Provincially Regulated Employers PDF

Provincially Regulated Employers Understanding Common Law 2 LEARNING OUTCOMES After completing this chapter, you will be able to: Understand key common law issues related to hiring, including n...

Provincially Regulated Employers Understanding Common Law 2 LEARNING OUTCOMES After completing this chapter, you will be able to: Understand key common law issues related to hiring, including negligent misrepresentation. Understand the effect of using executive search firms in the recruitment process. Explain the legal implications of using background checks, including conducting Internet and social media searches. Understand differences in categories of employees, including full-time, part-time, and temporary employees. 27 28  Part I The Legal Framework Introduction This chapter’s focus is on the rules for hiring found in the common law and in some legis- lation governing information sharing. The chapter begins by looking at the main areas of potential common law liability for employers and employees during recruitment, selection, and hiring. Recall from Chapter 1 that tort law typically applies when there is no contrac- tual relationship between the parties, as is the case during recruitment and selection. In misrepresentation the employment context, torts may arise from misrepresentations by job candidates, the an untrue statement made by employer, or executive search firms; inappropriate inducements by employers to lure a job one party to another party; candidate; hiring someone who is subject to a restrictive covenant with a previous em- the type of misrepresentation ployer; negligent hiring where an employer fails to conduct proper background checks; and is negligent when the state- anticipatory breach of the employment contract. ment is made carelessly, but it Following the discussion of issues arising during recruitment and selection, the common is fraudulent when it is made law distinction between employees and independent contractors is explained. Parties who knowingly; misrepresentation intend to create a principal – independent contractor relationship must ensure they do not can be innocent when the statement is false but was inadvertently create an employer – employee relationship. Such a mistake can have serious not fraudulent or negligent cost implications for both parties. The chapter concludes by briefly discussing different categories of employees. Although in most situations the law does not distinguish one group of employees from another, cat- egories such as full- and part-time employees are commonly referred to and are noted here for clarification. Areas of Common Law Liability Misrepresentation by Job Candidates There is no legislation that requires job candidates to be honest during the application pro- cess. However, courts have held that misrepresentations made by employees before they are hired may justify dismissal for cause if they are sufficiently serious. Situations where (1) the employee knew the statement/representation was false, (2) the employee intended to deceive the employer, and (3) the employer relied on the misrepresentation may amount to the tort of fraudulent misrepresentation. In other words, if a false statement related to qualifications or work experience has a significant impact on the hiring decision, an em- ployer can terminate an employee as a result of that misstatement, even if the employee is performing the job satisfactorily. This principle of misrepresentation by job candidates also applies to false statements that are not necessarily material to the hiring decision but that suggest an inherent lack of honesty, especially where the job requires a high degree of trust. If, for example, a can- didate indicated that they had obtained a particular academic degree when in fact they had completed most of the course work but never graduated, dismissal may be justified. In Cornell v Rogers Cablesystems Inc, the Court found that dismissal was justified where the applicant misled the prospective employer into believing he was still employed by his former employer. On the other hand, minor misstatements that do not significantly misrepresent the appli- cant’s qualifications or character do not usually justify dismissal without notice. In general, misstatements, even deliberate ones, that do not induce the employer to hire the applicant  Chapter 2 Provincially Regulated Employers   29 will not justify dismissal, even if they influence some of the terms of hiring. For example, if an applicant unintentionally misstated the length of time they had worked in a previous job and that misinformation was not significant to the employer, the employer probably could not dismiss the employee without reasonable notice. Likewise, misstatements about an applicant’s previous salary may not justify dismissal, even if the misstatement was inten- tional. In the case of Islip v Coldmatic Refrigeration of Canada Ltd, the defendant company began talking with Islip about hiring him away from one of its competitors. Islip wrote out a proposed contract of employment, which Coldmatic accepted. In the proposal, Islip deliberately overstated his current salary by more than 20 percent to gain a better salary with the new employer. Coldmatic later tried to claim it had the right to withdraw from the contract or to dismiss Islip with cause because of the misstatement. The British Columbia Court of Appeal found that the misstatement did not induce Coldmatic to hire Islip: it would have hired him at the higher salary even if it had known the truth. The Court also found that the misstatement was not a serious enough misrepresentation to justify dis- missal for dishonesty. Statements about past salaries are less critical than statements about an ­applicant’s qualifications to do the job. Cases in other provinces have similarly held that an applicant’s ­misstatement of a current or past salary is not sufficiently misleading to support dismissal without notice (e.g., Earle v Grant Transport). (For the general rules regarding dismissal with or without notice, see Chapters 13 and 14.) Candidate misrepre- sentations during the hiring process of a more minor nature may not justify termination, but they still speak to a question of the individual’s integrity and could justify disciplinary action by the employer, if the circumstances warrant. Employers who wish to emphasize the importance of honesty in filling out application forms and to buttress their legal position should include an attestation clause at the end attestation clause of all job application forms. This clause should state that the information provided is true a clause on a job applica- and complete to the applicant’s knowledge and that the applicant realizes that a false state- tion form that states that ment may disqualify them from employment, lead to disciplinary action, or be cause for the information provided dismissal. The clause could also state that incomplete information may be cause for admin- is true and complete to the applicant’s knowledge and istrative dismissal. Thus, if the employer subsequently discovers a serious misrepresenta- that a false statement may tion, it can establish that the employee was forewarned about the possible consequences, disqualify the applicant including dismissal without notice. Similarly, if an employer believes that a certain educa- from employment or be tional or professional qualification is necessary for a particular job, it should state this in its grounds for dismissal job posting or hiring policy (Miedema & Hall, 2012, at 43). Wrongful Hiring: Negligent Misrepresentation Misrepresentation by an Employer An employer also may be legally liable for inaccurate statements made during the hir- ing process. If the employer makes a misrepresentation that is relied on by a prospective ­employee and that employee suffers damages because of it, the employer may have to compensate the employee. It is irrelevant whether the employer sincerely believed that the misleading or inaccurate statements were true. The employer has an obligation to ensure that material statements made during the recruitment process are accurate. The leading case in the area of negligent misrepresentation in hiring is Queen v Cognos Inc. It demonstrates the potential liability that exists when an employer fails to ensure the accuracy of statements made during the hiring process. 30  Part I The Legal Framework Negligent Misrepresentation in Hiring CASE IN Queen v Cognos Inc, 1 SCR 87 POINT Facts Queen was living with his family in Calgary, where he had been practising as a chartered accountant for approximately eight and a half years, when he responded to the employer’s advertisement for a position in Ottawa. During the interview, the employer’s representative told him that the job involved a major project that was going to be developed over the next two years and that would be maintained by the individual hired. Although the representative was aware at the time of the interview that senior management had not yet approved funding for the project, he did not advise Queen that the job was dependent on the funding approval. Queen accepted the job, leaving a position that paid well and was secure. He signed a written contract of employment under which he could be terminated without cause on one month’s notice or pay in lieu of notice. He moved his family from Calgary to Ottawa. However, funding for the project failed to materialize, and he was dismissed shortly thereafter. He brought an action for negligent misrepresentation in hiring. Relevant Issue Whether the employer was liable for negligent misrepresentation. Decision duty of care The Supreme Court of Canada held that the employer and its representative breached the duty of care a legal obligation to take owed to Queen during the hiring process. The Court found that to establish a negligent misrepresen- reasonable care to avoid tation, the following test must be met: acts or omissions that could there must be a duty of care based on a special relationship between the party making the repre- reasonably be expected to sentation and the candidate; cause harm to another the representation must be untrue, inaccurate, and misleading; the party making the representation must have acted negligently in making the misrepresentation; the