Home 2017-12-07T16:40:33+00:00
FOR EMPLOYERSPCSI can protect your organization from being found guilty of employee misclassification or having your contractors deemed as dependent on your organization.
FOR CONTRACTORSPCSI can protect you from being reclassified as a Personal Services Business (PSB) by the CRA.

The Only Solution for Protecting the Contractor Model in Canada

The Problem

Many companies operating in Canada rely heavily on contractors as part of their workforce. In fact, many have become quite reliant on their contractor base to achieve their business goals. Now, more than ever companies are at risk of losing this contractor base; due to Legislative changes related to Employee Misclassification and Dependent Contractors, CRA targeting Personal Services Business’, proposed Federal Tax Changes, existing Case Law etc.

The Solution

What if we said there was a way to protect both the organization and its contractors from all these emerging issues that are threatening the contractor model as we know it in Canada? Organizations can retain their current/preferred contractors as contractors. Meaning, there is no need to transition existing contractors into employees or hire a whole new group of contractors to mitigate risk. And contractors can retain their flexibility and entrepreneurial spirit that attracted them to contracting in the first place, without the worry of losing everything because of a CRA audit.

PCSI developed its core solution – PCSI Certification – to protect the contractor from being reclassified as a PSB by the CRA while also protecting the organization from being found guilty of employee misclassification or having that same contractor deemed as “dependent”. The unique PCSI model helps alleviate the tax, severance and legal exposure for all involved. Think of it like having insurance.

PCSI offers the only CRA compliant solution available and thereby providing the opportunity for both parties to significantly mitigate risk and preserve the contractor model in Canada. The unique PCSI Solution is available to companies operating in Canada and Canadian contractors.

The Contracting Landscape in Canada is Changing.
What is your plan?

Employers

If you have Independent Contractors in your employ you need to take action and mitigate your risk. The new legislation in Alberta and Ontario, combined with a variety of precedence setting dependent contractor cases is making the employee misclassification/dependent contractor issue more serious than ever before in Canada. Remaining status quo is no longer an option. Luckily there is another option.

Using PCSI is like having misclassification insurance for your organization.

Learn More

Contractors

If you are an Independent Contractor you need to take action and mitigate your risk. The Canada Revenue Agency’s (CRA) increased focus on targeting personal services businesses (PSBs), combined with numerous Worker’s Compensation Boards refusing coverage to individuals because they view them as a PSB, make the chances of losing everything you have worked so hard for greater than they have ever been before in Canada. Hoping to fly under the radar is no longer an option. It’s time to engage the experts.

PCSI offers the only CRA compliant solution on the market.

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The Evolution of the Contractor Model in Canada

Learn about Canada’s contracting history and how PCSI is making history!

  • First example of a contractor relationship


    • Ralph Sazio restructured relationship with Hamilton Tiger Cats from Employee to a Contract with his corporation, which then employed him to provide his services

    • Apparent goal was to shelter income in the corporation then take it out over time


    Read the full story...


    The Full Story


    Ralph Sazio became the head coach of the Hamilton Ticats in 1962. Rather than pay tax at the rates applicable to individuals, Mr Sazio, “on the advice of his auditor and solicitor”, incorporated a corporation, which entered into a contract with the Ticats to provide Mr Sazio’s services as a coach. The corporation earned fees for Mr Sazio’s coaching services and payed taxes at a lower rate. The Minister of National Revenue reassessed Mr Sazio to include the fees in his income, but the Exchequer Court held that the Minister could not ignore the legal relationships created by the parties: the Minister could not impose tax on the “substance” (Mr Sazio was really an employee, said the Minister) over the “form” (the corporation was carrying on business as a provider of coaching services, said the taxpayer). Mr Sazio 7, the Minister 0. See Sazio v MNR, [1968] C.T.C. 579, 69 D.T.C. 5001, [1969] 1 Ex. C.R. 373 (Ex.).

  • Parliament introduced the PSB regime for circumstances where a corporation is inter-posed into what would normally constitute an employee-employer relationship.


