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Independent Contractor Update: Standard Form Agreements

Posted by on in Direct Selling Blog
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A recent Federal Court of Appeal case dealing with standard form agreements is potentially welcome news for direct selling businesses which use standard, non-negotiable, distributor agreements for recruiting/managing their field force.

In the recent case Fédération des caisses Desjardins du Québec v. Canada (National Revenue), 2020 FCA 182 (CanLII) (“Desjardins”), the Federal Court of Appeal (“FCA”) overturned a Tax Court of Canada decision (“TCC”) which held that a person was an employee on the basis that the contract was not negotiated (i.e., a standard form contract) and that the individual had an obligation to work exclusively for Desjardins.

Background

Desjardins initially contracted with Sophie Payette to have her provide various services as a mortgage representative. At some point during the course of the contract, there was an organizational restructuring where a new agreement was created with extremely specific responsibilities for Payette. Each year, Payette would have to sign a new iteration of an exclusive, “boilerplate” agreement (the “Agreement”) on a take-it-or-leave-it basis — Payette had no ability to make changes or suggest amendments.

At some point, the Appellant was audited by the CRA and Ms. Payette was found to have been an employee (under the laws of Québec) whose work constituted “insurable employment” under the federal Employment Insurance Act (the “Act”).

On appeal to the TCC, the court found that status of the contracting parties “was far from equal” and that the contract created a clear “subordinate relationship” where the Appellant could exercise full control over Payette – meaning that she was an employee for the purposes of the Act.

FCA Appeal

On appeal, the FCA reversed the decision of the TCC, finding that the lower court had failed to conduct a “comprehensive analysis” of the case and consider all evidence. To the FCA, the relative bargaining power of the parties was irrelevant in determining whether there was a relationship of subordination/control. Payette herself was listed as self-employed for income tax purposes and was registered with the Registraire des entreprises du Québec as a business.

The FCA also noted that the lower court had mistaken economic dependence with legal subordination/control. The fact that a Payette had bound herself to work exclusively for a single other person did not automatically mean there was legal subordination/control akin to employment. As well, the court found that the Appellant’s “monitoring of results” from their contractors was not the same as controlling the work performance of an employee.

Ultimately, the FCA allowed the appeal without costs and referred the matter back to the TCC for reconsideration by a different judge.

Commentary

The FCA’s statements are potentially very favourable given how the Canadian direct selling industry is structured. Non-negotiable, standard form agreements, performance, and exclusivity clauses are common features of contracts governing direct sales field forces — especially in the context of senior leaders to prevent them from working with other direct selling companies.

Here, the FCA stated that the presence of these more ‘hands-on’ contractual features will not necessarily make contractors into employees — though this should be taken with a grain of salt considering the differences between Québec employment law and the rest of Canada.

Regardless, the FCA’s final comments serve as wise words for direct selling businesses grappling with this issue. A contractor’s status turns on the specific facts of the case and requires “a global perspective with no particular factor playing a dominant role”.

In other words, the total relationship with the field is relevant — meaning that direct selling companies must continue to be cognizant of how their relationships with the field are structured, not only on a contractual basis but also on an ongoing, operational basis as well.

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