candidate must have reasonably relied on the negligent misrepresentation; and the reliance must have caused harm to the candidate. The Supreme Court found that an employer owes a duty to a job candidate beyond merely being honest—it must also be careful that it does not mislead potential employees. It was apparent to the employer’s representative that Queen was relying on the information provided during the interview in deciding to take the job. To meet the duty of care, the representative should have informed Queen of the precarious nature of senior management’s financial commitment to the project. Queen was entitled to damages of $50,000 for loss of income, the cost of obtaining other employ- ment, the loss incurred on the sale of his Ottawa home, and general damages of $5,000 for emo- tional stress. This damage award is significant, particularly given Queen’s short tenure and the value of money over time. The dollar equivalent of this award in 2023 would be approximately $115,000. Actions for negligent misrepresentation in hiring are uncommon in Canada because employees recruited under false pretenses who are subsequently dismissed generally claim wrongful dismissal rather than negligent misrepresentation suits. However, in Queen v Cognos Inc, the candidate had signed a written contract of employment that limited his notice of termination to one month. The Court found that the fact he had signed an employ- ment contract did not remove the employer’s liability for the misrepresentation made during pre-contract discussions. The written contract did not prevent the negligent misrepresen- tation action because the misrepresentation went to the “nature and extent” of the employ- ment opportunity, and the contract did not cover this issue. However, for a claim of negligent misrepresentation to succeed, the candidate’s reli- ance on the negligent misrepresentation must be reasonable, as the case of Beauchemin v Universal Handling Equip illustrates. When the plaintiff was 48 years old, he elected to  Chapter 2 Provincially Regulated Employers   31 leave his employer of 17 years at New Noble Cultivators in Nobleford, Alberta, for a job as an operations manager with the defendant, Universal, a light steel products company in Red Deer. When after only five months of employment he was terminated, Beauchemin sued for wrongful dismissal and alleged that Universal had negligently misrepresented the nature of the job in pre-contract recruitment discussions. But after applying the test in Queen v Cognos Inc, the Alberta Court of Queen’s Bench rejected Beauchemin’s negligent mis- representation claim. In addressing the first requirement of the test, the Court noted that the defendant had conceded that it owed Beauchemin a duty of care based on the “­special ­relationship” between recruiters and job candidates. However, Universal denied that its statement that the operations manager position was “full-time permanent employment” should have been construed by Beauchemin as being in any way a promise or guarantee to employ him until retirement, regardless of the suitability of his management style and quality of his job performance. The Court concluded that it had been unreasonable for the plaintiff to rely on that interpretation of the defendant’s statement and determined that negligent misrepresentation had not been established. There are a number of steps that an employer can take to fulfill its obligations and thereby mitigate liability. An employer should ensure that all information it provides in the pre- employment stage is accurate and complete. It should ensure that the job description is accurate and that all interviewers know what the prospective job and compensation pack- age encompass. The employer’s representatives must be candid about the job, providing a realistic preview. Attempts to make the job sound as attractive as possible should be avoided if they involve misleading a candidate in any way. If the interviewer does not know the answer to a question asked by a candidate, the interviewer should undertake to contact the candidate with the correct answer. When a candidate is chosen, the employer should prepare a written employment con- tract that sets out the terms of employment. The contract should include a clause stating that all prior oral representations are void on the signing of the contract (this is known as an “entire-agreement” clause; see Chapter 5). Such a clause may override inaccurate statements and simple misunderstandings made in the hiring process. There are limits to when an employer will be held liable for misstatements made during the hiring process. For example, employers will not be found liable where an employee’s reliance on an employer’s information is unreasonable. Where a reasonable person would have detected the inaccuracy or where the employee was in a position to verify the facts of a statement but failed to do so, the plaintiff will not be successful. Reliance on opinions or idle comments does not constitute grounds for a negligent misrepresentation claim, and mis- statements that result in mere inconvenience do not establish a claim (Gilbert et al, 2011). Recruitment and Executive Search Firm Misrepresentations Employers often use recruitment agencies or executive search firms to recruit potential can- didates. Most representations made by a recruitment firm are the legal responsibility of the employer. For example, if an overly zealous search firm recruiter promises a job candidate annual pay increases of 20 percent, that representation could bind the employer. If the pay increases do not materialize, it is possible that the employee could successfully sue the em- ployer for breach of the employment contract. Therefore, the employer’s contract with the search firm should specify the position, compensation, and career potential for the job and restrict the firm to providing only that 32  Part I The Legal Framework information to job candidates. Representations about the job should be limited to those au- indemnity clause thorized by the employer. The contract should also contain an indemnity clause establish- a provision in a contract ing the search firm’s liability in the event that it makes a misrepresentation to a candidate under which one party com- for which the employer is subsequently held liable. mits to compensate the other As shown in the case of The Treaty Group Inc v Drake, an executive search firm may also for any harm, liability, or loss be legally responsible if it is negligent in the way it conducts its search and the employer arising out of the contract suffers damages as a result. Executive Search Firm Liable in Both Contract and Tort CASE IN The Treaty Group Inc v Drake, 2007 ONCA 450, aff’g 2005 CanLII 45406 (ONSC) POINT Facts Treaty retained Drake, a global personnel and training firm, to fill a position that involved bookkeep- ing and banking duties. Drake’s marketing material promised that it would provide the “highest calibre of professional screening, evaluation and reference checking” (2005 CanLII 45406 at para 13), and Treaty hired Drake’s recommended candidate, Simpson. However, when Simpson resigned from her position two years later, Treaty discovered that she had defrauded the company of over $263,000. It turned out that Simpson had been twice criminally convicted of defrauding former employers, but Drake had not uncovered that information. In addition to taking action against Simpson, Treaty sued Drake, claiming damages on the basis of both breach of contract and tort for negligent misrepresenta- tion concerning the quality of its service and negligence in failing to conduct proper reference checks. Relevant Issue Whether the executive search firm is liable for losses sustained by Treaty as a result of the employee’s fraud. Decision The trial judge, upheld by the Court of Appeal, held that Drake was liable for Treaty’s losses on the basis of both the tort of negligence and breach of contract because it was clear that had Drake prop- erly checked Simpson’s background, Treaty would not have hired her. However, damages were limited contributory negligence to 50 percent of the total amount of $263,324 on the principle of contributory negligence, because a common law defence Treaty could have avoided the losses if it had supervised Simpson more carefully. in an action arising from negligence in which it is asserted that the plaintiff’s own negligence directly Inducement: Aggressive Recruiting caused or contributed to A tort known as “inducement,” “allurement,” or “enticement” occurs when an employee the injuries suffered is lured from their current position through aggressive recruiting or inflated promises. Aggressive recruiting involves more than advertising a position. It requires a significant inducement degree of pursuit, such as repeatedly contacting the candidate and encouraging them to when an employee is aggressively recruited or leave their current job. The tort of enticement may also occur when the recruiter prom- lured from an existing pos- ises such things as promotions, salary increases, job security, or other benefits that never ition and promises made materialize. during the recruitment Where the tort of inducement is committed and the new employee is subsequently process do not materialize dismissed by the employer, the employee may be entitled to a larger award for wrong- ful ­dismissal damages than if there had been no inducement. Usually, in determining the length of notice of termination that a dismissed employee is entitled to, the court looks at length of service, age, position, and the availability of similar employment (see Chapter 14 for more details on calculating notice). However, where it finds that the employee was lured to a new job from a secure job, it considers additional factors in determining reasonable  Chapter 2 Provincially Regulated Employers   33 notice. It may extend the notice period on the basis of such factors as how secure the previ- ous job was, whether the employee rejected other job offers that provided greater benefits, and whether the new job involved relocating. The rationale for this is that where a person is enticed to leave a secure position, it is unfair to wrongfully dismiss them after a short period of employment and then rely on a short notice entitlement. For example, in