The Legal Implications of Employment Status

Published March 13, 1995

In the last issue of Coaches Report, the Business Bulletin column carried an item by Ian Hendry about the implications of self-employment for coaches. Many coaches are in fact self-employed and should be aware not only of the financial implications but also the important legal implications arising from their employment status.

Being self-employed as an independent contractor may present coaches with significant tax advantages. However, along with these advantages come greater legal obligations - including legal responsibility for the consequences of one's own actions. Coaches who are independent contractors may be held personally liable if their conduct fails to meet the legal standard of care required by the law, and leads to a serious injury to an athlete or other person. And even if the coach's conduct has met the legal standard required by law under the circumstances (that is, the coach's behaviour has not been negligent), this may have to be proved through the legal process at considerable expense to the individual coach. In other words, the coach who is an independent contractor may be required to pay legal expenses as well as any amount of damages that might be awarded by a court should his or her defence be unsuccessful.

On the other hand, if the coach is an employee as defined by the various tests used by Revenue Canada and the courts and explained by Hendry, and if the coach is acting within the scope of his or her duties, personal liability may not be an issue, even though the coach's actions might have been negligent. A common defence against a claim of negligence is the legal principle of vicarious liability. This principle recognizes that one party can assume responsibility for the actions of another party through a special relationship. Through this principle, an employer becomes liable for the negligence of its employee/coach and the employer's liability insurance would cover the coach's legal costs as well as any damages awarded. In a similar fashion, a sport organization becomes liable for the negligent actions of its volunteers - providing that the volunteer is acting within the scope of his or her duties.

In some ways, then, a coach may trade off financial benefits for legal considerations when deciding between employee and independent contractor status. Keep in mind, however, that the line between the two is not always clear. Simply having a written agreement which purports to be a contractor's agreement may not be sufficient to establish that a coach is, in fact, an independent contractor. That is why the various tests as set out by Hendry - extent of control over the activities of the contractor, ownership of tools and equipment, extent to which the contractor's services are an integral part of the organization, whether the contractor takes financial risks - are used. The purpose of these tests is to determine the true nature of the relationship, regardless of how the coach might be described in a contract, what his or her position is called, or what specific clauses in the contract might actually say.

One sport organization learned the difference between an employee and a contractor the hard way. The Moose Jaw Kinsmen Flying Fins were a small swimming club which contracted a head coach for an annual stipend of $12,000. Bot the club and the coach believed that the relationship was one of an independent contractor and as such no taxes, UIC or Canada Pension Plan (CPP) were withheld at source. After a falling out among some directors of the club, Revenue Canada was told of the "tax-free" stipend. It was the view of Revenue Canada that the coach had, in fact, been an employee and not a contractor. This view was based on the club's ownership of tools (in this case, whistles and stopwatches), the absence of a chance of profit or risk of loss, and the extent to which the club controlled the coach's activities. The club failed in its appeal and in the end the individual directors of the club had to pay the arrears out of their own pockets (Moose Jaw Kinsmen Flying Fins Inc. v. Minister of National Revenue [1988], 88 D.T.C. 6099). The reported decision does not make it clear to what extent the coach ultimately became responsible for back payment of taxes and CPP benefits.

While this case did not involve a serious injury or liability suit, it nonetheless illustrates the subtleties between employee and contractor status, and the personal costs and risks of not knowing the difference. It takes more than simply the term "independent contractor" and a written "contractor's agreement" to make someone a true independent contractor in the eyes of the law.

A clear understanding of the coach's relationship with his or her sport organization is necessary for risk management reasons. The coach who is an independent contractor must practice is or her own risk management, which may include such measures as being properly trained and qualified for the position, developing a detailed and accurate job description, negotiating some insurance protection by perhaps being named as an "additional insured" on the organization's liability insurance policy, or purchasing a private insurance policy.

This column has touched on only a few of the legal issues arising from self-employment. In addition to losing out on employment benefits such as UIC, pension and supplementary medical insurance, the independent contractor may also forego Workers' Compensation Board coverage, and may be in a precarious position if he or she is injured "on the job" and is unable to continue coaching. Independent contractors, particularly those with dependants, should consider private disability insurance to guard against such a situation. Independent contractors should also ensure that they have liability insurance coverage, whether through their own policy or through the policy of the organization which hires them.

In any event, the coach who is considering self-employment might wish to consult with a professional about the personal risks and recommended risk management measures. Likewise, the coach who is an employee might wish to re-examine the scope of his or her employment contract, as well as the benefits and insurance coverages to which he or she is entitled.

Originally published: Coaches Report (1995) Vol. 1(4)