Summary
Employers’ use of temporary help agencies (“THAs”) to supplement their workforce is common across Ontario, offering flexibility in staffing, outsourcing of certain administrative burdens, and potentially limiting employment-related liabilities.
However, both THAs and their client employers can face significant legal exposure based on shared, joint, and/or common obligations. Notably, these obligations can have substantial consequences in statutory compliance under the Employment Standards Act, 2000 (the “ESA”), wrongful dismissal claims, and liability for discrimination in the workplace under the Human Rights Code (the “Code”).
This update outlines the legal framework and practical risk areas for employers operating within, or engaging, temporary staffing arrangements.
Statutory Liability Under the ESA
The ESA contains a dedicated regime for THAs, imposing obligations such as:
- Payment of wages and public holiday pay to its employees;
- Providing notice of assignment termination (in certain circumstances); and
- Restrictions on fees charged to employees.
Under the ESA, where a worker and THA agree that the agency would assign or attempt to assign the worker to a client of the agency, the THA is deemed to be the worker’s employer, and the worker is deemed to be an employee of the THA. However, the ESA provides that client employers are jointly and severally liable with THAs for unpaid regular wages, overtime pay, public holiday pay, and premium pay to workers. Where a THA does not pay these amounts to workers, the client employer will be jointly liable for payment of those wages, even if the client employer may have already remitted payment for workers’ wages to the THA. This could result in significant liability for the client employer, particularly if the number of assigned workers from the THA is significant and if the THA ceases operations for any reason (e.g. bankruptcy or other disruption of service).
These risks can be more pronounced where the relationship between a THA and client employer is improperly structured and/or verified. In 2517906 Ontario Inc. v. Ontario Labour Relations Board, 2023 ONSC 4890 (“251”), a THA contracted with a client employer to provide workers. The THA also contracted with a “Secondary Supplier” who represented themselves as the agent for a different THA (“SubTHA”). The THA assigned workers from the SubTHA to the client employer, representing them as the THA’s own workers, to satisfy its contractual obligations with the client employer.
An unpaid wages complaint was filed by workers assigned to the client employer through the THA and SubTHA. At the Ontario Labour Relations Board (the “Labour Board”), the THA argued that it was a “client employer” of SubTHA, and that SubTHA was liable for the workers’ wages as their actual employer. Upon review of the parties’ contractual relationship and the temporary help agency provisions in the ESA, the Labour Board determined that the workers’ proper employer was the THA. The Labour Board held that SubTHA was not a “legitimate enterprise” and that the relationship between the THA and SubTHA was “scant and superficial” such that SubTHA cannot be considered a temporary help agency or employer under the ESA to be liable for payment of wages. The THA was therefore deemed to be the workers’ employer based on, among other factors, its control over the workers and the representation to the client employer that the workers assigned were the THA’s workers. The Labour Board’s decision was upheld by the Ontario Divisional Court.
The same principles from 251 may be applicable to an employer that contracts with an improperly structured or unverified THA and could result in a finding that the employer is the true employer for temporary workers. Employers should therefore verify the legitimacy of purported THAs with which it intends to contract for temporary workers.
Liability for Termination Notice at Common Law
Even though a THA may be the deemed employer for workers under the ESA, workers could nonetheless allege that a client employer is their “true” employer and/or that the client employer and the THA are “common” employers. A client employer found to be a “true” or “common” employer could result in termination notice liabilities at common law if the workers’ assignments/employments are terminated.
True Employer
To determine whether an entity is a worker’s “true” employer, a court will assess the degree of control exercised by the entity over the worker based on numerous factors, including whether the entity hired the worker, pays their wages, assigns duties to the worker, controls the worker’s work schedule, controls the worker’s work location, supervises the worker, and has the power to discipline the worker. Based on these factors, a client employer that exercises significant control over assignment workers could be found as the “true” employer at common law and liable for providing them with notice of termination if the client employer terminates the workers’ engagement. This could result in significant termination liability for a client employer, particularly if the worker had been performing work for the client employer for a lengthy period.
Common Employer
A similar but distinct concept to the “true” employer doctrine is the “common” employer doctrine where multiple legal entities could be jointly found to be an employee’s employer. Similar to the assessment regarding “true” employers, separate legal entities can also be a common employer based on which entity or entities have “effective control” over the employee and whether there was a reasonable expectation that the entities were a party to an employment agreement. If found to be common employers, each legal entity would be jointly liable for providing termination notice to a worker.
Continued Employment with Client Employer
Separate and apart from the risks of “true” or “common” employers, liability arising from the assignment relationship may continue to exist where a client employer chooses to formally hire an employee who previously performed work for the client employer as an assignment worker.
Ontario courts have held that prior service through an agency may be credited where the evidence shows a continuous and uninterrupted working relationship with the same client employer. In these cases, a worker’s assignment through a THA is often treated as an intermediary rather than a meaningful break in service.
This issue often arises in circumstances where:
- The employee performs the same duties before and after being hired directly;
- There is no meaningful interruption between assignments;
- The employer exercised substantial control over the employee during their temporary assignment; and/or
- The employee is integrated into the employer’s business from the outset.
Where these factors are present, a court may conclude that the employee’s “real” employment relationship existed from the start of the assignment, even if initially and formally structured through a THA. Based on the length of service of an employee’s prior service as an assignment worker, their entitlement to termination notice may be significantly greater than an employee who was not previously an assignment worker.
Joint Human Rights Responsibilities
Both THAs and client employers owe a duty to ensure a workplace free from discrimination and harassment under the Code. Under the Code, workers are protected from discrimination in the social area of employment. While this social area often involves one employer and one employee, “employment” under the Code is broad and also applies in workplaces with complex employment relationships between multiple parties.
Notably, the Code specifically prohibits THAs from engaging in discriminatory practices when receiving, classifying, disposing of or otherwise acting upon workers for its temporary staffing services, or in referring a worker or workers to an employer or agent of an employer. Accordingly, THAs will not be insulated from potential human rights exposure even if the discriminatory conduct arose in the client employer’s workplace. THAs must also take steps in ensuring that their own conduct, after receiving a complaint or otherwise becoming aware of potential discrimination, are compliant with the Code.
Client employers are also not insulated from human rights issues arising from workers assigned by THAs. For example, client employers cannot terminate the assignment of a TAW for discriminatory reasons. The Human Rights Tribunal has previously allowed applications to proceed against a client employer on the basis of discrimination in employment even for a worker who was not in a traditional employer-employee relationship with the client employer. This being the case, client employers need to be mindful of potential human rights risks when making decisions regarding TAWs in the workplace.
Takeaways
While THAs can provide significant value and flexibility to employers to vary their workforce based on business needs, they do not fully eliminate the potential liabilities that are inherent in employment relationships with employees. Employers must work diligently to maintain a clear boundary between its operations as well as the management of temporary agency workers. Failure to do so could have significant consequences that could take an employer by surprise if they believed that they were insulated by a THA.
Need More Information?
For more information or assistance with managing an employer’s relationship with THAs (or vice versa), contact Clifton Yiu at cyiu@filionlaw.com or your regular lawyer at the firm.