Distinguishing Employment Status: Employee, Independent Contractor or Dependent Contractor?

A recent Ontario case set out the relevant criteria in determining a worker’s employment status in a wrongful dismissal case. While the worker claimed 23 years of employment, the employer argued that she had spent the first 10 years as an independent contractor and was only an employee for 13 years.

What Happened?

The employee was dismissed without cause and claimed over $136,000 in damages for wrongful dismissal. The claim was based on an almost 23-year workplace relationship and she submitted that she was entitled to 24 months of pay and benefits in lieu of reasonable notice.

The employer argued that she was not entitled to any damages for wrongful dismissal. It submitted that she had not been an employee for 23 years. It stated that she had worked as an independent contractor for the first 10 years and that she had only been an employee for 13 years. The employer relied on the termination clauses in the employee’s employment contracts as rebuttals to the common law presumption that she was entitled to pay in lieu of notice. In the alternative, the employer submitted that if she was entitled to pay in lieu of reasonable notice, the appropriate notice period should be 12 months, not 24 months.

Determining Employment Status

The court began by setting out the three types or classes of workplace relationships:

(1) employer-employee (master-servant);

(2) contractor-independent contractor, and

(3) contractor-dependent contractor, which is an intermediate classification where the relationship of master and servant does not exist but where an agreement to terminate the arrangement upon reasonable notice may be implied.

The court stated that the first step in the analysis must be to determine whether or not the worker is an employee or a contractor in accordance with the established methodology and criteria for differentiating an employee from an independent contractor. While there is no specific formula for making this determination, the court should consider:

(a) the intentions of the parties;

(b) how the parties themselves regarded the relationships;

(c) the behaviour of the parties toward each other; and

(d) the manner of conducting their business with one another.

Additional considerations include control of the work, ownership of tools, chance of profit, and risk of loss.

After it has been determined that the worker is a contractor, the court may use a variety of factors to differentiate dependent and independent contractors including:

(1) the extent to which the worker was economically dependent on the particular working relationship;

(2) the permanency of the working relationship;

(3) the exclusivity or high level of exclusivity of the worker’s relationship with the enterprise.

The Decision

After reviewing all the relevant factors to the case, the court concluded:

“While as the above account of the facts reveals, there are some indicia of a genuine independent contractor relationship, the issuance of invoices being one such indicia, and while it is arguable that during the very early years of the relationship there was more independence, nevertheless, within two years, if not earlier, [the employee] was a dependent contractor. She worked exclusively for [the employer] and, practically speaking, it was her boss. In the immediate case, having regard to the nature of her work as a Wardrobe Stylist the indicia of independence or dependency such as tools and control are not very helpful in defining the relationship, and it appears that not much changed in how she carried on work before or after June 3, 2004, when she changed from a Freelance Wardrobe Stylist to a Wardrobe Stylist under an employment contract. In other words, there is little to distinguish between her years as a dependent contractor and her years as an employee. What stands out is that [the employee] had a twenty-three [year] solid workplace relationship with [the employer].”

In essence, the court found that the employee had been a dependent contractor for the period prior to becoming an employee and was therefore entitled to severance based on 23 years of working for the employer, not just the 13 years she worked as an employee. Additionally, the court stated that it would have given the employee the same amount of severance had it found that she had worked as an independent contractor for the first 10 years.

As a result, the court awarded the employee over $112,000 in damages based on a reasonable notice period of twenty-one months.

Get Advice

If you have questions about unfair practices in the workplace, wrongful dismissal, or any other employment matter, contact the Mississauga employment lawyers at Campbell Bader LLP. We regularly advise both employers and employees on a wide range of issues that arise at work. Contact us online or by phone at 905 828 2247 to schedule a consultation.