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Employees and independent contractors: The changing nature of employment

Contract-of-employment-construtive-dismissalOrganizations are increasingly retaining the services of individual contractors rather than hiring employees in order to increase the organization’s flexibility and obtain special expertise on an as-needed basis. Historically, organizations have been subject to statutory and common law duties in relation to their employees which have not been applied when organizations retain independent contractors. Case law over the past ten years suggests that the classic distinction between employees and independent contractors is becoming blurred.

The distinction between an employee and an independent contractor is not as clear as it once was. Even where an organization enters into an agreement that explicitly contemplates that the individual is an independent contractor, courts have increasingly found that it is the substance of the relationship, and not the parties’ intentions, that determines whether an individual is an employee or an independent contractor. Not only does this make it difficult for an organization to know what obligations it owes to an individual, but it exposes an organization to liability in circumstances where it characterizes an individual as an independent contractor and is subsequently found to be wrong by a court or tribunal. Two recent cases bring these concerns to light: Braiden v La-Z-Boy Canada Ltd[1] and Rennie and VIH Helicopters Ltd, Re[2].

The Ontario Court of Appeal’s decision in Braiden demonstrates the court’s movement away from acknowledging a bright line between employees and independent contractors. Even though Mr. Braiden’s agreement with La-Z-Boy Canada Limited referred to Mr. Braiden as an independent contractor, the Court of Appeal found that an employer-employee relationship existed. The Court of Appeal explained that relationships between organizations and individuals lie on a continuum: the employer-employee relationship lies at one end and the independent contractor relationship lies at the other. However, between these two extremes lies a third category of relationship where reasonable notice is also required in order to terminate the relationship. The Court of Appeal found that Mr. Braiden fell within this third category because: 1) Mr. Braiden worked full-time and exclusively for La-Z-Boy; 2) Mr. Braiden was subject to La-Z-Boy’s control; and 3) Mr. Braiden’s financial compensation consisted solely of his commissions from La-Z-Boy. Accordingly, Mr. Braiden was entitled to common law reasonable notice.

In Rennie the Federal Court of Appeal held that the true relationship between the parties was that of employer and employee, even though Mr. Rennie had signed an independent contractor agreement. The Federal Court of Appeal found the following factors to be significant: 1) Mr. Rennie received training from the organization and worked under the direction and overall supervision of the organization’s maintenance supervisor; 2) payment for Mr. Rennie’s labour was based on an hourly rate and not a contract price; 3) the organization provided Mr. Rennie with tools, including coveralls, gloves, transportation to job sites and specialized tools; 4) Mr. Rennie’s sole income was from the work he did for the organization; and 5) the work Mr. Rennie did was an integral part of the organization’s work. Even though Mr. Rennie had described himself as an independent contractor in other court proceedings, the Federal Court of Appeal overlooked this and held that Mr. Rennie was an employee and thus entitled to damages for unjust dismissal.

The lessons from these two cases are clear: the classic distinction between an employee and an independent contractor is no longer as clear as it once was. Organizations need to be careful about how they end their relationship with individuals, even where the organization believes the individual is an independent contractor. Organizations should maintain their position that the individual is an independent contractor, although practically speaking, organizations may want to consider giving more notice than is required under the agreement. In many cases, it may be a mistake for an organization to rely solely on the notice provision in their agreement with an independent contractor to determine the reasonable notice to which an individual is entitled.

By: Richard J. Nixon Jennifer Saville, DLA Piper is a global law firm with lawyers located in more than 30 countries throughout the Americas, Asia Pacific, Europe and the Middle East, positioning us to help companies with their legal needs anywhere in the world.

[1] Braiden v La-Z-Boy Canada Ltd, [2006] OJ No 2791; Braiden v La-Z-Boy Canada Ltd, 2008 ONCA 464 [Braiden].
[2] Rennie and VIH Helicopters Ltd, Re, [2013] CLAD No 75; Rennie and VIH Helicopters Ltd, Re, 2014 FC 22; Rennie and VIH Helicopters Ltd, Re, 2015 FCA 25 [Rennie].

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