Crisall v Western Pontiac Buick GMC (1999) Ltd, Crisall was given only one week’s notice when she was dismissed by the defendant Edmonton car dealership that had recruited her for a position as a commissioned salesperson. Crisall sued for a greater notice period, and the Court looked at how she had been recruited. After having encoun- tered Crisall while she was working at Denny Andrews Ford Sales, the Western Pontiac Buick business manager decided to phone her and encourage the 30 year old to attend a job interview with his dealership. She, however, was not seeking alternative employment, had a stable position, enjoyed her job, and enjoyed the people she was working with. Although she voiced her reluctance to do so, she was nevertheless persuaded to attend an interview with Western Pontiac’s business manager and general manager. Several weeks later she received messages from both men, who were seeking a second interview with her. She clearly stated that she intended to stay with Denny Andrews Ford but was once again persuaded to attend an interview. Once more, she expressed reluctance to leave her em- ployer. However, when Western Pontiac offered her a commission rate that was 5 percent higher than her current rate, a $350 per month car allowance, and a life and disability bene- fits package, she accepted. But after only five months in her new position, she was suddenly terminated. The Alberta Court of Queen’s Bench awarded Crisall an extension of notice to three months. The rationale for the extension was based on inducement, which the Court said went “beyond the ordinary degree of persuasion” (at para 62). The Court took a dim view of the recruit- ment style of the defendant; refused to minimize or trivialize Crisall’s loss; and affirmed that employment is a defining characteristic in one’s life, central to self-worth and identity. An employer that overstates the features of a job may find that it has also committed the tort of negligent misrepresentation. Inducement and negligent misrepresentation are sep- arate torts, but they can both arise from the same situation. In summary, honesty and openness about the job being offered, especially in the area of job security and the possibilities for career advancement, are essential. It is never advisable for an employer to make specific promises with respect to long-term job security, such as “I guarantee you’ll be in this job for at least five years.” The issue of the termination notice period should be addressed by the employer and employee in a written employment contract before the employee starts the job. For ex- ample, if the prospective employee is leaving a secure job of 18 years, the parties should state whether, or to what extent, this service will be recognized in determining reasonable notice of termination. It is better for both parties to negotiate this sensitive issue while they are on positive terms. Additionally, if a signing bonus is being offered with the contract, the employer should be explicit that the financial incentive is not being offered to induce the prospective employee to leave their current job. This provides additional protection from an inference of induce- ment. When a termination clause or other term is included in a contract that could be viewed as restricting the rights an individual would otherwise have, it is advisable to provide a prospective employee the opportunity to seek independent legal advice before signing. 34  Part I The Legal Framework Restrictive Covenants Many written employment contracts restrict the ability of employees to compete with their former employer, to solicit the former employer’s employees or customers, or to use the former employer’s confidential information. Before hiring an applicant, an employer should restrictive covenant find out whether the applicant is subject to a restrictive covenant—that is, a promise not a promise not to engage in to engage in certain types of activities during or after employment—that might affect their certain types of activities ability to perform the new job. during or after employment Restrictive covenants are seen as a “restraint of trade” and are enforceable only if they are reasonable in the circumstances. The courts do not like contractual terms that inhibit or prevent someone from earning a living in their own field. Therefore, courts uphold a re- strictive covenant only if an employer can show that it does not go beyond what is necessary to protect its legitimate interests. Courts consider a range of factors in determining what is legitimately necessary. These include the geographical area covered by the covenant, the length of time the restriction lasts, and the types of work prohibited. The greater these are in scope, the less likely they are to be reasonable. For example, it may be reasonable for an em- ployer to restrict a former regional sales manager from competing in the same region as the employer for a short period of time after employment ends, but it would be unreasonable to restrict the manager from competing outside that region. A restrictive covenant may also be considered reasonable if the employer trained the employee in the trade (versus hiring a fully skilled employee) or provided the employee with trade secrets or other confidential in- formation, such as customer lists. It is often reasonable to restrict the employee from using that training or those secrets to compete against the former employer. The plaintiff in Jones v Klassen, for example, said it distinguished itself from competi- tors who ran large offices by providing investment services as a “storefront” company in small branch offices instead. In order to appropriately groom someone to run its one-person office, the plaintiff “invested” in the defendant: it trained him, paid for his Canadian se- curities course, and provided him with both the physical premises to run a business and a paid clerical assistant. Riley Klassen became “the face of Edward Jones” (at para 16) in St Albert, Alberta. But four years later, Klassen decided to join another storefront-style bro- kerage firm that was potentially a direct competitor with Edward Jones. On the weekend of his departure from Edward Jones, he wrote a letter to all of his clients, providing his cell- phone number and suggesting that their interests might be better served by a “premium, independent, entirely Canadian-owned” investment firm (at para 18). At the Edward Jones office, he also printed the client list, a potential client list, and thousands of pages of client data. During the six months following his resignation, client investment accounts totalling $3,393,101.10 in assets transferred to Klassen’s new firm, which was approximately 37 per- cent of the former worth of the Edward Jones’ accounts. Alleging breaches of its restrictive covenants with him, Edward Jones sued. The Alberta Court of Queen’s Bench found that Klassen had breached his contractual duty not to solicit clients, as well as a common law duty and a fiduciary duty to Edward Jones. A fiduciary duty is a duty of good faith that some professionals and key employ- ees hold toward clients or employers. For more, see Chapter 15. In an initial employment ­agreement, Klassen had promised to “surrender to Edward Jones” all account records and client files if he ever left the company (at para 19). He had promised that for six months following his termination or resignation, he would not “directly or indirectly solicit sales …  Chapter 2 Provincially Regulated Employers   35 or induce any customer” to leave Edward Jones (at para 19). Finally, he had agreed that all such client information was confidential information that “constitute[d] a trade secret” and was therefore “the sole and exclusive property of Edward Jones” (at para 19). Klassen agreed, during pre-trial negotiations, to return the confidential information he had taken from the plaintiff. But when he did so, he retained photocopies of the originals. Finding this latter conduct “even more egregious” than his first breaches, the Court added $5,000 in punitive damages to its award of $13,464 in favour of the plaintiff, making it abundantly clear to Klassen that it was “the information [that] was the crucial proprietary property of Edward Jones, and not the paper on which it [was] printed” (at para 61). The trend in the case and statute law continues to be against the enforcement of re- strictive covenants. For example, amendments were made in 2021 to Ontario’s Employment Standards Act, which now prohibits non-competition clauses except in very limited circum- stances. However, in Alberta and British Columbia, where non-competition clauses and other restrictive covenants are still allowed, the courts may be sympathetic to employers when departing employees have confidential information from that employer and attempt to use it in their next job. In such cases, courts are willing to issue injunction or search-and- seizure orders against the ex-employee, prohibiting the individual from using that informa- tion or enabling the ex-employer to retrieve the information. Such orders protect the former employer without restraining the individual from earning a living. Recent examples of these orders are the BC case Phoenix Restorations Ltd v Drisdelle (injunction) and the Alberta case Peters & Co Limited v Ward (search and seizure). An employer that is interested in recruiting a candidate who is subject to a restrictive covenant should obtain legal advice concerning the covenant’s enforceability and the limits that it could place on the candidate’s ability to perform the job. This is especially true if the new employer is a competitor of the former employer. The written employment con- tract should designate which party is legally responsible if the former employer successfully enforces this covenant. Anticipatory Breach of Contract An anticipatory breach of contract occurs when one party repudiates (rejects) the employ- anticipatory breach of ment contract—through either its statements or its conduct—after the contract has been contract made but before employment begins. Although in principle this cause of action applies to when one party indicates both employer and employee, typically the employer is sued for wrongful dismissal dam- it has no intention of living ages when it changes its mind about an employment contract. For example, the employer up to its obligations under may change its mind about the candidate’s suitability or decide to eliminate a position after the employment contract; this rejection—through hiring someone to fill it because of changed circumstances. During the financial crisis in either its statements or its 2008, for instance, Ford Canada revoked hundreds of job offers made just before the crisis conduct—is anticipatory began, arguing that because of the rapidly deteriorating economy, it could no longer pro- because it occurs after the ceed with those hires. However, an employer’s changed circumstances generally are not a contract has been made but defence against a claim for anticipatory breach of contract. At a minimum, an employee before employment begins whose employment contract is revoked before starting the job will be entitled to “reasonable notice” damages, similar to the amount payable if an employee had already started work and been employed for a very short period. Moreover, where the individual has quit a secure job, relocated, or made some other change because of the job offer, the damage award will typically reflect these additional expenditures (Stefanik, 2010, at 4). 