Perell’s decision did not touch on the merits of the claim but stayed the action in favour of arbitration under a clause in the service agreement signed by all Uber drivers.
However, the case is just one of a number of similar matters currently before the courts, and the drivers’ counsel, Toronto employment lawyer Lior Samfiru, says he expects more to follow.
“Employee misclassification is one of the top two or three issues coming up in my practice right now; it’s unbelievably common,” says Samfiru, co-founder of Samfiru Tumarkin LLP, adding that Perell’s decision has been appealed.
Stephen Moreau, a partner at labour and employment law boutique Cavalluzzo LLP in Toronto, says an increasing number of businesses are engaging workers under agreements that describe them as independent contractors, rather than more formal employment agreements.
He recently launched a $20-million claim against Blyth Academy on behalf of a number of former sessional teachers at the private school in Toronto.
The proposed class action alleges that teachers classified as independent contractors, who were paid flat rate fees to instruct courses, missed out on overtime, vacation pay and severance payments, as well as a host of other protections available to employees under the ESA, such as the right to minimum wage.
In a statement of defence, the school denies the claims, none of which has been proved in court, and says all its workers were properly classified.
“Employers do have to be cautious, and what this case reminds us is that there are employers in more traditional industries trying it out for size and calling their workers contractors,” Moreau says.
Samfiru, who advises employers as well as employees in workplace matters, says the principals at smaller companies in particular do not always appreciate the risks of entering contractor relationships with their workers.
“A lot of them are trying to do the right thing, without thinking that they are doing anything illegal, only to learn the hard way that it’s not as simple as calling someone an independent contractor,” he says. “It’s about form over substance, so if they look and act like an employee, it doesn’t matter if they’re called something else in the agreement.”
Samfiru explains that when courts or labour ministry officials are asked to decide how a worker should be classified, the contract between the parties is not determinative, and the ruling is made based on a number of other factors.
They include the amount of control the company exerts over the working conditions of its contractor, such as the hours and methods of work, as well as the level of integration between the two. In addition, which party provides the tools of the craft and who bears the financial risks in the relationship will also have an impact on how the arrangement is characterized in the eyes of the law.
“Employers generally don’t see why the contract shouldn’t be enforceable, but meanwhile, they’re not withholding any taxes for people who they maybe should be treating as employees,” Samfiru says. “There are substantial penalties for misclassification and, hopefully, as these issues get more attention, more employers will appreciate their legal obligations.”
According to Toronto employment lawyer Andrew Monkhouse, many employers are attracted to contractor relationships with workers by the accounting simplicity of a smaller workforce.
“In my experience, it’s motivated by the tax implications, rather than avoiding vacation pay or other ESA entitlements. It can be quite onerous on small businesses to do statutory deductions for employment insurance and [the Canada Pension Plan] on a monthly basis,” he says. “But over time, misclassification can hurt workers.”
Monkhouse says scrutiny on this type of arrangement is likely to spike in the near future, following the passage at Queen’s Park of Bill 148, the Fair Workplaces, Better Jobs Act. The bill, which received Royal assent in November 2017, altered the ESA, placing the burden on employers to prove that contractors are not in fact employees should a dispute arise over classification.
The new law also came with a promise to boost enforcement, with funding provided for as many as 175 new employment standards inspectors.
“Reversing the onus may well result in more class actions moving forward claiming misclassification,” predicts Monkhouse, who acts for a group of document review lawyers suing Deloitte LLP in a $400-million lawsuit alleging the accounting giant improperly classified them as independent contractors.
Ryan Plener, a lawyer with the Toronto office of management-side employment law boutique Hicks Morley Hamilton Stewart Storie LLP, says the recent legislative changes mean now is a good time for employers to reassess their relationships with contractors.
“It’s always important to ensure people are properly classified. Whenever I meet with clients, one of the things I ask them to do is to send me a copy of their contracts, so that we can review relationships and understand whether or not they fit into the category where they have been placed,” he says.
“The government is signalling that employers should be cognizant of their relationships and that education is important on all sides.”
Those who do move forward with claims will still have to convince a judge that their case is worthy of certification as a class action.
In January, Perell’s decision in Sondhi v. Deloitte Management Services LP certified the document review class action against Deloitte after accepting a replacement, more suitable representative plaintiff than the one originally proposed.
Monkhouse says that his focus is now on formally notifying the class of more than 400 lawyers of the certification, as well as further document discovery before the case heads toward a common issues trial, where the classification issue will be settled.
In the Uber case, the drivers’ action was shut down pre-certification, though Samfiru remains hopeful that Perell’s decision in that matter will be overturned on appeal.
The judge ruled that drivers were bound by an arbitration clause in their service agreement, which requires all disputes to be resolved by arbitration in the Netherlands and that the result was not precluded by the ESA. But Samfiru says it’s “practically unworkable” to expect individual Ontario drivers to proceed with arbitration claims abroad.
“In our view, if the contract provides a remedy that is not accessible in reality, then it has no meaning,” he says.
Plener says Perell’s decision is a useful one for counsel on both sides of the bar.
“Whether you’re acting for employers or employees, it’s helpful to have the principle stated upfront that arbitration agreements are not necessarily or expressly ousted by the ESA,” he says.