June 17, 2014

Supreme Court of Canada considers whether Equity Partner is an Employee

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John McCormick was an equity partner of Fasken Martineau DuMoulin LLP (the “Partnership”) for more than 30 years.  As he approached his 65th birthday, Mr. McCormick brought a human rights claim against the Partnership alleging that the mandatory retirement provision in the firm’s Partnership Agreement constituted age discrimination contrary to the British Columbia Human Rights Code (the “Code”).  Mr. McCormick’s claim raised the question: is an equity partner also an employee?

In McCormick v. Fasken Martineau DuMoulin LLP, the Supreme Court found that no employment relationship existed between Mr. McCormick and the Partnership under the Code.   The Court reviewed the different tests applied by courts and tribunals when assessing the employment status of a worker, including the Ontario Labour Relations Board’s seven-factor test.  The consistent themes in such tests are control and dependency; therefore, the Supreme Court created the simplified, “control/dependency test.”

It was clear that the Partnership did not have “genuine control” over Mr. McCormick in the significant decisions affecting the workplace, as evidenced by some of the following rights, powers and privileges he enjoyed as an equity partner:

  • The right to participate in the management of the partnership;
  • The right not to be subject to discipline or dismissal;
  • The right, on leaving the firm, to his share of the firm’s capital account;
  • The right to only be expelled from partnership by a special resolution passed by a meeting of all equity partners (arguably giving him tenure);
  • The other partners owed Mr. McCormick a duty to render accounts; and
  • The right to share in the profits and losses of the partnership, and the distribution of profits as determined by internal committees.

Lessons for Professional Partnerships

While this case deals specifically with a law firm, it is equally applicable to partnerships in accounting, engineering, and other professional firms.  Although it is unlikely that an equity partner would be considered an employee under human rights legislation, the Supreme Court noted that such a finding may be justified in a situation “where the powers, rights and protections normally associated with a partnership were greatly diminished.”

The Supreme Court noted that while there are similarities in the different statutory schemes dealing with employment, the determination of whether an employment relationship exists must always be assessed in the context of the particular scheme being scrutinized.

Simplified Employment Test

More generally, the Supreme Court’s decision signals a shift away from the lengthy ‘formulaic tests’ applied by courts and tribunals when assessing the employment status of a worker.   The Court stated that while the indicia set out in such tests may be helpful, they should not be applied formulaically. 

The essence of the “control/dependency test” is to consider whether the worker is actually subject to the control of others and dependent on them.

Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.