In Lika Contracting and Services Ltd. v Roldan, 2025 ABESAB 14, the Alberta Employment Standards Appeal Body clarified important principles regarding employee classification, the definition of construction employees under the Employment Standards Code, and whether employers can deduct retroactive tax obligations from employment standards awards.
The decision serves as a reminder to employers about the importance of properly classifying workers and maintaining accurate employment records, particularly regarding hours of work.
Facts
The key facts are as follows:
- Diego Roldan worked for Lika Contracting and Services Ltd. as a driver from May 9, 2023 until November 13, 2023, delivering people and construction materials and collecting garbage from worksites.
- The employer paid the worker $25.00 per hour in cash without deducting taxes or statutory remittances until August 1, 2023, when he was added to the payroll.
- In November 2023, the worker travelled to Toronto for six days to attend to an immigration matter. Upon his return, the employer terminated his employment for cause, alleging he had been absent without notification and had been overcharging for hours worked.
- The worker filed an employment standards complaint. An Officer investigated and issued an Order requiring the employer to pay overtime, vacation, and general holiday pay. The Officer found the worker was not entitled to termination pay because he was a construction employee under section 5 of the Employment Standards Regulation.
- The employer appealed, arguing the worker was an independent contractor until August 1, 2023, and that any amounts owing should be reduced by taxes and statutory remittances the employer would now owe to the Canada Revenue Agency.
- The worker also challenged the Order, arguing he was terminated without just cause and was entitled to termination pay.
Analysis / Conclusion
Employee or independent contractor?
The Appeal Body applied the test from Sagaz Industries Canada Inc., 2001 SCC 59, which asks whether the worker is performing services as a person in business on his own account to determine employment status. The Appeal Body considered factors including control, provision of equipment, hiring of helpers, financial risk, and opportunity for profit.
The Appeal Body found the worker was an employee throughout his entire period of employment. The evidence showed that the employer’s supervisor directed what work the worker performed, where, and when. The employer provided the truck and paid for fuel. The worker did not hire his own helpers, take on financial risk, or have any stake in the business’s success or failure. Importantly, these arrangements did not change after August 1, 2023, when the employer formally added him to payroll.
The Appeal Body rejected the employer’s argument that the absence of tax deductions was determinative, noting that paying someone without source deductions does not preclude an employment relationship.
Section 5 and 44 of the Regulation
Under Section 5 (a) (i) of the Alberta Employment Standards Regulation, termination notice is not required for employees “employed at the site of and in the construction, erection, repair, remodeling, alteration, painting, interior decoration or demolition” of any building or structure. Section 44 of the Regulation uses identical language to define “construction employee” for purposes of vacation and holiday pay calculations.
This determination mattered for two reasons: first, whether the worker was entitled to termination pay, and second, how to calculate his vacation and general holiday pay entitlements.
The Appeal Body emphasized that the Code’s fundamental purpose is to protect employees by establishing minimum standards, and that ambiguities should be resolved in favour of employees. The Appeal Body also noted that previous decisions have held that simply delivering materials to a construction site does not make someone a construction employee. To meet the definition, an employee must be present on the site and engaged in the listed construction activities. The analysis focus on the nature of the employee’s employment, as opposed to the nature of the employer’s business.
Here, the evidence showed the worker’s job was to drive, deliver materials to worksites, and collect garbage. He was not engaged in construction work at those sites. Accordingly, the Appeal Body found he was not a construction employee and was therefore entitled to termination pay if his dismissal was not for just cause.
Did the employer have just cause for termination?
The employer asserted that the worker’s six-day absence without permission justified immediate dismissal. The worker testified that he had spoken with his supervisor about taking time off to Travel to Toronto for immigration matters (which was approved), explaining that he would not have booked his airplane ticket without permission. Notably, one witness testified that the worker had been absent without permission, but that his supervisor was the person who dealt directly with staff. The supervisor did not testify before the Appeal Body.
Faced with competing version of events, the Appeal Body applied the test set out by the British Columbia Court of Appeal in Faryna v. Chorny, 1951 CanLII 252, holding that to assess the truth of a story of a witness should focus on whether the evidence provides harmony with the preponderance of probabilities, which a practical and informed person would readily recognize as reasonable.
The Appeal Body found that the employee’s version of events better accorded with the “preponderance of probabilities.” It emphasized the failure on the employer to call the supervisor as a witness, the lack of evidence forwarded as to the impact the absence had on the employer’s business, and the lack of any written warning or policies regarding absences/absenteeism. Accordingly, the employer did not meet its burden to prove just cause.
Amounts Owing and Tax Obligations
The Appeal Body accepted the worker’s records of hours worked. Under section 14(1) of the Code, employers must keep up-to-date records of regular and overtime hours for each employee. Where an employer fails to keep such records, appeal bodies have little choice but to accept the hours claimed by the employee.
The employer argued that because it had not deducted income tax and statutory remittances during the period from May 9, 2023 to August 1, 2023, it would now owe those amounts to the CRA. The employer requested that the Appeal Body set off those amounts against what it owed the worker.
The Appeal Body rejected this argument. Section 107(2) of the Code states that an appeal body’s decision may take into account deductions authorized or permitted under the Code, but “must not take into account a claim, counterclaim or set-off by an employer against an employee.”
The Appeal Body found that section 12(2)(a) of the Code permits an employer to deduct sums required or permitted to be deducted by legislation, but this provision does not authorize retroactive deductions from an employee’s wages after employment has ended. Further, the worker had already obtained a ruling from the CRA regarding his employment status and that the CRA would address any tax obligations directly with the worker.
My Take
This decision reinforces several important lessons for Alberta employers:
- The factors from Sagaz focus on the substance of the relationship, not its form. Calling someone a contractor and failing to deduct taxes does not make them a contractor if the employer controls their work, provides their tools, and they have no entrepreneurial risk or opportunity for profit.
- The construction employee exemption is narrow, and focuses on the employee’s responsibilities and character of employment, not the employer’s business. Simply working for a construction company does not immediately absolve an employer of its statutory obligations under the Code.
- Employer’s must maintain adequate records of hours worked under section 14(1) of the Code. Here, the employer’s failure to maintain records of hours worked under section 14(1) of the Code meant the Appeal Body had little choice but to accept the worker’s records, resulting in liability for overtime pay.
- Tax obligations cannot be set off. Employers cannot reduce employment standards awards by claiming they owe taxes to the CRA due to misclassifying workers. This is a matter to be resolved between the worker and the CRA. The prohibition on set-offs in section 107(2) of the Code prevents employers from using tax obligations as a defence to paying amounts owing under employment standards legislation.
Bow River Law provides these regular legal blog articles for the purposes of legal education and research for the public and the legal profession. These articles should be considered general information and not legal advice. If you have a legal problem, you should speak to a lawyer directly.
Michael Hernandez is an employment lawyer at Bow River Law. He is a knowledgeable and skilled lawyer, handling employment law, human rights (discrimination) and labour law matters. Bow River Law is based in Calgary but we are Alberta’s Workforce Lawyers.
