Discuss why it is significant to find that an employment relationship exists and how such a relationship is determined.

Aside from the obvious points that taxes have to be withheld and employment insurance premiums and workers' compensation assessments paid, the main thrust of this question relates to vicarious liability. Students should demonstrate an understanding of how vicarious liability works. That is, they should show that when an employee commits a tort in the course of the employment (while doing what he was employed to do as opposed to simply during working hours), then the victim can seek compensation from both the employee who committed the tort and also the employer. In most situations, it is not difficult to tell if the person committing the tort is an employee, but employers often try to insulate themselves from this kind of liability by making the employee look like an independent agent (usually paid on commission or by the job).
An important aspect of this question is distinguishing between employees and independent contractors. Students should talk about the control test, where the court will look at the degree of control exercised by the "employer" over the "employee." If it is sufficient, and the employer can tell the employee not only what to do but how to do it, then an employment relationship exists. If there is little control, students should then look at the organization test. This has been developed recently and will hold a person to be an employee where they are an integral part of the employer's organization and work for no one else at the same time. Note as well that in determining whether a person is an employee or not for a particular statute such as income tax or employment insurance, you have to check with the governing statute itself to see if a definition of employment is included.