July 31, 2017
Calling someone an independent contractor does not necessarily make them one, especially where a worker’s role has shifted over time. An employer learned this lesson the hard way when the British Columbia Supreme Court ordered it to pay the plaintiff, who the Court classified as a dependant contractor, damages in the amount of 12 months’ pay in lieu of notice. Dependant contractor is an intermediate category between employee and independent contractor. A dependent contractor is not on payroll, but in most other ways operates and is treated as an employee and, as such, is owed reasonable notice upon termination.
The worker provided accounting and computer consulting services to the defendant company since 1989. He worked the number of hours needed to complete the tasks assigned to him for a flat monthly fee. He worked out of the company’s offices using their equipment. At the same time, the worker earned additional income by providing consulting services to other companies.
Over time, the worker began to take on some tasks formerly done by his sister, an employee of the company. By 2000, he had taken on most of her role. Over the next 12 years, the worker performed services for the company part-time and continued to operate and earn income from his consulting business. The worker’s tasks were an integral part of the company’s business. On a regular basis, the worker accepted stocks in the defendant in lieu of his $5,000 per month remuneration, which entailed a chance of profit or risk of loss as the stock rose or fell.
The worker became an employee in 2010 when he was appointed CFO. In September 2012, the company’s relationship with the worker soured and the worker was terminated without cause.
Although the parties agreed that the worker had been an employee for two years, they disagreed over whether he was a dependant or independent contractor during his previous period of service. If he was a dependant contractor for some period of time, the company had to consider that time in determining a reasonable notice period. The Court considered the factors below in determining whether and for what period of time the worker was a dependant contractor:
- Whether the agent was largely limited exclusively to the service of the principal;
- Whether the agent was subject to the control of the principal, not only as to the product sold but also as to when, where and how it was sold;
- Whether the agent had an investment in or interest in the tools necessary to perform his service for the principal;
- Whether by performing his duties the agent undertook risk of loss or possibility of profit apart from his fixed rate remuneration;
- Whether the agent’s activity was part of the principal’s business organization — in other words ‘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.
The Court determined that by 2000, the worker was an integral part of the company’s operation. Although the worker was free to pursue other business interests and he did in fact pursue those interests, his relationship with the company was, by 2000, well ingrained and established. The Court awarded the worker damages in lieu of notice for 12 months for his 10 years of service as a dependant contractor plus 2 years’ service as an employee.
Employers should be aware that though someone may start out as an independent contractor, the nature of the working relationship can shift over time to turn them into a dependant contractor. By the same token, workers who have been providing services as contractors should think twice about whether notice is owed to them upon termination, especially in the context of a long-standing, integrated working relationship. Both workers and companies should regularly review contracts for service to ensure the terms are in line with the true nature of their relationship and include appropriate provisions for notice of termination.
Glimhagen v. GWR Resources Inc.,2017 BCSC 76