What’s in a Name? Independent Contractors, Dependent Contractors, and Employees
October 19, 2017
Employment law distinguishes between employees, dependent contractors, and independent contractors, and different legal rights and obligations apply to each. Distinguishing between who is an employee and who is a dependent or independent contractor is not always simple, and this distinction often becomes the topic of litigation. A recent British Columbia decision highlights the fact that simply calling someone an independent contractor and treating them as such does not automatically make them one for the purposes of wrongful dismissal.
The worker in question provided accounting and administrative services to the company in question for approximately 23 years. He finished high school in 1967 and obtained a grade 12 diploma. He began providing services to the company in 1989. He worked out of the company’s offices using their equipment, and worked the hours he felt he needed to work to complete the accounting and bookkeeping tasks assigned to him. He was paid a flat fee of $2,000 monthly.
While the worker was providing services to the company, he was promoting his own accounting software sales and service business. He received revenue from the company and from other clients through a sole proprietorship.
Eventually, the worker began to take on some tasks that had previously been undertaken by his sister, who was an employee of the company. By 1998, he had taken on most of her role. Between 1998 and 2010, the worker performed services for the company part-time (on average between 20 and 25 hours a week) while continuing to operate and earn income from his consulting business. The services he provided were integral to the company’s functioning, and including preparing quarterly financial reports, as well as corporate documents for review and filing by the company’s lawyers. The worker regularly accepted stocks from the company in lieu of his monthly remuneration.
The worker was appointed CFO in 2010. His duties and responsibilities remained the same but his formal status changed, and he was put on payroll rather than being paid as a contractor. The company began to issue formal paycheques and to make the usual statutory deductions from his pay.
In September 2012, the company’s board of directors terminated the worker, without cause and without notice, following a disagreement between the worker and the company’s new CEO. The worker sued.
The main issue was, whether during his first 21 years with the company (before he was named CFO), the worker was an independent contractor, a dependent contractor, or, whether if this status changed, when that change took place.
If he had been a dependant contractor for any period of the previous time, the company would have to consider that time when determining the period of reasonable notice.
The law invented the concept of a dependent contractor in order to provide protection to economically vulnerable workers. Over the years, courts have identified the following indicators of a dependent contractorship:
- Whether a worker was largely limited exclusively to the service of the company in question;
- Whether the worker was subject to the control of the company, not only with respect to product sold, but also as to when, where, and how it was sold;
- Whether the worker had an investment in, or interest in the tools necessary to perform services for the company;
- Whether by performing their duties, the worker undertook risk of loss or possibility of profit apart from their fixed rate of remuneration;
- Whether the worker’s activity was part of the company’s business organization (i.e. whose business was it?);
- Whether the relationship was long-standing (the more permanent the term of service, the more dependent the contractor); and
- Whether the parties relied on one another and closely coordinated their conduct.
Of the above factors, several applied in this situation to suggest a dependent contractor relationship. For instance:
- The worker always used equipment and software supplied by the company, he carried out his tasks at the company’s place of business, and only occasionally did work for the company from his home office;
- The worker’s tasks done for the company were an integral part of the company’s operations. It would not have been possible for the company to carry on its business without a set of properly functioning books of account;
- The worker had some degree of financial control over the company’s operations. While he was not wholly in charge of the firm’s finances, he did act as a watchdog over inappropriate use of the company’s money. Under those parameters, the worker was looking out for the company’s business, not his own.
- The worker’s time with the company was not punctuated by his coming or going, and for a period of 23 years he provided services to the company steadily and without interruption.
- Not only was the worker’s relationship with the company a long-standing relationship, it was an evolving one as well. Over time, there was an increase in his tasks and responsibilities. The worker’s “job description” changed when his sister passed away and he took over the things she had been doing for the company.
- By the late 1990’s, the worker was the only person in the company who understood the systems managing the company’s finances. In addition, it was more likely than not that the worker relied on his monthly stipend from the company to “tide him over droughts in his other business enterprises”, and, as such, both parties relied on one another.
The Court determined that, prior to the late 1990’s, the parties were not so tightly bound together, and their efforts were not so integrated so as to make the worker a dependent contractor.
However, when the worker took over his sister’s role with the company, his “status began to evolve”. By 2000, the worker was an integral part of the company’s operation, and it would have been very difficult for the defendant to have carried on efficiently in his absence. Concurrently, while the plaintiff was free to pursue other business interests, and did so, his relationship with the company was well ingrained and established by 2000.
The court concluded that, as of 2000, the worker was a dependent contractor. As such, his term of service as both a dependent contractor and employee was from 2000 and 2012, a 12-year span. When he was terminated he had been making $6500 monthly. The court awarded the worker damages in lieu of notice equal to 12 times his monthly salary, making the total amount of damages for breach of contract $78,000.
If you are an employee or an employer with questions about employment status, or about whether you or a worker will be considered an employee, an independent contractor, or a dependent contractor, contact HMC Lawyers LLP. We have many years of experience advising workplace parties about their rights and representing them in work-related litigation. To book a consultation, call 1-800-480-3534 or contact us online. We represent clients in Calgary, throughout Alberta, and across Western Canada.