Contract of Service Versus Contract for Service

Contract of Service versus Contract for Service

Employed or Self Employed, Langille and Davidov

Distinction b/w employee and contract worker critical (concept of employee is “gateway” to protection – employee qualifies for benefit of employment/ labor law, entitled to sue for wrong dismal, able to unionize, benefit from basic employment standards, minimum wage, vacation, equal pay for equal work, parental, overtime)
Most statutes contain unhelpful definitions for employer, employee
Changing nature of labor environment, development in information technology, new methods of organizing productive activity, competitive pressures of globalization – new modes of laboring – thus traditional understanding inadequate, needs to change
Globalization results in eclipsing of law contract, undermining traditional regulatory measure to protect workers
Possible tests: control, ownership of tools, length of contract, ability to subcontract work, chance of profit or loss – fluid, no one definition, problematic, but difficult concepts are the nature of law
Assisted by (i) purpose, context, (ii) drawing boundaries (say this is employee, this is not)
Not problem that concept cannot be defined, fascination of law
Purpose test: ex: where employees turened into independent contractors by employers can use purpose test
Purpose: not only one, to protect work, also contravening purpose to promote competition

History of employee/ independent contractor distinction in Canada

Control as opposed to commercial relationships
Historically, every worker indisputable employee, not as result of globalization serious shift
New class: temporary, part-time, tenured worker, multiple job holder – does not affect employee’s status, but makes them more susceptible to employer manipulation, evasion as regards their rights
Purposive interpretation: meaning of word employee determined w/in context, purpose used – one can be employee for purposes of employment standards but IC for purposes of vicarious liability – protection of workers main purpose – assumption is that employer can, should take responsibility for employees
Basic purpose of employee/ IC distinction thus is to distinguish workers who are in need of particular sort of protection (have identifiable employer) from those workers who are in position to protect themselves – protection of workers, essence of labor law

Fourfold test

Lord Wright: in earlier case single test such as presence or absence of control was often relied on to determine whether the case was one of master and servant, mostly in order to decide the issues of tortuous liability on the part of the master, superior. In the more complex conditions of modern industry, more complicated tests have often been applied. It have been suggested that fourfold test would in some cases be more appropriate, a complex involving (i) control, (ii) ownership of tools (iii) chance of profit (iv) risk of loss. Control in itself not always conclusive… in many cases the question can only be settled by examining the various elements which constitute the relationship b/w parties (Montreal v Montreal Locomotive Works [1947] 1 DLR 161, 169)
Fourfold test boil down to two questions (i) whether worker controlled by employer/client (ii) whether worker is economically independent, w/ characteristics of independent businessperson (attn given to chance of profit, risk of loss) – ownership of tools simply one indicator of economic independence
Direct control inadequate: worker of today specialized professional, work requires discretion, performed outside employers premises – instead of direct control, courts have shifted to administrative, bureaucratic control (power to discipline work, promote, fire)
Quebec: main criteria is existence of legal subordination, originally meant direct, actual control by party over day to day work; now control over regularity and quality; much like administrative control
Use of work subordination: implies workers not free, in need of protection, unable to freely, fully purse their goals, realize themselves to make decisions that directly affect their lives
Second question: whether economically independent suffer risk of profit or loss increasingly important alongside control – assess degree of dependence worker has on employer
Still problematic ex: postmistress held to be IC b/c paid on commission, salary commensurate to her efficient Canada Post and Canadian Postmasters [1989] 5 CLRBR 2d 79, 91 – problematic b/c allocation of risk still open to employers manipulation, worker still in need of protection
With this problem in mind better to see loss/profit w/in context on economic dependency – courts can more effectively protect workers, bypass manipulation – can find employment relationship when worker assumed most of the risk, but still economically dependent
Worker relationship dependent on two factors: control, economic dependency; other test business integration or organization test, leads to same two categories
Organization test: Lord Denning: under contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under contract for services, his work, although done for the business, is not integrated to it, nut only accessory to it Stevenson Jordan and Harrison Ltd v MacDonald and Evans [1952] 1 TLR 101, 111 CA
Integration into employing organization just another way of saying administrative, bureaucratic control – development of original test; also shows economic dependency
Essence of market society is that for best prices, competing pressures to develop market equilibrium IC and employer’s assets must be separate, if profits tied together not capitalistic, free market
Test far from perfect, but offer basic guidelines so judges interpret, secure protection for workers
Control/ subordination and economic dependency reasonably related to basic purpose of identifying workers in need of protection w/ identifiable employer; some judges miss this basic aim applying law in rigid, formalistic way, risk of excluding some workers, w/out real reasons

