Classification of Workplace Relationship – Treading on Thin Ice?

Basic Facts of the Case

In Fisher, Deborah Fisher (the “Plaintiff”) and Mr. Hirtz, on behalf of Group Five (the “Defendant”) entered into a verbal agreement in April 2014 whereby the Plaintiff agreed to provide painting and labour services. In August 2016 there was a workplace incident and the Defendant ended its relationship with the Plaintiff. During the time of the engagement, the Plaintiff had worked exclusively for the Defendant. The Plaintiff did not receive benefits and her invoices had no deductions taken at source. The Plaintiff claimed that she had been an employee, and that the Defendant wrongfully terminated her employment. The Defendant, amongst other things, contended that the Plaintiff had been an independent contractor rather than an employee, and was therefore not entitled to notice of termination. The issue at hand was to ascertain the legal classification of the work relationship between the Plaintiff and the Defendant at the end of that relationship.

Employee/Independent Contractor/Dependent Contractor?  

Historically, the law recognised only two types of workplace relationships – (i) employer – employee and (ii) contractor – independent contractor. However, in 1936, Ontario Court of Appeal recognized the existence of an ‘intermediate’ position called as dependent contractors.[1] This concept of dependent contractors evolved to protect economically vulnerable and dependent agents by affording them an entitlement to reasonable notice of termination of the contractual relationship. The methodology for determination of a workplace relationship is two-fold.[2] The first is to determine whether or not the individual is an employee or a contractor in accordance with the established principles and criteria. If the individual is determined to be an employee, the analysis of the classification of the relationship ends. However, if the individual is determined to be a contractor, the second step is to determine whether the individual is a dependent or an independent contractor. 

Employee vs Contractor

The general test for determining whether an individual is an employee or contractor is the classic four-fold test[3] which determines whether an individual is in ‘business for himself’, primarily by examining (a) control of work, (b) ownership of tools, (c) chance of profit and (d) risk of loss. Courts have suggested that their inquiry should seek to ascertain whether the individual is carrying on business for himself or herself or whether he or she is being paid to contribute to somebody else's business enterprise.[4]

Dependent Contractor vs Independent Contractor

Some of the factors to consider for determining whether an individual is a dependent or an independent contractor are: (a) the extent to which the individual was economically dependent on the particular working relationship, (b) the permanency of the working relationship and (c) the exclusivity or high level of exclusivity of the individual’s relationship with the enterprise.[5] Greater the level of exclusivity over the course of the relationship, more the likelihood that the individual will be classified as a dependent contractor.[6]

Decision of the Superior Court

Applying the principles laid down in Montreal v. Montreal Locomotive Works Ltd.[7] (four-fold test) and Braiden v. La-Z-Boy Canada Ltd.[8] (whose business was it?), the judge found that the Plaintiff was self-employed and carried on a sole- proprietorship in which she provided painting services to the Defendant. Although the Defendant assigned the work, the Plaintiff controlled whether she would accept the assignment or not. The Plaintiff had her own tools and equipment and she was neither expressly nor implicitly required to exclusively devote her services to the Defendant. Based on the above, the Judge found that the Plaintiff was a contractor and not an employee. To determine whether the Plaintiff was a dependent or an independent contractor, the judge relied on the decisions of the Court of Appeal in McKee v. Reid's Heritage Homes Ltd.[9] (economical dependency on the work relationship, permanency and exclusivity) and Keenan (c.o.b. Keenan Cabinetry) v. Canac Kitchens, a Division of Kohler Ltd.[10] (greater the level of exclusivity over the course of the relationship, more the likelihood that the worker will be classified as a dependent contractor). The judge observed that although the Plaintiff was economically dependent on the Defendant as the exclusive source of her income, that dependency had a short history and was a self-induced dependency. The Plaintiff was also not precluded from contracting with others and there was no express or implicit understanding that the Defendant would provide her with a minimum or any level of work. Based on the above facts, the Court concluded that the Plaintiff was an independent contractor. As such, the Court dismissed the Plaintiff’s claim that she had been wrongfully dismissed. With this decision, the Court reaffirmed the existing principles for distinguishing between different types of workplace relationships and that such determinations will always be made on a case-by-case basis.

Consequences of Misclassification Post Bill 148 

Employers have always faced potentially significant consequences for misclassifying employees as independent contractors. Such consequences include liability for failing to provide reasonable notice of termination of employment, severance pay obligations, liability for overtime and vacation pay, vicarious liability claims etc. However, with Bill 148 in force, now an employer that misclassifies employees may also be subject to prosecution, fines and convictions by the Ministry of Labour. Accordingly, employers must draw clear boundaries between their employees and independent contractors after carefully considering all the various differentiating factors that have been described by the courts.

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