Misclassification – IPG-105

Effective date: January 1, 2021

On this page

• List of abbreviations
• Subject
• Issue
• Interpretation
• Examples

List of abbreviations

AMP

Administrative Monetary Penalty

AVC

Assurance of Voluntary Compliance

Code

Canada Labour Code

IPG

Interpretation, Policy and Guideline

Subject

This IPG applies to all federally regulated employers. The purpose of this IPG is to:

• describe how the Labour Program decides whether an employer has contravened the misclassification provision (section 167.1) under Part III of the Canada Labour Code (the Code), and
• explain the Labour Program’s approach to dealing with employers who misclassify employees

Issue

There is a need to ensure a nationally consistent approach to deciding whether employers have misclassified employees. This IPG will therefore, address the following questions:

• what is misclassification?
• in what situations is a person considered to be misclassified?
• how does the Labour Program address employers who misclassify employees?  
• how is intent to misclassify established when there is no clear evidence of intention?

Interpretation

Misclassification occurs when an employer does not consider, nor treats a person who is an employee, as an employee.

The following is a non-exhaustive list of situations where an employer may have misclassified a person:

• an employer misclassifies a driver as an independent contractor
  • The driver receives pay through an incorporated entity and meets the criteria to be an employee (section 167(1)(b))(refer to example 1 and example 2)
• an employer misclassifies an intern or employee as a student intern (section 167(1.2) of the Code)
  • An intern or employee receives full protections under the Code
  • A student intern receives only certain protections as per the Standards for Work-Integrated Learning Activities Regulations (refer to example 3)
• an employer misclassifies an employee as an associate. This employee has shares in a business but does not have any control over ownership or business operations
  • An associate does not receive any benefits under the Code

Any employer who knowingly misclassifies an employee in order to avoid their obligations under the Code is contravening the misclassification provision. Employers may be subject to administrative monetary penalties, under Part IV of the Code, if:

• the Labour Program repeatedly finds that they are not complying, and
• they have a history of intentionally misclassifying employees

Establishing intent

In instances where clear evidence related to the intention to misclassify is not available, the following will apply:

Upon the first time the employer misclassifies an employee, the labour affairs officer will educate the employer. This education will include discussion related to employer intent and corrective action that the employer must take to ensure compliance with the Code.

In some cases, the employer may continue to misclassify employees after the education session. If so, the Labour Program will deem that the employer met the threshold established for intent. This is because the employee filed the subsequent complaint after the Labour Program educated the employer on misclassification. This shows that the employer knowingly contravened the Code.

The Labour Program will not find an employer to be contravening the misclassification provision if:

• it’s the employer’s first time misclassifying a person, and
• the employer did not knowingly misclassify

In these situations, the Labour Program will counsel the employer on their obligations under the Code. The Labour Program expects that the employer will not misclassify their employees in the future.

Addressing misclassification

The Labour Program informs employers on their obligations under the Code, through counselling sessions. Information on the Labour Program’s website is also available.

The Labour Program will expect employers who are contravening the misclassification provision, to sign an AVC. The AVC will outline corrective measures that the employer will implement in order to comply with the Code.

An employer will be subject to further enforcement action if:

• an employer fails to implement corrective measures, and
• the Labour Program finds that non-compliance continues

Further enforcement actions may include:

• a compliance order
• an Administrative Monetary Penalty (AMP) (refer to example 2 and example 3)
• publicly naming the employer, or
• a prosecution

The Labour Program can determine that an employer is contravening the misclassification provision when:

• an employee, or
• former employee files a complaint with the Labour Program

The Labour Program may receive a monetary or non-monetary complaint. In general, a labour affairs officer will first assess and investigate the allegations of the complaint. They will also determine if an employer/employee relationship exists. If an employer has knowingly misclassified the employee, then the officer will investigate the misclassification.  

Examples

Example 1

Sergey, an incorporated driver, filed a monetary complaint with the Labour Program. He filed the complaint because his employer, AJX Transport, never paid him general holiday pay since joining the company 7 months ago. Sergey’s employer advised him that he would not receive general holiday pay because he was an independent contractor. A Labour Program officer investigated the complaint and conducted an employer/employee relationship assessment. The officer found Sergey to be an employee of the company. The officer found that his employer owed him general holiday pay for each holiday that occurred during his period of employment.

The officer also determined that this was the first time AJX Transport misclassified an employee as an independent contractor. Given that the officer found AJX Transport had unintentionally contravened the Code, the officer gave the employer an educational counselling session. This was to advise the employer of their obligations under the Code. AJX Transport agreed to sign an AVC to make sure that they implement corrective measures to comply with the misclassification provision.

Example 2

Diego, an incorporated driver, filed a complaint with the Labour Program for non-payment of wages and vacation pay against his former employer, Serval Trucking. The labour affairs officer investigated the complaint and found that there was an employer/employee relationship between Diego and Serval Trucking. The officer also found that the employer had knowingly misclassified Diego as an independent contractor. The officer determined during the investigation that according to the Labour Program’s records, Serval Trucking had a history of misclassifying employees. The company had already received counselling on employer obligations from the Labour Program 8 months ago. In addition, Serval Trucking had signed an AVC agreeing to implement the required corrective measures. For example, ensuring the employer does not misclassify employees and pays the employees wages and other amounts to which they are entitled. Serval Trucking had also received a Compliance Order from the Labour Program. However, the employer had failed to take the necessary corrective measures, and continued to misclassify employees, like Diego.

The officer found that the employer knowingly misclassified Diego in order to avoid his obligations. The employer’s obligations include paying Diego vacation pay and other amounts under the Code to which he is entitled. The officer determined this based on both the evidence gathered and the employer’s history of misclassifying employees as independent contractors. The officer also found wages and other amounts owing to Diego for the monetary complaint. Based on Serval Trucking’s history of intentionally misclassifying employees, the officer recommended issuing an AMP to the employer.

Example 3

The Labour Program received a complaint from Francine, an intern at Tech Broadcasting. Francine was a student intern who was unpaid. However, her employer continued to treat her as a student intern after her internship ended. The employer was aware of the change in employment status but continued to treat Francine as a student intern. A labour affairs officer investigated the complaint. The officer found that Francine was an intern who receives full labour standards protections under the Code. The employer agreed to pay her wages and other amounts to which she was entitled. The Labour Program issued an AVC and a Compliance Order to the employer in previous investigations. This was because the employer had history of intentionally misclassifying interns in order to avoid:

• paying them wages, and
• giving them full protections under the Code

As such, the labour affairs officer recommended issuing an AMP to Tech Broadcasting for contravening the misclassification provision.

Example 4

Shinmin, an incorporated driver, filed a complaint with the Labour Program for unpaid vacation pay because her employer, Swan Trucking, allegedly misclassified her. The labour affairs officer conducted an employer/employee relationship assessment. The officer found that Shinmin was an employee of the company. After an investigation, the employer agreed to pay Shinmin vacation pay and all other amounts she was entitled to as an employee. Swan Trucking has no history of misclassification at the Labour program. Swan Trucking also gave evidence to the officer. The evidence confirmed that they did not knowingly misclassify Shinmin in order to avoid their obligations under the Code. The officer gave Swan Trucking counselling and educated the employer on their obligation to comply with the Code. Swan Trucking took the necessary measures to make sure that they don’t misclassify other employees as independent contractors.