Back to Basics Part II
Creating Enforceable Agreements
with Independent Contractors, Interns
and Short Term Employees
Caitlin Russell
Geoff Breen
Laurie Jessome
Wednesday, October 1, 2014
Back to Basics Part II:
Fixed Term Contracts
Caitlin Russell
Wednesday, October 1, 2014
Fixed Term Contracts
● What is a fixed term contract?
● Fixed Term vs. Indefinite Term
● What are the benefits of a fixed term contract?
● Certainty on termination
● When is a fixed term contract appropriate?
● Logical basis to limit the term of the employment
● Examples…
slide | 3
Fixed Term Contracts: Termination
● Employments ends at the end of the Term
● ESA Regulation 288/01 – 12 month limit
● Employment ends before the end of the Term
● ESA Regulation 288/01
● Common Law – Balance of Contract
● Employment ends after the end of the Term
● ESA Regulation 288/01
● Common Law – Turns into indefinite term
slide | 4
Fixed Term Contracts: Common Mistakes
● Multiple or Automatic Renewals
● Ceccol v. Ontario Gymnastic Federation 2001 ONCA
● Flynn v. Shorcan Brokers Ltd. 2006 ONCA
● Allowing Employees to Work Past Term
● Triggers ESA in 90 days, common law in less than 90 days
● Excessively Long Terms
● Employers and Employees Act — 9 year maximum term
● Failure to Draft Clear Duration Term
slide | 5
Fixed Term Contracts: Common Mistakes
● Failure to Include Early Termination Clause
● Reasonable notice vs. Balance of term
● Loyst v. Chatten’s Better Hearing Service 2013 ONCA
● Failure to Include a Mitigation Clause
● Mitigation may not apply to fixed term contracts
slide | 6
Fixed Term Contracts: Cautionary Tale
● Termination vs. Non-Renewal — Thompson v. Cardel
Homes Limited Partnership 2014 ABCA
● 1 month prior to expiry, Thompson was notified that his
contract would not be renewed and he was told not to
report to work for his last month
● Thompson argued that his employment had been
terminated prior to the expiry of his contract entitling him to
the 12 months salary under the termination clause in the
contract
● The court agreed with Thompson and awarded 12 months
slide | 7
Fixed Term Contracts: Tips
● Consider if a fixed term is appropriate
● Clearly communicate that employment will be for a fixed
term
● Provide unequivocal contractual language on duration
● Include an early termination clause
● Give the employee time to review and seek legal advice
● Carefully monitor expiry dates
● Renegotiate and renew early
● Beware of long terms & multiple and automatic renewals
slide | 8
Back to Basics Part II:
Unpaid Internships
Geoff Breen
Wednesday, October 1, 2014
Unpaid Internships — A Win-Win?
● Intern gains valuable on-the-job experience that is
otherwise difficult to obtain
● Business gets cheap labour
● A good way to groom potential employees and prepare
them for the workforce while offsetting expensive training
costs
● Everyone is happy
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Unpaid Internships — The Problem
● “Unpaid intern” is not a legal term — in fact, the concept
is relatively foreign to modern employment laws
● As a result, in most cases, an unpaid internship will
contravene employment standards laws
● The ESA broadly defines “employee” with very limited
exemptions.
● Unless an exemption applies, an “intern” is actually
considered an employee
● Employees are entitled to basic rights –
minimum wage, vacation, notice of
termination, etc.
slide | 11
Unpaid Internships — Current Hot Topic
● April, 2014 — MOL announces “Inspection Blitzes and
Initiatives” targeting internships in various sectors
● March 4, 2014 — First Reading of private member bill in
the Ontario Legislature: Employment Standards
Amendment Act (Greater Protection for Interns and
Vulnerable Works), 2014
● March 27, 2014 — Ministry of Labour enforcement steps
lead to the shut down of unpaid internship programs at
magazines “Toronto Life” and “The Walrus”; “Canadian
Geographic” and “Rogers Publishing” follow suit
● August 8, 2014 — Bell cancels its unpaid internship
program
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So When is an Unpaid Internship Permitted in
Ontario?
1. Specific exemptions from the entire ESA:
● A secondary school student performing an internship
authorized by his/her school board
● A student carrying out a work placement approved by a
college or university
● Several other exemptions from the ESA that are not likely
to be applicable to interns include inmates in jail and
those holding political office
slide | 13
So When is an Unpaid Internship Permitted in
Ontario?
2. Students training for specific professions are exempt from
much of the ESA such as minimum wage, overtime, and
rest periods:
● This includes law, architecture, surveying, professional
engineering, public accounting, medicine and optometry,
among others
● These students are not exempt from certain rights,
including the right to take protected leaves of absence
slide | 14
So When is an Unpaid Internship Permitted in
Ontario?