    • After the CRA lost the Sazio appeal, the Canadian Government took steps to prevent a reoccurrence

    • The Government created legislation to combat others from doing the same to avoid paying taxes; Adding Section 125(7) re PSBs to the Income Tax Act

  • First time the courts use the 4 categories (Control, Tools, Risk of Loss, Chance of Profit) to deem someone as a PSB

    Wiebe Door Services Ltd. v. Minister of National Revenue

    • The significance in this case was that the courts summarized the “subjective checklist” from CRA and the tax code into a summary of these 4 “buckets” to summarize someone being deemed to being a PSB

      • Control

      • Tools

      • Risk of Loss

      • Chance of Profit



    • The establishment of Master/Slave relationship vs. Principal/Agent Determined


    Background

    Wiebe Doors was a business that installed and repaired overhead doors, hiring independent contractors to perform the work independently. The Minister of National Revenue disagreed with this classification and claimed the independent contractors should be assessed for EI and CPP.
  • Court decision adds the concept of “integration” as a factor to be relied upon by the court

    The addition of the concept of Integration was added to the “buckets” (Control, Tools, Risk of Loss, Chance of Profit) because of cases at the time showing that contractors who were PSB’s were integrated into companies.

    671122 Ontario Ltd. v. Sagaz Industries Canada Inc.

    • A test based on five principles later referred to as the Sagaz/Belton analysis that is used in later cases to determine whether a relationship is one of employment or that of an independent contractor


    Read the full story...



    Case Summary

    671122 had lost a supply contract with Canadian Tire to its competitor Sagaz. 671122 subsequently learned that a consultant, hired by Sagaz to obtain the Canadian Tire account, had done so by bribing the head of Canadian Tire's automotive division. 671122 commenced a claim against Sagaz on the basis that it was vicariously liable for the actions of its consultant. In order for vicariously liability to be found, the consultant would have to be an employee of Sagaz.

    Agency does not create vicarious liability; requires a much stronger connection (one of employment).

    Criteria of an employee relationship:
    1. Control over the worker
    2. Ownership of the tools/equipment used
    3. Chance of profit remains with the employer
    4. Risk of loss remains with the employer
    * Not an exhaustive list
    Application:
    A. was in control of his job functions
    • He worked on his own commission rates
    • His chances of profit/risk of loss depended completely on his own initiative

    The Supreme Court found that Sagaz was not liable as the consultant was not an employee of Sagaz, but rather, an independent contractor.

    SOURCE

  • First introduction of the concept of a contractor being “Dependent” on the employer.

    Belton v. Liberty Insurance Company of Canada 

    The plaintiffs were commissioned sales representatives, selling life insurance for London Life and property and casualty insurance for PAGIC. Each plaintiff signed an Agent Agreement with PAGIC which stated that "For all purposes the Agent is an independent contractor and the Contract shall not create any employer/employee relationship between the Company and the Agent" and that changes to the schedule of commissions could be made by PAGIC with 90 days' notice.
    Read the full story



    PAGIC was purchased by another insurance company in 1997 and was renamed LICC. The plaintiffs continued to sell life insurance for London Life, and began selling property and casualty insurance for LICC under the terms of their PAGIC agreement. On January 4, 1999, LICC wrote to its agents, enclosing a new LICC agency agreement ("the LICC agreement") which was to take effect on April 7, 1999 and which changed the commission structure under the PAGIC agreement. None of the plaintiffs provided LICC with a signed LICC agreement. Finally, LICC wrote to the plaintiffs on April 15, 1999, indicating that it had not received a signed copy of the LICC agreement and notifying each of them that their agreement with LICC was terminated, effective April 7, 1999. This lead the plaintiffs to bring an action for wrongful dismissal, claiming that the reduction of their commissions and the introduction of new minimum production levels constituted a fundamental breach of contract amounting to constructive dismissal.

    The trial judge identified the following principles to distinguish independent contractors from employees when considering the status of a commissioned agent:

    1. Whether or not the agent was limited exclusively to the service of the principal;
    2. Whether or not the agent is subject to the control of the principal, not only as to the product sold, but also as to when, where and how it is sold;
    3. Whether or not the agent has an investment or interest in what are characterized as the "tools" relating to his service;
    4. Whether or not the agent has undertaken any risk in the business sense or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission;
    5. Whether or not the activity of the agent is part of the business organization of the principal for which he works.

    In concluding that the plaintiffs were employees rather than independent contractors, the trial judge observed that the issue of control was an important aspect in the relationship between the plaintiffs and LICC.

    SOURCE (PDF)

  • Landmark case on determining that a Dependent Contractor is entitled to “Reasonable Notice”

    McKee v. Reid’s Heritage Home Limited

    • This case determines that a contractor is entitled severance if that contractor works “exclusively” for that employer

    • The case was appealed to the Ontario Court of Appeal and the appeal was dismissed and it was held that the trial award was reasonable


    Read Full Story...

