This Brief attempts to highlight the criteria used to determine whether or not a worker co-op has an employer-employee relationship or is classed as a group of independent contractors.
Purpose of This Document
1. The purpose of this Brief is to outline the nature of worker co-operatives and the method for determining whether or not a given worker co-operative embodies an employer/employee relationship between the co-operative and its members.
Definition of a Worker Co-operative
2. A worker co-operative does not have a legal definition in most jurisdictions.
In terms of a functional definition, a worker co-operative is a business functioning as a co-operative which is owned and controlled by its worker-members. In other words, a worker co-operative is a worker-owned business which is governed on the basis of the internationally recognized, democratic principles of co-operatives.
3. The Canadian Worker Co-operative Federation (CWCF) classifies as
a "worker co-operative" any business functioning as a worker co-operative, inclusive of various corporate forms and organizational structures. These corporate forms include co-operatives, business corporations, and non-profit societies so long as the worker-members control the organization, and their bylaws require one member-one vote. In other words, the vote must be based upon membership, not based upon the number of common shares or other equity.
Is There an Employer/Employee Relationship in All Worker Co-operatives?
4. No. In some worker co-operatives, there is a relationship of employer to employees as between the co-op and its members, whereas in others the members are independent contractors. A typical example of the former would be a retail
store, whereas an example of the latter might be a group of consultants working under a common umbrella for a business presence, ready collaboration and administrative services, who have incorporated a co-operative. It should be noted
that the distinctive feature here is not necessarily the type of business, but rather its organizational structure. Clearly, a consulting company could be organized such that there is an employer/employee relationship.
5. Since each of these types of organizations can and often do speak of themselves as a worker co-op, one cannot give a single and simple definition of a worker co-op. It is clear that each organization calling itself a worker co-op must be assessed independently to determine whether there is a contract of service, i.e., employer/ employee relationship, or a contract for services, i.e., an independent contractor situation. Since the application of the determining criteria is more an art than a science, many disputes and misunderstandings have arisen between worker co-operatives and Revenue Canada as to the appropriate classification of a co-operative or even a given worker. Although no single information sheet can prevent such disagreements from arising, it is hoped that this Brief may prevent some misunderstandings by providing a diagnostic tool for all parties concerned, assisting both worker co-operatives as they develop, and Revenue Canada in its categorization of worker co-operatives.
... Continued in Attachment