Labour Board decision shows need to close subcontracting loopholes

By Jason Edwards

In a recent decision, Ontario Labour Relations Board (OLRB) Vice-Chair Kelly Waddingham dealt a blow to employers who use subcontracting schemes to avoid responsibility for paying workers’ wages and upholding other employment standards. While the decision is a positive development for working people, it exposes a glaring gap that exists in the legal framework governing employment relationships in Ontario.

What Happened

This decision, titled Gilmour Services, concerned the unpaid wages of fourteen workers, amounting to just over $20,000. The workers were employed by Reco Cleaning Services, performing construction clean-up work. Their services were obtained through a subcontractor, Gilmour Services, which was a small company, owned and operated by an individual who also performed cleaning duties.

Through the fall of 2014, some of the workers’ paycheques could not be cashed due to Gilmour having insufficient funds. Gilmour had collected its fees for the contract, but not passed on what was owed in wages. When the workers complained to their supervisor, an employee of Reco (not the owner of Gilmour), they were told to continue working and that the pay issue would be sorted out by Reco’s owner. He met with the employees, told them that the job was finished, and offered to pay them one week’s wages and continue to employ them at other jobsites. They demanded that they be paid their full wages owing.

The Employment Standards Claim

Together, the workers filed an employment standards claim with the Ministry of Labour. An Employment Standards Officer (ESO) investigated the complaint.

Unfortunately for the workers, Gilmour’s owner allegedly filed for bankruptcy. Knowing that they would have trouble collecting any debt owed to them from Gilmour, the workers argued that Reco was effectively their employer. If it were declared an employer, Reco would be responsible for the debts owed to the workers (and would likely be capable of paying them).

Finding Reco to be an employer would make sense: the cleaners worked on a Reco jobsite, wore Reco uniforms, took direction from Reco managers, received training from Reco, and used Reco’s equipment. They were told that they were Reco employees and that Gilmour’s owner was a Reco supervisor.

The ESO issued an order to pay, but only against Gilmour. Reco was not found to be an employer. Thus, despite profiting from their labour, Reco would not be held accountable for the wages owing to the employees.

Escaping Liability

This is a deliberate effect of subcontracting schemes: they are designed to allow employers to escape the obligations that come with the employment relationship. Employers get to benefit from the labour of employees without worrying about pesky obligations like making sure wages are paid, safety standards are followed, and other employment standards are upheld.

These subcontracting schemes are all too familiar to workers in Ontario, and make it difficult to enforce the (incredibly weak) standards that govern employment relationships in the province.

The Appeal

The workers appealed the ESO’s decision to the Labour Board. They argued that, because of the effective oversight exercised by Reco, it should be declared their employer, and be culpable for the unpaid wages. They relied on the definition of “employer” in the Employment Standards Act (ESA), which has been found to allow for more than one employer in employment relationships.

For its part, Reco threw up its hands and denied owing any responsibility for the workers’ stolen wages.

The Director of Employment Standards intervened, representing the position of the government. It argued that Reco should not be found liable for the stolen wages because there was not enough connecting Reco to the workers such that their relationship could be considered one of employment.

The Decision

The Labour Board adjudicator agreed with the workers. She found that Reco exercised “fundamental control” over the employees, and should therefore be held accountable as their employer. According to the decision, “Gilmour was simply the conduit through which Reco paid the cleaners.” Thus, Reco is obliged to pay the $20,000 owing to the employees.

Conclusion

While this decision represents a move in the right direction, employers will continue to tiptoe through Ontario’s weak regulatory framework to avoid liability for the wages subcontractors do not pay.

With some incredibly small changes in its behaviour, Reco may have avoided liability. For instance, it could have required the workers to wear different uniforms; not provided training; represented the subcontractual relationship more clearly; exercised less direct supervisory control; or not offered the workers employment after Gilmour had exited the picture. These small changes could potentially have allowed Reco to benefit from the cleaners’ hard work while simultaneously claiming that it did not exercise sufficient control to be considered an employer.

Ontario needs employment standards legislation that clarifies and increases the legal liability shouldered by employers who engage in subcontracting schemes. It is a matter of fundamental fairness that low wage and precarious workers not be asked to bear the risk of shaky contractual relationships between employer businesses. The definition of employer in the ESA is not a sufficiently reliable and accessible vehicle for assigning culpability to employers.

In a survey of employment standards in Ontario, the Workers Action Centre recommended that legislation be drafted to “Make employers who enter into contracts with subcontractors and other intermediaries, either directly or indirectly, liable both separately and together for wages owed and for statutory entitlements under the ESA and its regulations.”

Legislation ensuring that all employers are responsible for their workers’ wages would create much-needed certainty at the bottom of the labour market. Without this certainty, many workers will continue to be left worrying whether their next paycheque will arrive, and if it doesn’t, if there is anything they can do to hold their employers accountable.