    Case Summary



    McKee was a real estate agent for Reid's Heritage Homes. In their first contract, Reid's agreed to provide the plaintiff with 69 homes to sell in exchange for commission. The contract also contained an exclusivity clause and a mutual termination clause of 30 days. After this contract, McKee continued to work for Reid's without a new contract. McKee was promoted to Senior Sales Manager and hired his own sub-agents. Twenty years later, Reid's restructures and after negotiations collapse between the two parties, McKee sues Reid's for wrongful dismissal.The Trial Judge found in favour of McKee, and found her to be an employee of Reid's. She was awarded 18 months severance in lieu of damages. The case was appealed to the Ontario Court of Appeal. The issue at bar was whether McKee was an employee of Reid's or a dependent contractor, illuminating whether McKee had a duty to mitigate damages by accepting another offer by Reid's. The appeal was dismissed and it was held that the trial award was reasonable.

    SOURCE

  • January 2013

    Government revised the Income Tax Act in its Jan 2013 budget as per its Oct 2009 commitment to do so:

    1. Increases the penalties where a small business is determined to be a PSB:

      1. Disallows access to Small Business tax rate.

      2. Disallows all expense deductions other than salary and wages.



    2. Stated goals include:

      1. PSB Income will be taxed in the year it is earned.

      2. PSB will not get to deduct expenses which are not deductible by employees.



    3. Government ignores reality that such expenses (training, sales cost, etc) are paid and deductible by an employee’s employer.

  • Fall 2014

    CRA hires 300 Auditors to focus on Independent Contractors deemed to being Personal Services Businesses.
  • March 2015

    Class Action Law suit v. Deloitte and Procom March 2015

    Deloitte LLP has recently been hit with a $384-million class action for misclassifying workers as independent contractors. Placement agency ProCom Consultants Group, contracted by Deloitte as an intermediary, is also named in the suit.

    • Misuse of placing independent contractors who do not qualify to be paid as such can trigger audits or in this case a lawsuit for millions of dollars

  • Fall 2015

    Additional 700 CRA auditors hired for the “PSB Project” to target independent contractors in Canada. (making a total of 1000 CRA Auditors)
  • Fall 2015

    Newly elected Liberal Party focuses attention on Independent Contractors

    • Liberal Party forms majority government in Canada on the platform to raise taxes on the top 1% of wealthy Canadians and focus attention on Independent Contractors.

    • Promises of new tax measures to accomplish these goals to be announced in first budget.

  • January 2016

    Landmark decision in employment courts formalizing the new employment classification of Dependent Contractor

    Keenan vs. Canac Kitchens, 2015 ONSC

    Ontario Supreme Court up holds lower court decision to award an Independent Contractor (newly reclassified by the employment court as a Dependent Contractor) with over 2 years of severance.  Decision seen as landmark in employment courts because of the award and the formalization of the new employment classification of Dependent Contractor.
    Read the full story...



    Key Takeaways

    • Existence of contract will not be determinative

    • Historical thinking Dependent Contractor entitled to less reasonable notice than employee is disappearing

    • Common law “cap” of 24 months for reasonable notice is not a cap for dependent contractors


    Case Summary

    In 1976 Mr. Keenan began working for Canac Kitchens. Initially he installed kitchens and he was later promoted to foreman. In 1987 Canac told Mr. Keenen that he would thereafter work as a Canac sub-contractor basically performing the same tasks. Mr. Keenan operated as a sole proprietor. Thereafter Mr. Lawrence continued to wear Canac shirts, Canac business cards, enjoy employee discounts and he received a signet ring for 20 years of loyal service.

    In 2007 Mr. Keenen started to perform services for a Canac competitor because Canac’s business was slowing down. In March 2009 Canac ended its relationship with Mr. Keenan. At that time 72.3% of his revenue was derived from his relationship with Canac.

    The Court of Appeal concluded that Mr. Keenan was neither employee nor an independent contractor; rather he was a dependent contractor. The court concluded that Mr. Keenan did not have to derive 100% of his income from Canac to be a dependent contractor.

    A true independent contractor is generally not entitled to any notice of termination. A dependant contractor, however, is entitled to notice of termination. Mr. Keenan earned a living at Canac for 33 years and he was 63 years old when Canac terminated its relationship with him. The trial judge ordered Canac to pay him 26 months pay in lieu of notice, and the Court of Appeal upheld this damage award.

    SOURCE

  • Spring 2016

    New tax rules announced targeting Independent Contractors

    • New tax rules for income derived from Partnership business structures increases corporate tax rates.

    • Announcement is targeted to high wealth individuals utilizing tax loop holes as well as Independent contractors.

