The Canadian Bar Association
Employment & Labour

Analysis of difference between independent, dependent contractor

By Barry B. Fisher

In a recent case, the judge was faced with a plaintiff who during the course of his 23 years association with the defendant had been an independent contractor, then a dependent contractor and finally an employee.

However, in order to determine the amount of reasonable notice, the judge had to determine the period of time in which the plaintiff was either an employee or a dependent contractor, as his time as an independent contractor did not count towards reasonable notice.

Most of the reported cases deal with the difference between an employee and an independent contractor whereas this case deals with more exacting differences between two different types of contractors.

This distinction is becoming more important as the rights given to dependent contractors are increasing. Under the common law, dependent contractors are entitled to reasonable notice of termination (see this case.) Under the Canada Labour Code, dependent contractors are deemed to be employees for the purpose of the Code. One of the key recommendations of the just released Changing Workplace Review by the Ontario Ministry of Labour had this to say about the issue:

We identify the issue of employees who are misclassified – intentionally or unintentionally – as independent contractors not covered by the ESA as a significant one and recommend that the Ministry make misclassification a priority enforcement issue. We further recommend that the term “dependent contractor” be added to the definition of “employee” in the ESA. Finally, we recommend that where there is a dispute about whether a worker is an employee, the person receiving the worker’s services has the burden of proving the worker is not an employee and an obligation to provide all relevant evidence.

The judge in this case went over all the relevant factors and determined whether each factor favoured either the dependant or the independent contractor status.

I will quote extensively from the judgment as it best shows the judges’ reasoning.

Discussion

Dependent or Independent Contractor

48 The point of departure in this case is to determine whether the plaintiff was a dependent contractor and if he was, when he acquired that status. The relevant factors are:

Whether the agent was largely limited exclusively to the service of the principal

49 The defendant never required the plaintiff to provide services exclusively to it. In fact, even after he went on the defendant’s payroll the plaintiff continued to be free to provide accounting and consulting services to other parties.

50 The factor militates against a dependent relationship at any time prior to August 2012.

Whether the agent was subject to the control of the principal, not only as to the product sold but also as to when, where and how it was sold

51 The evidence demonstrates that at the outset, the plaintiff provided computer consulting services to the defendant. The defendant had no expertise in computer based accounting systems. The plaintiff controlled the advice he gave to the defendant about what kind of accounting system to install and how to operate it. Further, the plaintiff testified that he designed and set up the digital accounts and control systems for the defendant. The plaintiff also designed and implemented an on-line system for tracking the defendant’s accounts receivable and accounts payable. The evidence was quite clear that the defendant did not direct the plaintiff in those tasks.

52 The physical bookkeeping that the plaintiff performed for the defendant was done at the defendant’s direction.

53 The accounting processes that the plaintiff carried out were the kinds of processes required of any in-house accountant. He was directed to prepare quarterly financial statements and to put together the information necessary for the defendant’s auditors. The defendant made it clear to the plaintiff that these were among the things he was expected to do. The defendant did not, however, provide the plaintiff with a set of instructions on how to do those tasks — the defendant left it to the plaintiff to apply his own expertise.

54 The defendant also required the plaintiff to ensure that its corporate filings and account keeping complied with the policies and regulations of the TSX. Again, the defendant did not provide the plaintiff with an instruction manual to carry out his responsibilities. The defendant relied on the plaintiff to educate himself as to the relevant elements of TSX operations and to comply with those strictures.

55 This factor militates somewhat against the plaintiff being a dependent contractor.

Whether the agent had an investment in or interest in the tools necessary to perform his service for the principal

56  The plaintiff always used equipment and software supplied by the defendant. He carried out his tasks at the defendant’s places of business. Only occasionally did the plaintiff do the defendant’s work from his home office.

57 The factors argue in favor of the plaintiff being a dependent contractor.

Whether by performing his duties the agent undertook risk of loss or possibility of profit apart from his fixed rate remuneration

58 The plaintiff was not required to show up at the defendant’s office at any particular time of day, nor was he required to put in a given number of hours of work in a day. The defendant did not control the plaintiff’s hours of work; the defendant only required that the plaintiff properly perform the tasks assigned to him. To the extent, then, that the plaintiff performed his work efficiently more hours of the day were available for him to devote to promoting his other business interests. On the other hand, the plaintiff might have to forego other remuneration if his work for the defendant increased in a given month due to, say, the need to prepare accounts for a quarterly or annual report.

