A worker’s employment status, (i.e. whether they are an employee or an independent or dependent contractor) can have significant consequences for both the worker and the employer. The determination of employment status is particularly important when litigation arises in respect of an alleged wrongful termination by the worker, as the position occupied by the individual in question will determine whether they are entitled to damages for the wrongful termination of their employment. If, in fact, the termination was simply due to the end of a contract, then the individual will be entitled to nothing.
Distinguishing Between Employees and Contractors
Employees are provided basic governmental protections in accordance with provincial employment standards legislation. In other words, they must be paid no less than minimum wage, must be compensated for breaks and holidays and the employer is responsible for making CPP and EI contributions on the employee’s behalf. Moreover, in the event of termination, employment standards legislation dictates the minimum amounts to which an employee is entitled in termination and severance pay.
Independent contractors, however, are afforded no such protections, as they are not considered “employees” but rather a distinguishable contracting entity that is not entitled to any of the protections and rights above delineated. An independent contractor is not entitled to holiday or overtime pay and such individuals must pay the full amount of CPP and EI on their own behalf, with no assistance from the company for whom they contract to work. Perhaps most significantly, in the event of termination of the relationship, an independent contractor is not entitled to any amount of compensation in terms of severance and termination pay.
Dependent contractors are largely considered “quasi employees” such that they have more rights and entitlements than do independent contractors, but less than actual employees.
Parties Enter Working Relationship Without Defining Terms
The recent Ontario Superior Court of Justice decision in 542491 Ontario Limited v 8240631 Canada Inc. provides an excellent illustration of why it is important for individuals to have confidence in the status of their employment.
The case involved the worker (the “worker”), who had been employed by the employer (the “company”) as an executive sales agent from 2002 until 2014. The company “was in the business of point of purchase solutions and in store marketing materials”, which was an area in which the worker had significant experience. As such, he was recruited by the principal of the company in 2002, to build the business, which was based in Quebec, in Ontario. Although a written contract was drafted, “it was always a work in progress” as the business grew from being largely conducted to a living room, to a legitimate going concern. The worker was always paid for his services on a commission only basis.
The worker was an integral part of growing the business to become extremely successful, such that he “earned greater and greater commissions. It was his impression that [the company] became dissatisfied with the commissions it was paying him which continued to increase because the business was so successful.”
Termination of Services by Employer
In April of 2014, the company wrote the worker a letter to advise him that “any sales agent contract” between themselves and the worker would be terminated as of December 31, 2014. He was also advised that his commission structure would be significantly amended in the interim. Although the parties had varied the worker’s commission structure from time to time throughout the tenure of their relationship, he had been receiving 10% straight commission on all sales for some time. The “letter purported to limit the 10% that he had been earning on all sales to the first $300,000 in sales”, with a declining percentage awarded on sales beyond the initial $300,000. The letter further advised that, unless the worker agreed to these new terms and signed a written contract to their effect, then the parties’ relationship was terminated.
The worker advised the company that the new terms were unacceptable and that he refused to accept this revised commission structure. However, he continued to work hard for the company from April until August 2014, at which point he was advised by the company to immediately cease all contact with all clients. As a result, Foster considered his employment terminated.
Wrongful Termination Lawsuit Launched in Wake of End of Working Relationship
Given the unceremonious end to his long standing relationship with the company, the worker commenced a lawsuit in 2015 alleging that he had been wrongfully terminated from his employment with the company and was therefore owed significant damages, including reasonable notice damages.
The company defended the claim on grounds that Foster had never been an employee of theirs but rather a mere contractor, which meant he was entitled to nothing upon the end of the parties’ contract.
Determining Your Status as an Employee, Independent or Dependent Contractor
At the crux of the issue before the court was determination of the worker’s employment status, as all rights and remedies available to him would flow from the determination of his position. As such, the first task undertaken by the court in resolving this matter was to determine whether the worker was an employee or an independent or dependent contractor of the company.
As noted by the court, “the main consideration is whether a worker provides services on his or her own account. Looked at a different way, it involves the consideration of whose business it is”. The factors the court will consider in deciding whether a given individual was acting in an employment or contractor role, are as follows:
“a) the parties’ intentions;
b) what the parties thought;
c) the parties’ behaviour and how they conducted their business;
d) whether the individual controlled the work, owned tools, had a chance of profit or risk of loss;
e) whether the worker hired others to assist;
f) whether the worker assumed financial risk;
g) whether the worker had invested money in the business; and
h) whether the worker had management responsibilities.”
In the event that consideration of these criteria leads to the conclusion that the person is in fact a contractor, then the court will consider the following criteria in deciding whether they are an independent or dependent contractor:
- whether the worker was economically dependent upon the company;
- the permanency of the working arrangement;
- the exclusivity of the relationship (“the greater the exclusivity, the greater the permanence, the more the relationship looks like an employment relationship”);
- whether services are provided through a business or a sole proprietorship (which is considered relevant but not determinative); and
- the substance of the relationship, regardless of what the parties called themselves (i.e., calling oneself an employee does not make it so).
Court Concludes that Worker was Employee
The court considered all of the evidence, testimony and applicable circumstances and found that the company had always retained exclusive control over the clients with whom the worker was permitted to work. The company also established all product prices and “furnished all tools” to the worker, all of which weighed in favour of a finding that the worker had been an employee. Moreover, the worker was expected to satisfy minimum performance requirements of the company, was expected to attend at his company office each day, and was provided a business card and email address that associated him with the company. Further, the worker had worked exclusively for the company, on a full-time basis, and did not invest any money in or accept any risk on behalf of the company. Ultimately, these factors helped the court conclude that the worker was an employee.
Additional factors that supported this conclusion included the fact that the parties’ relationship was “exclusive and permanent”, that the employee was economically dependent on the relationship with the company and that he had reported to a boss on a continuing basis throughout his tenure with the company.
In the result, the court was satisfied that the worker “did not provide services on his own account. The business was not his”, as a result of which Foster was to be considered an employee of the company. The Court awarded the worker $81,447.15 in addition to $79,745.15 already awarded for the period August 1, 2014, to October 31, 2015, as reasonable notice based upon an 18-month reasonable notice period.
Contact Haynes Law Firm in Toronto for Comprehensive Advice on Employment Disputes and Worker Classification Issues
As independent and dependent contractors have different rights and entitlements compared to employees, it is important to have a clear understanding of your classification. In cases of misclassification, employers may find themselves liable for substantial damages. At Haynes Law Firm, our employment law lawyers can assist you with issues arising from employment contracts, wrongful dismissal claims and human rights matters. At Haynes Law Firm, our employment law team is dedicated to finding the best and most efficient resolution for you.
To discuss your employment law matter with one of our employment lawyers, contact us online, or by phone at 416-593-2731.