  • July 2016

    Class Action Lawsuit Filed against Just Energy in Ontario for Misclassification of employees as Independent Contractors

    This class action proceeding concerns the misclassification of 7000 employees as “independent contractors” thereby denying such employees the minimum protections of the Employment Standards Act, including minimum wage, overtime pay, vacation pay, public holiday and premium pay.  Such employees were denied compensation to which they were entitled and earned. The case has been certified and a settlement is expected.
  • Winter 2016

    Provincial WCB Jurisdictions begin to decline coverage to Independent Contractors, stating they view them as Personal Services Businesses (PSB).
  • January 2017

    Pending Class action lawsuit filed against Uber Technologies in Ontario for misclassification of employees as contractors

    Filed with the Ontario Superior Court by Toronto employment law firm Samfiru Tumarkin LLP on January 19, 2017 the action against Uber Technologies Inc. also demands $200 million in punitive damages. It names occasional Uber driver David Heller as representative plaintiff for the class to be drawn from the approximately 20,000 Uber drivers in the province.

    The proposed class action, mirrors those in other jurisdictions that argue Uber’s drivers should be classified as employees, not independent contractors as the company claims and are therefore entitled to minimum wage, overtime and vacation pay.

    Because it’s a class action, it has to be certified by a judge before it can proceed.
  • Summer 2017

    Ontario Bill 148: The misclassification of employees is targeted when Ontario government announces new Employment Standards Legislation for release upon passing royal assent


    • Employee Misclassification

      • Introduced a prohibition against misclassification

      • A requirement that alleged employers bear the onus of proving employment status for the purpose of employment standards entitlements

      • These changes would come into effect immediately on the Bill receiving royal assent



    • Enhanced Employment Standards Enforcement and Compliance Support

      • The Ontario Government said that it will allocate significant resources to employment standards enforcement

      • All claims filed must be resolved in 90 days

      • 175 more employment standards officers will be hired by 2020/2021

      • 1/10 Ontario workplaces will be inspected



  • September 2017

    Alberta Bill 17: The term Dependent Contractor is added under the definition of “employee” in the Alberta Labour Relations Act. 

    • The purpose of this change is to allow contractors to form a union and collectively bargain with the employer.

  • November 2017

    November 27, 2017 Bill 148 receives Royal Assent and becomes law

    Amendment effective November 27, 2017
    Employee Misclassification and Penalties:

    • Employers are prohibited from misclassifying employees as “independent contractors,” who are not entitled to the protections of the ESA

    • If a dispute arises, the employer will have the onus of proving that the individual is not an employee

    • An employer that misclassifies an employee could be subject to penalties including prosecution, monetary penalties and disclosure of a conviction

Testimonials

Every Independent Contractor in Canada should pay attention to this solution provided by PCSI if they and their accountant are concerned with the PSB issue. Finally, there is a CRA compliant solution that gives a contractor a stable tax structure and more importantly compliance reassurance. As a former CRA Auditor specializing in this area, I can tell you PCSI has done its homework and diligence. Employers also mitigate risk when it comes to the new Dependent Contractor classification.

David Inhaber (FCPA, FCGA)
Former CRA Auditor

Past court cases have shown that traditional approaches are no longer a viable safeguard against the rapidly escalating financial exposure relating to employment issues.By working with PCSI we are able to offer the only true risk mitigation strategy for Canadian companies engaging with
independent contractors.

Kerrianne MacMullin
Airswift Sales Director – Canada

Aly Bandali, CEO of Professional Contractor Solutions, gave a very educational presentation to our Branch. Aly has excellent knowledge of the independent contractor issues. His presentation provided a clear understanding of what the considerations need to be for both contractors and the companies that hire them for their services.

Patrick Landry
CIM Calgary Branch

Aly’s [PCSI] was an excellent session. He is articulate and knowledgeable, and I recommend PCSI’s expertise for any organization whose employees or members are connected in any way to contracting and consulting services, either as a client or provider.

Eric Morin
Association of Science and Engineering Technology Professionals of Alberta (ASET)

The APEGA Calgary Branch organized the presentation “Strategies for Independent Contractors, Employers and Progressive Organizations” by Professional Contractor Solutions. Their presentation was on topic, sometimes surprising, and conducted professionally by the speakers. I recommend these experts to persons or organizations contemplating their engagement.

Tibor Kaldor
APEGA Calgary Branch

LEARN MORE ABOUT ACCESSING THE PCSI SOLUTION.

For Employers
For Contractors