When is an independent contractor not an independent contractor for the purposes of the Employment Insurance Act (the “EI Act”)? Apparently when the Employment Insurance Commission of Canada makes a regulation that says she isn’t.
Paragraph 5(4)(c) of the EI Act provides in part as follows:
(4) The Commission may, with the approval of the Governor in Council, make regulations for including in insurable employment
[…]
(c) employment that is not employment under a contract of service if it appears to the Commission that the terms and conditions of service of, and the nature of the work performed by, persons employed in that employment are similar to the terms and conditions of service of, and the nature of the work performed by, persons employed under a contract of service;
In addition, subsection 5(5) of the EI Act states that
(5) The Commission may, with the approval of the Governor in Council and subject to affirmative resolution of Parliament, make regulations for including in insurable employment the business activities of a person who is engaged in a business, as defined in subsection 248(1) of the Income Tax Act.
Placement agencies are one class of business that can be vulnerable to employment insurance assessments pursuant to regulations made under the provisions set out above. Section 6 of the Employment Insurance Regulations reads in part as follows:
6. Employment in any of the following employments, unless it is excluded from insurable employment by any provision of these Regulations, is included in insurable employment:
[…]
(g) employment of a person who is placed in that employment by a placement or employment agency to perform services for and under the direction and control of a client of the agency, where that person is remunerated by the agency for the performance of those services.”
In Bartimaeus Inc. v. M.N.R., 1999 CanLII 181 (T.C.C.), the Appellant was assessed under the EI Act and a parallel provision of the Canada Pension Plan on the basis that it was a placement agency and that its contractor was under the direction and control of another so that she was engaged in insurable and pensionable employment under the deeming rules.
The Appellant was “a company which provides professional child and youth workers on a contract basis to organizations, agencies and companies. In a letter which was sent by [the Appellant] to Revenue Canada, [it] indicates that the company was set up to provide broker services between private practitioners in the field and social service agencies” (¶14). The Appellant paid the contractor to provide professional social services to its client, an insurance company. She had to work a minimum number of hours on a particular contract, but she could set the hours she worked, provided that the object of her care agreed. The contractor was free to provide her professional services to others.
Did the client, the insurance company, have direction and control over the contractor? The Court, at ¶¶17–19 of its judgement, held that it did. The contractor was required to submit reports to the insurance company and attend regular conferences to assess her performance. Accordingly, the Court held that the requirements of the EI and CPP regulations were met and the contractor was engaged in insurable and pensionable employment.
Business owners and their advisers, then, must carefully consider deeming rules like paragraph 6(g) of the EI Regulations in deciding whether EI or CPP must be withheld and remitted from a contractor’s pay.
