09 Feb The UFC’s Underlying Employment Relationship Issue

A recent tweet from social-media-personality-turned-professional-boxer Jake Paul has reignited discussions surrounding employment status in the Ultimate Fighting Championship. Paul’s tweet, directed to UFC President Dana White, targeted White and the UFC for underpaying athletes and binding fighters to restrictive contracts. These covenants limit fighters’ rights. Similar concerns were recently echoed by current UFC heavyweight title-holder Francis Ngannou, whose plans to transition into professional boxing have been halted by his current contract. Ngannou likened the restrictive and “one-sided” nature of UFC contracts to that of being held in “captivity”.

The criticisms from Paul and Ngannou underline a legitimate employment law issue in the UFC: the misclassification of its fighters as ‘independent contractors’.

The UFC’s improper treatment of its fighters is a legal issue not uncommon in the practice of employment law. Before examining this specific issue further, it is important to understand the difference between the various employment relationships, and the implications misclassification may have on an employer’s liability.

Employment relationships – employees and independent contractors

What is the difference between an employee and an independent contractor? Businesses use a blend of workers and hire for either fixed or indefinite terms. Employees enjoy, amongst other things, stability and statutory benefits as members of a company. Independent contractors, on the other hand, are retained to provide services for specific projects without becoming employees of a company.

There are practical differences between an independent contractor and an employee, yet there is no universal test to determine whether a worker is one or the other. Instead, the question to consider is whether the person performing the services is doing so as a person in business for themselves. The following non-exhaustive list of factors should be applied as part of the determination:

·      the intent of the working arrangement – was the agreement a contract of services (employer-employee relationship) or a contract for services (business relationship);

·      whether the worker provides their own tools and equipment;

·      the employer’s level of control over the worker’s activities;

·      the worker’s degree of financial risk;

·      the worker’s degree of responsibility for investment and management; and

·      the worker’s opportunity for profit.

As illustrated in the Supreme Court case of 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., there is no set formula to applying these factors or to give relative weight to each. Further, the parties’ actual conduct and relationships and the contractual descriptions are factors contributing to this determination.

The courts have also recognized a third class of worker that does not fit into either category of employee or independent contractor. The dependent contractor is a worker that is not an employee but is considered to be economically dependent on the company or person they work for. The test for determining if one is a dependent contractor includes the duration and closeness of the business relationship, as well as the contractor’s economic dependency on the company.

Potential liability for employers

In Ontario, the law holds that a potential misclassification as an independent contractor can generate considerable liability for employers. For instance, a newly classified employee can make retroactive claims against the company for payment, including vacation pay, public holiday pay, overtime pay, as well as termination or severance pay. Further, the company may also be liable to backpay unpaid Canadian Pension Plan or Employment Insurance contributions to the government because of a worker misclassification.

UFC unfairly restricting its fighters

The UFC functions in a manner similar to other major sports leagues (and often worse): the company dictates the pay scale for the fighters, controls event scheduling, disciplines fighters, enforces rules and regulations, and has the right to unilaterally terminate fighters’ contracts without cause. The restrictive measures in the UFC are reflective of an employer-employee relationship (and arguably, even more restrictive). This is not how the UFC has represented its employment relationship with its fighters. As independent contractors, the UFC is granted the ability to limit the fighters’ benefits, such as health insurance, retirement benefits, workers’ compensation, workplace protections, and the fighters’ ability to unionize. This is especially concerning given the violent nature of the sport, and the growing concern for the long-term health of contact and combat sport athletes. Further, the contracts with fighters are remarkably one-sided, and are alleged to include restrictive language such as exclusivity provisions involving termination and extension that only the company has authority to trigger. Such drafting has the effect of handcuffing fighters like Ngannou from pursuing opportunities in other combat sports associations.

The misclassification of UFC fighters will only gain more traction as combat sports’ biggest stars, such as Paul and Ngannou, continue to illuminate and fight the company’s overbearing control.

Takeaway

This article provides a brief overview of the various employment relationships and uses a real-life example in the UFC to illustrate the potential peril in misclassifying workplace relationships.

If your business is dealing with a staffing decision, employment contract drafting, or is facing a potential misclassification situation, our experienced team of workplace advisors at Guardian Legal Consultants LLP can help. Please contact Jesse Mack at [email protected] or (647) 948 – 7693 for practical advice and to guide you through your staffing and contract needs.