The Supreme Court of Canada recently addressed the question of whether a partner can also be an employee of his or her firm. In doing so, the Court examined the individual's dependency on the firm, and the extent of control that the firm exerted. The Supreme Court, in this case, decided that the partner was not also an employee for the purposes of human rights legislation. While membership in a partnership does not, itself, prevent an employment relationship, there needs to be a sufficient level of control over the individual by the firm before an employment relationship will exist.
The decision, McCormick v. Fasken Martineau DuMoulin LLP, involved an equity partner who held an ownership interest in the firm. Some time after McCormick became a partner of the firm, the firm adopted a provision in its Partnership Agreement that required equity partners to retire as equity partners and divest their ownership interest after they turned 65. The provision allowed for the partner to become a "regular" partner without an equity stake, but such an arrangement was exceptional. McCormick, when 64, challenged the provision in the BC Human Rights Tribunal. He was initially successful in establishing that the requirement to retire was discriminatory. The Tribunal's decision was upheld in the BC Supreme Court, but overturned on appeal to the BC Court of Appeal.
The issue of whether an equity partner could also be an employee of his firm for the purposes of human rights legislation required a generous interpretation of the legislation in order to achieve its broad public purposes, including the elimination of discrimination. The Court, in this case, had to decide whether the partner was also in an "employment relationship" with his firm.
In assessing whether McCormick was a partner and an employee, the Court reviewed a series of factors: utilization of the individual, exercise of control, burden for remuneration, and whether the remedial purposes of the human rights legislation were engaged in the circumstances. There are, however, two essential aspects of employment: first, the control exercised by an employer over working conditions and remuneration and second, the corresponding dependency on the part of a worker. In other words, who is responsible for deciding working terms and pay, and to what extent does the worker have a say in this? The more a person's work life is controlled, the more dependency they will have on their employer. Key questions to ask include: does the worker receive immediate direction from others? Is the worker immediately affected by the decisions of others? Can the worker influence decisions that affect his or her working life?
The Court was clear, however, that there is no formula or checklist that can be applied to determine someone's work status. The key consideration, though, is the degree of control that is exercised over the worker. Where there is a significant degree of control over the worker, an employment relationship is more likely.
In most partnerships, partners are able to meaningfully participate in the decision-making processes that establish their working conditions and remuneration. It is run for the economic benefit of the partners. It is also often difficult to expel a partner from the partnership. As a result, control over workplace decisions rests with the partners who form the partnership. In many cases, partners are not employees – they are, collectively, the employer.
In McCormick's case, there was a complete absence of genuine control over him by the partnership, and so an employment relationship did not exist. The Supreme Court is clear, however, that it is not impossible for a partner to also be an employee of the firm. It will, however, require the existence of some subservience and control.
While this decision deals specifically with the interpretation of human rights legislation (and whether a partner can be an employee in order to benefit from human rights protection), the case likely has broader application. This decision serves as a clarification of the principles stated in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc. which provides the common law test for employment typically applied in cases of wrongful dismissal. Importantly, the Supreme Court now emphasizes that lawyers and courts should not favour form over substance, but rather we must assess the true extent of dependency and control present in the workplace relationship.