3. Those who are receiving training from an employer are
normally considered to be “employees” and therefore the
ESA will apply, unless ALL of the following criteria are
satisfied:
1. The training is similar to that which is given in a vocational
school
2. The training is for the benefit of the individual
3. The employer providing the training derives little, if any,
benefit from the activity of the individual while he or she is
being trained
slide | 15
So When is an Unpaid Internship Permitted in
Ontario?
3. Those who are receiving training from an employer are
normally considered to be “employees” and therefore the
ESA will apply, unless ALL of the following criteria are
satisfied:
4. The individual does not displace employees of the
employer providing the training
5. The individual is not accorded a right to become an
employee of the employer providing the training
6. The individual is advised that he or she will receive no
remuneration for the time that he or she spends in training
slide | 16
Fitness Plus v. McPherson, 2010 OLRB
● An application for a whopping $109.20 in unpaid wages!
● Fitness Plus hired unpaid interns, the applicant included,
to receive training allegedly similar to that which a
student enrolled in a college level fitness program would
receive
● Fitness Plus argued that it provided training to the
exclusive benefit of the interns
● Intern duties included turning on tanning beds, reading
chlorine levels for the hot tub, turning on televisions,
selling products and booking fitness assessments
slide | 17
Fitness Plus v. McPherson, 2010 OLRB — The
Test Applied
● The individual is advised that he or she will receive no
remuneration for the time that he or she spends in
training
● NEUTRAL This was mutually understood
● The individual does not displace employees of the person
providing the training
● NEUTRAL Technically, the interns did not replace active
employees
● The training is to the benefit of the individual and the
person providing the training receives little, if any benefit
● FAIL Instead, Fitness Plus received free labour in
exchange for essentially no benefit to the interns
slide | 18
Fitness Plus v. McPherson, 2010 OLRB — The
Test Applied
● The individual is not accorded a right to become an
employee of the person providing the training.
● FAIL While a job was not guaranteed, it was certainly
understood that employment was what the interns were
being assessed for
● The training is similar to that which is given in a
vocational school
● “LUDICROUS”
slide | 19
Eric Glatt, et al v. Fox Searchlight Pictures Inc. —
2013, New York
● Involved class actions by unpaid interns who had worked
on movies such as “Black Swan” and “500 Days of
Summer”
● The New York Court applied effectively the same 6 step
test set out in the ESA
● Other than the mutual understanding that the interns
would not be paid, none of the other 5 criteria were
satisfied
● Plaintiffs in one action were granted judgment. Another
action was certified to proceed
slide | 20
Breakdown — The Perils of Unpaid Interns
● ESA Enforcement
● Order to pay unpaid back wages
● Provincial offence prosecution — up to $100,000 for first
offence
● Court Actions
● Class action risk = many employees and potentially
enormous liability
● Subject to the applicable limitation period, an intern can sue
an employer for unpaid wages AFTER the internship ends
● Bad Press
● This issue is getting attention and has been the subject of
social media shaming.
slide | 21
Federally Regulated Employers
● Essentially uncharted territory
● The Canada Labour Code is silent on interns and similar
employment standards exemptions — anyone performing
“work” is entitled to minimum wage
● Some of Canada’s largest employers are federal — as
noted, some companies, including Bell, are pre-emptively
getting rid of unpaid internship programs
slide | 22
Where is this Going?
