The Economic Dependency Factor in Determining a Contractor’s Employment Status
A recent Ontario Court of Appeal decision confirmed a lower court decision which found that an independent contractor who worked exclusively for an employer was in fact a dependent contractor.
The employee worked for the employer as a wardrobe stylist and later as a fashion studio manager from 1994 until she was dismissed without cause in 2017.
The employer is an Ontario corporation that carries on business across Canada in marketing and advertising. The employee began working for the employer in 1994 pursuant to an oral employment contract as a freelance wardrobe stylist.
Between 1996 and 2004, except for the months of May and November, which were slow periods for the advertising industry, the employee worked approximately 37 to 40 hours per week and exclusively for the employer. During slower periods, she worked fewer hours for the employer and sometimes worked for other companies.
After 2004 and until 2006, she worked exclusively for the employer during both busy and slow periods.
Between 1996 and 2004, the employee invoiced the employer weekly as if she was a sole proprietorship. The employer did not withhold any amounts for taxes, or any other amounts, nor did it make any payments for items that would typically be paid to employees.
In June 2004, the employer hired the employee as a wardrobe stylist pursuant to a written employment contract, under which she received an annual salary of $54,000 paid bi-weekly. There was no dispute that she was an employee as of and after June 3, 2004.
In January 2008, the employee was promoted to the position of fashion studio producer. She signed an employment contract dated January 16, 2008, under which she received an annual salary of $65,000 paid bi-weekly. The employment contract contained a termination clause.
On June 1, 2017, the employee and approximately eighty other employees received written notice that their employment was terminated without cause effective October 27, 2017, which gave them five months’ working notice.
Then, on July 6, 2017, the employer wrote to inform the employee that it was waiving the balance of the working notice and that her termination would become effective on July 7, 2017.The employee received a severance package offer, which she did not accept.
The employee’slast day of work was July 6, 2017, and since July 7, 2017 she had been unable to find new employment despite her efforts to do so. She said that her efforts to search for new employment were hampered by the non-competition and non‑solicitation clauses in her employment contract. She investigated and applied for jobs outside of the marketing and advertising industry, but she was unsuccessful in finding new employment. She was unable to find employment or freelance work in advertising and marketing.
The employee was 52-years old at the time of her termination. Since June 1, 2017, the employer had paid her the total sum of $55,576 as a combination of working notice and pay in lieu of notice, equal to 35 weeks.
On July 13, 2017, the employee brought an action seeking damages for wrongful dismissal. She also sought to be reimbursed for amounts that she said had been improperly deducted from her wages while she was still employed. Her claim totalled $136,577.
Lower Court Decision
The motion judge determined that the employee acted in the capacity of a dependent contractor between 1994 to 2004, after which she became the employer’s employee.
He granted summary judgment in favour of the employee and awarded her 21 months’ pay in lieu of notice, 10 percent of her base salary for loss of benefits, and $2,373 owing under her cellphone allowance, minus any amounts that had been paid to date. The motion judge also held that the employer had made unlawful deductions from the employee’s wages beginning in 2016 and awarded her compensation for the lost wages, for a total of $112,863.
The employer appealed the decision.
Court of Appeal Decision
Among other points of appeal, the employer claimed that the motion judge erred in concluding that the employee was a dependent contractor from 1994 to 2004. The employer argued that the motion judge erred by failing to consider all relevant factors. Specifically, the employer stated that the motion judge erred by attend to the exclusivity of the parties’ working relationship, thereby failing to focus upon whether the employee was economically dependent upon the employer.
The Court of Appeal found no error in the motion judge’s approach to this issue. It found that the motion judge adverted to the correct legal test for determining dependent contractor status.
Additionally, the court did not find that the motion judge ignored whether the employee was economically dependent upon the employer. Indeed, relying upon the appropriate legal test, the motion judge specifically listed that consideration as one of the factors that differentiate a dependent from an independent contractor. His factual conclusion that, within a short time of engagement, the employee “worked exclusively for [the employer] and, practically speaking, [the employer] was her boss” was telling. Read contextually, the motion judge clearly concluded that the employee was not only in an “exclusive” relationship with the employer, but an economically dependent one.
The court therefore deferred to the motion judge’s ultimate conclusion that “[w]hat stands out is that [the employee] had a twenty-three [year] solid workplace relationship with [the employer].”
The court dismissed this ground of appeal and the appeal as a whole.
The Kitchener-Waterloo employment lawyers at Petker Campbell Postnikoff have many years of experience advising non-unionized employees and employers on a variety of workplace issues, including harassment and termination. Our team will walk you through the details of your dispute, advise you on your rights, responsibilities and obligations, and help you understand your options. If your dispute cannot be settled through negotiation, we can represent you through mediation and the court process.
We represent clients throughout southern Ontario, including the communities of Cambridge, Guelph, Elmira, Brantford, Fergus, Elora and the surrounding area. Call 519-886-1204 or contact us online for a consultation.