To understand your obligations as an employer, you first need to know who is an employee (or “worker” depending on the legislation). Sounds pretty straightforward, but that’s not always the case. We’ve previously written about gig workers and the grey-area around their status. In this article we will talk about the definitions that are included in legislation and the importance of properly classifying those who do work for you.
Why is it important to get this right?
There are two main reasons why it is important to get this right – both of which are related.
Starting Point for your Legal Obligations
First, understanding who meets the legal definition of an employee is the starting point for understanding your obligations as an employer. For example, the obligations that an employer has under employment standards legislation are owed to (and in respect of) its “employees”, as they are defined in the legislation. An employer needs properly understand who is an “employee” under that legislation to understand the scope of its obligations.
Some employer obligations depend on the number of workers or employees that they have. Understanding the definition of employee or worker is really important to make sure you are complying with all of your obligations. For example, in some jurisdictions, the health and safety legislation defines a worker to include volunteers or people who work without remuneration. When looking at your obligation to have a health and safety committee, for example, it is important to know that in those jurisdictions you need to include any volunteers when counting your “workers”.
“Employee” is defined differently in different jurisdictions, and it is not the same in every Act that imposes obligations on employers. If you do not understand who is defined to be an employee or worker, you may not be fully meeting your obligations under the legislation.
Legal Risk – Misclassifying Employees
Second, improperly classifying someone as something other than an employee may lead to litigation, including class actions.
A recent case serves as a good example. Handa Travel Student Trip Ltd. recently settled a class action for $450,000 and agreed to change its labour practices. The claim was brought by a group of people who worked as “Trip Leaders” on guided tours for students. They were required to work 14 hours days and had an extensive list of job duties. In their contract though, they were classified as volunteers and only paid a small honorarium.
At issue in the class action was whether these “volunteers” were “employees” as defined in the Employment Standards Act, 2000 and therefore entitled to the benefits afforded to employees under that Act. The court allowed the class action to move forward and the defendant employer ended up settling the action for $450,000 and agreeing to change its practices going forward. This class action generated a lot of negative publicity for the employer, tainted its reputation and required it to pay out significant amounts in settlement and legal fees.
Another form of misclassification is when an employer hires someone as a “contractor” when they should be treated as an employee. It’s important to understand that this is a legal determination – an organization cannot determine for itself or in agreement with someone doing work for them that their arrangement will be an independent contractor and not an employee arrangement.
This is a legal question and the courts have developed a test to determine whether someone is properly classified as an independent contractor or whether they are really an employee. There are a number of factors a court will look at, including:
- Does the person work exclusively for the paying organization?
- Does the organization exercise control over how, when and where their work is performed?
- Does the organization provide the worker with tools or equipment?
- Does the organization take on risks of profit and/or loss associated with the person’s work?
It can be very costly if you treat someone as an independent contractor when they are really – legally – an employee. An employer may become liable for unpaid vacation and statutory holidays, unpaid overtime or other benefits that were not provided, and significantly, they will be liable and possibly penalized for income tax and other government withholdings that they did not make.
How is an employee or worker defined?
Unfortunately, the definition of employee tends to vary from one Act to another, and of course, from one jurisdiction to another. For purposes of determining employee numbers, an employee is (generally) a person who performs work or supplies services to the organization for monetary compensation.
However, as is often the case with employment legislation, there are exceptions. For example, in Ontario, under Employment Standards legislation an “employee” includes:
- anyone who performs work or supplies services for wages
- some trainees – if the skill in which they are being trained is a skill used by the employer’s employees
- homeworkers- who perform work at their homes but not including an independent contractor.
Health and Safety requirements are based on a definition of “worker”, which in Ontario is:
- a person who performs work or supplies services for monetary compensation
- including secondary and post-secondary school students who perform work or supply services for no monetary compensation under certain approved work experience programs.
In some jurisdictions, the defintion of a “worker” under Health and Safety legislation includes volunteers or workers who perform a service without monetary compensation.
Different definitions of employee may also apply under Pay Equity and Accessibility legislation.
Knowing who is an employee may not be as straight-forward as you think. Employers need to:
- Check the definitions of legislation to make sure you understand the scope of your obligations.
- When looking at a definition, think about whether it includes:
- People who perform work without compensation
- Dependent contractors
- Don’t assume that the definition is the same for all purposes. Different legislation uses different definitions, even within the same jurisdiction.
How Compliance Works Helps Employers
HR compliance requirements can vary considerably from one province to the next. Compliance Works makes it quick and easy for employers to compare how requirements differ across Canada.
Compliance Works provides easy-to-read summaries and the latest changes on Accessibility, Employment Standards, Health & Safety, Human Rights, Labour Relations, Official Languages, Pay Equity and Privacy. Contact us to Request a Demo, subscribe to Compliance Works publications, or email us at firstname.lastname@example.org to learn how a paid subscription to Compliance Works can help your HR team succeed.