Independent Contractors vs Employees – More Risks

If the proposed changes to employment law are enacted, businesses using independent contractors (“ICs”) instead of employees will need to be very careful indeed.

Employee Misclassification

The proposed legislation would prohibit employers from “misclassifying” employees as “independent contractors.” (ICs”). This is intended to address cases where employers improperly treat their employees as if they are self-employed and therefor, not entitled to the protections of the Employment Standards Act (“ESA”).

In our experience, some employers use ICs to avoid income tax, CPP, EI and WSIB paperwork and remittance obligations, as well as the more onerous employee entitlements and protections under the ESA. However, some employers are asked to treat their workers as ICs so that the ICs can claim broader deductions as a self-employed party.

In both cases, we advise our client that CRA and the Courts will look at the substance of the working relationship, and not the ostensible classification by the parties: a rose is a rose is a rose. Even before these proposed changes, both the employer and the IC are at considerable financial risk if they go with IC status when the relationship is, in substance, an employment situation (fines, penalties, interest, reassessment, payment of missed remittances). There are a number of factors that bear on this determination, and lots of cases reported. A legal adviser should be consulted as every situation is different, and the particular facts are paramount.

Under the proposed new law, employers that misclassify their employees could be subject to penalties including prosecution, public disclosure of a conviction and monetary penalties. In the event of a dispute, the employer would be responsible for proving that the individual is not an employee.

There will be no change to the definition of “employee” to include a “dependent contractor.” (workers who are really employees due to their history and work dependence on the employer. The current ESA definition is already quite broad, and changes to the definition are likely to have unintended consequences. The real issue is the misclassification of the employees.

As well, the Law Commission of Ontario, which recently studied this issue, specifically advised against a “dependent contractor” provision as its scope would be very difficult to define without inadvertently capturing true “independent contractors”. This would create significant legal and potentially economic uncertainties. If the proposed legislation passes, this proposal would come into force on Royal Assent, and the timing of that is unknown.

We are well aware of the advantages to businesses using ICs instead of T4 employees, but the proposed changes will definitely up the ante on risks for both parties if the authorities don’t agree with the classification.

Ontario Corporations Must Now Record Property Holdings – New!

Overview

On December 10th, 2016, the Ontario Business Corporations Act (OBCA) was amended. It now requires Ontario corporations to create and maintain a register of all of their ownership interests in land in Ontario. Corporations incorporated on or after December 10th, 2016, must comply immediately. Other Ontario corporations have until December 10th, 2018 to comply.

Details

This new register is to be kept at the corporation’s registered office and must record certain detailed information on the corporations ‘ownership interests’ in real property. It must state the acquisition and disposal dates of each property owned by the corporation. The register must also include supporting documents, such as deeds and transfers, and must be kept with the register if they contain information relating to:

  • the property’s municipal address;
  • the registry or land titles division and the property identifier number;
  • the property’s legal description; and
  • the assessment roll number.

These requirements will not be overwhelming for small business corporations that rarely buy or sell interests in land, however, those corporations which regularly buy and sell real estate will find this to be a large burden.

How is ‘ownership interest’ defined under the revised legislation?

Unfortunately, the new OBCA amendments do not define the key term of ‘ownership interest’ and as such, it is not understood if the ownership interest refers only to registered interests or whether it also applies to beneficial interests in real property. If the requirement also applies to beneficial interests, then Ontario corporations who hold beneficial interests in land in Ontario will also need to comply with these requirements, even if the registered holder is not an OBCA corporation. Without a clear definition, an OBCA corporation cannot be sure if it needs to maintain records with respect to such instruments as: options to purchase, mortgages, easements or possibly leasehold interests.

It is clear that the new requirements do not apply to ownership interests in land outside Ontario or to entities incorporated under statutes other than the OBCA, such as the Canada Business Corporations Act, even if the corporation is based out of Ontario.

Compliance

Corporations who fail to comply with these new requirements can be subject to a fine of not more than $25,000. Director and Officers who permitted the offence could also subject to a fine of not more than $2,000 or to imprisonment for a term of not more than one year, or to both.

Last Words

At this point, no one can say for sure the full impact of these changes, but we will stay on top of any future developments and keep you informed.

 

Final Tax Returns – Not So Easy Anymore!

