Actions Speak in Employee / Independent Contract Disputes

In the recently decided case of Mallon v. MNR, the Tax Court of Canada provided further insight into the determination of the status of relationships: employee or independent contractor under the Income Tax Act (the Act).

The Honorable Justice Campbell J. Miller decided that the relationship between the appellant, Mr. Mallon and his company, Honeycomb, was truly one of employer and employee. In doing so, he stressed that parties too often rely on their intention when these types of disputes arise, and intention, even if mutual, is not determinative.

With the title of Director/Vice-President of Business Development, Mr. Mallon, worked as a commissioned sales person for Honeycomb Worldwide Inc., in the business of digital media events.

Mr. Mallon had previously worked for the Board of Trade in Toronto, but when his agreement was coming to an end he responded to a Craigslist advertisement regarding the Honeycomb position. He used the Board of Trade’s contract for the agreement with Honeycomb, with just a few modifications.

While others in similar positions at Honeycomb were bound by employer/employee agreements, Mr. Mallon said that the reason he wanted independent contractor status was in order to be independent and be able to terminate the arrangement on short notice.

Justice Miller makes absolutely clear in Mallon that the determination of independent contractor status or that of employee must be grounded in what has been termed “a verifiable objective reality”. It then must further be determined whether an objective reality sustains the subjective intention of the parties. 

In looking at the relationship objectively, Justice Miller noted the actions taken by both parties.

Mr. Mallon did not invoice Honeycomb for his services, he claimed no business expenses, and paid no GST. Honeycomb treated all other workers in similar positions as Mr. Mallon as employees. The intent of the parties was only evidenced in their contract, but their actions were paramount in Justice Miller’s determination.

In making his determination Justice Miller referred to a 2013 case from the Federal Court of Appeal in which the issue of intention was given extensive consideration, Ontario Inc. (c.o.b. Connor Homes) v Canada.

For more information on CRA’s take on how to determine your employment status, see Guide RC4110.

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.