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COLUMN: Is your business partner a partner, or employee?
It is commonly known that employers do not have carte blanche to impose whatever terms they wish into contracts of employment with their employees. Rather, given an employee’s relative vulnerability, British Columbia provides protective legislation that restricts the employer from placing certain terms into employment contracts – even if the employee agrees. In particular, the Employment Standards Act sets “floors” for working conditions, and the Human Rights Code prohibits discriminatory practices in the employment setting.
An interesting remaining question is: are business owners free to insert any provisions they wish into the contract they make with their partners or co-owners, or are they subject to restrictions similar to those applicable to their employees? Although it occurred in the context of the unique ownership structure present in the NBA, the issue involving Donald Sterling (owner of the L.A. Clippers) and the clause in the NBA ownership agreement that allowed for fellow owners to force the sale of his team, has certainly brought the legality of contractual agreements amongst co-owners to the forefront of many minds.
A recent decision of the Supreme Court of Canada, McCormic v. Faskens, visits this issue in a more familiar context. The case serves as a useful reminder to business owners that contractual relationships between themselves and their co-owners may well be subject to various legislative restrictions.
In Faskens, Mr. McCormic co-owned a law firm as an equity partner. The Partnership Agreement between McCormic and his partners included a clause requiring equity partners to retire at age 65. McCormic argued this clause was unenforceable because it violated section 13 of the Human Rights Code prohibiting age discrimination in employment. The law firm responded by arguing that because section 13 only applies to employees, it did not apply to McCormic.
Ultimately, the Supreme Court held that McCormic was not an employee, as his relationship with the law firm could not be characterized as one of employment, and the Supreme Court was forced to find in favour of the law firm.
Although McCormic was found not to be an employee in this situation, the court noted that this will not always be the case for co-owners. To determine whether an individual will be deemed to be an employee – and thus have the protection of the Human Rights Code – the test to be applied requires a consideration of how much control the employer has over the individual’s working conditions, and how dependent the individual is on the employer.
Doug is a partner with RDM Lawyers LLP. Doug practices in the areas of labour and employment law, human rights, and personal injury law. Questions or comments about this article can be sent to firstname.lastname@example.org.