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Month: August 2019

Can An Employee Be Incorporated?

by Stacey R. Ball| | Employment Law

What is a Personal Services Business?

A person services business (PSB) is a business operating as a corporation that provides services to other entities in which an employee or officer of that entity may traditionally perform. In lay-mans terms, it is an incorporated employee and for some employees, incorporation may prove beneficial.

The CRA has clearly set out what type of income is classified as “PSB income”. Income earned by the incorporated employee i.e. the corporation will be PSB income in the following situations:

(a) Where the corporation is performing the services or any person related to the corporation/incorporated employee, is a designated shareholder (i.e. a taxpayer who is owning, directly or indirectly during the year, a minimum of 10% of issued shares of any class of the corporation or related corporation) of the corporation

(b) Were it not for the corporation, the incorporated employee will reasonably be considered to be an officer or employee of the entity purchasing and receiving services from the corporation.

Two exceptions exist where a corporation will be refused PSB status by the CRA. The first is if the employees of the corporation are greater than five full-time employees or if the corporate entity is providing services to an “associated” corporation. If any of these circumstances are present, income will not be from a personal services business and will therefore, be eligible for the small business deduction.

Consequences of a PSB

The CRA put in place PSB rules to discourage the incorporation of employees and to prevent tax advantages to employees who formed a corporation.

Some of the greatest issues with operating a PSB are that the small business deduction is not allowed. Deductions for computing PSB income is restricted to salaries and wages, costs of other benefits/allowances given to the incorporated employee and some expenses of the corporation related to selling property and contract negotiation. If you are a PSB, the first $500,000 of corporate income will be taxed at the higher personal rate instead of the lower corporate tax rate. If your corporation is classified as a PSB, tax penalties may be instituted against your corporation because of incorrect misclassification when filing your corporate taxes.

In deciding whether one is operating as a PSB, it is important to consider the factors used in distinguishing employees versus contractors such as the degree of control exercised by the hirer, who provides the tools used to perform the services, whether there is opportunity for profit for the contractor and the degree to which the contractors work is integrated with the hirers business.

Furthermore, it should be noted that a PSB that pays wages or salaries should be cognizant of withholding and reporting responsibilities. If the corporation is not clearly a PSB, the employer should pay the contractor as an employee and make the requisite CPP contributions and source deductions.

Employment lawyers should be careful to advise on the risks and benefits associated with a PSB especially if the incorporated employee is providing services to one company. Employment lawyers should advise on the income tax implications of these long-term service contracts. Stacey Reginald Ball is a Toronto employment lawyer versed in the legal implications associated with a PSB. For a consultation, please call our office at 416-921-7997.

Dependent Contractor v. Employees

by Stacey R. Ball| | Employee or Dependent Contractor| | Employment Contracts

What is a Dependent Contractor?

A workers relationship generally falls into one of three classifications: employee, dependent contractor or independent contractor. Dependent contractors are seen as the in-between category of workers—basically if one is held to be a contractor and not an employee at first instances, the legal test will assess whether the worker is an independent or dependent contractor.

The concept of dependent contractor is not new. In the Ontario Court of Appeal (“ONCA”) decision of Carter v. Bell and Sons (1936), the court endorsed the notion of an “intermediate” position between employee and independent contractor for work relationships of a “more permanent character” where an agreement to terminate upon reasonable notice could be implied. Unlike independent contractors, dependent contractors are required to receive reasonable notice or pay in lieu of notice following termination given the degree of exclusivity and the extended length of time they may have worked for one business.

What Makes a Worker a Dependent Contractor?

Exclusivity or the degree of exclusivity is a major factor in determining whether one is a dependent contractor or not. Exclusivity is seen where the employer prohibits the worker from working for others. A high degree of exclusivity weighs in favour of a dependent contractor finding by the courts. The precedent setting case of Keenan v. Canac Kitchens Ltd., 2016 ONCA 79 examined the concept of exclusivity and its importance when assessing a workers status. Both the trial and ONCA decision held that the plaintiffs, Marilyn Keenan and Lawrence Keenan were dependent contractors given the high degree of exclusivity.

