September 30, 2016 By: Janice B. Payne
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Nelligan O’Brien Payne gratefully acknowledges Victoria Craine, Student-at-Law, as co-author of this blog post.

On July 27, 2016, the Ministry of Labour released the much-anticipated Changing Workplaces Review: Special Advisor’s Interim Report. This report is part of the Ministry of Labour’s broader mandate to modernize employment and labour laws, in an effort to strengthen protection for vulnerable workers and enhance business competition in a globalized and changing economy. While the report makes no specific recommendations or proposals, it sets out various options for reform.

One noteworthy area of reform deals with whether the current definition of “employee” under Ontario’s Employment Standards Act, 2000 (the “ESA”) is sufficiently inclusive. The report addresses two concerns in respect of this issue.

1. Misclassification of employees

The first addresses how workers who would otherwise fall within the definition of “employee” under the ESA are sometimes misclassified by their employers as “independent contractors”. Currently, 12% of Ontario’s total workforce of 5.25 million are reportedly referred to as “own account self-employed”, which are self-employed individuals without paid employees. However, the experience of the Ministry of Labour suggests that a portion of these “own account self-employed” workers are misclassified, as they are actually an “employee” within the meaning of the ESA, but treated as independent contractors. This concern is not limited to one type of business or sector, but is prevalent in certain segments of the economy, including the “gig” or “sharing” economy, cleaning, trucking, food delivery and information technology.  

As a result of misclassification, employees who are labelled “independent contractors” are subject to substandard working conditions and are denied access to critical benefits and protection to which they are entitled. Further, businesses avoid direct financial costs of compliance with the ESA and other legislation. These costs include 4% vacation pay, approximately 3.7% of wages for public holiday pay, overtime pay, termination pay, severance pay, and premiums for Employment Insurance and the Canada Pension Plan. In sum, misclassification has a significant adverse impact on those Ontario workers who are labelled independent contractors and not treated as employees.

To prevent such impact on Ontario workers, the report provides the following options:

  1. Maintain the status quo.
  2. Increase education of workers and employers with respect to rights and obligations.
  3. Focus proactive enforcement activities on the identification and rectification of cases of misclassification.
  4. Provide within the ESA that in any case where there is a dispute about whether a person is an employee, the employer has the burden of proving that the person is not an employee covered by the ESA and/or has an obligation similar to section 1(5) of Ontario’s Labour Relations Act (“LRA”) in relation to related employers, to adduce all relevant evidence with regard to the matter.

2. Definition of “employee”

The second concern addresses the definition of “employee” under the ESA, in light of the ever-changing relationships and arrangements between workers and employers. Over time, the Ontario economy has grown more sophisticated, workplaces have fissured, and a spectrum of relationships and arrangements has evolved between workers and employers, ranging from standard employment relationships at one end of the spectrum to independent contractors at the other.

“Fissuring” employment relationships refers to the shift away from direct employment through a wide variety of organizational methods, such as subcontracting, outsourcing, franchising and the use of temporary help agencies. While some of these methods are used for organizational business purposes, some are used for the express purpose of insulating and shielding the business from responsibility for employment standards. As the aforesaid changes transpire, prior definitions have become ill-suited to the modern workplace, because not every worker fits neatly into the category of employee or independent contractor.

The common law has long recognized a category of worker who is not a traditional employee and is not an independent contractor, but who is entitled to some of the common law protections of an employee – these individuals are called “dependent contractors”. This intermediate category consists of those non-employment work relationships that exhibit a certain minimum economic dependency on their employer, which may be demonstrated by complete or near-complete exclusivity. While a “dependent contractor” is included in the LRA, there is no provision that specifically defines “employee” as including a dependent contractor in the ESA. As a result, the argument was put forth that the current ESA operates as an incentive to fissuring, and encourages businesses to structure their workplaces so that all work is performed by anyone not deemed an employee, thus avoiding the obligations of an employer under the ESA, and effectively negating the workplace rights of vulnerable workers.

To prevent such exclusion of Ontario workers, the report provides the following options:

  1. Maintain the status quo.
  2. Include a dependent contractor provision in the ESA, and consider making it clear that regulations could be passed, if necessary, to exempt particular dependent contractors from a regulation or to create a different standard that would apply to some dependent contractors.

In light of the aforementioned findings, it can be expected that some type of reform to the definition of “employee” under the ESA will occur. Stay tuned for a further update once the final report has been released!

Until then, individuals have common law remedies that should be discussed with a lawyer if they believe that they may be in an employment or dependent contractor relationship that is not being properly recognized. Contact our Employment Law Group today if you have any further questions.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Employment Law