Independent Contractor or Employee: Classifying employment in the “gig economy”

Written by on October 15, 2019 in Employment Law Blog, Focus on Canadian Cases
Frustrated Employee

There is one thing that employers and employees likely have in common: at some time or another, most Canadians have ordered in a pizza.

With the accessibility of smart phones and an explosion of “apps” like UberEats and Foodora, millions of pizzas and other meals are delivered to our doors each year. This means that more and more people are delivering these items to us, part of a burgeoning “gig economy” of Canadians acting as couriers, drivers, dog walkers and the like.

These jobs can be appealing because they offer flexibility and a certain amount of freedom for students, entrepreneurs, semi-retirees, or anyone who wants to be “their own boss”.

There is a dark side to the gig economy, however, as many workers are unaware of their rights and may be vulnerable to employers who might classify them in such a way as to limit their compensation and other entitlements.

These issues gained publicity not long ago, when the Ministry of Labour investigated the case of a Domino’s pizza deliveryman.

Juan Jose Lira Cervantes worked at a Domino’s Pizza franchise in Mississauga for four years. The father of six worked at the franchise location preparing pizza, and also delivered them to customers using his own vehicle. His shifts were irregular, and he earned less than minimum wage, plus tips.

When Cervantes approached the franchise owner about his wages, he was informed that he was an independent contractor, and the law therefore did not require them to pay him a minimum wage.

Ontario’s Employment Standards Act provides a number of minimum entitlements to most employees in Ontario, including minimum wage, vacation pay, over time pay, and termination pay. However, workers who are independent contractors are not covered by this legislation and are not afforded its protections. While employees are told when and how to do their work, independent contractors set their own hours and use their own tools.

Cervantes approached the Ministry of Labour to investigate his situation. Shortly thereafter, Domino’s took him off their roster, putting him out of work without notice.

The battle over the classification of workers is not new, and the subject continues to evolve.

As we discussed back in March of 2016 the case of Keenan v. Canac Kitchens Ltd., a Division of Kohler Ltd., was a precedent-setting decision in which the judge identified the plaintiffs as dependent contractors, who are no different from employees. These workers, who are economically and otherwise dependent on their employer for a large portion of their income, are just like employees, regardless of their title. The judge awarded the plaintiffs $125,000, the highest ever compensation in Ontario, for being falsely misclassified as independent contractors.

Like the plaintiffs in Keenan, Cervantes wore a corporate uniform. He worked shifts set by Domino’s. Although he did use his own vehicle to make deliveries, he was not free to subcontract the work to a third party. Nor did he declare profits or risk losses.

A true independent contractor operates like a business, not like an employee who is simply using his own car for company purposes.

The Ministry of Labour agreed.

In November of last year, the Ministry concluded that Cervantes was an employee, not a contractor, and when his employment ended, was denied his entitlements under the ESA, including a minimum wage, vacation pay and termination pay.

Cervantes was awarded $28,144.54, more than $17,000.00 of which was for wages owed for being paid less than the minimum wage. The Ministry also found that Cervantes’ termination was a reprisal for his complaint, and awarded him additional damages.

Domino’s did not appeal the ruling.

This decision could have ramifications for the thousands of other workers employed in Ontario’s gig economy. In many cases, these workers are compensated per delivery and perhaps for less than minimum wage, while as dependent on their employers as employees. The gig economy has been subject to criticism for this and other reasons, and it will be interesting to see if similar legal challenges are brought in the future.

One thing is certain: a worker is not an “independent contractor” simply because the company he works for calls him one.

Key Takeaways

If you are employed as an independent contractor but feel that you are acting more like an employee, we encourage you to seek advice, and to do so sooner rather than later. While Cervantes did receive a large sum of money, his award in fact represented only a portion of his shortfall because the law limits back pay to two years. He will never be compensated for two years that he worked as an employee for Domino’s for less than minimum wage.

For those who might fear reprisal for approaching their supervisors about their employment status, the Ministry of Labour can be contacted anonymously.

Employers are also encouraged to accurately classify their workers. While it may be tempting to classify a worker as an independent contractor to save some general employment costs, unless the individual is a true independent contractor, this could ultimately cost the employer far more in the end. If the Ministry of Labour finds a misclassification, they can not only award lost wages and other benefits over the last two years, but also have the ability to order a Notice of Contravention, along with a monetary penalty, or even charge the company under the Provincial Offences Act. Bill 148 put the onus on the employer to demonstrate that the worker was an independent contractor. Bill 47 reversed this so that the worker now has the burden of proof to show that they have been misclassified. Misclassifying workers is a risk not worth taking, and we strongly advise employers to seek advice if they are unsure about how to properly classify their workers.

Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us to see how.

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