Dependent contractor: most interesting example of tension between purposive approach and actual application by courts

Real economic situation of workers which must be examined, not formal aspects of relationship
If driver (owns own truck, on road outside control, but has one single client), would be IC; but heavily dependent on client, often times use to work there, they helped him buy truck, cannot deliver for other company – formalism, rigidity might promote injustice, purposively – is employee, puts worker in position which calls for protection
Such workers excluded, truck owners, operators, peddlers, taxicabs, farmers, fishermen
Unequal power b/w workers and employer, if you cannot be classed as employee, barred from collective bargaining – weak
Suggest development of category dependent contractor – should be eligible for unionization
Sweden: for purposes of this Act, person shall be regarded as employee even if not formal engagement exists, provided that he performs work for another person, thereby occupies in relation to the person position of dependence essentially similar to that occupied by an employee in relation to his employer (Act Respecting Collective Agreements) – cited by Arthur
New category (i) legal form not determinative, flexible, reality of relationship should be examined (ii) eliminates, downplays ownership of tools; often main barrier for workers; Ontario Act adds something more than Swedish definition: for person to be considered dependent must be under obligation to perform duties for employer – could unjustly exclude many, truck drivers, etc. who are not under any formal obligations to regularly work for employer, although economic reality is that they are left w/ no other options
Instruction of new category mixed blessing, resulted b/c of failure of Canadian courts to interpret purposively rather than formally – if interpreted properly no need for new category of dependent contractor
Reflects failure of employment law: no reason why workers who are economically dependent upon specific employer should not be considered employees for purposes of some employment standards
New category limited development in law to purposive ends, exists only in labor relations acts, impediment to law’s growth – only recognize collective bargaining
CL: courts show willingness to recognize workers in intermediate status b/w employees and IC; have right to reasonable notice before termination, reciprocal duty of fidelity in favor of employer; main criterion are duration/ permanency of relationship, degree of reliance, closeness; degree of exclusivity
Statute: Ontario Labor Relations Board lists: use of, or right to use substitutes; ownership of tools, supply of materials; evidence of entrepreneurial activity; selling of one’s services to the market generally; economic mobility or independence, including freedom to reject job opportunities; evidence of variation in fees charged; integration into employing organization; degree of specialization, skill, expertise, or creativity involved; right to control manner and means of performing work; whether remuneration, contract terms, manner of payment resemble employment relationship; whether individual works under conditions similar to persons who are clearly employees
Same two criterion present – control, economic dependence (must derive 80% of salary from employee, question of whether DC can employ others)
Where health, safety, social security involved, Canadian legislatures use term worker – very broad Ontario Occupational Health and Safety Act defines worker as “person who supplies services for monetary compensation”
Distinction b/w IC/ E understood less rigidly, more purposively, in context – courts more willing to extend employment statute to facilitate protection as long as control, economic dependency satisfied
New problem: identifying employer, non-self-dependent contractors with very little market power, in need of protection: ex: freelance reporters, photographers w/ very little bargaining power (new economy has given rise to such workers)
Proliferation of part-time, casual, temporary workers, multiple job holder, people who work at home – much less employment security – globalization pressures to outsource, subcontract; business tend to focus on core competencies then contract out for services, cut labor costs, more efficient, specialized skills, non-unionized labor force, ignoring labor laws; subcontractors also take risk off business
Tendency – less security, more contingent relations, contract out work – workers find themselves self-employed, often involuntarily
Truckers: gas prices increased by taxes in Canada, truckers claimed lost money going to work, but could not shift prices to clients, no bargaining power, had to lobby government to reduce prices

