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Employees, Independent Contractors, and Those In Between

I’m talking about who is an “employee” in my employment law class this week.   It’s not always easy to figure out when we are looking at an employment relationship, and of course it matters greatly whether someone is an employee or not, because our rules and laws about employment only apply to the “employment” relationship.   In the common law, the issue often arises when a worker is dismissed by a company and sues for wrongful dismissal seeking damages for “reasonable notice”.  Historically, only “employees” were entitled to “reasonable notice” of termination–but that is no longer the case, as the Ontario Court of Appeal confirmed recently (see below).

So there are lots of cases in which workers who look in many ways like they are self-employed are nevertheless found to be employees by the courts.  That’s true even if the contract between the worker and the company expressly indicates that the the worker “is not an employee, and is an independent contractor”.   For example, see the Ontario Court of APpeal decision in Belton v. Liberty Insurance, where insurance agents were found to be employees notwithstanding that their contract included the following language:

“Status and Authority  For all purposes the Agent is an independent contractor and the Contract shall not create any employer/employee relationship between the Company and the Agent. …”

Courts have developed a variety of tests (“Control Test”, “Organization Test”) over the years to try and sort out where on the continuum between an obvious employee and an obvious independent contractor the line should be drawn to identify when there is an employment relationship.  These tests act as a proxy for the real question the judges are asking themselves, which is whether the person looks more like a self-employed entrepreneur or an employee.  If the person is an employee, then they are covered by all of the many entitlements and obligations that our law applies to the employment relationship.  If they are not an employee, then the law treats them as a commercial actor–like a business, on other words.

However, lately, the courts have recognized the “dependent contractor”, which is an animal that falls in between the “employee” and the “independent contractor”.  The “dependent contractor” is not a new idea, really.  It has long existed in labour relations statutes, which define “employees” as including “dependent contractors”.   That widens the scope of people who can join unions, since only “employees” (including dependent contractors) can join a union.  And the Ontario Court of Appeal recognized as far back as 1936 that there is an intermediate status between employee and independent contractor that should be given some legal recognition (Carter v. Bell & Sons [1936] O.R. 290.

That idea has found traction in recent Canadian decisions in which courts have ordered “reasonable notice” to be paid to “dependent contractors” whose contracts are terminated by the principal business they were doing work for.  There is an excellent discussion of this development in the recent Court of Appeal decision in McKee v. Reid Heritage Homes .   The Court said there (para. 30):

I conclude that an intermediate category exists, which consists, at least, of those non-employment work relationships that exhibit a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity.  Workers in this category are known as “dependent contractors” and they are owed reasonable notice upon termination.

The Court ruled that courts must deal with these issues as follows:

1.   Determine if the person is a contractor or an employee.

2.   If the person is a contractor, consider then if they are a “dependent contractor”.  If the worker works exclusively for one business, then they are clearly dependent, and are therefore entitled to “reasonable notice”, even though they are not “employees”.

It remains to be seen whether the courts will imply or recognize more of the common rights and obligations usually associated with the employment relationship in relationship to the “dependent contractor” status.

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2 Responses to Employees, Independent Contractors, and Those In Between

  1. Peter Kearney Reply

    January 4, 2013 at 4:01 pm

    I was in an independent contractor agreement with a small company in the Executive Search Business, where I had and office and phone, etc. After some philosophical and operational differences, the owner terminated our agreement with no notice. I had been on a draw against commission but he took away my ability to finish the project I was working on. If he takes me to court is there any case law on paying this money back?

  2. Fred Vermeer Reply

    April 25, 2014 at 9:10 pm

    I have been working on the Six Nations reserve for the last six and a half years. My boss insists I am self-employed, but I have also been told by him that I am working within the boundary of a non-moonlighting clause. I am not permitted in other words, to participate in meaningful employment outside of my contract with this single workplace. I do not receive holiday pay, overtime pay, vacation pay, or sick benefits. I also have not received any kind of wage increase in almost a year and a half to keep up with the standard of living. Do I actually then, due to the non-moonlighting clause, qualify as a ‘dependent contractor’ and thereby have similar rights as an employee? Or does my workplace location, on Six Nations, exempt them from treating me according to the Canada or Ontario Labour laws? I feel I need to look after my family, and since I have been refused a raise of any kind, I need to find additional work. But, I feel my hands are tied, and relations between me and my workplace are strained as a result.

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