Claims alleging the misclassification of workers as independent contractors rather than employees are widespread. Properly classifying a worker’s status is critical because it determines substantive legal rights. In addition to independent contractors and employees, in Canada, there is a hybrid category — dependent contractors. To be classified as a dependent contractor, the contractor must be “economically dependent” on a particular client. Dependent contractor status may be found even where a worker conducts business through a corporation and hires employees to assist in the performance of the work.
In a significant decision, Canadian Union of Postal Workers v. Foodora Inc., the Ontario Labour Relations Board (the Board) held that couriers delivering food on behalf of Foodora Inc., an app based food delivery company, were dependent contractors under the Labour Relations Act, 1995 (the Act) and thus have the right to unionize under the Act. This is one of the first decisions commenting on the status of workers in the gig economy.
Takeaways for Employers
Dependent contractor arrangements provide some measure of flexibility for employers. For example, dependent contractors must remit their own CPP, EI and income tax amounts, and are typically exempt from minimum standards legislation, except in Quebec and the Yukon. Thus, rules regarding wages, hours of work, termination and severance pay do not apply.
However, employers must anticipate the possibility that dependent contractors can unionize and bargain collectively. This would almost invariably result in increased costs and time outlays for the employer.
Dependent contractors are entitled to greater protections than independent contractors. This can have significant financial consequences for employers. At common law, dependent contractors are like employees in that they are entitled to reasonable notice of the termination of the working relationship, in recognition of their economic dependence on a single employer. Protections against discrimination in employment are interpreted liberally to capture workplace relationships beyond the traditional contract of service, including both independent and dependent contractors. Moreover, employers may be liable for Workplace Safety Insurance Board premiums for dependent contractors, as well as all of the other obligations that an employer has to a worker under the Workplace Safety and Insurance Act.
What is the Gig Economy?
The gig economy is made up of three main players: independent workers paid by the gig (i.e., a task or a project) as opposed to those workers who receive a salary or hourly wage; consumers who need a specific service (e.g. a ride to their next destination, or a particular item delivered); and companies that connect the worker to the consumer in a direct manner, including app-based technology platforms. Companies such as Foodora act as the medium through which the worker is connected to – and is ultimately paid by – the consumer. One of the main differences between a gig and traditional work arrangements is that a gig is a temporary work engagement, and the worker is paid only for that specific job.
The Test for Dependent Contractor Status
In previous cases, the Court of Appeal set out the test for determining whether a worker is a dependent worker. Dependent contractor status requires ‘‘a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity”.
The Foodora decision in particular discusses the Court of Appeal’s decision in Thurston v. Ontario (Children’s Lawyer), where the Court of Appeal found that an employee who earned 39.9% of her income from work with the defendant, was not a dependent contractor because this percentage did not constitute exclusivity or near-complete exclusivity. However, the Board held that Thurston did not apply because it considered the common law test for dependent employer, whereas the Board was restricted to the statutory definition under the Act. The Board commented that the determinative issues were the levels of control, entrepreneurial activity and independence of the individuals, with a focus on the fundamental question: does the individual look more like an employee or an independent contractor.
The Board’s Decision
In answering the essential question regarding whether the relationship between the couriers and Foodora more closely resemble the relationship of an employee or that of an independent contractor, the Board organized its decision along the lines of the key factors identified in the Algonquin Tavern case:
a) The use of, or right to use substitutes: the couriers were not allowed to subcontract or allow others to perform their duties. Couriers cannot directly swap shifts with other couriers. The restrictions on substitutes more closely resembled an employment relationship because couriers cannot hire helpers to lighten the workload or increase profitability.
b) Ownership of instrumentalities, tools, equipment, appliances, or the supply of materials: the Board found that the most important “tool” was the Foodora app, which was owned exclusively by Foodora and allows Foodora (and not the courier) to generate customer lists, an inventory of restaurant customers, and goodwill and brand recognition. This allows Foodora to grow and develop its business. The app cannot be licensed or sold to the courier. Moreover, the tools the courier provides (bike, helmet, smartphone etc.) were not purchased for the exclusive purpose of making food deliveries.
c) Evidence of entrepreneurial activity: the Board noted that the main way for couriers to make more money was to be efficient and complete more deliveries during their shift. This was not entrepreneurial activity, but rather, simply hard work, similar to the activities of a salesperson paid commission. The Board rejected Foodora’s argument that the couriers delivered for several different companies and thus had economic independence. The Board noted that working several part time jobs was not evidence of entrepreneurial activity but rather indicative of the fact that these couriers need to work several jobs to make ends meet. Important to this analysis were the restrictions imposed by Foodora on the courier’s ability to make a profit. For example, a courier cannot advertise or promote his service, skill or ability. Additionally, the risk of loss for the courier is minimal since the compensation scheme, as determined by Foodora, entitles the courier to be paid regardless of issues with the restaurant, the customer or the delivery.
d) The selling of one’s services to the market generally: the courier is not able to sell their services directly to a restaurant or customer.
e) Economic mobility or independence, including the freedom to reject job opportunities, or work when and where one wishes: the Board found that this factor supported the conclusion that couriers were dependent contractors because Foodora controls the structure of shifts, when shifts are offered, how many people can work, the length of shifts, and the geographical zones for delivery. Moreover, Foodora controls how shifts can be swapped and once a courier accepts a delivery, they are expected to finish it.
f) Evidence of some variation in the fees charged for the services: the couriers had no ability to alter their rates and thus more closely resembled employees.
g) The extent, if any, of integration: couriers are heavily integrated into Foodora’s business and have no opportunity to develop any relationship with the customer or restaurant, thus more closely resembling employees.
h) Control of the manner and means of performing the work: Foodora controls most aspects of the generation and flow of work, from relationships with restaurants, to the exclusive utilization of the app, to the scheduling and control of the couriers’ work.
Thus, the Board found that Foodora couriers more closely resemble employees than independent contractors and are, therefore, properly characterized as dependent contractors for the purposes of the Act.
The National Association of Counties “The Future of Work: the Rise of the Gig Economy“.
McKee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916, para 30.
2019 ONCA 640.