sales territory was and what promotional methods to use. It did not matter that Braiden had incorporated his own company, according to an Ontario court, because ultimately he was part of La-Z-Boy’s business, not his own.
Similarly, real estate agent Elizabeth McKee was an employee even though she had signed a contractor agreement, had her own incorporated business and invoiced her principal for commissions. Following a fallout which cost her job, McKee sued arguing that she was employee. The fact that she operated a business within her work for the company did not mean she was a contractor, nor did the fact that she hired and supervised her own staff. Since she worked for 18 consecutive years exclusively for her employer and had become an integral part of its business, the court declined to uphold the contract and characterized her as an employee. She was then awarded nearly half a million dollars in severance.
Labelling yourself as a contractor is not dispositive, even if your employer agrees. Courts and tribunals will always consider the true nature of the relationship to determine how the parties actually behaved.
If you want to be employed as a contractor, then do as follows:
Ensure that there is a clear separation between the employer’s business and your own. Ensure you are permitted to perform services for others and to maintain genuine discretion over how and when you perform the job. Even an airtight independent contractor agreement will not be reliable unless the parties stick to what it says.