36  Part I The Legal Framework To be successful in an action for anticipatory breach of contract, the hired employee must show that: an offer of employment was made, the offer was accepted, the contract was then repudiated by the employer (by either word or conduct), and the employee suffered damages as a result. If these criteria are met, the employee’s entitlement to damages takes effect immediately upon the anticipatory breach: there is no need for the employee to wait until the date ori- ginally set for employment to begin before the employee seeks damages. To protect itself against an action for anticipatory breach of contract, an employer should hire with care by determining the suitability of the candidate before an offer is made. Where the position depends on a particular set of circumstances unfolding in a certain way, the offer should be made conditional upon those circumstances occurring. Where an anticipa- tory breach has occurred as a result of changed circumstances, the employer may choose to help the employee find another, comparable job as quickly as possible to minimize the damages suffered and should certainly do nothing to hinder such a search. Finally, it is help- ful to the employer to have a written employment contract that includes a reasonable ter- mination notice clause that defines the amount of wrongful dismissal damages to which the employee is entitled. These clauses often provide for limited notice in the first few months of employment and likely could be relied on to reduce damages in an anticipatory breach situation (Stefanik, 2010, at 5). That said, there may be situations in which an employer’s repudiation of the employment contract is justified, and the employer will not be liable for damages for anticipatory breach of contract. For example, if driving is an essential part of the new position and the hired employee loses their licence after the job offer is made and accepted, the employer may, subject to any human rights obligations, be justified in refusing to honour the employment agreement. Background Checking: Negligent Hiring How important is it to investigate the information supplied by a job candidate? One study found that 46 percent of the employment, education, and reference checks performed revealed inconsistencies between the information provided by the job applicant and the in- formation uncovered through background checks (Miedema & Hall, 2012, at xi). Common misrepresentations found in resumés include listing family members as former supervisors, altering start or end dates to hide gaps in employment, providing incorrect job titles, and listing false academic credentials. As noted above in the section “Misrepresentation by Job Candidates,” an employer may negligent hiring (in rare cases) be able to dismiss an employee for cause for serious misrepresentations made failing to take reasonable during the hiring stage. However, the time and effort expended in doing so, as well as the care in the hiring process costs of a “bad hire,” underscore the desirability of verifying the information supplied and that results in foreseeable doing a background check before someone is hired. injury to a third party Taking care in the hiring process is not just about avoiding the hiring (and later firing) third party of inadequate employees. The costs of a bad hire include potential liability for negligent someone other than the hiring if that employee later causes foreseeable harm to a third party (someone other than employer or employee the employer or employee).  Chapter 2 Provincially Regulated Employers   37 Reference Checks Asking an applicant to supply references is a common and recommended practice. It is advisable to get references from a variety of sources, including supervisors, co-workers, and teachers, to get a well-rounded picture of the job candidate. An employer may also want to do further research about a job candidate, beyond the list of references the candidate pro- vides. However, in doing so, employers run the risk of violating the BC or Alberta Personal Information Protection Act (PIPA), which arguably requires employers to notify applicants about any people the employer uses as references. This legislation is discussed below, under the headings “Credit Checks” and “Internet and Social Media Searches.” Although there have not been many Canadian cases on negligent hiring, there have been instances where an employer has been found liable to a third party when its failure to check references has resulted in harm to that third party. For example, in Downey v 502377 Ontario Ltd, two door attendants employed at a bar beat a patron severely and caused serious brain injuries. One of the door attendants had a history of violent actions. The employer was found liable for failing to properly check its employees’ references. In another case, Wilson v Clarica Life Insurance Co, a life insurance company in BC was liable for negligent hiring when one of its authorized agents stole money from a client. This agent had a history of suspected theft—as one of Clarica’s reference checks had revealed before it hired him. The more a job exposes others to the risk of harm, the stronger the employer’s duty to investigate becomes. The standard of care (the level of diligence the employee is expected standard of care to exercise) imposed on employers is the common law duty of reasonable care—the level the level of diligence the em- of diligence that is reasonable under the circumstances. Hiring an employee who will be in a ployee is expected to exercise position of trust, such as those who work with vulnerable individuals (e.g., daycare provid- reasonable care ers or health care workers) or who may be required to use force, such as a security guard, the level of diligence requires a high standard of care. What that level of care is has not been firmly settled by that is reasonable under the courts. However, in the Drake case discussed above, one expert suggested that standard the circumstances practice in the executive search firm industry is to check the last five years of employment or the last three references (Miedema & Hall, 2012, at 21). Before checking references, an employer should obtain the written permission of the applicant. This authorization may be obtained through a statement on the application form where the applicant’s signature indicates that permission has been given. The consent should be general enough that it allows the employer to contact any person who it believes is able to provide relevant information about the applicant. The employer should not be limited to making decisions based only on references named by the applicant. Note that if the applicant’s current employer is to be contacted, specific consent should be obtained for that employer because the applicant may not have told the current employer they are searching for another job. One way of handling this is to only obtain a reference from the current employer after a conditional offer of employment has been made (Miedema & Hall, 2012, at 21). Employers should record the details of all steps taken when investigating candidates so that they have a written record to use as evidence in the event of a lawsuit. A detailed paper trail should include references who did not respond and the information provided by those who responded. The same inquiries should be made of all applicants to ensure consistency and thoroughness and to avoid perceptions of discrimination. All information should be kept confidential. The reference checker should not share the comments of one reference 38  Part I The Legal Framework with other references or tell references who the other references are (Miedema & Hall, 2012, at 22). If a reference voluntarily offers information about the applicant that relates to a pro- hibited ground of discrimination, such as race or sexual orientation, the reference checker should indicate that they are not interested in that information. In addition, foreign refer- ences should not be treated as less valuable than Canadian references, because this could lead to a claim of discrimination (Miedema & Hall, 2012, at 26). A common problem with reference checking is that former employers are hesitant to criticize a candidate, fearing that a negative reference could result in a lawsuit. In Phutela v University of Alberta, for example, the plaintiff claimed damages of $2 million against his former employer on the basis of what he alleged was slanderous information provided to a potential new employer, including a “libelous letter” to the effect that his employment had been terminated because of, among other things, dissatisfaction with his job perform- ance. He claimed that malice was involved in the writing of the letter. The Alberta Court of Queen’s Bench, however, refused to find malice and instead determined that both jus- qualified privilege tification and qualified privilege applied to the comments made by the former employer. in the context of libel or The Alberta Court of Appeal agreed. The reference letter, the appellate court said, had not slander, an exemption