● This an area that has been relatively untouched until
recently
● There is now increased scrutiny by the public, the media
and the MOL; cases and fines are likely to increase
● Even stricter legislation may be on the way, further
limiting unpaid internships
● In sum: there is likely to be little tolerance for unpaid
internships that do not fulfill a bona fide educational
training purpose
slide | 23
The Take-Aways
● Be wary of taking on unpaid interns — unless the unpaid
internship is specifically accredited by a school board,
college, university or prescribed profession, you are
taking a risk
● Don’t fall into the trap — the fact that an individual offers
or even asks to work for free does not help; employees
cannot contract out of the ESA and can change their
position after having benefited from the internship
slide | 24
The Take-Aways
● If you do have an internship program, ensure that it is
truly about a training experience for the intern — unpaid
internships cannot be used as an alternative to entry level
employment positions and are not intended to be directly
beneficial to an employer
slide | 25
A Note on Temporary Help Agency Workers
● In 2009, new provincial regulations were introduced to
protect temporary help agency employees
● When dealing with temps, take note that:
● They are not your employees but should be made aware of
and subject to your policies and procedures
● A help agency cannot stop you from giving references to or
hiring a temporary help employee
● A help agency can charge you a fee for hiring a temporary
employee working for you, but only if this is within the first
six months of the assignment — for certainty, these fees
should be agreed upon in advance
●
slide | 26
Back to Basics Part II:
Drafting Enforceable
Independent Contractor
Agreements
Laurie Jessome
Wednesday, October 1, 2014
Overview
● Purpose of today’s session:
● To discuss the risks for companies that arise from
independent contractor relationships that are improperly
managed or created
● To provide an overview of the test applied by Courts to
determine whether or not you have an employee or an
independent contractor
● To provide some “dos and don’ts” for companies who want
to enter into independent contractor relationships with
workers
slide | 28
Risks
● Tax implications
● Statutory remittances – Canada Pension Plan,
Employment Insurance
● Compliance with the minimum requirements of the
Employment Standards Act, 2000
● Litigation risk on termination — wrongful dismissal
claims, claims for “reasonable notice” for dependent
contractors
slide | 29
The Test
● Various iterations of the test over the years: the “four part
test”, the “control test”
● Recently clarified by the Federal Court of Appeal in
Connor Homes v. Canada (National Revenue), 2013 FCA
85
● Now a two part analysis: subjective and objective
slide | 30
The Test: Step One
● Step one: Subjective Analysis
● Is there a mutual understanding or common intention to
create an independent contractor relationship?
● Look to the written agreement between the parties and their
behaviour
● Did the contractor issue invoices?
● Did the contractor register for GST?
● Were the income tax filings of the contractor consistent with
an independent contractor?
slide | 31
The Test: Step Two
● Step Two: Objective Analysis
● Do the pertinent facts support that the worker is providing
the services as a business on his or her own account?
● Factors to examine:
● Degree of control exercised by the contractor over his or
her own activities
● Who supplies the equipment and tools?
● Can the contractor hire his or her own employees to
perform the work?
slide | 32
The Test
● Essential issue: Does the contractor operate his or her
own business?
● “The ultimate question to determine if a given individual is
working as an employee or as an independent contractor
is deceivingly simple. It is whether or not the individual is
performing the services as his own business on his own
account.” (1671122 Ontario Ltd. v. Sagaz Industries
Canada Inc. 2001 SCC 59 (CanLii))
slide | 33
How to Satisfy the Connor Homes Test
● Two concepts: form and substance
● Form
● The written agreement between the parties
● How you address the contractor and represent him or her
to outside parties
● Written communications between the contractor and you
● Substance:
● Structure the relationship such that the independent
contractor is truly independent and readily distinguished
from your employees
slide | 34
Dos and Don’ts for Independent Contractors
● DO have an agreement.
● Intention of the parties much harder to assess when
nothing has been reduced to writing
● Gives you the opportunity to negotiate favourable clauses
such as a tax indemnity and explicit acknowledgements
regarding the expectations of the parties
slide | 35
Dos and Don’ts for Independent Contractors
● DON’T call it an employment agreement
● Use consistent language throughout
● Don’t use an employment agreement as a template
● DO require the contractor to provide services through a
personal corporation and issue invoices
● The Canada Revenue Agency is much less likely to review
your relationship if it is corporation to corporation
slide | 36
Dos and Don’ts for Independent Contractors
● DON’T reimburse the contractor for expenses
● The contractor should be required to absorb own cost of
doing business
● Shows they are taking a risk and running an independent
operation
● DON’T give them benefits coverage
● Classic feature of an employment relationship
slide | 37
Dos and Don’ts for Independent Contractors
● DO structure the compensation so that the worker has
the opportunity for profit and risk
● Fixed monthly or weekly compensation not advisable
● Tie compensation to the success of certain projects or to
sales figures
● DON’T give them an office and a business card
● If you treat them like one of your employees and represent
to the outside world that they are an employee, a Court will
be more likely to find that they are, in fact, an employee
slide | 38
Dos and Don’ts for Independent Contractors
● DO have a termination clause in the agreement
● Independent vs. dependent contractors
● Consider making it in excess of the minimum requirements
of the Employment Standards Act, 2000
● DON’T make it exclusive
● Contractor should ideally have the ability to hire workers to
perform the services
● Contractor should be able to take on other assignments
with other companies
slide | 39
Dos and Don’ts for Independent Contractors
● DO require independent legal advice for the contractor
● Will assist with meeting Step One of the test
● Assist with enforcing important clauses in the agreement
● DO think about whether you want them as an
independent contractor in the first place
● Duty of good faith & fidelity
● Fiduciary obligations
● Ability to enforce non-solicitation and non-competition
clauses
● Loyalty and exclusivity
slide | 40
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