Category Archives: Employement

Employee vs Independent Contractor – Order of Inquiry Reversed?

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Employee vs Independent Contractor – Order of Inquiry Reversed?

Mallon v MNR, 2014 TCC 14

The facts of this decision are not particularly interesting (other than the “refreshing” occurrence of witnesses telling “the same story”, the description being “identical”) , but the approach of Campbell J Miller J to answering the age-old question of whether a relationship is that of an employee or an independent contractor is interesting.  Miller J properly expresses the trouble with the reliance on intention in the existing two-step process.  He correctly highlighted, in order to provide guidance for future parties, that judges will look “foremost to the actions and behaviour that define the relationship and determine whose business it is” and that it is “action and behaviour will determine intention, not the other way round” (para 15).

The distinction between employees and independent contractors is an important one in the Canadian Income Tax system. The importance of the distinction is not discussed here.

Miller J highlighted the root of the recurrence of the employee-contractor issue as being the mistaken belief that persons can choose “with the stroke of a pen” the nature of their relationship, and the danger of placing too much emphasis on the intention of the parties.   After referring to, and quoting from, 1392644 Ontario Inc. (c.o.b. Connor Homes) v Canada, 2013 FCA 85, – to identify the two-step process: (1) identify intention of the parties as to the relationship; and (2) see whether reality sustains that subjective intention – and Royal Winnipeg Ballet v Canada, 2006 FCA 87,  Miller J, at paragraph 14, posited that the two-step process introduced by Royal Winnipeg Ballet:

requiring the second step to be an analysis through the “prism” of intention appears to place too great an emphasis on the factor of intention, that can so readily be manipulated with no regard for the true status of the working relationship, but more to the effect of avoiding source deductions.

Miller J recognized that he was bound by the FCA decision, and paid detailed attention to the actions of the parties to state that  the relationship does not support an “intention expressed by words only” that an independent contractor relationship was intended.  There was, therefore, no need to go to the second step of the inquiry, and all that was needed was to ask “whose business is it?”.  Miller J also expressed trouble with the fact that “intention” was never mentioned by the SCC in the leading case on the issue – 1671122 Ontario Ltd. v Sagaz Industries Canada Inc, 2001 SCC 59.

The interesting portion of this inquiry is that Miller J suggested that the two steps are in the wrong order.  He stated that the better approach is to first determine the true nature of the working relationship as between the parties and, only if this inquiry is not determinative, then look at the intention of the parties (para 15).  This order of the approach is much better and more in line with reality of the determination.  The reason for drawing the distinction in the ITA is based on a number of policy grounds (including administrative ease and tax base protection) rooted in the reality of Canadian income relations.  It would, therefore, make sense to consider the objective reality of the income relation first, and only resort to what the parties intended to do where their actions leave one in doubt of the actual relationship.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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Is a Graduate Student an Employee?

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Is a Graduate Student an Employee?

Rizak v. M.N.R., 2013 TCC 273

At issue in this case was whether a graduate student, a Ph.D. student, was an employee of the University s/he was a student at.  This determination was in the context of the Employment Insurance Act.

The decision requires the University to carefully consider the structuring of its graduate programs and funding so as not to cause the graduate student to be an employee receiving a salary rather than a student receiving assistance.

The TCC referred to past decisions in relation to Post-Doctoral Fellows, and the nature of their relationship with the Universities that provided them with funding.  The case law on this point was split.  In Bekhor v. MNR, 2005 TCC 443, the TCC held that a postdoctoral fellow was not an employee, but that the nature of the relationship was that of advanced student and professor (thus the financial assistance was not remuneration for services rendered).  Contrast this to Chabaud v. The Queen, 2011 TCC 438, where the TCC held that a postdoctoral fellow was an employee on the basis that, unlike a student, on tuition is paid or payable.  The TCC here was unable to find a factual or legal basis to distinguish the two decisions and proceeded to prefer the decision in Bekhor.

In Caropreso v. The Queen, 2012 TCC 212, Justice Woods set out the test to be applied in cases of postdoctoral fellows in order to distinguish between funding as student vs compensation as employee:

The root of the difficulty is that payments to postdoctoral research fellows often have dual elements. The payments further the education of research fellows and they also provide compensation for work performed. If the payments are received by virtue of employment, this takes precedence. However, in making this determination, it is relevant to consider the dominant characteristic of the payments, whether it is compensation for work or student assistance.

The TCC held that this test is equally applicable to Doctoral Students as to Postdoctoral Fellows.  However, unlike graduate students, postdoctoral fellows are not in pursuit of another degree but are obtaining further experience.  This pursuit of degree purpose differentiates the two cases.     In Hammell v. MNR, [1994] TCJ No. 921, a masters student was held not to be engaged in insurable employment.  The same conclusion was reached in Hospital for Sick Children v. MNR, [1993] TCJ No. 388, a case involving a masters student, and in Nabet v. MNR, [1999] TCJ No 79, in case of a Doctoral Student.  However, in Charron v. MNR, [1994] TCJ No. 47, the master’s student was held to be an employee but in this case the employment was prior to the period of study beginning. [see also Huang v MNR, 2012 TCC 81].

In this case, the TCC held that the dominant character of the stipend was compensation for work performed, making him an employee.  Here the money was not received by virtue of being accepted as a doctoral student, or some “form of no-strings-attached bursary or scholarship”.  If he would have stopped working in the lab, he would have stopped receiving the money. This was different than the cases of Hammell, Hospital for Sick Children and Nabet where the students developed their own research ideas and pursued them under the mentorship and supervision of their respective professors.  The court stated that if the university “has structured its doctoral programs in such a way as to essentially require students to be employed by the university, that would not, in my view, change the fact that they are employees”.

The court considered the Income Tax implications and stated that amount received ought to have been included in income as the ITA excludes amounts received in respect of, in the course of or by virtue of employment from scholarship and fellowship payments.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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