California Moves to Protect Gig Contractor Employee Benefits. Is Canada Next?

Classifying Independent Contractors Correctly Key to Avoiding CRA Penalties

A sweeping move came to the gig contractor economy in California on Sept. 18 – one that could have major implications to the pay and benefits of independent contractors across the U.S. and beyond.

In a bold move, California Governor Gavin Newsom gave the stamp of approval to new labour legislation targeted at protecting the pay and employee benefits of nearly a million workers, aimed primarily at companies like Uber and Lyft, but with protections for the health care, trucking, media, and others.

For business, this means that the new law – known as AB5 – could force companies who treat their employees as independent contractors to provide employee benefits like health insurance and paid vacation to comply with the new legislation, while also swinging open the debate over whether independent contractors everywhere should be entitled to certain employee benefits.

Bill Stemmed from Misclassification of Contractors

The new legislation was born out of what Newsom referred to in an op-ed published in the Sacramento Bee as a misclassification of independent contractors, which he said exacerbated income inequality.

Newsom’s argument was that mis-classifying workers as independent contractors – rather than employees – and deprives them of employee benefits, pay, and other protections.

Law Makes it Harder for Companies to Classify Workers as Contractors

In essence, the law makes it more difficult for companies to classify workers as contractors.

In order to qualify as a contractor, a worker must (1) operate independently from the control of the company, (2) carry out work “outside the usual course of the hiring entity’s business”, and (3) perform the same type of work for a company as part of their independent trade, occupation, or business.

Uber, Lyft, and Others Swing Back Against Legal Changes

Despite the regulations, though, some of the companies most affected by the new legislation have already vowed they plan to fight it.

In a statement released before Governor Newsom signed the new bill, Tony West, Uber’s Chief Legal Officer, challenged bill AB5, noting that his company will “continue to defend [their] ability to enable on-demand, independent work.”

To help undo the bill’s effects, Uber, Lyft, and DoorDash have also promised tens of millions towards a potential ballot initiative to regulate gig economy workers.

Could Bill Have Future Implications for Canada?

The question is, where does it go from here? And could similar legal changes be made in Canada?

An opinion piece in The Washington Post speculates that the movement in California could have nationwide ramifications, and any nationwide changes in the United States would have an effect on the public debate in Canada about if and how federal and provincial jurisdictions should protect independent contractors from potential vulnerabilities around employee benefits and pay. Geoff Mason, an employment and human rights lawyer in Vancouver, said in a 2018 interview with Global News that the biggest concern to employment lawyers like him is whether independent contractors should be entitled to employee benefits.

What Are the Current Regulations to Follow in Canada?

Currently, small business owners in Canada do not need to provide employee benefits to independent contractors unless they’ve been negotiated into an agreement.

Of note, there is one key criteria in determining the difference between an independent contractor and an employee in Canada: that the contractor is independent from the business they provide services for.

This means that the business does not exercise control over a contractor nor does it supply, for instance, the tools, equipment, or technology needed to complete the job function.

For small business owners, it’s important to be aware that simply having an agreement that a worker that is operating as an independent contractor is sometimes not enough for the Canada Revenue Agency (CRA) from a tax perspective.

And when a mis-classification of an independent contractor who is recognized by the CRA as an employee happens, the consequences can be hefty, with the CRA entitled to levy a $7,000.00 CPP and EI premium.

How to Avoid CRA Contractor Compliance Issues

The easiest way to avoid CRA compliance issues around independent contractors is to document the responsibilities of an independent contractor in a written agreement, get an accountant to assist with requesting an employment status ruling from the CRA, and take the proactive and clear stance when needed to simply call an employee an employee when necessary.

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