Worker classification has become a major source of conflict in Canadian employment law. Most media attention in this regard has been given to classification disputes by gig workers (such as the case of whether Uber drivers are employees or contractors). But even outside of the gig economy, classification-related class actions against businesses of all types have been on the rise.

Classification as an employee comes with many benefits. These include a set minimum wage, mandatory breaks, vacation pay, and severance rights. By contrast, contractors lack these statutory protections, though they may receive other benefits such as freedom in how they perform work along with certain tax advantages.

Determining the correct classification of workers can be challenging. This is made all the worse by the fact that a worker can be considered an employee for certain purposes, and a contractor for others. For instance, in a 2014 decision, the Supreme Court of Canada noted there are instances when a worker may be considered an “employee” with respect to human rights legislation but a contractor in other settings.

A contractor for tax purposes; an employee for workplace standards

We recently had another example of competing statutory outcomes related to worker classification. At issue was a curious situation involving three taxi drivers that came before the Court of Appeal for British Columbia (the “BCCA”)

The working relationship of the parties was described as follows:

The shareholders of Black Top own and operate the taxis. Black Top holds the taxi licences on behalf of its shareholders. Black Top is also the sole shareholder of Beach Place, which provides administrative, accounting, and dispatch services to taxis owned by the shareholders of Black Top.

The taxi owners have the option of leasing their taxis to another taxi driver, who is referred to as a “Lease Driver”. A taxi driver who is not a taxi owner or Lease Driver can acquire a license to drive a taxi by paying a fee to the owner in exchange for the right to operate the taxi for a period of time. Those drivers are called “Spare Drivers”. Lease Drivers and Spare Drivers are entitled to keep the fares earned while operating the taxi during the lease or license period, less the rent or license fee payable for that period.

In this case, two of the complainants were Spare Drivers and one was a Lease Driver.

It is also relevant and important that one of the complainants, Mr. Abadi, who regularly drove a Black Top taxi between 1998 and 2016, had considered himself to be an independent contractor until 2014 and had filed his tax returns accordingly. In 2014 and 2015, he reported his taxable income as having been earned from employment.

Arising from this backdrop were two (somewhat) parallel proceedings. The first was a tax dispute as to whether one of the taxi drivers (Abadi) was an employee or contractor as concerned Canadian Pension Plan and Employment Insurance contributions. Ultimately, the tax dispute resulted in a finding by the Tax Court of Canada that Abadi was a contractor at all relevant times, and not an employee.

The second proceeding arose from complaints made to the British Columbia Director of Employment Standards (the “Director”) by the three taxi drivers. Here, it had to be determined whether the taxi drivers were employees or contractors for the purposes of employment standards legislation. The Director concluded that the taxi drivers were employees.

Abadi did not challenge the outcome of the tax dispute, but the corporate entities, Black Top and Beach Place, appealed the Director’s decision. Among other arguments, Black Top and Beach Place pointed to the outcome of the tax dispute and alleged that it was unreasonable that the Director had reached an opposite classification conclusion for employment standards purposes.  

Eventually, Black Top and Beach Place’s challenge to the Director’s decision made its way to the BCCA. They had lost in all attempts to overturn the Director’s decision to that point.

The BCCA sided with the Director and concluded the taxi drivers were employees and not contractors. In so doing, the Court affirmed that a worker can be considered an independent contractor for tax purposes but an employee with respect to employment standards. That opposite conclusions are reached in different statutory settings does not matter (even if it involves the same workers).  

As explained by the BCCA:

…the definition of “employee” can mean two different things in two different statutory contexts. At issue in McCormick was the interpretation of “employee” under the Human Rights Code, R.S.B.C. 1996, c. 210. The appellants suggest that human rights legislation is not analogous as it allows for a wider interpretation of what constitutes an employee. However, McCormick is not so restricted—with respect to other statutory schemes, the Court noted that the meaning of “employee” “must always be assessed in the context of the particular scheme being scrutinized”: McCormick at para. 25. [emphasis added]

Takeaway

That the same taxi drivers may be contractors for tax purposes but not for employment standards can seem like a bizarre outcome. But this divergence is explained by how classification disputes are decided in different statutory settings.

At the Tax Court, a larger emphasis is given to the “intention of the parties” when forming and maintaining their relationship. As such, it was significant for the Tax Court that one of the taxi drivers had filed taxes for years based on being an independent contractor, only to later “change his mind”. By contrast, employment tribunals tend to give greater weight to the day-to-day working relationship of the parties, and the relative levels of control exercised by each side.

Accordingly, businesses are advised to seek professional advice when deciding on how to classify workers. This is best done before a working relationship is formed. That said, even if a misclassification occurs, businesses should seek to remedy the situation sooner rather than later. Ignoring a potential misclassification only increases the risk that a future class action may target your workforce.