Don’t Fumble the Ball on Employee Classification - Lessons From College Football
It’s an exciting time of year! If you’re like me, you are enjoying these first days of fall with the last of the summer weather couched by the start of crisp fall evenings and the change to fall colours. And lingering in the air is the sound of marching bands and school fight songs. That’s right – it’s college football season!
There is nothing that beats the excitement that comes with college football squads hitting the field and the return of school rivalries. From a fan’s perspective, the energy and environment on game-day can’t be beat. And for the schools, especially those in NCAA Division 1 Football Bowl Subdivision (the division’s new name) and Division 1 basketball, their athletic programs generate tens of millions in revenue[i] that allows them to not only build campuses and facilities to attract high-caliber students, but also offer more sports and scholarships to top-tier student athletes across all sports. In return for those scholarships, the student athletes receive an education that is at least partially, but sometimes fully, paid for, and exposure to endorsement and professional contracts post-termination.
At this point, you are likely saying to yourself – Cynthia, I love a good college football game too (Go Stangs! Go Blue!), but what does this have to do with employment law you ask? Well friends, a battle against the NCAA that has been brewing since at least 2021 is heating up and it provides a very important reminder to employers in Ontario that taking past practices or understanding of “industry standards” for granted when looking at who your employees really are may be a costly mistake.
The NCAA Class-Action
In recent years, NCAA athletes have been in the news with their claims to a piece of the pie when it comes to the revenue received by their schools in using their name, image, jerseys, etc. On June 30, 2021, the NCAA Division I Board of Directors approved a Name, Image and Likeness (“NIL”) policy which allows all NCAA D1, D2 and D3 student athletes to be compensated for their college/university’s use of their name, image and likeness. To be clear, what the NIL policy did not do was say that student athletes would or could receive any form of compensation for playing their respective sports. In other words, the new policy did not alter the fact that college sports are not “pay-for-play” and that NCAA bylaws prevent schools from paying their student athletes. But what seems to have gone unnoticed in the NIL announcement is the ongoing class action lawsuit (commenced in 2019) by a group of former college athletes against the NCAA and more than 125 NCAA Division 1 schools for unpaid wages under the U.S. Federal Fair Labor Standards Act. The plaintiffs in this case (one of many challenging the NCAA’s classification of athletes) have picked up on the arguments by the National Labour Relations Board that college athletes who receive scholarships to attend and play at their respective schools are employees of the schools and look to move the ball down the field on behalf of all college athletes, scholarship and non-scholarship alike.
The key question in the case (currently before the U.S. 3rd Circuit Court of Appeals) is whether the athletes are employees of their schools, and the NCAA a joint employer. In other words, have the schools (and the NCAA) misclassified every athlete as an “amateur athlete” rather than an employee. The NCAA and the schools argue (so far unsuccessfully) that the student-athletes cannot be employees because they have always been deemed amateur athletes, and that guidelines issued by the Department of Labour do not allow them to be employees. The athletes, on the other hand, argue that they are like every other student who works in an on-campus job while attending school. They rely on the following factors:
The services they perform are subject to the college/university’s control. The schools control the time and place of all practices, training and conditioning, film review and game play (sometimes restricting the student-athlete’s ability to take certain classes);
The time spent on “Countable Athletically Related Activities” are recorded on timesheets;
The NCAA and school rules place restrictions on income, gifts and benefits the athletes can receive from sources outside the school;
The schools control all equipment and unforms the athletes use in providing their sports services;
The schools often require the athletes to participate in community service and fundraising events on their behalf during their non-sports/playing time;
Their off-field/court conduct is subject to restrictions (including restrictions on the legal use of alcohol and smoking) and they can be disciplined (suspension of dismissal from the team) for misconduct off the field/court; and
The schools and NCAA benefit financially and reputationally from their performance/services.
They are seeking, at a minimum, the right to fair wages and pay for time spent at practices, training and games. If successful, however, an “employee” classification could also give them:
The right to unionize;
The right to health and safety protections in the workplace; and
The right to workers’ compensation benefits for work-related injuries.[ii]
Why Does Worker Classification Matter?
