In any discussion of the legal arrangements between a company and a salesperson, it is important to determine whether or not the individual is an employee or an agent. Within some instances salespeople may regard themselves as agents when in fact they are employees; occasionally the reverse situation occurs. It is important to distinguish your status as failure to do so can have a profound impact on your tax situation and on whether you can deduct source deductions.
In general the courts had established specific tests to distinguish between an independent contractor and an employee. Generally the relationship of employer-employee exists when an employer not only prescribes to the employee the end purpose of the employee's work, but also directs the means of attaining the work, and/or retains the power of controlling the employee's work and the employee's manner of doing it. The method of payment does not of itself necessarily determine whether a representative is an employee or an agent: employees as well as agents can be paid on the basis of incentive pay or commission.
Sales agents frequently say that they represent anywhere up to a half-dozen lines, work out of their homes and are paid on commission, and that they are therefore commissioned sales agents, not employees. In many cases, this can be true, but simply to recite these facts does not establish an agency relationship. If the sales representative fits within the company's "organization", he or she may be deemed an employee.
In a recent Supreme Court ruling*, Justice Major speaking for the majority of the court shed further light this matter:
“there is no one conclusive test which can be universally applied to determine whether a person is an employee or independent contractor…, other factors to consider include whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management of the worker, and the worker’s opportunity for profit in the performance of his or her tasks.”
So what does this mean? This recent Supreme Court ruling will have a significant impact on independent sales agents and underscore the need for a written contract. A written contract not only makes good business sense but it outlines your arm’s length, contractual relationship with a principal and assist the courts in upholding your relationship as an independent contractor.
For more information on determining your status, you can visit the Canada Customs and Revenue Agency (CCRA) website and download the publication titled Employee or Self-employed at http://www.cra-arc.gc.ca/E/pub/tg/rc4110/
*(671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59)
© Canadian Professional Sales Association.