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When a worker misclassification issue arises, a part of the defence is often that the employee ‘wanted’ to be a contractor. It is important to remember however that the subjective intent of the employee to be an independent contractor is irrelevant in the Employment Standards Act, 2000 (“ESA”) context. This is because the employee has no power to contract out of the ESA protections even if he or she wants to. While in tax cases, subjective intent is relevant in determining an employee’s status. In a recent case, AE Hospitality v MNR, the Tax Court of Canada clarified that it will assess the substance of the arrangement to determine whether workers are employees or independent contactors.
This case should act as a reminder to companies that providing their workers with the flexibility to reject work is not sufficient to characterize the relationship as an independent contractor agreement, but rather the fundamental question in assessing the status of a worker is ‘whose business is it? An easy proxy for answering that question is to assess whether the worker bears the business risk in relation to his services to the company.
AE Hospitality (“AE”) was in the business of providing workers to two catering companies: Encore Food with Elegance (“Encore”) and Applause Catering Inc. (“Applause”) or collectively, (“the catering companies”). AE provided supervisors, servers, bartenders and chefs to the catering companies and charged the companies for those services. The Canada Revenue Agency (“CRA”) decided that the 218 workers of AE, including supervisors, servers, bartenders and chefs were engaged in pensionable and insurable employment. AE appealed CRA’s decision to the Tax Court.
The Court first laid out the structure of AE’s business, in order to characterize its relationship with its workers. AE hires service professionals to provide services for events such as weddings, funerals, christenings, fundraisers and corporate events, ranging from two to two thousand guests. AE provides workers to only Encore and Applause and did not have a written agreement with the catering companies.
AE establishes a roster of people by receiving resumes, and only hires workers with experience. They do not provide training. Many of these workers work other jobs in the hospitality industry, and AE does not have a non-compete policy.
Once the AE booking coordinator receives the booking requirements from the catering coordinator, the booking coordinator contacts the wait staff to offer them a shift for the event. The wait staff can accept or decline the shift with no repercussions. There is no guarantee for a minimum number of shifts for workers and no minimum number of hours each worker must work. If a staff member cancels a shift, it is the responsibility of the booking coordinator to find a replacement.
During events, a supervisor is present only if the event is large, otherwise the workers are not supervised on small events. For large events, instructions will be forwarded from the catering companies to the booking coordinator, who then sends the instructions to the supervisor. These instructions pertain to room configurations, table setting, style of meal and menu, timing and specialty drinks being offered. The supervisor will act as a liaison between wait staff, the Head Chef and the customer. Servers and bartenders have to report to a supervisor upon arrival at an event and the supervisor notes when they start and finish their shift. These hours are tracked by the AE booking coordinator.
There were 50 chefs listed by AE and only five had signed independent contractor agreements. With respect to wait staff, 166 out of 168 had signed independent contractor agreements.
Justice D’Auray uses the two-step approach laid out in 1392644 Ontario Inc. o/a Connor Homes v. Minister of National Revenue.
The first step is to ascertain the subjective intentions of the parties to the relationship, through the written contractual relationship, or by the actual behaviour of each party (i.e. whether the individual filed their income taxes as an independent contractor, etc.).
The second step is then to determine whether an objective reality sustains the subjective intent of the parties. This second step involves evaluating the factors set out in Wiebe Door and Sagaz.
First Step: Intention of the Parties
Were the parties intending to be employees or independent contractors? Justice D’Auray determined that the wait staff intended to be independent contractors, as they signed an “Independent Contractor Agreement”. Based on testimony, Justice D’Auray also concluded that the subjective intention of the chefs was to be an independent contractor.
Second Step- Objective Facts
Justice D’Auray analyzed the factors set out in Sagaz to determine the objective relationship between the parties, as the subjective intent cannot trump the reality of the relationship.
Level of Control
AE asserted that it did not exercise control over its workers because:
– it only hires experience people so that it does not have to train them, provide instructions or supervision;
– it provides no performance reviews or guaranteed hours, and
– the wait staff submit bi-weekly invoices to AE.
Despite AE’s assertions to the contrary, Justice D’Auray determined that that the supervisors and the Head Chef had the ability to exercise control over the workers. The Chefs are scheduled for shifts, and it is their shift unless the decline it. The Chefs had to wear a coat with the AE logo on it, and the wait staff wore an apron with the logo on it.
On this factor, Justice D’Auray found that the relationship is more akin to an employment relationship than an independent contractor relationship.
Ownership of Tools
Bartenders were required to provide their own bar kits, and wait staff provided their own ties, note pads, lighters, bottle openers, and many chefs brought their own knives. However, the majority of equipment was provided by AE.
Justice D’Auray found that this factor was neutral.
Chance of Profit and Risk of Loss
AE’s argument for the workers being independent contractors were: the workers are able to negotiate their hourly rates, workers are able to work for competitors, the more hours they accept the more profit they can make, they are able to make tips, and there is no guaranteed minimum hours or guaranteed minimum income for the workers. AE tried to analogize their situation to that in Precision Gutters, however Justice D’Auray dismissed this.
In Precision Gutters the gutter installers were paid a set amount per gutter installation, therefore the quicker they performed their work the more they could be paid. However, in the case of AE, the staff are paid hourly and so the only way to make more money is to work more hours. Working more or less hours does not equate to a chance of profit or risk of loss, Justice D’Auray clarified that chance and risk must be understood in the entrepreneurial sense.
Workers were not able to render a shift more profitable once it had been accepted. Additionally, they were not obligated to find a replacement if they could not work a shift and they invested none of their own money in their duties.
Therefore, Justice D’Auray concluded that this factor points to an employment relationship.
Based on both the subjective and objective analysis, the Court found that the 218 workers at issue were employees.
This case serves as a reminder that when determining the status of workers, Courts will delve into the facts and mere contractual provisions are not sufficient to safeguard companies from a finding that their workers are employees.
 AE Hospitality Ltd. v. M.N.R., 2019 TCC 116.
 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue), 2013 FCA 85.
 Wiebe Door Services Ltd. v. M.N.R.,  3 F.C. 553.
 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 S.C.C. 59.
 Precision Gutters Ltd. v. Canada (Minister of National Revenue), 2002 FCA 207.
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