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Employment Law

The Importance of Worker Classification

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The classification of a worker as either an employee or independent contractor is significant because it determines the worker’s entitlements and the employer’s responsibilities. The existence of a third category of worker (the dependent contactor) and the recent passing of the Working for Workers Act 2022, which creates rights and protections for digital platform workers, makes worker classification a complex area for employers to navigate.

This article looks at the various categories of workers, along with a decision of the Ontario Superior Court of Justice from earlier this year in which a worker argued that he was a dependent contractor and therefore entitled to reasonable notice.

Employee vs. Independent Contractor

While many employees in Ontario enjoy the entitlements set out in the Employment Standards Act, 2000 such as minimum wage, reasonable notice for termination without cause, sick leave, and vacation time, these do not apply to independent contractors.

Independent contractors tend to have more control over how they perform their work and can work simultaneously for multiple clients. Unlike employees, they are responsible for paying tax and pension contributions. 

In determining whether a person is an employee or independent contractor, courts look at a range of factors, including:

  • Whether the worker can control the method of completing their work;
  • Whether the worker works exclusively for the employer;
  • Whether the worker uses their own tools; and
  • Whether the worker bears the risk of loss and chance of profit. 

It’s important to note that the wording used in an employment contract is not necessarily determinative. Under section 5.1 of the Employment Standards Act, an employer must not treat a person as an independent contractor if they are in fact an employee.

Dependent Contractors Under the Common Law

The common law also recognizes the concept of a dependent contractor. While not employees, they primarily work for one employer and are entitled to reasonable notice of termination.

Again, courts look at various factors on a case-by-case basis, such as whether the worker is subject to the employer’s control, whether the worker owns their tools, whether the worker has undertaken any risks, and whether the worker’s activity is part of the employer’s business organization.

Rights for Digital Platform Workers

The new Working for Workers Act, 2022 in Ontario creates the Digital Platform Workers’ Rights Act, 2022. This new Act will provide rights to digital platform workers; i.e., workers that provide ride share, delivery or courier services through the use of a digital platform, such as an app. These “gig” workers are normally classified by companies as independent contractors.

Under the Digital Platform Workers’ Rights Act, digital platform workers have the right to be provided with certain information relating to the work to be undertaken, the right to receive minimum wage for each work assignment, and the right to tips and gratuities.

The Digital Platform Workers’ Rights Act will come into force on a day set by the Lieutenant Governor (not yet set). 

Plaintiff Sought Reasonable Notice of Termination, Arguing He Was a Dependent Contractor

In 1159273 Ontario Inc. v. The Westport Telephone Company Limited, the plaintiff corporation, which was controlled and owned by an individual by the name of Tom, provided contracting services to the defendant prior to being terminated. There was no written agreement between the parties.

Tom, on behalf of the plaintiff provided engineering and technical advice on telecommunication network design. He was also responsible for supervising the defendant’s employees. While Tom used his own laptop and vehicle, he was granted the use of the defendant’s office space, support staff, and tools. He was also a shareholder, officer, and director of the defendant.

In 2019, the plaintiff was told that its services were no longer required. The defendant was prepared to pay three months of consulting fees after terminating the arrangement. The plaintiff commenced proceedings against the defendant, arguing that it was a dependent contractor and was therefore entitled to reasonable notice of termination. 

Factors Pointed to Independent Contractor Status

The Ontario Superior Court of Justice applied various factors to determine whether the plaintiff was a dependent or independent contractor.

Exclusivity

Firstly, the Court considered whether the plaintiff worked exclusively or near exclusively for the defendant, such that he was economically dependent. The Court found that the plaintiff did not work for the defendant on a near-exclusive basis. Upon review of the plaintiff’s income tax returns for 2014 to 2019, the Court noted that only 70% of consulting fees received by the plaintiff were from the defendant.

Control & Provision of Tools

Secondly, the Court found that the plaintiff was not controlled by the defendant as he also worked for other companies. Further, the plaintiff’s ownership of shares in the defendant’s business provided it with a certain amount of control over the way the defendant operated. The plaintiff also had some control as an officer and director of the company. The fact that the plaintiff held these positions explained why the defendant provided an office and tools.

Business Risk & Integration

On the issue of business risk or expectation of profit, the Court found that there were sources of revenue that provided an expectation of profit, such as its shares in the defendant’s corporation.

Finally, the plaintiff argued that it was not differentiated from the defendant and was presented as part of the defendant’s organization to the public. The Court rejected this argument, noting that while the plaintiff’s owner appeared on organizational charts, his company was not integrated in this way.

As a result, Justice Kershman decided that the plaintiff was an independent contractor and dismissed the claim. 

This case is illustrative of the importance of employers to understand the consequences that flow from worker classification and why proactive legal advice on this issue is key to avoiding liability in the future.

Willis Business Law Provides Proactive Advice to Windsor-Essex Employers on Worker Classification

The knowledgeable employment lawyers at Willis Business Law provide forward-thinking legal solutions to employers throughout the Windsor-Essex region. The firm helps clients reduce risk and increase productivity through careful review of all worker contracts and provides robust advice on employee and contractor status. The employment law group ensures clients receive attentive, responsive service and is invested in each client’s success.

Willis Business Law is located in the heart of Windsor’s financial district, overlooking the beautiful riverfront. The firm proudly serves clients throughout the entire Windsor-Essex region and surrounding areas. To schedule a consultation, please reach out online or call 519-945-5470.

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