Many of the cases I have reviewed in recent years on the question of whether a worker is an independent contractor or an employee have inevitably determined that the worker is an employee. While there are some notable exceptions to this trend, I find myself surprised whenever I read a decision that concludes that the worker is in fact an independent contractor. Therrien v Minister of National Revenue, 2013 TCC 116 is one such case.
Therrien, a highly trained executive chef, applied for employment insurance benefits after he stopped working a Hasting Resort. HRSDC requested a ruling as to whether Therrien had been engaged in insurable employment, and the Minister of National Revenue determined that he had not been engaged in insurable employment because he was an independent contractor rather than an employee. Therrien appealed this decision to the Tax Court of Canada.
The Tax Court adopted the following test recently outlined by the Federal Court of Appeal in 1392644 Ontario Inc v MNR, 2013 FCA 85, to determine whether a worker is an independent contractor or an employee:
- What is the subjective intent of each party? This can be determined either by the written contractual relationship of the parties, or the actual behaviour of each party, such as invoices for services rendered, registration for GST purposes and income tax filings as an independent contractor.
- Does the objective reality sustain the subjective intent of the parties? While the subjective intent cannot trump the reality of the relationship, the objective facts must be considered “in light of” the parties’ intent. The central question is whether the worker is performing services in business on his or her own account. There is no set formula to make this determination and the factors to consider will vary with the circumstances. Usually, the relevant factors will include: the level of control over the worker’s activities; whether the worker provides his or her own tools; whether the worker hires helpers; whether the worker assumes and manages financial risks; and whether the worker has an opportunity to profit in the performance of the tasks.
Therrien testified that while he had initially agreed to be an independent contractor, he changed his intention after he had commenced work for Hastings Resort. He testified that after Hastings Resort failed to provide him with a written contract as they had agreed to do, he decided that the contract by which he agreed to become an independent contractor was void and he would thereafter be working as an employee. However, Therrien did not communicate this intention to Hastings Resort. The Court did not accept Therrien’s evidence on this issue because:
- A party cannot unilaterally change the terms of a contract.
- Even if a party could unilaterally change the terms of a contract, nothing actually changed in the working relationship between Therrien and Hastings Resort.
- Therrien emailed Hastings Resort six months after he started work and stated that he was waiting for the written contract. If he had truly changed his status to an employee, he would not have been waiting for his independent contractor agreement at that time.
- Therrien had been in three prior disputes with restaurants in which he took the position that he was an employee and the restaurant took the position he was an independent contractor. Therefore, Therrien had a good working knowledge of the difference between an independent contractor and an employee.
The Court concluded that Therrien and Hastings Resort had a common intention that he was an independent contractor.
The Court considered many factors in determining whether the objective reality sustained the subjective intent of the parties, including the following:
- Control – While Therrien was given complete control over the operation of the restaurant, which is sometimes consistent with an independent contractor relationship, the Court found that this factor was neutral because the owner’s lack of experience made it impossible for him to supervise Therrien.
- Location of the work – The Court found that this factor was neutral because the nature of the work required it to be performed at the restaurant regardless of the working relationship.
- Helpers – Therrien testified that he did not hire any assistants because he could not afford to pay them. As this suggested that he had the ability to hire helpers, this factor was consistent with an independent contractor relationship.
- Ability to perform other work – Therrien was permitted to provide his services to others at the same time that he was working at the Hastings Resort. This was consistent with an independent contractor relationship.
- Hours of work – Therrien was free to come and go from the restaurant as he wished, but since he had not yet fully trained the staff, he was required to be at the restaurant at all times to keep it running. The Court found that the potential to come and go was consistent with an independent contractor relationship.
- Signature dishes – Therrien created signature dishes for Hastings Resort. When he left, he demanded that Hastings Resort either cease serving the dishes or pay him $300 per day for the use of his name and the signature dishes. The Court found that this strongly supported an independent contractor relationship.
- Tools – Therrien provided his own knives and uniform. This was consistent with the intention that he was an independent contractor.
- Chance of Profit – Therrien was paid a flat amount per week with no set hours. The Court found that this was objectively consistent with the intention that he be an independent contractor.
- Risk of loss – While the suppliers billed Hastings Resort rather than Therrien, the Court found that this evidence was not helpful because Therrien was retained to provide executive chef services and not to operate a restaurant. Therefore, he would not have been expected to purchase the food with his own money. The Court found that overall, Therrien’s risk of loss was not objectively consistent with the parties’ intention that he be an independent contractor.
The Court concluded that, considering the factors as a whole, the objective evidence supported the parties’ intention that Therrien was an independent contractor. While it is encouraging to see a decision in which a worker was found to be an independent contractor and not an employee, it is important to remember the context in which the decision was made. A person may be considered an employee for some purposes and an independent contractor for others. In fact, the Ontario Ministry of Labour had previously concluded that Therrien was an employee of Hastings Resort. This conclusion was not binding on the Tax Court and it came to the opposite conclusion. Accordingly, context is important in considering whether a worker is an independent contractor or an employee.
For more information, please contact Alison Bird at coxandpalmer.com.