from been “voluntary,” but rather was provided out of “a sense of obligation following a tele- liability for a statement made phone interview” (at para 6). The defence of qualified privilege therefore applied to the without malice, usually in letter. Furthermore, although “very serious allegations had been made against the plaintiff, the performance of a duty, allegations that would have considerable impact … on a prospective employer … there was and not communicated more no question about the truth” of those statements (at para 9), and thus the defence of justifi- widely than is appropriate cation also applied. As a result, the appeal was dismissed. In reality, however, former employers are rarely sued for giving negative references. Still, many employers have adopted a “no references” policy, or they confirm only basic facts, such as the individual’s job title and start and end dates of employment, as a means to avoid defamation a tort claim of defamation. Despite this concern, an employer should conduct reference a tort claim based on a false checks, especially where the position is one of trust and could reasonably result in harm to statement or statements a third party. Moreover, even a reference that only confirms dates and job title can at the made to the detriment of very least be helpful in revealing inconsistencies on a candidate’s resumé (Miedema & Hall, an identified individual or 2012, at 23). organization and which are published or broadcast to Education and Professional Credentials Checks an audience; defamation Another type of background check relates to education and professional or trade certifica- can be spoken (slander) tion. Failure to perform these checks could result in negligence claims where a negligently or written (libel) hired employee causes harm or loss to a third party in the course of their employment because they lack the educational requirements necessary for the job. This is especially true where the applicant is required by law to hold a particular degree or certification, as in the case of engineers, accountants, and nurses (Miedema & Hall, 2012, at 31). Given the growth of “diploma mills” and fake degrees, the checker should call the institution cited on the resumé and speak directly with the records department or registrar’s office to confirm a candidate’s degree and date of graduation, or, where there is doubt about the institution itself, contact an independent source that evaluates educational institutions. An emerging dimension to background checks has recently been highlighted in mul- tiple news stories across Canada, where high-profile figures, from former judge Mary Ellen Turpel-Lafond to singer-songwriter Buffy Sainte-Marie, have been accused of falsely  Chapter 2 Provincially Regulated Employers   39 c­ laiming Indigenous heritage. The Métis Nation—Saskatchewan notes that “false or insuf- ficient claims to Indigenous ancestry are a serious concern in the arts, academics and public services where funding, employment, advisory positions, and other opportunities are tar- geted for Indigenous peoples” (Métis Nation of Saskatchewan, 2021, at 1). Employees who have made false claims of Indigeneity to access these opportunities are at risk of job loss and public disgrace. For employers, verification of Indigenous identity is both complex and sensitive, but failure to make reasonable efforts to do so may be costly. IN THE NEWS “Eliminate the Fraudsters” Report Delves into Workplace Indigenous Identity Fraud Carrie Bourassa, a prominent health professor at the University of Saskatchewan, resigned from her position in the midst of an investigation into her claims of Métis heritage. The University of Saskatchewan had placed Bourassa on leave and suspended her from duties fol- lowing a CBC report that raised questions about her claims of Indigenous heritage. Bourassa was also dismissed from her role as the scientific director of the Indigenous health arm of the Canadian Institutes of Health Research. The university hired Jean Teillet, a lawyer specializing in Indigenous rights, to conduct an independent investigation. After Bourassa resigned, the investigation shifted to making recommendations to the university about preventing future cases of Indigenous identity fraud. The report lists red flags to help recognize Indigenous identity fraud, such as vague claims, conflicting stories or family secrets, repeated references to ceremony, or reliance on stereotypes. Prior to the Bourassa incident, the university relied purely on self-identification. It has since implemented a policy that was created by an Indigenous-led group that requires people present evidence to support their identity if they are applying for a position or benefit where Indigenous heritage is a requirement. SOURCE: Malone, 2022. Credit Checks If an employer wants to check the candidate’s credit situation, Alberta’s Credit and Personal Reports Regulation requires that the employer obtain authorization from the applicant, in writing, of its intention before the check. The employer should include the request for authorization to conduct the credit check and provide notification on the application for employment (s 3.1(1)). When a reporting agency makes a disclosure or provides copies of particulars, it must inform the individual or the individual’s representative of the indi- vidual’s right to explain or protest any information contained in the reporting agency’s file and the manner in which an explanation or protest may be made (s 3.1(4)). In BC, the Business Practices and Consumer Protection Act allows reporting agencies to provide credit information about an individual to a party if the latter “intends to use the report for the purpose of evaluating the individual for employment, promotion, reassign- ment or retention as an employee” (s 108(1)(a)(iii)). However, the Act also stipulates that such information cannot be obtained from a reporting agency without the individual’s con- sent (s 107(1)). Under section 107(2), consent can be given “by any method that permits the person to produce evidence that the individual consented, including by prominently displaying the information respecting the consent in a clear and comprehensible manner” in the employment application. 40  Part I The Legal Framework In Canada, most jobs do not require a credit check. Nonetheless, checking an applicant’s credit history may be prudent where the position requires, for example, handling custom- ers’ money. However, because of the Personal Information Protection Act in BC and Alberta, it may be wise for an employer to conduct credit checks only where credit information is reasonably necessary for the position in question (Miedema & Hall, 2012, at 53). The Mark’s Work Wearhouse Ltd report by the Alberta Office of the Information and Privacy Commissioner illustrates the risk. Pre-employment Credit Checks CASE IN Mark’s Work Wearhouse Ltd, Investigation Report P2010-IR-001 (16 February 2010) POINT (Alberta Office of the Information and Privacy Commissioner) Facts As part of a pre-employment screening process at Mark’s Work Wearhouse (MWW), an applicant for a sales associate position was asked to sign a declaration of understanding and consent for a se- curity clearance check and a credit check. He did so. Only a few hours after his in-person interview, he received a phone call from the MWW human resources department asking him to explain how he intended to resolve his “credit issue.” The applicant told the human resources representative that an error had occurred on the part of the federal government and his bank regarding his student loans but that, because of a lack of financial resources, he could not presently afford to address the matter. Despite seven years of experience working as a sales associate with another retail company, he was not offered the position at MWW. He later filed a complaint under Alberta’s Personal Information Pro- tection Act (PIPA) alleging a breach of his privacy rights by MWW when it conducted what he believed was an unnecessary credit check. Relevant Issues 1. Whether the information at issue was “personal information” or “personal employee information.” 2. Whether MWW collected the complainant’s personal information in compliance with section 11(1) of PIPA. Decision 1. Section 1(k) of PIPA defines personal information as “information about an identifiable individual.” The information at issue in this case is the complainant’s credit history. The report notes that the scope of information typically included by a credit reporting agency includes an individual’s occupation and current and past place of employment, past and present addresses, marital status, spouse or interdependent partner’s name and age, number of dependents, education or professional qualifications, estimated income and assets, existing debts and paying habits, fines and restitution orders, cost of living responsibil- ities, and enquiries made by others. (at para 28) The privacy commissioner found that the information at issue was indeed “personal informa- tion” about an identifiable individual—the complainant. Although MWW argued that the credit check information provided “insight” into how an indi- vidual might handle the financial responsibilities of a sales associate based on how that person handled their own money, the privacy commissioner was “not persuaded that the Complainant’s personal credit information [was] reasonably required for this purpose” (at para 37). She pointed out that there were “less privacy intrusive means by which to assess the Complainant’s abilities” (at para 40), such as contacting the references he had provided about his performance over the past seven years in a similar work environment. Citing Arbitrator Steeves from Vancouver (City) v Canadian Union of Public Employees Local 15 (12 November 2007), she was not persuaded by the mere possibility that someone’s personal financial pressures might affect his performance at work:  Chapter 2 Provincially Regulated Employers   41 A higher standard than “a possibility” is required to demonstrate that the information is not being collected simply because it might be useful in the future or convenient. … A direct relationship between the work and this personal information is required. (at para 41) 2. Having established that the complainant’s