The Court of Appeal Stated:

Exclusivity cannot be determined on a “snapshot” approach because it is integrally tied to the question of economic dependency. Therefore, a determination of exclusivity must involve, as was done in the present case, a consideration of the full history of the relationship. It is for the trial judge to determine whether, after examining that history, the worker was economically dependent on the company, due to exclusivity or a high level of exclusivity”

Legal Obligations to Consider when Terminating Dependent Contractors

It is important to keep in mind that employers are obligated to given reasonable notice or pay in lieu of notice when terminating dependent contractors. If they do not, there will be significant legal consequences.

Evidently, it is easy for the divide between independent and dependent contractors to be blurred. To protect your company, ensure a clear written contract is in place for every contractor that is hired. Ensure if responsibilities change over time, that the necessary measures are in place so your organization is not faced with an unintended classification by the courts and keep in mind that courts will always look at the substance of the relationship rather than the job title ascribed to a worker.

An experienced employment lawyer can help you craft contracts, and advise on whether the status of an independent contract may have changed.

Stacey Reginald Ball is your source for expert legal advocacy and advice on dependent contractor/employee classifications. Stacey Reginald Ball is also versed in constructive dismissal, wrongful dismissal and other employment related issues. We serve the Toronto and Greater Toronto Area, as well as other national and international clients. For a Toronto wrongful dismissal lawyer, contact our office at 416-921-7997.

How to Contest a Wrongful Dismissal

by Stacey R. Ball| | Employment Law| | Wrongful Dismissal

Employers in Canada are bound under both federal and provincial legislation to provide reasonable notice or pay in lieu of notice to their employees for termination where there is no just cause for dismissal. From the time you sign your employment agreement until the time you are terminated, it is important that employees be aware of their rights under Canadian employment law. A wrongful dismissal lawyer should be consulted to analyze the nuances within your particular case, however, for now, the below will provide useful answers to common concerns.

Prior to Joining a New Employer

Every employment contract has to adhere to employment standards legislation which provides minimum entitlements. Employment standards legislation covers minimum wage, hours of work, leaves of absence and other basic matters. Before signing make sure to analyze the termination provision. Is it contracting you out of the common law? This usually occurs with high-level employees and executive contracts. Visit a Toronto employment lawyer to ensure the contract works in your favour. Other provisions to look at are notice periods and the compensation scheme. Some high-level contracts that have incentive plans as part of the compensation structure include termination provisions embedded within them. These provisions may work against an employee who obtains a significant portion of their income from the incentive plan or bonus.

Performance-Based Dismissal

If there are performance related issues, it is important that your employer have substantial grounds for dismissing you. They must warn you prior to dismissal and provide you an opportunity to improve performance.

Discrimination

Employees cannot be terminated on human rights grounds such as caste, gender, race, creed or religion. If you feel you have been discriminated against and your dismissal included a human rights ground under the Ontario Human Rights Code, reach out to an employment lawyer to determine how your wrongful dismissal will be impacted by a human rights violation.

Reprisal

If an employee contests unsafe activity at work, an employer cannot terminate the employee. Both federal and provincial laws contain provisions prohibiting retaliation by the employer against the employee for seeking assistance and protesting unsafe working conditions.

Mitigating Damages

It is important to remember that when advancing your wrongful dismissal claim, all employees have an obligation to mitigate damages by seeking other employment.

A dismissal based on any of the above alleged grounds is unjust. Ensure that you visit a Toronto employment lawyer versed in wrongful dismissals to advance your case. At Ball Professional Corporation, our preference and strategy is to negotiate a settlement without litigation. Where litigation is necessary, and with over thirty years of employment law experience, our office can effectively advance your case. For a consultation, please call our office at 416-921-7997.