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Partnerships - Partnership versus Employment

. McCormick v. Fasken Martineau DuMoulin LLP

In McCormick v. Fasken Martineau DuMoulin LLP (SCC, 2014) the Supreme Court of Canada considered whether a partner in a law firm was in an employment relationship with them. The context of the case was whether the law firm had committed age discrimination in violation of BC's human rights legislation (which applies to people within employment relationships) but the case is mostly useful for it's review of the basic defining factors of both the employment relationship and the partnership relationship. Caution should be exercised when applying these principles outside of the human rights context, as the court's interpretation is consciously coloured by the interpretive principles that apply in human rights law:
[25] Placing the emphasis on control and dependency in determining whether there is an employment relationship is consistent with approaches taken to the definition of employment in the context of protective legislation both in Canada and internationally: Davidov, at pp. 365-71. The Ontario Labour Relations Board, for example, uses a seven-factor test for determining if an employment relationship exists, based on indicia that relate mainly to control and economic dependency. Among other criteria, the Board asks whether the alleged employer exercises direction and control over the performance of work; imposes discipline; has the authority to dismiss employees; bears the burden of remuneration; and is perceived to be the employer (York Condominium Corp., [1977] OLRB Rep. 645; Adams, at p. 6-36). That said, while significant underlying similarities may exist across different statutory schemes dealing with employment, it must always be assessed in the context of the particular scheme being scrutinized.

[26] While the specific indicia used in other jurisdictions may vary from those adopted by Canadian authorities, the consistent animating themes are control and dependency. For example, in Clackamas Gastroenterology Associates, P. C. v. Wells, 538 U.S. 440 (2003), a case that required the U.S. Supreme Court to define who is an employee under the Americans with Disabilities Act of 1990 (104 Stat. 327, as amended, 42 U.S.C. § 12101 et seq.), the court relied on the following control/dependency factors:
“Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work

“Whether and, if so, to what extent the organization supervises the individual’s work

“Whether the individual reports to someone higher in the organization

“Whether and, if so, to what extent the individual is able to influence the organization

“Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts

“Whether the individual shares in the profits, losses, and liabilities of the organization”. EEOC Compliance Manual § 605: 0009. [pp. 449-50]
[27] Control and dependency, in other words, are a function not only of whether the worker receives immediate direction from, or is affected by the decisions of others, but also whether he or she has the ability to influence decisions that critically affect his or her working life. The answers to these questions represent the compass for determining the true nature of the relationship.

[28] While control and dependency define the essence of an employment relationship for purposes of human rights legislation, this does not mean that other indicia that courts and tribunals have developed, such as the Crane factors, are unhelpful in assessing the extent to which control and dependency are present. But such factors are unweighted taxonomies, a checklist that helps explore different aspects of the relationship. While helpful in framing the inquiry, they should not be applied formulaically. What is more defining than any particular facts or factors is the extent to which they illuminate the essential character of the relationship and the underlying control and dependency. Ultimately, the key is the degree of control, that is, the extent to which the worker is subject and subordinate to someone else’s decision-making over working conditions and remuneration: Geoffrey England, Individual Employment Law (2nd ed. 2008), at p. 19.

[29] This brings us to partnerships generally. British Columbia’s Partnership Act is modeled on the U.K. Partnership Act 1890[14] (Alison R. Manzer, A Practical Guide to Canadian Partnership Law (loose-leaf), at p. 1-2). Section 1 states that “‘firm’ is the collective term for persons who have entered into partnership with one another”. Section 2 defines a partnership as “the relation which subsists between persons carrying on business in common with a view of profit”. Accordingly, a partnership is by its nature an entrepreneurial relationship among individuals agreeing to do business together.

[30] The conventional view of a partnership was famously described in Lindley & Banks on Partnership (19th ed., 2010) as a collection of partners, rather than a distinct legal entity separate from the parties who are its members:
The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. [para. 3-04]

(Cited with approval in Backman v. Canada, 2001 SCC 10 (CanLII), [2001] 1 S.C.R. 367, at para 41. See also Boyd v. Attorney-General for British Columbia 1917 CanLII 29 (SCC), (1917), 54 S.C.R. 532; Green v. Harnum 2007 NLCA 57 (CanLII), (2007), 269 Nfld. & P.E.I.R. 97 (N.L.C.A.); Blue Line Hockey Acquisition Co. v. Orca Bay Hockey Ltd. Partnership 2008 BCSC 27 (CanLII), (2008), 40 B.L.R. (4th) 83 (B.C.S.C.), at paras. 79-89, aff’d by 2009 BCCA 34 (CanLII), (2009), 52 B.L.R. (4th) 108 (B.C.C.A.); Re Davies and Council of the Institute of Chartered Accountants of Saskatchewan reflex, (1985), 19 D.L.R. (4th) 447 (Sask. Q.B.), at pp. 451-53; Coal Harbour Properties Partnership v. Liu 2004 BCCA 283 (CanLII), (2004), 48 B.L.R. (3d) 237 (B.C.C.A.), at para. 10.)
[31] Among the distinctive features of a partnership is that partners generally have a right to participate meaningfully in the decision-making process that determines their workplace conditions and remuneration (J. Anthony VanDuzer, The Law of Partnerships and Corporations (3rd ed. 2009), at p. 75; Partnership Act, s. 27(e)). This is reflected in, for example, the duty to render accounts to other partners in order to permit them to have the information they need to participate in workplace decisions and ensure that their interests are adequately considered. This duty is set out in s. 31 of the Partnership Act:
31 Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his or her legal representatives.

[44] I appreciate that the Tribunal sought, through the application of the Crane factors, to assess Mr. McCormick’s relationship with his firm, but in so doing, it paid insufficient attention to whether he was actually subject to the control of others and dependent on them. It assessed “control”, for example, in terms of some administrative restrictions on partners rather than examining the underlying power dynamics of the relationship. And it found that Mr. McCormick was “utilized” and “remunerated” by Fasken, while disregarding the fact that the firm was run for the benefit of, and by, its equity partners, including Mr. McCormick.

[45] In the absence of any genuine control over Mr. McCormick in the significant decisions affecting the workplace, there cannot, under the Code, be said to be an employment relationship with the partnership. Far from being subject to the control of Fasken, Mr. McCormick was among the partners who controlled it from 1979, when he became an equity partner, until he left in 2012. The Tribunal therefore erred in concluding that it had jurisdiction over his relationship with the partnership.


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Last modified: 30-11-22
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