Unfortunately, many companies in Ontario are caught misclassifying their employees as independent contractors. The fact is that the term “independent contractor” doesn’t always mean what you think it means and you may very well have more “employees” than you think. Much like the arguments being advanced by the NLRB and the student-athletes against the NCAA, the law looks at whether the objective factors of the relationship between the parties is that of an employer-employee or not. And it is an important issue to consider since employers could be exposed to significant liabilities under the ESA (employees are entitled to the protection, rights and entitlements under the Ontario Employment Standards Act, 2000 (the “ESA”), (things like minimum wage, vacation pay, overtime, maximum hours of work, and termination and severance pay) while true independent contractors are not), for taxes and remittances, and for WSIB premiums.
As a quick aside, it’s important that employers consider the appropriate definition of “employee” for the specific issue and context being considered. For example, whether someone is an “employee” for tax purposes under the Canada Income Tax Act is a separate inquiry from whether they are an “employee” under the ESA, sometimes with a different result. And the finding under one piece of legislation is not binding on the question being asked under the other. Suffice to say, in Canada, the issue of whether someone is classified as an employee has been the subject of several court decisions (as well as countless articles and postings).
The Ontario Experience - How to Determine the Right Classification (and avoid surprise liability under the ESA and other legislation)
Whether the classification as an “employee” or an “independent contractor” is at the individual’s own request, expressly stated in a contract, because the individual invoices the company, has their own company is irrelevant. For the purposes of determining whether someone is an “employee” or truly an independent contractor (or even an amateur athlete), the inquiry begins first with the following definition of “employee” under the ESA:
a person, including an officer of a corporation, who performs work for an employer for wages,
a person who supplies services to an employer for wages,
a person who receives training from a person who is an employer, if the skill in which the person is being trained is a skill used by the employer’s employees, or
a person who is a homeworker,
and includes a person who was an employee.
Unfortunately, there is no definition for “independent contractor,” or even a “dependent contractor.”[iii] That said, as is evident from the definition, whether someone is an employee or not is dependent upon the context and nature of the individual’s relationship with the employee. This is where the courts come in.
To determine if someone is an employee or an independent contractor, the courts have looked to the “central question” of “whether the person who has been engaged to perform the services is performing them as a person in business on his own account.”[iv] And to answer this, courts have set out a “test” made up of various factors to check the true character of the relationship between the parties and, importantly, who is controlling the worker and the work being done. Generally speaking, courts and tribunals will look at answers to questions such as the following:
Does the individual work exclusively for the company?
Who provides the tools and/or equipment to be used to perform the work?
Does the individual hire (or have the ability to hire) their own helpers?
Who determines where, when and how the work is performed?
What degree of financial risk is taken by the individual? Do they have or assume the risk of financial loss in, or have an expectation of earning a profit, in the relationship?
Are the services being performed or provided essential to the company’s business?
Employer Take Aways
Don’t drop the ball when it comes to how you classify your workers and those who provide services to the company. There is great benefit in using the services of independent contractors, both for the company and the individual, but it would be a shame to miss the goal posts by taking the potential for liability for granted and not taking the steps to properly classify and document your relationship. So when you are looking to hire or retain someone, take the right steps to minimize the risk of misclassification:
don’t be afraid to call someone an “employee”;
make sure the facts support how you and the worker have characterized your relationship;
work with your legal counsel to prepare the appropriate documents to paper your arrangement – whether that is an employment agreement or an independent contract; and
ensure your written agreement includes appropriate termination language that speaks to what happens when your relationship comes to an end.
[i] Fun Fact: NCAA Research discloses that NCAA schools across all three divisions reported total athletics revenues of just over $18.7 billion dollars in 2020. These school also reported spending $18.5 billion dollars on athletics in 2019, of which $3.6 billion (approximately 19.5%) was spent on financial aid for student-athletes and $3.8 billion (approximately 20.5%) was spent on compensation for coaches.
[ii] Not talked about nearly as much in this argument is the student’s new exposures as “employees;’ namely liability for income taxes on the funds (including scholarship amounts) they receive and the possibility of termination by their “employers”.
[iii] The difference between employees, independent contractors and the third category of dependent contractors (a contractor more like an employee than an independent contractor and entitled to notice of termination but not all ESA protections), is a subject for another day, and another blog.
[iv] See more in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59 here.
