Ontario Court Finds Employee Wrongfully Dismissed

A thorny issue in the area of employment law involves determining whether a worker is an employee or an independent contractor. What’s the big deal, you ask? Well, for employment lawyers in Ontario, this issue is often difficult to discern and massive consequences, for both workers themselves and the companies for whom they work. In fact, while in most cases, workers are eventually deemed employees (not independent contractors), the analysis is far more complicated than what meets the eye.

What is an Employee vs Independent Control and Is there a Legal Test to Determine a Worker’s Status?

Under employment law, an “employee” refers to a person who performs any sort of work for (or supplies any services to) an employer in exchange for receiving wages. As such, these workers are protected by legislation and common law relating to employment law, such as the Ontario Employment Standards Act, 2000. Most importantly, employees can sue their employer for wrongful dismissal upon termination of employment, or negotiate a severance package with the help of an experienced employment lawyer. In these employer-employee relationships, the following circumstances generally exist:

the work the worker performs is an important part of the business
the business decides:
- what the worker is to do
- how much the worker will be paid
- where and when the work is performed
the business provides the worker with tools, equipment or materials to perform the work
the worker cannot subcontract their work to someone else (cannot hire their own helpers)
the business has the right to suspend, dismiss or otherwise discipline the individual
the worker is limited exclusively to the service of the employer
the worker provides their own equipment or has an investment or interest in the tools relating to their service

By contrast, an independent contractor is someone who is in business for themselves and are not protected by employment law (think of a “freelance” worker). In these independent contractor-company relationships, the element of control generally resides between both parties, unlike in an employer-employee situation where it is the employer who wrests most control. As such, the following circumstances generally exist:

the business can end the worker’s contract for services, but cannot discipline the individual
the worker:
- has the opportunity to make a profit and has a risk of losing money from the work (degree of financial risk of profit or loss)
- determines how, when or where the work is performed
- decides whether to subcontract some of the work

Contrary to common misconceptions, a worker can still be considered by employment law to be an employee even if:

the worker and the business agree (orally or in an independent contractor agreement) that the worker is an independent contractor. It is the relationship between the individual and the business (or person) that matters – not the label that is the company ascribes to the relationship.
the worker:
- charges the company harmonized sales tax (HST)
- submits invoices to the business
- uses their own vehicle for work purposes
the business does not make statutory deductions (for example, tax, Canada Pension Plan (CPP) or Employment Insurance (EI) from the person’s pay)
another government agency (for example, the Canada Revenue Agency) determines that the individual is not an employee under their legislation

Example: Scamurra v Scamurra Contracting

In a recent case called Scamurra v Scamurra Contracting, 2022 ONSC 4222, a worker brought a wrongful dismissal lawsuit against four companies that were part all operating together as part of a family business. In pursuing his right to a severance package, the worker alleged all four companies were one and the same “common employer” during his employment. As such, he claimed he was owed damages for pay in lieu of notice when they decided to terminate his employment. One of the key points of dispute was whether when it comes to one of the four companies, the employee was actually an independent contractor, which would disentitle him to a severance package to compensate for losing his job.

As described below, the court ultimately found in favour of the worker, concluding that he was actually an employee. As a result of his termination of employment without cause, all four companies were jointly and severally liable for providing him with 22 months of severance package compensation (this is also called “pay in lieu of notice” under common law). Why?

In the court’s analysis, all of the factors underpinning the working relationship made it clear this an employer-employee relationship (not independent contractor), including the following:

the companies provided him with all the equipment needed to do his work and perform services (he did not use any of his own tools or equipment)
although he occasionally hired part-time drivers who reported to him, he did so on behalf of the companies he worked for, who in turn compensated those new hires and itself had the authority to hire and fire them
the employee did not have the financial risk related to the companies’ work, nor an opportunity to share in its corporate profits. Instead, he was paid a fixed salary, regardless of whether the business “was slow or booming”
although the employee performed his duties with significant independence, he ultimately reported to his brother who monitored his attendance and job performance at the companies
the employee worked exclusively for the companies for seven years and did not earn income from any other source during that time
the employee received 2 weeks’ paid vacation from the companies annually
the employee was regularly paid the same amount regardless of his workload
the employee used a company vehicle and cell phone

Contact Ontario Employment Lawyer Today

If you are an employer who needs defence in a wrongful dismissal claim brought by a worker you believe to be an independent contractor, or if you are an employee who believes you have been wrongfully dismissed by your employer and you would like to know if you have the right to sue your employer for wrongful dismissal or a severance package, review your employment contract or negotiate a severance package, our experienced constructive dismissal lawyer at Bune Law, Toronto employment lawyer, can help. Contact us by phone 647-822-5492 or fill out the contact form to the side. We would be happy to assist in your employment law matter as quickly as possible.

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