Solutions

Abolish connection b/w work or employment and certain rights (health insurance available to all whether employee or not) – concerns too employees who too frequently change jobs
Using occupations status designed to protect continuity of lifelong trajectory rather than stability in particular job, including transition from wage employment to self-employment; make everyone benefit from social security thru taxation
Issue workers permanent smart card, portable employment record follow workers throughout life – employers would have to pay much more, but w/ globalization, de-regulation, tax cuts, less emphasis
Collective action by non-self-dependent contractors
Employment contracts often unfair b/c of inequalities in bargaining power; legislature can intervene by forcing terms which ensure justice

Employed or Self-employed, Davies and Freedland

Employment law forms of welfare provisions (health, safety, minimum wage, parental leave) – one aim is protection of workers but not the only aspect
If goal is securing social welfare rights for workers, this has to be understood in particular economic context rather than in purely theoretical terms
Two types of work relationship: dependent or subordinate work relationship, other is independent work relationship
Difficult to class b/c worker independent in some respects, independent in others
Welfarism and efficiency can be maintained by developing techniques to adjust emplyment law to suit changing trends in labor relations
Use word worker – broader, rights extended to more people
Intermediate category of laborers under common law

Independent Contractors and the Challenge of Vertical Disintegration to Employment Protection Laws, Hugh Collins

Mangers of firms interested in disintegration – arranging work thru subcontracting, franchising, concessions, outsourcing – similarly, public sector adopts policy of privatization
Explains limited scope of legal protection for laborers; employment protection rights (claim against unfair dismissal, redundancy payment) typically vested only in employees who fit in traditional complementary paradigm of vertically integrated production: employment which is fulltime, stable, for indefinite duration
Trend toward disintegration places many workers outside this paradigm, therefore beyond range of employment protection – marginal workers include, temporary workers, casuals, self-employed, part-timers, home workers
B/c employment protection laws limit protection according to hours of work, length of service, place of work, many fail to acquire protection by choice of legislature – parliamentary reform
Despite new forms, workers still in position of social subordination, economic dependence, same as ordinary employees – still in need of protection – de facto employees (weak bargaining power, control, dependence)
However, nature of market is that you want business to have more options to source labor; conflict in policy – promote business, capitalism but also protect workers – invariably business will try to reduce labor costs, cost of regulation
Legislatures unlikely to alter decision that IC should be denied rights – common sense, business dealings w/ each other at arms length should not be responsible for each other’s economic, physical security beyond contractual agreement, ordinary duty of care owed by citizens to each other
Core rights: statutory notice period, maternity rights, unfair dismissal, redundancy payments, statutory sick pay, rights in event of insolvency, sale of business
Many workers, in form comprise independent contractors, but in substance function as employees, unsatisfactory predicament that courts may deny them protection
Disintegration might be temporary, but beneficial; establishes network of small firms, flexible, specialized skills, innovation – growth of subcontracting, self-employment
Natural – entrepreneur decides whether he can produce goods, services more cheaply inside his own organization by direct controls over labor or whether it would be cheaper to purchase commodities, services in open market
Potentially break power of business interest – give laborers greater bargaining power – firm limits activities to areas of special skills, deter management from establishing overreaching conglomerate
Other hand, weakening bargaining power b/c of high levels of unemployment, more restrictive rules governing legality of industrial action weakened power of workers to restrict external contracting
Men are not machines: will work only for incentives such as money, status, job satisfaction – owner of business faces difficulty to ensure fair return of labor power for money
Employers use two techniques for achieving efficient acquisition of labor power
First, contractual allocation of risk b/w firm and worker, risk of inefficiency on worker
Second, bureaucratic controls, worker rules, managerial supervision, penalties for poor performance, incentives such as promotion
When owner assume all risks – employee not work diligently, risk of unforeseen contingencies, unavailability of work – time service contract, employee pays wages for fixed number of hours, thereby assuming risk of shirking by worker, unforeseen contingencies which delay completion, etc.
When workers assume all these risk, parties select task performance contract, where specific task is to be performed in return for remuneration, if owner not satisfied he can refuse to pay, seek other contracting party for future; managerial prerogative becomes transformed into bargaining power, labor is essentially commodity
Thru productive schemes, profit related pay, employer transfers some risk to employees; making contract terminable on short notice, relaying on casual, temp workers, unavailability risk transferred to workers
Bureaucratic controls difficult where job entails complex tasks, considerable discretion on part of workers to identify needs, solutions (nurses, teachers, solicitors, supervisors)