We don’t file tax returns for our clients, but we understand that in the good old days, you could write “Final Return” on the tax form and CRA would leave you alone. Then, the provincial Ministry, if it was an Ontario corporation, might strike your corporation off the register of corporations for failure to file its Annual Returns for several years. That was certainly a low cost approach for dealing with defunct Ontario corporations that had no assets or liabilities.

Now, it appears that CRA require you to formally dissolve your corporation if you want to be relieved of ongoing tax return filing obligations. This can be done a couple of ways: by you doing the simple paperwork yourself, or having your lawyer do it for you. If someone other than a Director or Officer is doing the dissolution, you must document the authority of the other person to file the papers on your behalf. Some CPAs are doing dissolutions – imagine that, CPAs practicing law!

What’s New – Actually, Quite a Bit!

gbtlaw Doubles in Size! Robert Woodford Joins Firm

I’m delighted to announce that Robert Woodford, my articling student this spring, will be joining gbtlaw as an associate commencing on his bar admission in June.

Robert  graduated from of Osgoode Hall, where he focused on business law courses. Prior to law school, Robert spent 15 years in private and public positions, designing and implementing Information Technology systems. He managed multi-million dollar budgets for government offices, and was also the founder and president of Source Systems Corp., which firm delivered custom software development, strategic planning and operations redesign, and project management for government and private sector organizations. Robert studied Systems Analysis at Sheridan, and obtained his honours B.A. from McMaster University.

So, you can see that Robert is a perfect expertise and experience fit for our expanding IT practice in startups, acquisitions and contract advisory and creation. Welcome aboard Robert!

Robert enjoys SCUBA diving, golf, camping, sailing and travelling with family and friends in his R&R time.

With Robert aboard, it means that gbtlaw has grown from being just myself and a clerk, then we added Carol Heimbach (who specializes in shareholder & other complex contracts, plus Minute Book documentation/updating), and now, we have another full-time, onsite lawyer plus a new clerk dedicated to complex corporate tax reorganizations and transactions. So, depending how you count the bodies, we’ve gone from one lawyer to three lawyers, plus a reorg clerk and an Office Manager, being Nancy Buchan-Terrell, my beloved and lovely wife.

But Wait, There’s More!

Directly attributable to Robert joining gbtlaw, we decided that we needed a lot more space – a proper office for him, plus working rooms for organizing our voluminous deal and reorg files, and client meetings. And, though I’ve enjoyed 10 great years with my terrific Landlord at 480 Morden, I was past due for a major change-up – so we’re moving!

On May 13, we moved to 41 Lakeshore Road West, on the edge of the Kerr Street Village and a short walk to the Downtown Core across the bridge. It’s an old house wedged between a Tim Horton’s and the first Black Episcopal Church built by slaves escaping the from unjust servitude via the Underground Railway. I think we’re really going to flourish in the new ‘Hood, with its intriguing history and local characters, many funky restos, and street traffic, absorbing it during breaks by relaxing on the porch

But don’t worry, we have plenty of parking, behind the building for free, or meters in front, with good access to the QEW via Dorval Drive or Kerr Street. Come on down for a tour and visit this summer!

Everybody’s Talking About Bhasin, But Do YOU Care?

About two years ago, our esteemed Supreme Court of Canada pronounced, for the first time, on whether or not contract parties have a general duty to act in good faith and honestly towards each other. Business and civil litigation lawyers are still all a-twitter about this “landmark decision”. Should you be a-twitter about it?

You may have already heard about this decision: the case is Bhasin v Hyrnew, and it involved the exercise of renewal rights under an existing agreement. The two parties were hostile competitors, and the Supremes found that Bhasin had, in fact, been lied to and mislead by the other key parties.

Up to now, Canadian law on good faith dealing under contracts was fragmented and inconsistent. Under Bhasin, performance under a contract must be honest, candid and reasonable. There is a general duty of honesty from one party to the other. What does this mean?

What Does Bhasin Say?

Commentators believe that Bhasin stands for the principle that a party cannot lie or deliberately mislead the other party in respect of the performance of their contract.

The learned Justices distinguished between non-disclosure of a fact, which is thought to be permissible, and actively misleading or deceiving the other party. Frankly, I find this distinction to be bogus, and it will just be a matter of time before non-disclosure will be added to the good faith doctrine. There is one case (Lavrijsen Campgrounds Ltd. v Reville) that obliterates the distinction between non-disclosure and “intentional misrepresentation”, i.e., lying.

