By Barry W. Kwasniewski and Martin U. Wissmath

Tax Court of Canada Rules that Insurance Adjuster was an Independent Contractor

Determining whether a worker should be properly characterized as an employee or an independent contractor at law can be challenging, especially where there are factors present in the relationship that point in both directions. In Co-Operative Hail Insurance Company Limited v. M.N.R. (the “Appeal”), an April 6, 2023 Tax Court of Canada (TCC) decision, the TCC considered a dispute between the appellant, an insurance company, and the Minister of National Revenue (the “Minister”), over the work status of an insurance adjuster. The TCC held that when a worker’s job could be interpreted as either an employee or an independent contractor based on the recognized factors, the subjective intent of the parties must be considered. That principle, noted by the TCC precedent in Wray Agencies Ltd. v. M.N.R., was a key deciding factor in the Appeal.

The Minister confirmed a CRA ruling from November 23, 2018, which stated that Mr. Casey Yeomans had worked for the Co-Operative Hail Insurance Company Limited (the “Appellant”) in the capacity of an employee and not as an independent contractor. The significance of this was that he was engaged in pensionable and insurable employment under the Canada Pension Plan and the Employment Insurance Act, respectively. The Appellant appealed this decision, maintaining Mr. Yeomans’ legal status was that of an independent contractor.

Mr. Yeomans was employed as a secondary school teacher and vice-principal who worked as a crop hail adjuster during the summer months. In April of 2016, he and the Appellant entered into an agreement specifying that he would work as an “independent contractor” for the company, adjusting claims for producer’s crop loss due to hail. Mr. Yeomans was to pay his own income tax and Canada Pension Plan contributions, and would not be provided oversight by the Appellant.  He was also allowed to work on a preferred schedule, was able to decide the general geographic area in which he would be working, was free to simultaneously work for other insurance companies in a similar capacity, and could refuse any assigned work which he did not wish to engage in.

In the Appeal, the court noted that the Supreme Court of Canada case 1671122 Ontario Ltd. v. Sagaz Industries Canada Inc. stated that the most significant factor in identifying an independent contractor is if the individual in question was engaged in business on their own account. A test for this was clarified in 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue). A court must examine the subjective intention of the parties, and then four objective factors:

• control over how the work is to be done;
• ownership of tools;
• chance of profit; and
• risk of loss.

Using the Connor Homes test, and following the similar facts from the decision in Wray, the court decided to allow the Appeal. The Appellant and Mr. Yeomans unambiguously intended to enter into an arrangement where he worked for the company as a private contractor.

Mr. Yeomans had significant say over how he was to work, specifically, he could refuse any work which he found as inconvenient due to travel time to a location or personal obligations which he may have had.

The Appellant had only provided Mr. Yeomans with a pen, paper and clipboard, as well as a manual which was provided to crop adjusters through the Saskatchewan provincial government. All other equipment needed for the job, such as the vehicle and outdoor gear needed to inspect claims, was owned by Mr. Yeomans.

Mr. Yeomans was allowed to decide his schedule and could work as much or as little as he desired, provided there were claims to investigate. This satisfied the court that he had a chance of profit.

Finally, the court found that there was no real risk of loss.

This decision considering employment versus independent contractor status is a useful reminder to charities and not-for-profits to carefully consider the basis upon which workers will be hired, as an incorrect classification may result in unexpected liabilities for unremitted source deductions such as EI premiums, income taxes and CPP employer contributions. 

Criminal Conspiracy Provisions Regarding Wage Fixing, No-Poaching Agreements to Come into Force

On June 23, 2022, Bill C-19, the Budget Implementation Act, 2022, No. 1 became law. This Bill contained numerous provisions, some of which amended the federal Competition Act (the “Act”), that are set to come into force on June 23, 2023. Some of these provisions will have significant implications in the field of employment law.

While competition law legislation is often thought of as affecting the mercantile aspect of business, the amended Act seeks to prohibit wage-fixing and no-poaching agreements, for the purpose of protecting “workers from agreements between employers that fix wages and restrict job mobility.” This protection will come from the addition of a new provision, s. 45(1.1), which reads as such:

(1.‍1) Every person who is an employer commits an offence who, with another employer who is not affiliated with that person, conspires, agrees or arranges

(a) to fix, maintain, decrease or control salaries, wages or terms and conditions of employment; or

(b) to not solicit or hire each other’s employees.

A penalty of an indictable offence, punishable by 14 years imprisonment or a fine at the discretion of the court, or both, can be levied against anyone convicted of infringing this new provision. The changes do not remove the ancillary restraints defence, which allows for agreements that would contravene the Act if they are ancillary to an otherwise legal agreement, and the terms in question are reasonably necessary for that agreement. As amended under section 45 of the Act:

[Ancillary Restraints] Defence

(4) No person shall be convicted of an offence under subsection (1) or (1.1) in respect of a conspiracy, agreement or arrangement that would otherwise contravene that subsection if

(a) that person establishes, on a balance of probabilities, that

(i) it is ancillary to a broader or separate agreement or arrangement that includes the same parties, and

(ii) it is directly related to, and reasonably necessary for giving effect to, the objective of that broader or separate agreement or arrangement; and

(b) the broader or separate agreement or arrangement, considered alone, does not contravene that subsection.

The Act applies to all businesses in Canada, regardless of whether they are federally or provincially registered. There are no exemptions for charities and not-for-profits. Matthew Boswell, the Commissioner of Competition, stated on June 24, 2022 that the changes are “an important step in modernizing Canada’s competition law and building a more competitive Canadian economy” and that “the Competition Bureau will ensure businesses have clarity on how to comply with the law, and predictability with respect to the Bureau’s enforcement of the new provisions.”

The Competition Bureau published a guidance document, “Enforcement Guidelines on wage-fixing and no poaching agreements” on its website, on May 30, 2023 (the “Guidance”). The Guidance states that for an agreement to be eligible for the ancillary restraints defence, the Competition Bureau “may examine the terms of the agreement, the form of the agreement, the functional relationship or lack thereof between the restraint and the principal agreement, and how the restraint makes the principal agreement more effective in accomplishing its purpose” among other considerations.

With harsh penalties for non-compliance, it is of the upmost importance that employers’ practices are in-step with these new provisions, including charities and not for profit organizations.

​Read the Month Year Charity & NFP Law Update