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The Legal Concept of Employment: Marginalizing Workers

Employment is a legal concept that is crucial for determining the legal protection, social recognition, and economic security associated with different forms of work. As a legal category employment is highly selective; unless paid work fits into the narrow aperture of employment it is virtually unregulated. According to a prominent legal text on the contemporary contract of employment in Canada, the test for employee fixes the boundary between “the economic zone in which business entrepreneurs are expected to compete” and the “economic zone in which workers will be afforded the relatively substantial protections of the labour standards ... and of the common law” (England, Christie, and Christie 1998, 2-1). Workers seeking reasonable notice, minimum wages, the right to refuse unsafe work, statutory holidays, or maternity leave must establish to the satisfaction of an adjudicator that they are employees in order to enjoy these legal rights. Employee status is also a prerequisite, in the overwhelming majority of cases, for the application of collective bargaining legislation. Moreover, it is crucial for a range of other benefits in our society from employment insurance to pensions. And owing to our system of payroll taxes and withholding income tax at source, employment is also a huge source of revenue for the state.

This report focuses on how the law distinguishes between employment and self-employment, especially self-employment of the own-account variety, that is, where the self-employed person does not employ other employees (Economic Council of Canada 1990). This focus has been selected for a number of reasons. First, the legal distinction between employment and self-employment allows us to identify and evaluate the basis for limiting labour protection to only certain forms of paid work. This question is particularly important in light of the commitment that the International Labour Organization (ILO) made in its 1998 Declaration on Fundamental Principals and Rights at Work to the equality of treatment of different forms of work (ILO 1998a). The goal of providing opportunities for women and men to obtain decent and productive work in conditions of freedom, equity, security, and human dignity is truly momentous, for as Amartya Sen (2000, 119) remarked, it applies to all workers, not just workers in the organized sector or wage employment, but also to homeworkers and the self-employed. From a normative perspective the policy challenge is to extend effective legal and social protection to self-employed workers (ILO 2000a, b; 2002).

Second, the remarkable growth of self-employment since the early 1980s calls into question models of how capitalist labour markets operate, theories about entrepreneurship, understandings about the nature of self-employment, official measures of self-employment, and the adequacy of the legal tests of employment status for determining the personal scope of labour protection and social benefits. While self-employment is seen as an important source of growth of entrepreneurship, bringing with it the potential for longer term employment growth, in 2000 the Organization for Economic Co-operation and Development (OECD) also identified a number of concerns associated with its growth – concerns about the working conditions, training, security, and income of the self-employed, as well as self employment as a form of disguised employment (OECD 2000). The changing nature of self-employment as well as the diversity of the people who make up the self-employed and the nature of their employment poses a number of challenges for public policy.

The report employs a multi-disciplinary approach to analyze the distinction between employment and self-employment. Its focus is on how the law uses employment status to determine the personal scope of labour protection and social benefits. The rationale for distinguishing between employment and self-employment will be examined in the first part, which canvasses the sociological, legal, and statistical bases for the distinction. The second part provides a portrait of the self-employed in Canada drawing upon available statistical data. It begins by situating the Canadian context in larger international trends, following with a detailed examination of the demographic features of self-employed workers in Canada combined with an exploration of different dimensions of their paid work. This portrait will be used as a basis for assessing whether or not there are good legal, social, or economic reasons for continuing to distinguish between employment and own-account self-employment in a range of legal contexts.

Following the statistical analysis, the report turns to how the law distinguishes employment (the contract of service), on the one hand, from independent contracting (a contract for services), on the other. Part Three critically evaluates the conventional narrative that assumes the salience of the distinction between employment and self-employment and views the emergence of the contract of employment and employment and labour regulation as a shift from status to contract and back to status. Building upon a revised account of the history of the legal concept of employment in common law jurisdictions, Part Four provides an overview of the different legal definitions that are used today in Canada in various employment- and labour-regulatory regimes as well as for social wage and revenue purposes. The report concludes by proposing a range of law reform solutions to the problem of determining the personal scope of employment and labour law protection and social benefits.

While our focus is on how the law distinguishes between employment and other forms of work, the provenance of the legal definition of employee and its contemporary application are influenced by specific understandings of the role and nature of self-employment. For this reason it is crucial to examine the conceptual, historical, and statistical dimensions of self-employment. Legal definitions and normative aspirations operate on the basis of social understandings of familiar terms that refer to social categories, which have economic, legal, moral, and ideological significance. This report takes the law seriously, probing the origins of the legal concept of employment and examining its contemporary definition and application in a range of different legal contexts. But it also attempts to reveal how legal conceptions of employment are influenced by social understandings of the meaning of self-employment.