59 Further, the plaintiff regularly accepted shares issued by the defendant in lieu of cash for his work. In so doing, the plaintiff took a risk that he would not be fully paid, as would be the case if the value of the stocks fell, or make a profit over his monthly stipend, as would happen if the shares increased in value.

60 The factor argues against the plaintiff being a dependent contractor.

Whether the agent’s activity was part of the principal’s business organization — in other words ‘whose business was it?’

61 The plaintiff’s work for the defendant was an integral part of the defendant’s operation. It would not have been possible for the defendant to have carried on its business without a set of properly functioning books of account. The same is true of the document management that the plaintiff performed for some years ahead of his appointment as corporate secretary. It cannot be said that the plaintiff’s duties were peripheral to the defendant’s business.

62 Further, the plaintiff carried out some degree of financial control over the defendant’s operations. He usually assessed whether an account ought to be paid and determined when to pay it. While the plaintiff was not wholly in charge of the firm’s finances, he did act as a watchdog over inappropriate use of the defendant’s money. To that extent, then, the plaintiff was looking out for the defendant’s business, not his own.

63  The evidence relevant to this factor argues in favor of the plaintiff being a dependent contractor.

Whether the relationship was long standing — the more permanent the term of service the more dependent the contractor

64 The relationship between the plaintiff and the defendant started in 1989 and persisted through to 2012 — a span of 23 years. It may be important to note that the plaintiff’s tenure with the defendant was not punctuated by his coming and going. The plaintiff provided services to the defendant steadily and without interruption throughout that period.

65  Significantly, the plaintiff’s ‘job description’ changed considerably when his sister Margret passed away. With her passing he began to take over the things that Margret had been doing for the defendant. Those things included some office management and financial control.

66 The evidence establishes that not only was this a long-standing relationship, it was an evolving one as well. Over time there was an increase in the plaintiff’s tasks and responsibilities for the defendant.

67 This factor militates for a dependent contractor relationship.

Whether the parties relied on one another and closely coordinated their conduct

68 There can be no doubt that prior to his becoming an employee in August 2010, the defendant relied heavily on the plaintiff. Although there was no direct evidence on the point, I find that it is more likely than not that by the late 1990’s the plaintiff was the only person in the defendant’s organization who thoroughly understood the systems managing the defendant’s finances. And again, while there was no direct evidence on the point, I find that it is more likely than not that the plaintiff relied on the defendant’s monthly stipend to tide him over droughts in his other business enterprises. Both parties relied on each other.

69 Additionally, they coordinated their interaction, especially when it came to the preparation of quarterly and annual financial reports. For those reports to make sense and be delivered on time, the plaintiff and other members of the defendant’s management had to work together to gather, collate and process the relevant data. Mr. Shives testified to an example of that coordination when he described how and why the plaintiff would regularly visit his field office in Lac La Hache, B.C.

70 This factor argues in favor of a dependent contract relationship.

Summary

71 Taking all of the evidence into account, I have concluded that prior to the late 1990’s the parties were not so tightly bound together and their efforts were not so integrated with one another as to have made the plaintiff a dependent contractor.

72 I find that when the plaintiff took on his late sister’s role with defendant, that status began to evolve. By the year 2000, the plaintiff was an integral part of the defendant’s operation — it would have been very difficult for the defendant to have carried on efficiently in the plaintiff’s absence. By the same token, although the plaintiff was free to pursue other business interests and he did in fact pursue those interests, his relationship with the defendant was, by the year 2000, well ingrained and established.

73 For these reasons, I find that as of the year 2000 the plaintiff was a dependent contractor for the defendant. It is from that year that the plaintiff’s entitlement to notice credits starts to accumulate.

As the plaintiff was found to be either an employee or a dependent contractor for 12 of the 23 years and the judge found that the proper notice was 12 months.

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