Whether a worker is classified as an employee or an independent contractor impacts on the worker’s entitlements under the law.

This article looks at the differences in entitlements and how to distinguish between employees and independent contractors. We also take a look at a recent decision of the Ontario Superior Court of Justice in which a worker claimed that he was employed by a family company and was wrongfully dismissed.

Why does it matter whether you are an employee or independent contractor?

Workers classified as employers have certain entitlements and protections under the Employment Standards Act (ESA). For example, employees must be paid at least minimum wage and are entitled to reasonable notice in the event of termination without cause, along with other things such as sick leave and holiday pay.

Independent contractors control how they perform their work and they can work a number of jobs at the same time. They do not receive the same benefits as employees and have additional responsibilities, including accounting to the government for income tax and making pension contributions.

What distinguishes an employee from an independent contractor?

The status set out in the worker’s contract is not necessarily determinative. Just because a contract labels the worker an “independent contractor” doesn’t necessarily make them one.

When a court is tasked with examining whether a worker is an employee or an independent contractor, the central question is whether the worker who performs services for an entity does so as a person in business on their own account (independent contractor) or just for the benefit of the entity (employee).

Courts look at a range of factors when trying to answer this question, including:

  • the level of control the entity exercises over the worker’s activities;
  • whether the worker is limited exclusively to the service of the entity;
  • whether the worker provides their own equipment or has an investment or interest in the tools relating to their service;
  • whether the worker hires their own helpers;
  • the degree of financial risk taken by the worker;
  • the degree of responsibility for investment and management held by the worker; and
  • the worker’s opportunity for profit in the performance of their tasks.

The plaintiff worked for one of his family’s companies

In Scamurra v Scamurra Contracting, the plaintiff employee claimed that he was dismissed without cause and without receiving notice. The defendants were four family-owned companies that provided contracting services.

From 2005, the plaintiff worked for one of his family’s companies that provided customers with garbage bins for the removal of debris. His brothers were the shareholders and directors of the company. While he didn’t have a written contract, he was involved in hiring part-time drivers and dispatching them to customer locations using a company cell phone.

According to the plaintiff, in December 2012, he was terminated without notice. The defendants claimed that he was an independent contractor and that he received notice of termination of his contract for services in June 2012. They claimed that the termination was for cause.

Plaintiff was employed by the family company, not an independent contractor

Justice Petersen looked at the various factors and circumstances in this case and concluded that the plaintiff was employed by the family company. Her Honour noted that the plaintiff:

  • was provided with all the equipment needed to do the work, including a company truck and cell phone;
  • hired part-time workers on behalf of the company, who were paid by the company;
  • was paid a salary, so was not exposed to any financial risk nor had an opportunity to share in the company’s profits;
  • reported to one of his brothers, despite having a significant level of independence;
  • worked exclusively for the company for seven years; and
  • received two weeks of paid vacation.

The defendants claimed that the fact the plaintiff was paid by another company that invoiced the family company for the plaintiff’s work indicated that he was an independent contractor. Her Honour found that this payment structure was designed to conceal his income from his ex-wife in family law proceedings, which although was “deceitful and condemnable conduct”, had nothing to do with his employment status.

Plaintiff was wrongfully terminated after challenging his brothers about their father’s estate

Justice Petersen rejected the defendant’s explanation that the plaintiff was dismissed for absenteeism.The Court determined that this was simply a pretext to characterize the wrongful termination of his employment as being a dismissal for just cause.

Her Honour found that the reason for the plaintiff’s termination was that he sent an email to his brothers accusing them of selling family-owned assets from their father’s estate without informing him or disbursing the proceeds of sale. His brother responded to the email telling him that he was fired.

Given that the termination was unrelated to job performance, her Honour found that the plaintiff had been wrongfully terminated.

Plaintiff was entitled to 22 months’ notice

Applying the Bardal factors, Justice Petersen decided that the plaintiff was entitled to a reasonable notice period of 22 months. Her Honour noted that the plaintiff had spent his entire career working for the family group of companies and that it would have been difficult for him to secure comparable employment.

The reasonable notice period was reduced by six and a half months to reflect the fact that the plaintiff returned to work for a period of time after being notified by email that he was fired. As a result, the plaintiff was awarded fifteen and a half months’ salary, benefits and vehicle expenses, totalling almost $120,000.

Contact Grosman Gale Fletcher Hopkins LLP in Toronto for Guidance on Employee Termination

If you are an employer or an employee going through the termination process, contact Grosman Gale Fletcher Hopkins LLP. We have helped workplace parties with their most challenging employment-related matters for more than three decades. We assist employers with worker classification issues, helping to avoid future liability in wrongful dismissal claims. We also advise employees on worker classification to make sure they secure all their entitlements in the event of termination. If you need guidance with a workplace-related issue, contact us online or at 416.364.9599.