The confidence to get creative in classifying workers

Exclusive to Canadian HR Reporter from Rudner Law.

One of my hobbies is riding a stationary bike to nowhere, in a dark room, to the beat of unreasonably loud music while the instructor calls out choreography. While it may sound crazy to some, I’m a big fan.

Recently, I learned that one can apply to be a volunteer rather than paying for a membership at my favourite studio. In exchange for one to two shifts a week, instead of pay, you receive an unlimited monthly membership to the studio. It seems like a creative idea to keep labour costs down - instead of hiring employees, why not have a team of your own fans volunteer instead?

This got my employment law senses tingling - is my favourite spin studio playing with fire and potentially misclassifying its workers? Answering this question in the affirmative means substantial exposure to liability.

Misclassification: Who is an employee?

Just as when a “contractor” is actually an employee, when a “volunteer” is actually an employee, the employer is liable for their employment standards entitlements, unpaid wages, and unremitted deductions. So, what differentiates a volunteer from an employee? Ontario’s Employment Standards Act, 2000, (ESA) provides some guidance.

Although the ESA does not define the term volunteer, it defines the term employee to include, among other grounds, someone who performs services for wages, or as someone who the employer trains for work done by its employees. The second branch of this definition is helpful: the volunteers in this example are not provided with wages, but they may have received training to do work that is also performed by the company’s employees.

These volunteers risk actually being employees because the law does not allow an employer to train people for skills used in the workplace but only pay some of them as employees. If the volunteers received training in the same skills, and do the same sort of tasks as the company’s employees, then there is a risk that they are misclassified.

Volunteers performing essential work

Another consideration is whether the volunteers perform work that is essential to the business’ operations. This was the key question in Montaque v. Handa Travel Student Trip Ltd., a class action dealing with volunteer misclassification. Though the case did not proceed to trial, the class was certified; the plaintiffs were awarded damages via settlement, and the employer classified the volunteer positions at issue as employee positions for future applicants.

The workers in that case performed essential work and received extensive training for a tiny honorarium. Since their work was indispensable, they were misclassified as volunteers despite what their agreements said. In other words, employers are not allowed to exploit workers by classifying them as volunteers - courts will assess all the facts.

Thus, in the example of the studio, there may be exposure if:

• its volunteers are trained in, and perform, the same kind of work the employees do
• its volunteers perform work that is essential to operations.

Employment law myths

Before it becomes an employment law myth that employers can pay employees in kind, I want to be clear that this is just not the case. That free membership will not cut it for employees, as employees must be paid wages, meaning monetary remuneration.

Of course, the membership could be a perk, but employees must be paid money. Should a worker truly be a volunteer, the employer is free to offer the membership and nothing more as an honorarium.

The point of this post is to highlight the risks present in what may seem like a great business strategy. As such, employers would be wise to consult with HR counsel before implementing measures to keep staffing costs down, for example. Although you might trust your gut when a good idea pops into your head, the employment law risks are real - you absolutely should verify the feasibility of any approach to personnel with HR counsel.

Consider this: if volunteers are actually employees, then they are owed unpaid wages as well as any other applicable compensation. Plus, the employer would also be on the hook for unpaid withholding tax and deductions. The exposure is potentially substantial. Thus, even when you think you have a fantastic new approach, the best practice is to consult with counsel, as that is what will really give you the confidence to get creative.

David Gelles is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].