Jul 2, 2019

Temp Workers who Look Like Employees are not Independent Contractors for Payroll Taxes

European Staffing Inc. v. M.N.R., 2019 TCC 59 (CanLII)

The forces of global competition now pervade the economy. It has encouraged looser employment relationships as employers seek greater flexibility. Employers frequently hire temporary workers and purported contractors with the aim of limiting their obligations to those workers.

The issue of misclassification often arises in the tax context, where Canada Revenue is concerned to ensure that CPP and EI premiums are remitted. Where workers are paid through an employment agency, it is the agency that has the responsibility to make these payments to the CRA.

In European Staffing Inc. v. M.N.R., 2019 TCC 59, the agency provided skilled industrial workers such as welders and electricians to companies that needed temporary help. Mr. Banach, the principal of European Staffing, testified that he considered all the workers to be independent contractors. Therefore, he did not remit CPP or EI premiums on their behalf. (Somewhat inconsistently, he did pay WSIB premiums for them.)

However, the testimony at trial, and investigations by the CRA, found an absence of written contracts or clear evidence that the workers were aware that they were being treated as independent contractors.

The absence of clear intention is significant in the tax context. That jurisprudence differs somewhat from the Employment Standards Act (ESA) jurisprudence (where employees sue for protection). The judge in European Staffing relied on the principles set out by the Federal Court of Appeal in a leading 2013 decision. There is a two-step test to determine whether somebody is an independent contractor for tax purposes:

[39] Under the first step, the subjective intent of each party to the relationship must be ascertained. This can be determined either by the written contractual relationship the parties have entered into or by the actual behaviour of each party, such as invoices for services rendered, registration for GST purposes and income tax filings as an independent contractor.

[40] The second step is to ascertain whether an objective reality sustains the subjective intent of the parties….

[41] ….in making this determination no particular factor is dominant and there is no set formula. The factors to consider will thus vary with the circumstances. Nevertheless, the specific factors discussed in Wiebe Door and Sagaz will usually be relevant, such as the level of control over the worker’s activities, whether the worker provides his own equipment, hires his helpers, manages and assumes financial risks, and has an opportunity of profit in the performance of his tasks.[1]

The subjective intent of the employee to be an independent contractor is irrelevant in the ESA context, because the employee has no power to contract out of the ESA protections even if she wants to (e.g., section 5 of Ontario’s ESA). However, subjective intent is a necessary consideration in the tax context.

Sometimes, where the subjective intent is clear, an independent contractor relation will be upheld for tax purposes where there is evidence of even a modicum of independence. In one recent case, a courier driver who wore the company’s uniform and drove the company’s vehicle was nevertheless found to be an independent contractor for tax purposes, because he could choose his own routes to drive to the destination.[2]

As previously observed by the higher courts,

…. both judges and commentators alike who have written on the subject have noted that the test, though simple in theory, is often very difficult to apply with any degree of certainty, in part due to the fact specific nature of the question and the variability of the ever changing workplace…[3]

Compared to many other cases, the facts in European Staffing were pretty clear, and made the courts decision to reject the independent contractor label rather easy. The court found that many of the workers had not been aware that the agency was labelling them as independent contractors, nor had a desire to be one. Some of them stated that they were unpleasantly surprised to discover that they were ineligible for EI benefits when they were laid off.

Therefore, the first step of the test, requiring the subjective intention to be an independent contractor, likely failed. However, the court also went on to analyze the objective evidence. Several of the workers testified at the trial. It was found that in their temporary workplaces the staff were just as closely supervised and had to follow orders in the same way as the regular employees of those companies:

[60] None of the Workers distinguished the nature of the work they did or supervision they were under from that of the permanent employees. Mr. Keshmiri testified that he and other workers with the same expertise as the permanent employees were hired in order to temporarily boost the employee group in the lead-up to the opening of the new facility…. Mr. Pajecki’s working conditions were identical to those of the permanent employees except that he had shorter hours. Mr. Bennett’s client-designed time sheet identified him as a “temp employee”. Mr. Kenny attended client-mandated training on the client’s time and at the client’s expense. Ms. Simoiu worked side by side with the clients’ employees and managers on the same projects.

Consequently, there was little to distinguish the workers supplied by European Staffing from the regular employees of the companies. There was no objective reality in the arrangements that would justify designating them as independent contractors. The Court rejected European Staffing’s appeal against the assessment requiring it to pay CPP and EI premiums.


[1] 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue), 2013 FCA 85.

[2] 1065438 Alberta Ltd. v. M.N.R., 2018 TCC 191.

[3] 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue), 2013 FCA 85, at para. 25.