Organization

Thru structure of bureaucratic organization, employer can supervise, direct, monitor performance of work – include: rank order of authority, grading structure based on job evaluation, promotions, performance evaluation, disciplinary code – permit higher echelons to control lower
Business has choice – either integrate workers thru control techniques, keep them out
Bureaucratic controls suggest that management would prefer to retain unfettered prerogative power, bureaucracy forced on them by resistance of workers to managerial authority; however controls also benefit workers, subjects managerial prerogative to rules, procedures, becomes more predictable exercise of power, one subjected to detailed negotiations, monitoring by workforce
Presence or absence of bureaucratic controls unlikely to reveal to court true nature of contract for services, use of bureaucracy may betray staggering profits, imperative for quality control, strong labor movement; its absence need not indicate economic relation one where employment protection legislation unnecessary
Binary division b/w employees and independent contractors embedded in legislation tries to force into neat compartments difficult, myriad patterns of allocation of contractual risk, degrees and ranges of bureaucratic controls – if they focus on these, bound to lead to errors of classification since these techniques may prove unrelated to real concern of employment protection law for relief of workers from economic dependence and social subordination – precise mistakes courts have made in applying legislation

Tests:

Control tests: hirer of services controls worker w/ respect to time, manner in which he performs work
Organization test: whether worker has been integrated into organization, by being graded, paid according to job evaluation scheme, required to conform to employer’s disciplinary code
Allocation of risk: if worker is in business on his own account, meaning income from work depends upon productivity, skill, and perhaps worker risks capital in venture

Criticisms: tests are indeterminate, do not provide clear criteria in borderline cases; tests often appear dysfunctional in that they draw line b/w IC and worker in place that deprive worker of protection

Indeterminacy: control test never satisfies question what type of control suffices; impossible for employer to literally control manner of work w/ respect to skilled craftsmen, professionals
Nature of control must be under as residual right to control by the exercise of direction and monitoring performance; but once nature of control required becomes so diffuse, then it provides uncertain guidelines
Ex: construction workers, professionals might agree to be subject to such general power of direction, monitoring, yet in all other respects retain their autonomy, regard themselves as IC
Control test does not offer clear analysis of nature of requisite form of monitoring; cannot be limited to direct supervision of workers, would exclude piece work, sale on commission, workers who are largely unsupervised, though closely monitored by quality assurance, productivity
Control test does not indicate whether employer must dictate number of hours worked,
Organization test: arose in part to compensate for indeterminacies of control test, suffers from similar weakness, although organization test makes plain that residual form of control suffices, it tries to establish existence of such control by reference to badges of membership in organization
Test flounders with smaller businesses which lack clear marks of organizational membership; works for larger firms, easier to search for badges
Badges include membership in firm’s internal labor market, ranking in hierarchy, pay taxed at source as required for employees, subjection to work rules or employers handbook, subjection to dress code, disciplinary code, so forth
Indeterminacy comes because workers hold some badges but not others, for certain purposes such as deferred payment and pension treated as IC, for other purposes as discipline, calculation of pay, grading as employee different badges
Organization test offers no guidance on how to classify such workers, unless certain badges of membership are regarded as conclusive
Risk test: examines financial arrangement b/w parties to determine whether employee bears risk of profit, loss also lacks determinacy
At first, test appears to require IC to risk capital in venture, but this would unduly restrict category for many genuine contractors such as portrait artist who only bring human capital, skill, few elementary skills to market
Better to interpret risk of profit, loss as referring to level of remuneration compared to time and effort involved; both employees and IC undertake risk (ignorance, uncertainty of market forces, effort, time involved, ordinary employees risk reduced income from poor performance thru employer’s disciplinary system for deductions from pay, and stand to benefit from increased effort from profit-related pay schemes, commissions, promotion
Risks are arranged, subdivided in plethora of different ways

Dysfunction: straightforward application to factual circumstances produces results which seem to defeat clear purposes of labor law regulation