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Independent Contractor or Employee? The Supreme Court of British Columbia Weighs In

January 22, 2020

"Given the seemingly reduced responsibilities and liabilities, an independent contractor structure may be more appealing to some businesses and individuals. While this is so, care should be taken to avoid misclassifying workers who are actually employees as independent contractors."

Companies can engage workers in a variety of different ways beyond the traditional employer employee structure. One such alternative is an independent contractor relationship. A company’s obligations to an independent contractor, particularly upon termination, are very different from its obligations to an employee. Employees are afforded all protections under the Employment Standards Act including notice of termination or pay in lieu thereof; independent contractors are not. Employers must deduct and remit EI, CPP and tax from their employees’ wages whereas independent contractors handle such affairs themselves. Given the seemingly reduced responsibilities and liabilities, an independent contractor structure may be more appealing to some businesses and individuals. While this is so, care should be taken to avoid misclassifying workers who are actually employees as independent contractors. If an independent contractor is deemed to be an employee of a company, the company and individual could face significant liability.

As such, it is important to understand the distinguishing features between the two types of relationships so as to avoid misclassifying workers. The recent decision of the Supreme Court of British Columbia in Farren v. Elite Service Group Inc. 2020 BCSC 23 (CanLII) provides a useful guide on the issue.

Issue

 

This was a wrongful dismissal action commenced by Kevin Farren, who, for a period of almost four (4) months was contracted by Elite Service Group Inc. (“Elite”), a Canadian repair and maintenance company, to provide handyman services. Elite terminated Mr. Farren’s contract without notice, claiming he was not entitled to it because of his independent contractor status. Mr. Farren claimed that he was an employee of the company and therefore entitled to notice of termination.

Elite applied to the Supreme Court of British Columbia for a summary trial on the issue.

Facts and Findings

 

In determining whether Mr. Farren was an independent contractor or an employee of Elite the Court analyzed the facts against the following four factors:

  • Who controls the relationship?
  • Who owns the tools?
  • Does the independent contractor have a chance of profit or risk of loss?
  • How integrated is the contractor into the business?

1. Who controls the relationship?

 

Independent contractors generally control their own work schedules whereas employees typically have set hours and pay.

On the issue of control, the Court found that the following strongly suggested that Mr. Farren was an independent contractor:

  • He was free to either accept, decline or request changes to assignments.
  • Farren provided cost/time estimates when requested to do so and was free to establish his own schedule for completing assignments within agreed upon time frames.
  • Elite provided little training or oversight to Mr. Farren.
  • Farren invoiced Elite through his corporation, 101, and included GST in such invoices. When paying Mr. Farren’s/101’s invoices, Elite made no deductions or remittances for EI, CPP, tax or worker’s compensation. This payment structure was typical of an independent contractor relationship.
  • There was no evidence to suggest that Mr. Farren was economically dependent on Elite.
  • There was no evidence to suggest that Mr. Farren’s relationship with Elite was exclusive. Indeed, Elite’s evidence was that he was free to take on outside work.
  • Farren hired and paid his own workers to assist him with his assignments.

2. Ownership of equipment or tools

 

Independent contractors supply their own tools and equipment to complete their job duties.

Mr. Farren used his own truck and tools to complete his assignments. He invoiced Elite for this and for supplies he purchased. There was no further evidence of Elite providing Mr. Farren with any tools or equipment to perform his duties.

3. Opportunity for profit or loss

 

A contractor is an entrepreneur and will generally have more opportunity to profit from or absorb losses in regard to their work.

The Court determined that Mr. Farren did have some opportunity to profit from his relationship with Elite. As Mr. Farren was paid fixed rates for his services, he was able to pay the workers he hired a lesser rate than the rate he was charging Elite. He was therefore able to make some additional, albeit nominal, profits from his work with Elite.

4. Business integration

 

Independent contractors are less integrated in a company’s business operations than employees, and, as such, may be seen as more expendable.

Mr. Farren was not found to be a crucial part of Elite’s business. He was not irreplaceable, and the termination of his services did not significantly affect Elite’s operations.

Mr. Farren did not wear a uniform and was not representing Elite’s business to the public.

Neither party submitted any evidence about the anticipated length of their working relationship. Indeed, Mr. Farren’s contract was terminated after only 4 months. Generally, more lengthy engagements represent some degree of permanency in the relationship more akin to an employer/employee scenario.

The services Mr. Farren performed for Elite were described as “routine and repetitive”. Elite did not rely on Mr. Farren to complete work in order carry on its general operations. While Elite’s manager of operations did communicate with Mr. Farren frequently about work assignments, Elite did not closely coordinate its business with Mr. Farren’s activities.

Ultimately, the Court found that the about factors pointed to Mr. Farren being an independent contractor and not an employee of Elite. He was therefore not entitled to any notice of termination.

The findings in the Farren decision can be contrasted with the British Columbia Supreme Court’s decision in TCF Ventures Corp. v. Cambie Malone’s Corp., (“CMC”) [2016] B.C.J. No. 1755, (decision on status affirmed on appeal) another wrongful dismissal action wherein the same factors were considered. This action was commenced by a corporation whose principal, Tim Fernback, provided financial services to the defendant, Cambie Malone’s Corp., for a period of three years. The Court found that although Mr. Fernback provided services and was paid through his corporation, and actively sought outside work while working with CMC, his relationship with the company was more akin to an employer/employee relationship. The Court determined that Mr. Fernback was hand-picked by CMC to provide personal, professional services as its CFO, although he provided such services through a corporation. Mr. Fernback also supervised employees at CMC. As well, the Court found that there was some permanency in the working relationship given that it lasted three years. The Court ultimately deemed Mr. Fernback to be an employee of CMC due to the highly integrated nature of his role with the company.

Concluding Remarks

 

What the above cases reflect is that no one factor or test will be determinative of the employee vs independent contractor distinction. All facts and circumstances must be considered together in order to determine the true status of a worker’s relationship with a company.

The distinction between employees and independent contractors is an important one. Employees are entitled to all of the rights and protections of the Employment Standards Act including notice of termination of pay in lieu thereof whereas independent contractors typically are not. The distinction is also important for tax purposes. Misclassifying a worker’s status may lead to financial liability and even litigation.

If you are experiencing issues regarding the classification of your workers, or require general information on the topic, please contact the lawyers at Bandhu Lakhani Campea LLP for assistance.

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