personal credit information was personal information according to PIPA, it remained for the commissioner to determine whether MWW’s collection of that information was in compliance with section 11(1) of PIPA: An organization may collect personal information only for purposes that are reasonable. Because MWW already had other controls in place for reducing in-store theft and fraud, such as closed circuit television cameras in 68 percent of its stores, a prohibition against employees processing their own sales or returns transactions, and a rule that only small amounts of cash were allowed to be kept in cash terminals, the commissioner concluded that MWW had failed to estab- lish a reasonable connection between collecting the complainant’s personal credit information and the company’s stated purposes for collecting it. Because the collection of personal credit information was not deemed reasonably necessary to assess an applicant’s ability to perform sales associate duties at MWW, the privacy commissioner recommended that MWW cease collecting personal credit information as part of its hiring process for sales associate positions at all of its locations. Police Records Checks Where the position being applied for requires an employee to work with vulnerable people, such as children, older adults, or people with disabilities, or involves substantial trust, employers should require candidates to provide a police records check. These can only be done with an applicant’s consent. Such checks are actually required by law in certain indus- tries or sectors or for certain jobs. For example, an employer who operates a group home for people with developmental disabilities must, before hiring an employee or volunteer who will work directly with residents, obtain a police records report. Similarly, a teacher applying for a teaching certificate must provide a “criminal record declaration” or verifica- tion (Miedema & Hall, 2012, at 103). The BC Criminal Records Review Act and regulations specify the organizations in BC that must conduct a criminal records check (or obtain a “criminal record check verification”) for all employees and volunteers who will work with children or vulnerable adults. All police records checks require the prospective employee’s informed consent. There are several different types of police records searches, and an employer should be specific about the kind of search it requires for a particular position. For example, does the employer just want convictions, or does it want information related to charges and inves- tigations as well? Certain types of criminal history will not be revealed unless a specific request is made. Where a police records check is advisable, an employer should ask its local police department about its practices and procedures (Miedema & Hall, 2012, at 105). Over the past several years, the process of obtaining a police records check has become more restricted. There are now two ways to have a police records check completed: through a third-party background-screening firm (except for a vulnerable sector check, where the results will be released to the applicant only) or by requiring that the job applicant obtain the check themselves (Miedema & Hall, 2012, at 109). The police will not provide details 42  Part I The Legal Framework about what offence a job applicant was convicted of to a background-checking firm, even with written consent from the applicant. However, where an applicant is asked to iden- tify conviction details on the background-checking consent form, the police can confirm whether those conviction details are accurate (Miedema & Hall, 2012, at 102). In many Canadian jurisdictions, including Alberta, an employer may refuse to hire someone who has a criminal record, even if the record does not relate to the job for which the individual is a candidate. However, in BC, Yukon, Quebec, and Prince Edward Island, the record must relate to the job being applied for in order for an employer to refuse employment (Miedema & Hall, 2012, at 101; see also the discussion below and in Chapter 7). However, best practice in this area points to only conducting a criminal check where it is necessary for the position, documenting reasons for the hiring decision, and keeping the results confidential (Sherrard Kuzz LLP, 2012, at 2). As will be noted in Chapter 7, BC employers are prohibited from discriminating against a person because that person has been convicted of a criminal or summary conviction offence that is unrelated to the employment of the individual, unless a clean record is a bona fide occupational requirement of the job. Similarly, an employer may not discriminate because of a criminal conviction for which a pardon has been granted. On the other hand, where the job applicant was charged with a criminal offence but not convicted, this does not fall within the specific definition of “record of offences” under human rights legislation or meet the definition of “a person [who] has been convicted.” However, there is always a risk that an applicant will file a human rights complaint if they were not hired because of the charge, so an employer needs to approach this area with caution and keep thorough documentation of its decisions (Miedema & Hall, 2012, at 127). Internet and Social Media Searches A recent addition to the list of background checks that employers can perform relates to Internet and social media searches. The ease with which an employer can simply enter ­candidates’ names in a search engine or check their social media footprint makes this a tempting strategy. In fact, according to one study, 70 percent of employers use social ­networking sites to research job candidates, and of those, 57 percent found content that caused them not to hire candidates (Hayes, 2018). However, there are several potential pitfalls that an employer should be aware of if per- forming these types of searches. First, there is the possibility of mistaken identity, especially if the applicant has a relatively common name. Second, there is no “quality control” on the information located through a web-based search; anyone with a grudge or who is simply misinformed can post material on the Internet that is wrong, misleading, or one-sided. Clearly, it is unfair to reject someone on the basis of incorrect information, and an employer that relies on such information misses out on a potentially great candidate. Third, web- based searches often reveal information that touches on prohibited grounds of discrimin- ation. For example, posted photographs can reveal religious affiliation or family status. As discussed in Chapter 7, having this type of information before the hiring decision is made opens an employer up to claims that the discriminatory information played a part in that decision (Miedema & Hall, 2012, at 172). One way to address this concern is to have someone other than the decision-maker per- form the search and ensure that person is aware of, and abides by, human rights require- ments. In addition, an employer should carefully document its reasons for any hiring  Chapter 2 Provincially Regulated Employers   49 Agents Another type of relationship is that of principal and agent. An agent can bind an organiz- agent ation to a contract with customers or other parties, even without the organization’s know- a person who can bind an ledge. Common examples are real estate agents, travel agents, and insurance agents, as well organization to a contract as some individuals providing services as recruiters on a contract basis. An agent may be with customers or other an independent contractor or an employee. For example, salespeople, buyers, and human parties, even without the resources managers who recruit employees are agents because they have the capacity to organization’s knowledge bind an organization in contracting with others. However, despite their agency status, they are usually categorized as employees and thus are eligible for reasonable notice of termina- tion. Moreover, merely having a job title that includes the term “agent” does not make that individual an independent contractor. To determine whether an agent is an employee or an independent contractor, courts look at the established tests discussed above. Different Types of Employees An organization that decides to hire someone directly as an employee has the option of choosing which type of employee the person will be—for example, part-time, full-time, or temporary employee. For the most part, the law in Alberta and BC does not distinguish among different types of employees. Both full-time employees (those who work a full week) and part-time employees (those who work less than a full week) are entitled to statutory benefits and protections, although the monetary amount of benefits (such as vacation or termination pay) reflects the number of hours worked. Employees are commonly categorized by employers as follows: 1. Permanent full-time employees. These employees are hired for an indefinite period—that is, with no predetermined end to the employment relationship—and usually work 35 to 40 or 44 hours per week, depending on the province in which they reside. If a specific term of employment is not stipulated in an employment contract, the term of employment is assumed to be indefinite. 2. Permanent part-time employees. These employees are hired for an indefinite period to work less than full-time hours. There is no statutory definition of what constitutes a “part-time employee,” although for the purposes of collective bargaining, part- time employees are usually those who work 24 hours per week or less. 3. Temporary employees. These employees work either full time or part time, but they are hired for a specific period or task rather than for an indefinite period like permanent employees. They may be called “fixed-term employees” because their employment contract is for a fixed period of time, such as six months. They may also be referred to as “contract workers.” However, temporary employees are not in- dependent contractors. Likewise, they are not “temps” or “agency employees,” who remain employees of an employment agency. 