[1981] OLRB Rep. November 1587
0206-81-R United Steelworkers of America, Applicant, v. H. G. Francis and Sons Limited, Respondent, v. Group of Employees, Interveners.
BEFORE; R. O. MacDowell, Vice-Chairman, and Board Members B. L. Armstrong and C. G. Bourne.
APPEARANCES: H. G. MacKenzie for the applicant; W. T Langley and N. Campbell for the respondent; and no one appeared for the interveners.
DECISION OF THE BOARD; November 18. 1981
I
1This is an application for certification in which the applicant seeks to represent a bargaining unit of dependent contractors. The principal issue before the Board is the employee status of the individuals affected by the application. The respondent contends that they are independent contractors and, as such, are beyond the scope of the Act.
3The respondent H. G. Francis and Sons Limited ("Francis") is engaged in the business of selling heating oil, and servicing the oil heating equipment of its customers. To perform these functions, Francis uses its own employees, and certain individuals whom it describes as "contractors". The two kinds of serviceman seem to be used more or less interchangeably. The applicant contends that the contractors are "dependent contractors" within the meaning of section l(l)(h) of the Labour Relations Act. That section reads as follows:
"1(1) In this Act,
(h) "dependent contractor" means a person, whether or not employed under a contract of employment, and whether or not furnishing his own tools, vehicles, equipment, machinery, material, or any other thing, who performs work or services for another person for compensation or reward on such terms and conditions that he is in a position of economic dependence upon, and under an obligation to perform duties for, that person more closely resembling the relationship of an employee than that of an independent contractor."
4The union and Francis are parties to a collective agreement executed on April 16, 1981, and covering employees employed by the company as oil burner servicemen. The agreement does not apply to "contractors". The current application was filed on April 27, 1981, but on or about April 21, 1981, all of the persons affected by this application signed new "service contracts" with Francis, which Francis claims provide the foundation for their status as "independent contractors". It is admitted that prior to executing those agreements the majority of the contractors with whom we are concerned were clearly employees of Francis and, as such, clearly covered by the collective agreement. In fact, two of the individuals who became "contractors" on April 21, 1981, signed the collective agreement on behalf of the employees on April 16, 1981, barely five days before.
5In accordance with its usual practice, the Board appointed a labour relations officer to inquire into the employee list and the composition of the proposed bargaining unit. The respondent originally specified that there were seven contractors affected by the application; however, during the officer's inquiry, the respondent sought to add an eighth individual, Darrell Francis, whom it claimed was also potentially affected. For reasons more particularly set out below, the Board is satisfied that there is no prejudice to the applicant in permitting the respondent to amend its list to add Darrell Francis to the group of contractors whose status is in dispute.
6The officer's hearing was attended by representatives of the applicant, the respondent and the interveners. Six of the seven contractors were present and gave evidence. On the basis of that evidence, the parties have submitted to the Board an agreed statement of fact upon which this decision is based. It might be noted that there was little direct evidence concerning the duties of the respondent's employees, or the relationship between the respondent and the alleged dependent contractors prior to their most recent contract.
7For at least ten years, Francis has been using both employees and contractors to service the equipment owned by its customers. The functions performed by both groups are similar. When it has become necessary to expand its work-force, Francis has left it up to the individuals hired to decide whether they wished to be ''employees'' or "contractors".
8Francis~ employees are dispatched to the customers' locations by radio. They supply their own tools. They are paid according to a piece-work rate depending upon the number of furnace cleanings or related services performed, and they are responsible for poor workmanship, either through a charge-back arrangement whereby they pay for the cost of repair, or in accordance with a contractual requirement to complete the job without further compensation. If an employee leaves the respondent's employ, the respondent retains a "holdback" from his wages, to cover any defects in workmanship which may subsequently arise.
9The contractors have the right to provide services to Francis' customers in an area designated by the company. Like Francis' employees, they supply their own tools, and are linked to Francis~ communications system and dispatcher. But the right to provide service in their designated area is not exclusive. Francis reserves the right to designate other contractors or employees to provide such services as it considers necessary. On the other hand, the contractors are prohibited from servicing Francis' customers in any other area except as may be required by Francis itself.
10The contractor undertakes to provide an annual cleaning for Francis' customers in his designated area, as well as such service calls as the customers may require. These include consultation, testing, maintenance, or emergency services. The contractors are responsible for the latter, twenty-four hours per day, seven days a week, both in their own area and such other areas as Francis may specify.
