Court affirms independent contractor law in Marel case

An August decision in Ontario Superior Court laying out the circumstances in which a worker performing construction work will be viewed as an employee and not an independent contractor serves as a useful reminder to constructors to be careful when contracting out work, say legal commentators at the firm CCPartners.

Articling student Jacob Love of the Brampton, Ont.-based legal firm wrote on the CCPartners website that employers should be aware that simply calling employees independent contractors does not necessarily make them independent contractors in the eyes of the law.

In Marschall v Marel Contractors, the defendant Marel is a drywall contractor in the GTA and the plaintiff Ferenc (Frank) Marschall performed work for Marel between 1981 and 2014 except for a period of eight years from 2001 to 2009. Upon his dismissal in 2014 Marschall claimed damages as an employee resulting from Marel’s failure to give reasonable notice. Marel responded that Marschall had worked as an independent contractor and no notice was required.

The court decided Marschall had worked as an employee and thus was eligible for $62,780 in severance damages.

“Courts will look to the underlying reality of the employment relationship and not the contract and the wording of what you purport the relationship to be,” Love said in an interview.

The decision quoted the Supreme Court in Sagaz (2001): “The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor.

Both parties have to be clear about what the expectations are from the beginning,

— Kelsey Orth

CCPartners

“However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.”

Love commented, “they saw here he used the employer’s tools and vehicles, he was provided with a company truck, he had health benefits paid by the employer, and his pay was set regardless of the number of projects he worked on.”

CCPartners partner Kelsey Orth said the Marschall case is a clearly articulated application of the case law, which makes it helpful to stakeholders.

“In this case we have good facts that make it very clear what the state of the law is, in the way the test is applied,” he said.

Orth said it’s not unusual in the construction industry that employers set up agreements that purport to be independent contractor agreements and payments are made to a corporate account for work done but because of the nature of the working relationship the workers would still be deemed an employee.

“It happens a lot in the construction industry because of the nature and the fluidity of the relationships and where work is coming from in the construction sector,” Orth said. “But you see it in other places too. People try to freelance and set up flexible arrangements but employers still want control so you end up with these kind of situations, people think they are doing one thing but they are not escaping their liabilities or obligations.”

The court wrote in siding with Marschall, “While the relationship was structured differently for the purposes of taxation and benefits, the circumstances make clear that this was not meaningfully different than any other employer-employee relationship.”

Commented Orth, “You will never be able to contract out of statutory entitlements. However, if you truly want to set up a contractor relationship, both parties have to be clear about what the expectations are from the beginning.”

Terms could be set out in a document titled an “independent contractor agreement” but they have to be followed, said Orth. The parties can’t profess to set up such a document but then incorporate a variety of terms in which the employer has control and the employee is beholden to the employer in a substantial way.

“If he came back to them in 2009 and said, here, you know what, you guys have all this work, why don’t you subcontract to me and my company and I’ll get it done for you…if he had other work, if he had employees, that would lead to a different analysis or a different determination,” said Orth.

Follow Don Wall on Twitter @DonWall_DCN.