Intentions Not Enough to Establish Contractor Rather than Employee Relationship

Facts/Analysis  

AE Hospitality (“AE”) hired supervisors, bartenders, chefs, and servers to work for two catering companies at events (the “Workers”). Only a few chefs had a written agreement. Most of the servers had written agreements stating they were independent contractors. 

The head chefs of the catering companies would select the AE chef to work at an event. AE’s booking coordinator would offer shifts to the people on their roster of servers. Servers often worked for other companies in addition to AE. Servers could not subcontract their work without receiving approval from AE. There were no minimum guaranteed hours and if servers accepted a shift and could no longer make it, AE was responsible for finding a replacement.  

All workers could choose to accept or decline shifts. Once they had accepted a shift, there was no further opportunity for the Workers to increase their profit as they were paid an hourly rate for a fixed period of time.

With respect to the Workers’ supervision, clients would communicate concerns to supervisors who would then deal with the issues. AE also exercised control over some of the Workers’ apparel. Bartenders and servers were required to wear an apron with the logo of the catering company. The bartenders were also required to bring bar kits for each shift. They were the only workers required to bring their own tools.  

The Tax Court had accepted that both AE and the Workers intended to have an independent contractor relationship. However, it was found that, despite their intentions, this was not the objective reality. Their relationship was that of an employee and an employer.

The Tax Court emphasized the control exercised by AE and the Workers’ lack of opportunity for profit, in deciding that the Workers were independent contractors. The issue of supplying tools was a neutral factor. 

AE appealed the Tax Court’s decision.

Issue/Decision

AE argued the Tax Court had incorrectly decided that the Workers were employees instead of independent contractors. The Federal Court of Appeal upheld the Tax Court’s analysis and found that the factors weighed in favor of the Workers being employees. AE’s appeal was dismissed. 

Takeaway

This case serves as a reminder that companies cannot rely on their subjective intention to establish an independent contractor relationship, even if that intention is clearly documented in a written agreement. The company must also consider how the relationship and key factors will be viewed in an objective analysis. Legal counsel can assist with assessing and revising the parameters of the relationship to support an independent contractor characterization. 

This update was authored by Deanna Froese. Questions? Comments? Concerns? Contact Deanna at [email protected] or anyone else listed on the authors page.