11A contractor cannot sell his labour or materials on his own account to any of Francis' customers. The repair work which he does, requires the customer's consent, and is subject to review by Francis, the contractor is required to report promptly to Francis any problems which he encounters and he must affix to the customer's equipment a sticker identifying Francis as the entity to call in the event of problems. Any maintenance job exceeding $1 50,00 is funnelled through Francis, which obtains the customer's permission (and presumably reviews the situation) before the contractor performs any work. The company undertakes to designate sources of supply from which the contractors may purchase parts.
12The contractors collect some of the accounts from those customers of Francis which have approved credit ratings, but apparently the contractors bear the risk of loss if customers do not pay for their services. Francis pays the contractors twice a month. The contractors bear the cost of vehicle repair, expenses, license fees, taxes and so on.
13The contract purports to shift vicarious liability entirely to the contractor, who undertakes to indemnify Francis for all claims arising from his activities, including any claims connected with the operation of a motor vehicle. The contractor further undertakes to maintain insurance coverage at a designated level, and to furnish Francis with certified copies of his insurance policies. The contract includes a number of clauses concerning "employees" hired by the contractors; however, there is no direct evidence that any employees or helpers have, in fact, been hired. One of the contractors (whose wife worked) hired someone to book his calls for him; but this was the extent of the evidence concerning the contractors' use of other "employees". The contractors do arrange for "back-up" personnel to cover for times when they may be unavailable; but, these "back-up" persons must "wherever possible" be other contractors, and the names of the "back-up" servicemen must be provided to Francis so that it can insure that they are competent and properly licensed.
14Three of the contractors own their own trucks. Five contractors do not own their own trucks. Three of these lease their vehicles from Francis. One used to lease his truck from Francis but now leases a vehicle from another supplier. Darrell Francis uses a company truck. The trucks need not carry the Francis logo, but they cannot display the logo of a competing company, and must be marked in a way which is acceptable to Francis.
15The overwhelming proportion of the contractors' income comes from Francis. Most of the contractors were unwilling or unable to do work for anyone else. One contractor indicated that he occasionally performed some work for friends or neighbors, but he was the exception. There is no contractual prohibition on working for others, and the contract provides economic incentives for "leads" which attract customers to Francis. In practice however, the contractors primarily service those customers which Francis designates.
16The contractors set their own hours, although it is customary to contact Francis at the beginning of their working day. The contractors are required to respond to the needs of Francis' customers. To assist them, they use the two-way radio linked to the company's dispatcher. The radio is rented from Francis.
17The contract by which the contractors are bound cannot be assigned without the company's consent, but it can be terminated on 24 hours notice at the sole discretion of Francis. If terminated, there is a three month "hold-back" to cover any expenses which Francis may incur, arising from the contractor's poor workmanship. Following termination of his contract, the contractor is prohibited from supplying any service to Francis' customers for a period of three years. There is little evidence of any negotiations with respect to these terms. It appears that there was some discussion with respect to the fee schedule, but that the terms under which the contractors work are largely dictated by Francis.
II
18The Labour Relations Act was amended in 1975 to include, for the first time, the concept of the "dependent contractor" that is individuals whose economic circumstances are roughly analogous to those of employees with whom the dependent contractors often compete in the labour market) but whose legal status, and right to engage in collective bargaining are somewhat ambiguous at common law. The concept is of European origin, but was explored in the North American context in a perceptive article by professor Arthurs. [See: The Dependent Contractor: A Study of the Legal Problems of Countervailing Power (1965) 16 U. of T.L.J. 89.] The following excerpts from that article amply illustrate both the legal issues associated with the dependent contractor concept, and the kind of relationship to which section l(l)(h) is directed.
"Unequal power between private persons, no less than between citizen and state, is an unhappy fact of modern society. In one area — Employment relations — public policy has clearly adopted collective bargaining as a technique for redressing this imbalance of power. In another area commercial competition collective action is generally suspect as the vehicle by which a powerful group may overhelm weak individuals. This study concerns the paradoxical plight of groups of competitors who may find survival difficult without collective action. They are often economically vulnerable as individuals because of the dominance of a monopoly buyer or seller of their goods or services, or because of disorganized market conditions. If viewed as "independent contractors" rather than "employees" they lack the legal status which is a prerequisite of the right to bargain collectively under labour relations legislation. As businessmen, they cannot legally employ collective tactics to buy or sell or otherwise stabilize conditions, because of the combines legislation. They are prisoners of the regime of competition. Because the choice of either legal designation "employee" or "independent contractor" in effect prejudges the issue of their right to bargain collectively, a new term is needed: "dependent contractor." They are "dependent" economically, although legally "contractors." The ambiguity, the paradox, of their position is thus reflected in the term used to identify them. Self-employed truck drivers, peddlers, and taxicab operators, farmers, fishermen, and service station lessees personify the dependent contractor.
