March 14, 2019

By: Chris Justice

Historically, the law in Canada has used the word “employee” as an entry to coverage, employing the difference between an employee and an independent contractor. [1] As most statutory definitions of “employee” were general and vague, the control test, set out in Montreal v. Montreal Locomotive Works, was used to demarcate boundaries. Evolving from the common law concept of vicarious liability, the test analyzes four factors: control, ownership of tools, chance of profit, and risk of loss. [2]

In 1936, the Courts recognized the existence of an “intermediate” position “where the relationship of master and servant does not exist but where an agreement to terminate the arrangement upon reasonable notice may be implied”. [3] This was reaffirmed approximately forty years later by the Ontario Court of Appeal when it held that a relationship where the plaintiff was “the exclusive distributor of the defendant’s products in [two provinces]” was “closer to a contract of employment than to a commission agency”, requiring reasonable notice. [4]

This Court examined the distinction between an employee and independent contractor, in the context of the issue of vicarious liability, in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc. There it was held that there is no one test to determine whether a person is an employee or independent contractor, but set out what it considered to be a persuasive approach to the issue:

The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks. [5]

In McKee, the specific category of “dependent contractor” was recognized in the jurisprudence for non-unionized employees. Citing the “dependent contractor” definition in the Ontario Labour Relations Act, the Court held that dependent contractors are entitled to reasonable notice of their dismissal, as it would be owed to an employee. [6]

Following McKee, the Court of Appeal, in Keenan v. Canac Kitchens Ltd., upheld a twenty-six month award for two dependent contractors, highlighting that Canadians engaged in this form of working relationship are to be afforded the same notice entitlements as employees. [7]

In the court below, the trial judge considered the five principles set out in Belton v. Liberty Insurance Co. of Canada [8]:

  1. Whether or not the agent was limited exclusively to the service of the principal;
  2. Whether or not the agent is subject to the control of the principal, not only as to the product sold, but also as to when, where and how it is sold;
  3. Whether or not the agent has an investment or interest in what are characterized as the “tools” relating to his service;
  4. Whether or not the agent has undertaken any risk in the business sense or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission; and
  5. Whether or not the activity of the agent is part of the business organization of the principal for which he works. In other words, whose business is it? [9]

What began as the mere recognition of an “intermediate position” between an employee and independent contractor has progressed to the clear recognition of dependent contractors. Notwithstanding the evolution of the dependent contractor in Ontario, the recognition, classification, and treatment of this category has varied throughout the country.

As such, and regardless of whether you are an employee or employer dealing with issues relating to the classification of employment, you should first seek legal advice prior to taking any action.