So let’s keep going with our discussion of what courts have said about independent contractors vs. employee associates, shall we?
Carovar Ltd. v. Canada: 1989 Tax Court of Canada Decision
In Carovar Ltd. v. Canada (Minister of National Revenue – M.N.R.),  TCJ. No. 405, the Tax Court of Canada faced the issue of whether a corporation owed EI premiums for certain associates it had hired. The corporation was owned by an orthodontist and his wife to provide management and administrative services ancillary to his practice. The corporation also hired associates (a graduate dentist and recent graduates in orthodontics), which it claimed were independent contractors. The government disputed this characterization and claimed they were employees, which would make the corporation owe EI premiums from 1984 through to 1986!
After considering all of the factors, the Court held that the associates were employees.
Millar DJTC came to that conclusion after examining the following factors:
The oral agreement provided that the associates were to be paid standard dental profession commissions of 40% of fees earned. There were no fixed or minimum salaries. No notice was required for either side to disengage each other. Associates received no benefits and their remuneration was not subject to deductions (e.g. income tax, CPP, EI, etc.). This was totally different from the receptions, dental assistants, and dental hygienists – who were staff employees. While these factors made it appear as though the corporation was engaging independent contractors and not employees, the Court had to consider ALL of the relevant factors and not just an oral agreement.
The associates were not supervised: the orthodontist who owned part of the corporation gave no instructions on how the associates were to work. The orthodontist was regularly absent when new patients presented themselves. The associates set their own fees covering services to patients and instructed the receptionist as to the amounts to be billed. Once again, it seemed as though the associates were independent contractors on the basis that the orthodontist did not control the manner in which they provided services (as an employer would).
Opportunity for Profit
There wasn’t a real opportunity for the associates to make a profit since they were simply paid on a piece of work or hourly basis for the services they performed. They didn’t operate their own practice while engaged for the orthodontist, and therefore the profit factor (again in the entrepreneurial sense) was missing. Hence, they appeared to be employees.
Risk of Loss
The orthodontist bore the risk of loss in treating patients, not the associates. Hence, they resembled employees.
Ownership of Tools of Production
The orthodontist leased the premises and owned the equipment, not the associates. Hence, they resembled employees again.
The work performed by the associates was repetitive and routine tasks; they were not performing work that was integral to their own practices but merely providing services to the orthodontist’s patients.
Arthur v. Canada: 1995 Tax Court of Canada Decision
In Arthur v. Canada (Minister of National Revenue – MNR),  TCJ. No. 947, the Tax Court of Canada in Saskatchewan had to determine whether a dental hygienist was an employee for the purposes of EI. The dental hygienist claimed that she was an independent contractor who provided services to a dentist. The government disputed this.
The Court ultimate agreed with the dental hygienist on the basis that the dental hygienist:
- solicited her own business;
- decided the course of treatment and set her own appointments;
- set her own hours and days of practice;
- could and did replacement if she was not available;
- paid for her professional insurance, including liability;
- was paid $75.00 per day plus 25% of her billings;
- was responsible for 25% of bad debts;
- was exposed to a small risk of loss, but her profit is totally dependent on her practice;
- owned some of her own tools;
- provided services to two dental offices;
- could provide services without the dentist, and vice-versa; and
- offered services that are complementary but not integral to the dentist.
Although the Court noted that the dental hygienist used the dentists’ tools and office and was required by law to be supervised to some degree by the dentist, these factors were not determinative. As such, the dental hygienist was found to be an independent contractor – as contemplated in the agreement between the dental hygienist and the dentist – and no EI premiums were owed.
In the next blog, I’ll continue my discussion of how the courts have dealt with the issue of independent contractor associate vs. employee associate.