For a variety of reasons, employers may prefer to deal with dependent contractors rather than "employees". The obligations to comply with a variety of social welfare and tax statutes depends on the existence of an employment relationship, and indeed does exposure to vicarious liability or consumer complaints. Conversely, the employer receives the benefit of increased sales or faster service by contractors whose income depends on their own exertions instead of an assured wage. A fluctuating demand for services is often more economically met by casual arrangements with a dependent contractor than by a burdensome continuing employment relationship. The dependent contractor may work for less. His individual bargaining power is substantially less than that of an organized group of employees. Capital and maintenance costs of equipment can be shifted to the dependent contractor, thereby further enhancing the bargaining power of the employer, while undermining the contractor's ability to withhold his services. Not least of the attractions of dealing with a dependent contractor is his inability to claim the protection [sic] of the labour relations legislation. Finally, the dependent contractor may be used to undermine the union's bargaining power, which stems from its control of the labour supply.
Succumbing to the temptation of these undeniable advantages, employers have sought to transform employees into independent contractors by the magic of contractual language. While many employees have willingly or reluctantly assisted in this exhibition of the black art, they have not always done so. Both situations present legal conflicts.
As has been suggested, the dependent contractor who sells services doubly disrupts the labour market. On the one hand, he competes with organized employees for available work; on the other hand, his attempts to organize for collective action, lacking statutory sanction, are often characterized by economic force and legal reprisals. Any rationalization of this labour market disorder must begin with abandonment of the traditional legal distinction between employees and independent contractors. Indeed, such a step would be warranted solely on the ground that the legal tests are uncertain:
A contractor may go forth in the morning proud of his independence and return at nightfall a servant, some court having found in the employer such a measure of control of prices, of working conditions, of what not, as no truly independent contractor could countenance. Or a servant may suddenly find that he has so far departed in thought, in time or space from "the scope of his employment" that he has achieved, at least temporarily, the estate of an independent contractor. It is all very confusing.
But, as has been suggested, there are more socially important grounds for abandoning the legal distinction than mere uncertainty or confusion. The legal distinction simply does not conform to economic reality.
Insofar as dependent contractors share a particular labour market with employees, it is submitted, first that they should be eligible for unionization. Such a result would require a new definition of the term "employee," perhaps along the lines of that adopted in Sweden: "For the purposes of this Act a person shall be regarded as an employee even if no normal engagement exists, provided that he performs work for another person and thereby occupies in relation to that person a position of dependence essentially similar to that occupied by an employee in relation to his employer."
19The dependent contractor provision of the Act is intended to apply to persons who have some of the trappings of the independent entrepreneur, but, in reality, are in a position of economic dependence, more like that of an employee. In interpreting the section, the Board has rejected the argument that section I(l)(h) merely codifies the common law tests. That proposition is clearly untenable, given the academic and legal debate which preceded the 1975 amendment. Instead, the Board has viewed the statutory definition as "a new departure" which may imply that persons who have previously been denied access to collective bargaining can now be brought within the ambit of the Act. (See Adbo Contracting Company Limited, [1977] OLRB Rep. April 197). Of course, certain of the common law considerations may still be important; but the Board's ultimate responsibility is to make a determination on the basis of the statutory definition set out above. As the Board observed in Superior Sand, Gravel & Supplies Ltd. [1978] OLRB Rep. February 119 at page 126,
"[the task] is to make the determination by reference to the criteria set out in the statutory definition of dependent contractor. This definition directs the Board to examine the type of economic dependence and the kind of business relationship or obligation that it has before it; and further directs the Board not to give undue emphasis to whether there exists a formal contract of employment, and whether or not a person furnishes his own tools, vehicles, equipment, or machinery. In the final balance, the Board must be satisfied that the relationship before it, even though it may not bear all the hallmarks of the typical employment relationship, more closely resembles the relationship of an employee than of an independent contractor".
20In the instant case, there is a strong argument that the "contractors" are employees even on the common law tests applied by the Board in cases preceding the 1975 amendment. In our view, however, it is more appropriate to assess their status in light of the more flexible definition of "dependent contractor" which has now been incorporated into the statute. (But see: Automatic Fuels Limited, [1966] OLRB Rep. April 22, Burmack Burner Service [1969] OLRB Rep. October 850, Shell Canada Limited, [1974] OLRB Rep. April 200, and Gulf Oil Canada Limited, [1974] OLRB Rep. April 245 which preceded the legislative amendment. Each of these cases involved persons working under conditions similar to those of the contractors with which we are here concerned, and in each case the Board found them to be "employees" within the meaning of the Act.)
