Employee v. Independent Contractor: Still A Fine Line

The other day I was reviewing recent decisions of the Saskatchewan Courts for new cases in the area of employment law and the Court of Appeal decision in Farmers of North America Incorporated v. Bushell, 2013 SKCA 108 caught my eye. It is not a ground breaking decision, for it does not create new law nor does it settle a controversial legal point that required clarification. The decision is fairly straightforward; it upheld the trial decision that, for purposes of a claim for unpaid wages and damages for wrongful dismissal, the plaintiff, Brent Bushell, was an employee, not an independent contractor, of the defendant, Farmers of North America Incorporated (“Farmers”). It did, however, get me thinking about the risks businesses can get into when there is an attempt to characterize an employee as an independent contractor.

In this case Mr. Bushell started working with Farmers as a manager under an employment contract. Several months later, though, this relationship ostensibly changed. For services rendered by Mr. Bushell, the nature of which had not changed, Farmers would pay Mr. Bushell’s personal service company, Future Skills Training and Development Corp. (the “Company”), pursuant to a management contract. The Company had been existence prior to Mr. Bushell becoming manager with Farmers and the Company did have some minor business activities independent of Farmers. The management contract was to apply retroactively to Mr. Bushell’s start date with Farmers.

This new characterization of their relationship continued for several years until Canada Revenue Agency intervened. It found Mr. Bushell to be an employee. Therefore, the relationship between Farmers and Brent Bushell reverted to what it had been at his start date; an employment relationship. Shortly after, Mr. Bushell’s employment was terminated.

Brent Bushell brought a claim in his personal capacity for unpaid wages, largely unpaid from when Farmers was paying the Company for his services, and damages for wrongful dismissal from his employment. Farmers argued in defence that for most of the period in question the relationship was that of independent contractor, meaning that the Company would only have a claim in debt. Farmers relied on facts that may suggest an independent contractor relationship rather than an employment one: Bushell was largely unsupervised and had a great amount of independence in how he performed the services, the Company was allowed to carry on business activities with people other than Farmers, payment for services was made to the Company and the Company was responsible for its own source deductions.

The Trial Judge allowed Bushell’s claim and the Court of Appeal agreed. The Court of Appeal confirmed that there is no one conclusive test for determining in any given case whether a relationship is one of employer/employee or independent contractor. Instead, the Court should look at all the relevant facts with a view to determining whether the individual in question is performing the services as part of his or her own business or as part of the business that is paying for the services. In other words, whose business is it; Bushell’s or Farmers?

For the Court of Appeal the most important factor was the level of control Farmers exercised. It determined what duties Mr. Bushell would perform and these did not change throughout the entirety of his time with Farmers. Further, Farmers determined who was to be paid, when they were to be paid, if they were to be paid and how much they would be paid. Bushell was providing the services as part of Farmer’s business, not his own. That the Company was paid for a time did not change the fact that the relationship was one of employer/employee.

This decision is a useful reminder of the risks in trying to characterize an employment relationship as one between independent contractors. Sometimes it may seem advantageous to have the relationship papered as one between independent contractors. Pressure to do so may come from an employee who sees possible tax advantages of contracting through his or her company rather than personally. Regardless of how the relationship is documented, judges will always look beyond to the real working of the relationship.