The Supreme Court of Canada released a decision on May 22, 2014 which is of great interest for lawyers, accountants, financial advisors, and other professionals who operate through partnerships. The decision is also important because it discusses the indicators of an employment relationship (which can be useful, for example, in determining whether someone is an employee or an independent contractor).
John McCormick was an equity partner with the national law firm of Fasken Martineau DuMoulin LLP. The firm’s partnership agreement required equity partners to retire as equity partners in the year in which they turned 65. McCormick decided to challenge the retirement requirement and brought a complaint against the firm under the British Columbia Human Rights Code, alleging discrimination on the basis of age.
The firm applied to the Human Rights Tribunal for dismissal by on the basis that the Code only protects employees from discrimination, and Mr. McCormick, as an equity partner, was not an employee. The application was dismissed by the Tribunal which held that the relationship between McCormick and the firm was an employment relationship under the Code. The firm applied to the BC Supreme Court for judicial review of the Tribunal’s decision but that application was dismissed. The BC Court of Appeal allowed the firm’s appeal and found that McCormick, as an equity partner, was not an employee for the purposes of the Code.
The Supreme Court of Canada dismissed McCormick’s appeal. The Court’s decision boils down to the following points:
- for the purposes of the Code, two main factors should be considered in determining whether a person is an employee: 1) control exercised by the “employer” over working conditions and remuneration, and 2) corresponding dependency by the worker;
- in a partnership, the control over workplace conditions and remuneration lies with the partners, who stand in the place of “employer”; and
- while equity partners will rarely be considered employees, there is no absolute bar; the specific circumstances of each particular case must be considered.
As an equity partner, McCormick had an ownership interest in the firm, shared in its profits and losses, and was able to participate in its management. He was in a relative position of control, rather than dependency, and therefore he was not an employee for the purposes of the Code.
This case has been followed with great interest by professional partnerships across Canada and no doubt many are breathing a sigh of relief as a result of the Court’s decision. While the Court did leave open the possibility that partners in situations “quite different” from McCormick’s could be considered employees, it appears that such cases will be very rare.