4. Casual employees. These employees form a special category of temporary employ- ees and work intermittently as work is offered. Both temporary and casual employees are sometimes referred to as “contract employees.” Casual employees are often “elect-to-work employees,” which means they can decline work when it is offered. Elect-to-work employees are not entitled to termination notice or termina- tion pay under the BC and Alberta employment standards legislation.  Chapter 2 Provincially Regulated Employers   43 decision. Given the pitfalls discussed above, employers may conclude that the risk out- weighs the benefits of this method of checking references. Internet and social media searches also present potential privacy issues. However, to date, in the handful of cases where an employee’s social media profile has been at issue, courts have found that individuals have no reasonable expectation of privacy where they have posted comments on sites to which hundreds of people have been given access (Miedema & Hall, 2012, at 172). Nonetheless, because of the breadth of the BC and Alberta Personal Information Protection Acts, employers in those provinces may want to review the guidelines for social media background checks that each province’s information and privacy commissioner has published (see Office of the Information and Privacy Commissioner for British Columbia, 2017, and Office of the Information and Privacy Commissioner of Alberta, 2011). FYI Social Media Profile: UK Study Insights A job candidate’s social media profile can have a positive, as well as negative, effect on their employ- ment prospects. For example, a search on LinkedIn, X (formerly Twitter), and other sites can confirm an applicant’s experience, qualifications, and connections within a particular industry, as well as convey the applicant’s social media savvy. In a UK study, 68 percent of the employers surveyed indicated that they had hired a candidate because of what they saw on the individual’s social networking site. At the same time, a similarly high percentage indicated they had rejected candidates based on their social media profile. Reasons given include posting inappropriate photographs or comments (including disparaging comments about a former employer and discriminatory statements), posts that demon- strated poor communication skills, and posts that revealed criminal conduct. When Background Checks Should Be Done Like the pre-employment medical exam that will be discussed in Chapter 7, most types of background checks should only be done after a conditional offer of employment is made. conditional offer of The exception is job reference checks, and even then the current employer should be con- employment tacted only after a conditional offer, unless the candidate consents otherwise. Conducting a job offer that is subject background checks at the end of the process reduces risk of allegations of discrimination to certain require- by unsuccessful job applicants. For example, credit checks require an applicant to provide ments being met their social insurance number, which can reveal information about place of origin, one of the prohibited grounds of discrimination under human rights legislation. It is easier to defend against an allegation of discrimination if the information was not obtained before a conditional offer of employment was made (Miedema & Hall, 2012, at xv). In addition, many organizations now use third parties to carry out background checks after a conditional offer of employment has been made. With the applicant dealing directly with the third party, there is less risk that the employer will obtain information that touches on a prohibited ground of discrimination (Rudner, 2009, at 3). Defining the Relationship One basic issue that should be addressed early in the hiring process is the type of legal rela- tionship that should exist between the individual who will perform the work and the hiring 44  Part I The Legal Framework organization. Although an employer – employee relationship is the most common one, it is not the only possibility. There are two other legal categories of work relationships that may be appropriate: dependent contractors and independent contractors. independent An independent contractor is a self-employed worker engaged by a principal to per- contractor form specific work. An independent contractor is not an employee. In some cases, the dis- a self-employed worker tinction between an independent contractor and an employee is obvious. For example, if engaged by a principal to a homeowner hires an individual to paint their house, the painter is not an employee but perform specific work; an rather a self-employed contractor. However, there are other situations where it is much independent contractor more difficult to make the distinction. For example, is a delivery driver who owns their own is not an employee truck but delivers for only one business an employee of that business or an independent principal contractor? Despite the difficulty in some cases of distinguishing an employer – employee the party who contracts relationship from one of principal – independent contractor, the two relationships are for the services of an treated very differently in law. independent contractor; A dependent contractor is a contractor who has more autonomy than an employee the party who can be but is economically dependent on a principal (single primary customer). Dependent con- bound by its agent tractors are entitled to many of the same protections as employees. For example, they are entitled to reasonable notice on termination of the contract, and they are covered under dependent human rights, workers’ compensation, and occupational health and safety legislation. They contractor a worker who is not an may also unionize and bargain collectively with the principal (Doorey, 2020). The key cri- employee, but who is still teria for determining whether a contractor is “dependent” is that more than 50 percent of considered to be econom- their income is earned from a single principal (Green, 2020). ically dependent on the The parties should decide whether a principal – contractor relationship is better suited organization they work for to their needs than a traditional employer – employee relationship. The legal rights and re- sponsibilities of the parties depend on the nature of their relationship; a worker is not a dependent or an independent contractor simply because the parties intend it to be so. Contractors Versus Employees Although several employment-related statutes contain a definition of “employee,” the def- initions are so brief that courts and tribunals fall back on the common law tests for dis- tinguishing between an employer – employee and a principal – contractor relationship. The fundamental issue is whether the individual is an entrepreneur in business for themself or under the control and direction of the employer. The following tests have evolved under the common law to distinguish between an employee and a contractor. No single fact deter- mines the matter; the facts of the case are assessed as a whole. 1. Control test. Does the organization control the individual’s work, including where, when, and how it is performed? Is there a real or implied permanence of the parties’ relationship? Does the individual report to the organization during the workday? If the individual does not have autonomy, if day-to-day control over the work is main- tained by the organization, and if the individual performs work over a long period of time, then courts are more likely to find an employment relationship. 2. Risk test. Does the individual bear any financial risk of profit or loss (other than fixed commissions)? For example, does the individual face the risk of not receiving payment for services performed? If not, that person is more likely to be considered an employee. And does the individual incur expenses that the alleged employer does not reimburse? If so, there is a greater chance the person is a contractor.  Chapter 2 Provincially Regulated Employers   45 3. Organization test. Are the services rendered by the individual an integral part of the business? For example, an individual who writes a manufacturing company’s newsletter is less likely to be an employee than a tool and die maker whose duties are central to the company’s operations. 4. Tools test. Does the individual provide their own tools? If so, this favours contractor status, especially if a significant capital investment is involved, as in the case of a truck driver who supplies their own truck. The tools test is probably the least sig- nificant of the tests, but it is still relevant. Where it is determined that the relationship is one of contractor – principal, the inquiry will go on to assess whether the contractor is exclusively or economically dependent on the principal. If there is economic dependence, the relationship is dependent contractor – ­ principal (Taylor Janis, 2023). A 2016 Ontario Court of Appeal decision in Keenan v Canac Kitchens Ltd considered the issue of exclusivity for dependent contractors and concluded that economic reliance should consider the totality of the relationship between the principal and contractor, not just the most recent years. In that case, Lawrence and Marilyn Keenan had worked for Canac exclusively for 32 and 26 years respectively, and they had only taken on another client in the most recent three years because Canac had considerably reduced the work made available to them. The Court concluded that the totality of the relationship indicated that the Keenans were dependent contractors and awarded them each 26 months’ pay in lieu of notice for their dismissal from Canac. What Are the Advantages of a Principal – Independent Contractor Relationship? There is an increasing trend for organizations to hire individuals as independent contractors rather than as employees. Many organizations like the fact that this relationship presents fewer ongoing legal obligations, less paperwork, and less expense than the employer –­ employee relationship. Reducing the “head count” is also a goal of many larger organizations. Consider the following obligations that employers have to employees but not to in- dependent contractors: 1. Providing statutory benefits, such as vacation and overtime pay, and protections, such as pregnancy and parental leave, for employees. Independent contractors generally are not entitled to employee statutory benefits. The terms of their contract deter- mine their entitlement to benefits. 