Bhasin also discusses the need to consider the expectations of the parties under their agreement, and this is bound to create chaos and skullduggery with ex post facto posturing.

Can You Opt-Out of Bhasin?

 The better view, at least for now in the early days of academic debate, is that the duty to act in good faith and with honesty cannot be excluded or avoided by new clever wording in the agreement. That’s a shame, because we lawyers just love to dream up clever wording to negate a high profile case or avoid a new law, but it seems that this tactic may not work here. Besides, who in their right mind would want to do business with another party who insists on expressly excepting a duty of good faith? Sort of big bright red flag, don’t you think?

The Supreme Court decision of course contained the typical wording about how there will be exceptions and limitations depending on the circumstances.  We wouldn’t want too much certainty, would we?

You can be sure that every contract action will now include all kinds of exploratory allegations from both sides that the new good faith principle was breached in order to bootstrap weak arguments on the facts or law. Rather than clarify an area of contract law, I believe the Bhasin case will create and increase uncertainty in business dealings.

Business lawyers must caution their clients to consider the Bhasin principle of good faith and honesty in their negotiation and performance of contracts, but where it goes from there we cannot yet say.

Unhappy with University or College? File a Consumer Complaint

A new case in Ontario (Ramdath v. George Brown College) establishes the right of students to sue their college or university for misrepresenting courses as a consumer complaint under the Consumer Protection Act (Ontario).  I believe this could be a major development in bringing more accountability to post-secondary educational institutions.

I’ve dealt with seven universities as a student or supporting parent/spouse over 40 years, and in the last decade or so, it seems that these purveyors of higher education have forgotten who their customers are – the student and parents.  They often treat their customers with discourtesy, arrogance, and arbitrary bureaucratic attitude – except when they want alumni donations of course.  It’s high time that universities and colleges sent their administrative staff to Disney University to be retrained in basic customer service.  In the meantime, maybe they’ll get the message if lots of students file consumer complaints for the most egregious problems.

New Online Mediation Service

Litigation in Ontario makes no sense for less than $150,000, unless it is a simple collection matter, or other dispute involving $25,000 or less that can be taken to Small Claims Court.  For all other disputes, the cost of legal counsel and the time spent to get a result will outweigh any rational benefit.  Mediation and arbitration has been promoted by the legal fraternity, as many of my colleagues rushed to become qualified as mediators and arbitrators to cash in on “alternative dispute resolution”, aka “ADR”.  ADR was hailed as the best new thing out there for people in disputes.  It isn’t.  It can be just as expensive and slow as going to Court, and no more predictable.

So, I was intrigued when I recently read in the Toronto Star about a new online mediation service called eQuibbly created by an ex-Toronto lawyer, Lance Soskin.  I haven’t used this service yet, but I’m dying to do so – it looks like it might resolve the cost and timing issues to a large extent.  You can settle via mediation, non-binding arbitration or binding arbitration.  The platform is free, but you must pay for the mediator or arbitrators.  Go to:
www.equibbly.com

Not for Profits Ascending

There is a confluence of factors happening now that has meant a big increase in the volume and value of work that Ontario business lawyers do for Not-for-Profit corporations (aka “Non-Profits”):

  • The stakes are much higher for certain issues like HR & funding, e.g., a wrongful termination claim can easily exceed $100,000 as NFP wages have zoomed upwards in the last five years or so
  • Volunteer Boards of Directors realize that the lawyer-Director might not have expertise in the area of law needed
  • Both the Province of Ontario and Federal Government have enacted huge ‘reforms’ to the corporate law of Non-Profits
  • Volunteer Directors are now aware of their real liability exposure and ongoing duties to their corporations
  • Lawyer-Directors have become keenly aware of their liability exposure in acting in dual capacities of Director and legal advisor/expert

So, outside counsel with specific expertise are being hired more and more for formal, paid legal services – assistance with complicated agreements, HR matters, governance issues and miscellaneous esoteric legal issues.

And you might well say, “So what? Why do I care about this?”  Well, if you’re now a Director, volunteer or senior employee of a Non-Profit, and your organization hasn’t participated in this trend of getting and paying for qualified legal advice, then it’s high time you jumped aboard!

And by the way, there’s a terrific article on Liability of Directors by the late and truly great charity lawyer, Jane Burke-Robertson on the Government of Canada website, click here.