An Ontario court has certified a class action against an insurance brokerage alleging that reps are improperly classified as independent contractors when they should be considered employees — a claim that may hurt reps more than it helps them.
The Ontario Superior Court of Justice certified the class action against a trio of related firms — FSB Group Ltd., FSB Insurance Ltd. and FSB Commercial Ltd. — brought by Surendraraj Navartnarajah. The plaintiff argued that reps should be treated as employees and entitled to a minimum wage, vacation pay, overtime and other employment standards.
The claim that reps should be classified as employees is incorrect, the firm argued, and the independent contractor arrangement actually benefits the reps financially. According to the decision, the firm said the claim is “driven by a few putative class members to the detriment of the many.”
The plaintiff in the case signed on to the firm as both an employee (a part-time sales co-ordinator) and an independent contractor, amid concerns that he wouldn’t be able to earn enough income working solely on commission as a contractor.
“He therefore held a uniquely hybrid position which, in effect, graphically illustrates the different status of a producer from the defendants’ other employees,” the court noted.
However, whether it is wise to sue for employee status, rather than maintaining independent contractor status, remains to be seen, the court suggested.
“If the plaintiff wins his case and he and the entire class of producers are found to have been employees all along and thus are entitled to vacation pay and overtime pay, they may also be liable for back taxes. After all, independent contractors enjoy a variety of business deductions and other tax advantages that employees do not enjoy,” the court said.
Additionally, they could lose the ownership of their books of business as a result of being classified as employees, the court suggested.
“I do not put these issues forward in order to pre-judge whether defendants’ counsel is right or wrong in making these arguments, but I do point out that there is a risk that the producers may get more than they ask for and may not like it,” the court said. “What defendants’ counsel’s argument suggests is that at some point, the majority of class members may find that their financial interest was hijacked by the claim rather than advanced by the claim.”
The court determined that a class action is the preferred way to resolve the issues.
“[W]hile defendants’ counsel makes a cogent point about financial risk, it is not really a point about the preferability or not of a class proceeding. It is more of a point about the wisdom of bringing this claim at all,” the court noted.
“If this case ultimately prompts the revenue authorities to revisit the producers’ situation, or someone to challenge the transferability of the producers’ book of business, it will do so whether it goes forward on an individual or a class basis,” it said.