Ontario Superior Courtroom Critiques the Components Utilized in Figuring out Unbiased / Dependant Contractor Standing | Stikeman Elliott LLP

The rise of “gig” staff (i.e. unbiased staff paid by job or venture) has, lately, drawn consideration to the difficulty of the classification of staff as “workers”, “unbiased contractors”, or “dependent contractors”. The dedication of the right classification is essential, because it defines the events’ authorized rights and liabilities, however the distinction will not be all the time simply acknowledged.

The current choice in 1159273 Ontario Inc. v. The Westport Phone Firm Restricted, 2022 ONSC 1375 (“1159273 Ontario”) sheds gentle on the excellence between “unbiased contractor” and “dependent contractor”, offering helpful parameters for organizations looking for to retain such staff.

Employee Classifications

Whereas organizations are sometimes conversant in the excellence between an worker and an unbiased contractor, a 3rd class of “dependent contractor” has turn out to be more and more acknowledged by Canadian courts. Put merely, a “dependent contractor” is a contractor that’s extra akin to an worker than an unbiased contractor as a result of they’re economically depending on the partaking group.

Whereas dependent contractors are usually not afforded protections underneath the Ontario Employment Requirements Act, 2000, they’re presumptively entitled to “cheap discover” of termination of the connection, much like an worker however in contrast to an unbiased contractor. This distinction is essential, as organizations partaking unbiased staff will need to have a transparent understanding of their discover obligations.

However the above, Ontario’s Invoice 88 (the “Working for Staff Act, 2022“), which obtained Royal Assent on April 11, 2022, will, as soon as in power, introduce some protections for gig staff performing digital platform work by way of the Digital Platform Staff’ Rights Act, 2022 (the “DPWRA”). The protections offered underneath the DPWRA embody rights to data, recurring pay days and pay durations, minimal wage, and spot of elimination from the digital platform, as mentioned earlier on our weblog. The DPWRA will not be but in power (and can solely come into power on a day to be named by proclamation of the Lieutenant Governor). Till such time, a gig employee who will not be an worker may have such rights as movement from their standing as an unbiased or dependent contractor.

Within the above context, Justice Kershman’s choice in 1159273 Ontario as as to whether the connection between the events was that of an unbiased or dependent contractor is instructive.

1159273 Ontario – Factual Background

The Plaintiff on this case was a company that was managed and owned by Tom Lynn (“Tom”) and his instant household. The Plaintiff offered contracting companies to the Defendant, the Westport Phone Firm Restricted (“WTC”). WTC was managed by Tom’s brother, Steve Lynn (“Steve”).

Between 1977 and 1996, Tom labored for WTC as an worker. In 1996, Tom included the Plaintiff and commenced offering comparable companies to WTC in change for a month-to-month payment (and used Tom solely to supply these companies). Tom additionally continued to function an worker and director of WTC till 2019. The Plaintiff held an possession curiosity in WTC till February 2014 when it transferred that curiosity to an affiliated entity (and such curiosity was later offered to an unrelated third get together in September of 2019).

In July of 2019, WTC suggested the Plaintiff that its companies would now not be required, efficient on August 31, 2019. WTC additionally suggested the Plaintiff that it was ready to pay an additional three (3) months of charges. The Plaintiff didn’t settle for WTC’s provide and commenced an motion claiming, amongst different issues, that it was a dependent contractor and subsequently entitled to cheap discover of termination.

The Resolution

Justice Kershman decided that the Plaintiff was an “unbiased contractor” and subsequently not entitled to damages for failure to supply cheap discover of termination.

In reaching this choice, Justice Kershman reviewed the elements used to find out dependent contractor standing, discovering that they didn’t apply to the Plaintiff:

1. Exclusivity/ Close to Exclusivity – The Plaintiff asserted that it had the requisite exclusivity with the Defendant to show its standing as a dependent contractor. To substantiate its place, the Plaintiff produced its contract income charts and Tom’s earnings tax returns. In figuring out that the Plaintiff failed to indicate the requisite exclusivity, Justice Kershman famous that:
   1. Between 1996 and 2010, between 52.83% and 71.48% of the Plaintiff’s contract income was from WTC;
   2. Between 2011 and 2013, greater than 88% of the Plaintiff’s contract income was from WTC; and
   3. Between 2014 and 2019, at most, 70% of Plaintiff’s income was from WTC.

      The Courtroom decided that: (i) billing percentages between 52% to 71% don’t quantity to exclusivity; and (ii) billing percentages of greater than 80% doquantity to close exclusivity. Notably, the stability of the Plaintiff’s contract income derived from corporations that have been affiliated with WTC.
      The Courtroom additionally closely weighted the style during which the Plaintiff’s company construction had been developed, discovering that it was the design of Tom and his skilled tax advisors with a view towards attaining preferential tax remedy.

2. Management – The Plaintiff asserted that it was “managed” by WTC. Nevertheless, the Courtroom disagreed with this assertion. The truth is, the Courtroom decided that it was the Plaintiff, by way of Tom, that really had management over WTC because of the Plaintiff’s minority possession curiosity in WTC.
3. Instruments – The Courtroom decided that WTC offered Tom with gear, together with an workplace and employees (and, thus, the “instruments” essential to do his job). Nevertheless, these instruments have been offered to Tom, in his particular person capability as an worker, and to not the Plaintiff company.
4. Diploma of Enterprise Danger or Imputation of Earnings – The Plaintiff argued that it didn’t have any enterprise threat or expectation of revenue when it offered its companies to WTC. Nevertheless, the Courtroom discovered that, total, Tom (who was not a private litigant) made a revenue or loss by way of his shareholding in WTC primarily based on the general success of the Defendant.
5. Integration – Though the Courtroom famous that, publicly, each Tom and Steve have been represented because the “face” of WTC, it discovered that the events weren’t built-in as a result of the Plaintiff was by no means proven on the organizational charts of WTC (and the Plaintiff had no formal title at WTC, although Tom was the previous “Director of Technical Operations”).

Impression & Key Takeaways

With the rise of the “gig” financial system, organizations typically crave the pliability that stems from an unbiased contractor relationship. Nevertheless, to keep away from being stunned by a staff’ opposite assertion on the finish of that relationship, companies looking for to have interaction, or terminate, contractors ought to fastidiously think about the elements that the courts apply in classification choices.

Whereas the circumstances of this case are undoubtedly distinctive, organizations ought to evaluate their contractor relationships to make sure that there may be an absence of financial dependency, exclusivity, management, and the availability of instruments / gear. Companies must also make sure that contractors have an opportunity of revenue and threat of loss from the connection, and are considered as separate and distinct companies. Tom’s use of a company automobile to render companies additionally proved to be essential to WTC’s success in defending this declare.

Lastly, the events on this case didn’t have a written settlement in place (an unbiased contractor settlement was offered to the Plaintiff, however Tom refused to signal it). A written settlement may have been of serious help in setting out the events’ supposed relationship and defining the respective termination rights and obligations. Nevertheless, even with a written settlement, the Courtroom will all the time decide the right classification by trying to the precise relationship between the events. It’s subsequently vital that the connection with the unbiased contractor, in observe, displays the contractual phrases.

The creator want to acknowledge the assist and help of Jillian Skinner, articling pupil at legislation.