2. Paying premiums for workplace health and safety insurance. Independent con- tractors must arrange their own coverage. 3. Providing reasonable notice of termination or pay in lieu (unless the employment contract states otherwise). Independent contractors are entitled to notice of ter- mination only if their contract so provides. There is no implied right to reasonable notice. 4. Remitting appropriate health and income taxes and contributing to and remit- ting Canada Pension Plan (CPP) and employment insurance (EI) premiums. In- dependent contractors remit their own statutory deductions and taxes. This reduces both costs and paperwork for the hiring organization. Also, the organiz- ation does not have to pay the “employer’s” portion of CPP and EI premiums for independent contractors. 46  Part I The Legal Framework 5. Assuming liability for an employee’s deliberate or negligent acts during the course of employment. In contrast, independent contractors are generally liable to both the third-party victim and the hiring organization for misconduct or negligence while on the job (Levitt, 2002, at 1-23). The individual being hired may also prefer independent contractor status to that of em- ployee. There are tax benefits available to the self-employed: deducting expenses against income, no withholding of income tax at source, and fewer statutory deductions (such as EI premiums). Independent contractors also have greater flexibility in working for organiza- tions other than the principal. When May a Principal – Independent Contractor Designation Be Challenged? If both parties agree that they want to create a principal – independent contractor relation- ship, how does the nature of their relationship become a legal issue? The parties’ initial char- acterization may be challenged before a court or tribunal in several ways. A government agency (such as the Canada Revenue Agency) may question the parties’ characterization because it thinks that statutory premiums for programs such as EI, workers’ compensation, and CPP should have been remitted. An individual initially designated an independent contractor may subsequently wish to claim statutory benefits or protections that depend on employee status, such as EI benefits, workers’ compensation coverage, or employment stan- dards benefits (e.g., holiday pay and sick leave). This issue may also arise when an individual is terminated and seeks wrongful dismissal damages. Only in an employment relationship do courts find an implied duty to provide reasonable notice of termination or pay in lieu of notice. Indeed, there is always a risk that a relationship characterized by the parties as a ­principal – contractor relationship will be found to be an employer – employee relationship by a court or tribunal. In applying the common law tests, Wiebe Door Services Ltd v MNR (1986) and 671122 Ontario Ltd v Sagaz Industries Canada (2001) are the leading cases. These and other cases demonstrate that courts look at the substance of the relationship (what happened in practice) rather than its form (what the written contract says). What Happens if a Court or Tribunal Finds an Employer – Employee Relationship? If a court or tribunal finds that the parties created an employment relationship, the “em- ployer” may have to remit thousands of dollars to various government agencies for out- standing statutory premiums (potentially including those owed by the “employee”). Penalty and interest charges may also be incurred. Further, the employer may also have to pay the individual significant amounts of money for employment standards benefits, such as vacation and overtime premium pay or wrongful dismissal damages. At the same time, the individual will be liable for outstanding statutory premiums and income tax not deducted at source. How to Maintain a Principal – Independent Contractor Characterization The list below outlines several ways to minimize the risks of having an independent con- tractor relationship subsequently characterized by a court or government agency as an employment relationship. Keep in mind that no single fact alone determines status—all the  Chapter 2 Provincially Regulated Employers   47 facts will be viewed together. In a large majority of cases, relationships that are purported to be principal – independent contractor relationships will, if challenged, be found to be ­employer – employee relationships. 1. A clearly written contract should include a statement that confirms the individual’s independent contractor status. Although this statement is not conclusive, it indi- cates the original intent of the parties. 2. The contract should cover a fixed term and should include a fair mutual-­termination clause, because independent contractors are typically hired for a specific project or period, while employees are usually hired on an indefinite basis. 3. The organization should not take any statutory deductions or remittances for income tax, CPP contributions, and EI contributions. The individual should ac- knowledge in the contract that the organization is not making these deductions and remittances. 4. The contract should include an indemnity provision stating that the independent contractor is responsible for any statutory remittances, such as for EI or workers’ compensation premiums. 5. The contract should state that the independent contractor has no authority to create obligations on behalf of the organization, endorse cheques, or accept returns (Israel, 2003, at 2997). 6. The organization should not provide vacation, holiday, or overtime pay; health care benefits; or employee benefits, such as stock options or bonuses. Similarly, the organization should not provide a company uniform; business cards; company car; bookkeeping services; or office equipment, such as a computer, desk, or other facilities. 7. The contract should not restrict the individual from working for other clients, al- though it may require that the contractor dedicate a certain number of hours to the work being contracted for. 8. The organization should avoid reimbursing the independent contractor for expenses. 9. The organization should avoid setting hours of work. 10. The contractor should work offsite as much as possible. This is not, however, a guar- antee of independent contractor status if the contractor works for only one em- ployer and reports on a regular basis, electronically or otherwise. 11. The independent contractor should be entitled to accept or decline work when it is offered by the organization. 12. The independent contractor should purchase their own liability insurance. 13. The contract should not provide for performance reviews or disciplinary measures. 14. The contractor should consider becoming incorporated and obtaining a GST num- ber, and they should make the appropriate tax returns. An individual who is incor- porated, has a GST number, and makes the appropriate tax returns is more likely to be seen as an independent contractor. 15. The contract should reflect the reality of the relationship. If, for example, the organ- ization exercises day-to-day control over the individual’s work, that practical reality will undermine all the good work that went into preparing the contract. 48  Part I The Legal Framework Differing Results Are Possible in the Determination of the Relationship Sometimes an individual may be considered an independent contractor for the purposes of taxes and government remittances and be designated an employee for the purpose of a wrongful dismissal action. This occurs when the facts of the case are not clearcut, and vari- ous agencies weigh those facts and the common law tests somewhat differently. Some gov- ernment agencies may also tend to find that individuals are “employees” because it is easier to collect remittances from one employer than from hundreds of independent contractors. Similarly, courts may be reluctant to characterize an individual, especially one with long years of service, as an independent contractor if it means they may be terminated without any notice. In Dynamex Canada Inc v Mamona, an individual who successfully claimed to be an independent contractor for income tax purposes also successfully claimed to be an employee for the purposes of claiming holiday and vacation pay under employment stan- dards legislation. FYI What Employment Relationship Do Gig Workers Fall Under? Are gig workers who perform digital platform work (e.g., Uber or SkipTheDishes) employees, de- pendent contractors, or independent contractors? According to David Doorey, classification matters greatly because it serves as the gatekeeper for access to many key legal entitlements, including protections under labour laws and various other social bene- fits. To cut costs, increase flexibility, and decrease legal risks, firms seek to label workers as independent contractors. However, a dilemma arises because although the firms wish to situate workers outside the reach of protective employment laws, they also wish to main- tain control over the performance and quality of the work. (Doorey, 2020, at para 2) Therefore, platform companies argue that they are simply technology companies that provide a plat- form for connecting customers and drivers. However, app-based workers are challenging their status as independent contractors. In March 2020, the Ontario Labour Relations Board applied the traditional test for distinguish- ing between employees and independent contractors and found that Foodora Inc couriers were de- pendent contractors and therefore eligible to unionize (Canadian Union of Postal Workers v Foodora Inc dba Foodora). Significant factors included that Foodora did not allow couriers to engage substitutes, it controlled when they could do work, it closely monitored their movements (through use of GPS tech- nology), and their work was heavily integrated into Foodora’s business (Fremont et al, 2020). Similarly, in February 2022, an Ontario employment standards officer found that Uber violated the Employ- ment Standards Act, 2000 by failing to provide one of its drivers with public holiday pay, among other things. These cases could have further implications in the ongoing class action lawsuits against Uber in Alberta (Virani v Uber Portier Canada Inc, 2023) and Ontario (Heller v Uber Technologies Inc, 2021) involving more