Why Canada should follow others and take on fake ‘independent contractors’
An op-ed by Lise Lareau, Canadian Media Guild and Chris Roberts, Canadian Labour Congress
As Ottawa considers revisions to federal labour standards, it’s time for a reckoning: thousands of workers in this country are wrongly and deliberately misclassified as ‘independent contractors’ and they’re being ripped off. And so is the federal government. Tax coffers are likely out millions of dollars because of the sham.
The scheme is not new. But it’s growing – and now pervasive in such wide-ranging industries as construction, IT, academia, media and the new so-called ‘gig’ economy. What is new is that other Western countries, governments and regulators are cracking down.
Just last month, the California Supreme Court tightened up the definition of independent contractor dramatically, and the Irish government proposed a ‘Protection of Employment Bill’ aimed at what they call ‘bogus self-employment’. This year, Ontario placed the onus on employers to prove a worker is not an employee and put 175 new inspectors in place to monitor workplaces. So some change is on the horizon, but more is needed.
Employers have many reasons for pretending that their workers are independent contractors. It’s cheaper and easier. There are fewer obligations, next to no basic standards to meet – and there’s been little oversight by government to ensure correct classification.
Workers often like the idea of being independent contractors too, whether or not it’s in their interests. They’re attracted by the feeling of self-determination and autonomy. Plus, Canada’s tax laws incentivize people to work this way through a long list of tax breaks. So avoiding income tax and payroll deductions can seem appealing — particularly since pay is often lower and the benefits far fewer for this ‘deregulated’ work.
To be sure, some workers in the performing arts and other industries are legitimately independent contractors. But many so-called independent contractors are not independent at all. They are lured into the category and despite some of the tax benefits, they are losing out.
In general, if you go to a workplace, are expected to be there on certain days and hours, work at equipment provided by the company, and are expected to perform work under the supervision and control of someone else, you should be called an employee.
Employees are covered by labour laws setting out minimum wages, overtime, holiday and vacation pay, and severance and termination pay. Employers pay into statutory benefits such as Employment Insurance and the Canada Pension Plan on their behalf.
Independent contractors get none of the above. They are considered to be small companies who, at least in theory, do work for a variety of clients.
Besides the abuse of workers’ rights and protections, this rampant misclassification is expensive for governments to ignore. One report from the Ontario Construction Secretariat from 2010 estimates the annual revenue losses from “underground practices” in that sector at $1.4 to $2.4 billion, 80% of which the authors attribute to employee misclassification.
Shockingly, no one seems to know how much tax revenue is actually being lost. Neither the federal Department of Finance nor Employment and Social Development Canada has conducted studies of this question.
There are other long-term financial consequences. Independent contractors are supposed to contribute to both the employer and employee portions to the Canada Pension Plan. Many don’t. What will the government do when faced with a generation of people who don’t have basic income at retirement age?
So what should be done?
First, we need a definition of employee that reflects the realities of the contemporary world of work. In addition to ‘employee’ and ‘independent contractor’, Ontario’s 2017 Changing Workplaces Review proposed a third category of worker, called ‘dependent contractor’. It acknowledges the economic dependency of many workers who offer their services to more than one employer but whose status is closer to employee when they work. They would have access to statutory benefits and collective bargaining rights.
The Canadian Media Guild suggested a similar hybrid option called ‘contract employee’ based on language it reached in its new collective agreement at Vice Media.
We also need to level the tax field. That’s why the 2017 UK Taylor Review of Modern Working Practices recommended a review of the tax system to address the disparity between tax levels facing workers in employment and self-employment. Or we should disentangle the tax system from definitions of employment entirely.
What should you do if you think you are wrongly classified? You can file a complaint with your provincial labour ministry and the Canada Revenue Agency. But — here’s the rub — you can’t do this anonymously. This is a tough step for people to do if they are on contract — and one reason why this issue has remained so insidious for so long.
We’ll be watching Labour Minister Patty Hajdu when she releases her proposed changes to the federal labour code, expected later this year. Canada should see that the tide is turning elsewhere in the world on this – and it should join other governments in cracking down on this abuse.
Lise Lareau, Fairness in Factual TV Campaign, Canadian Media Guild email@example.com 416-524-5473
Chris Roberts, Social and Economic Policy Director, Canadian Labour Congress firstname.lastname@example.org 613-521-3400 x 262
Lise Lareau is currently coordinating CMG’s campaign to give bargaining power to workers in the reality/factual TV industry, where the abuse of fake ‘independent contractors’ is rampant.
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