21How are the contractors to be viewed in the light of the statutory criteria? It is apparent that the income of all of the contractors is directly and substantially dependent upon the work which they perform for Francis and its customers. In all but one case, these provide the sole source of work and income, and the exception involved only one individual performing minor services for friends and neighbors. There is virtually no evidence of business development, self-promotion, or entrepreneurial initiative. The evidence discloses little inclination or ability on the part of the contractors to expand their business horizons. They do not compete for customers in the market. Such new customers as they do solicit are likely to become as tied to Francis as they are themselves. The fact that they derive a benefit from attracting new customers to Francis is no more determinative of independent contractor status than it would be for commission salesmen. The fact is, that the contractors have not generally provided services to independent customers of their own, and if the contract is terminated, all of Francis' customers including those which the contractor may have attracted — will be beyond reach. The non-competition covenant ensures that this will be the case. At the present time at least, the contractors' economic mobility, and freedom to contract with others and develop their "business" are largely theoretical.
22The contractors are very closely tied to Francis, which totally governs the rhythm of their work patterns. It is Francis which controls their relationship with its (and their) customers. Francis prescribes in detail the kind of services to be provided, the work methods and procedures and to a great extent, when, where, for whom and at what price the contractors will work. The contractors do not dispose of their work or services on their own account, nor are they free to set their own fees. Any job of value greater than $150.00 is routed through, and vetted, by Francis. The contractors' economic independence is severely and substantially circumscribed. Indeed, the possibility of termination of their service contract at the sole discretion of Francis, and upon 24 hours notice, renders the contractors even more vulnerable than Francis' unionized employees whose termination can only be effected if Francis has "just cause
23The contractors supply their own tools, but so do Francis' employees. Half of the contractors obtain their vehicles from Francis as well. Even the system of remuneration with its "charge-backs", "hold-backs", and a modified form of piece-work payments, — is similar to that of Francis' employees. Both employees and contractors provide similar services, to the same target group of customers. Both are economically dependent upon Francis. On the basis of the evidence, it is clear that the nature of the relationship between Francis and its contractors more closely resembles the relationship of an employer-employee than of an independent contractor. Accordingly, the Board finds that the eight contractors are "dependent contractors" within the meaning of section l(l)(h) of the Labour Relations Act.
24The Board is satisfied on the basis of all of the evidence before it that more than fifty-five per cent of the employees of the respondent in the bargaining unit at the time the application was made, were members of the applicant on May 20, 1981, the terminal date fixed for this application, and the date which the Board determines, under section 103(2Xj) of the Labour Relations Act, to be the time for the purpose of ascertaining membership under section 7(1) of the said Act. If it considered only that membership evidence, the Board would be disposed to certify the applicant without recourse to a representation vote. However, there were also before the Board, five individual statements of desire, signed by certain of the dependent contractors, indicating that they had had a change of heart and now no longer wished to support the union's application. These statements included one from Darrell Francis, and all of them were filed prior to the terminal date (and, of course, prior to the initial hearing in this matter). It was for this reason that the Board did not consider it inappropriate to permit the amendment of the respondent's list to include Darrel Francis as a person potentially affected by the application. Not only had Francis intervened in the proceeding prior to hearing, it is obvious that an appointment of an officer to inquire into the employee list and composition of the bargaining unit necessarily means that the number and status of the individuals falling within the unit remains uncertain until finally settled by the Board. Moreover, if the Board ultimately decided to order a representation vote, the issue of Darrell Francis' status would surface again in respect of his entitlement to vote. In all of the circumstances, the Board considered it appropriate to resolve his status along with that of the other contractors (although in his case, it is recognized that there is an even stronger argument that he is a "pure~~ employee and not even a dependent contractor).
25If the Board were satisfied that the statements of desire filed by some of the dependent contractors, represented the voluntary wishes of those who signed them, it would exercise its discretion to seek the confirmatory evidence of a representation vote to determine the employees' current wishes with respect to trade union representation. But the objecting dependent contractors have not yet had the opportunity to address the Board with the respect to these issues, or to lead evidence with respect to the voluntariness of their statements of desire. Consequently, it will be necessary to schedule a further hearing so that they will have an opportunity to deal with these issues and to lead evidence in accordance with Rule 48(5) of the Rules of Practice concerning the origination and preparation of their statements of desire.
26The matter is referred to the Registrar.