Independent contractor choosing to become more dependent

Question: If an independent contractor chooses to reduce his other work during an existing contract so the contract’s proportion of his work has increased from less than half to most of it, can his independent status change?

Brian Johnston

Answer: Yes, but it is unlikely unless other factors also support a change in the contractor’s status. 

Across Canada, courts or labour boards look to several factors to determine whether a worker is an employee or an independent contractor; namely: 

• Intention of the parties

• Level of worker control

• Ownership of equipment and tools

• Profit/loss opportunity

• Business integration.

These factors are considered holistically — no one factor is determinative. However, the worker’s status may transcend into one of dependent contractor or perhaps employee if the relationship considered as a whole points to the worker becoming dependent on one work provider. If that worker unilaterally chose to refrain from work elsewhere and such was not the intention of the parties, the worker’s status as independent contractor is less likely to change.

Consider Malleau v. M.N.R., in which the Tax Court of Canada was asked whether a carpenter was an employee or an independent contractor of a construction company for tax purposes. The worker had initially worked odd jobs until the company’s director asked the worker to do a large amount of work on a series of projects. From this point on, the worker considered himself to be an employee, but the company did not perceive any change in the relationship. The worker remained free to select and turn down jobs at the company as he liked and was free to take on other work for other contractors if he chose, but he in fact worked primarily for the company from thereon.

The court considered the factors listed and concluded that the worker remained an independent contractor. It was highlighted that the worker was not required to provide his services exclusively to the company, and the fact that he chose to do so was not determinative but merely indicative of his desire to work exclusively for the company. 

While the treatment of an individual as an independent contractor for tax purposes is not determinative to the analysis in an employment context (Dynamex Canada Inc v. Mamona), it may be persuasive, and the court here applied case law from the employment context to classify the relationship for tax purposes.

Similarly, in Robinow and Calian Ltd, Re, a psychiatrist had contracted to provide services to the Canadian Forces through an intermediary contractor, Calian, for a number of years, while being free to provide services elsewhere. Eventually, his contract was terminated and he filed a wrongful dismissal claim. Among his submissions, the psychiatrist noted that, over the period of his contract, he had increased his work at the Forces bases and simultaneously decreased his other work commitments. He claimed that, eventually, he was almost entirely financially dependent on Calian. Calian submitted that, although the psychiatrist’s reliance on his work at the Forces clinics increased over time, the decision to reduce his activities elsewhere was the psychiatrist’s own and had not been requested by Calian.

Applying the factors, the adjudicator held that the psychiatrist had remained an independent contractor. There was no obligation for him to work only for Calian and, in fact, the agreement clearly anticipated that he would have other clients. While the numbers of hours the psychiatrist had worked over the latter portion of the contract could reflect a high degree of dependency, the adjudicator said, “I cannot agree that because Dr. Robinow chose to work more hours at the clinic that his status had changed in any manner” to one of dependent contractor.

In some cases, however, the status of a worker shifts despite their continuing to work on other contracts, due to the level of the worker’s integration into the business as a whole and level of dependency.

Consider Glimhagen v. GWR Resources Inc., in which a worker who had provided accounting services to a business as an independent contractor began taking on more responsibilities after a period of time. The company had switched from paying the worker’s company as a contractor to placing him on their payroll personally, but it never required the worker to provide services exclusively. In fact, after the worker went on the payroll, he continued provide services to other parties. In the context of a wrongful dismissal suit, the court had to determine whether he was a dependent or independent contractor. 

The court concluded that the relationship had evolved over time from one of independent contractor to dependent contractor. Although the worker continued to pursue some other business interests — this factor mitigated against a finding that he was a dependent contractor — overall, it was clear that the relationship had become ingrained and established over time and the worker had become a key player in the company’s operation. The length of the relationship, which spanned some 23 years, was an important factor, as were the worker’s evolving duties. 

This illustrates that no one factor is determinative, and where the worker is substantially involved in the project, the court will be more likely to find that the worker is either an employee or a dependent contractor in order to afford the worker more protection, even where the worker remains free to work on other projects.

Another interesting situation arose in Shaham v. Airline Employee Travel Consulting Inc., where a worker had initially suggested that they structure his working relationship as one of a contractor, not an employee, in part because he had an interest in remaining free to work on other projects. However, the worker recognized from the outset that working for the company would require putting in considerable hours and he devoted most of his time to this contract. The company’s director eventually learned that the worker had been taking some steps (albeit very preliminary) to develop a new business, felt that the worker was not working in the best interests of the company and terminated the contract. 

The court determined that the worker was a dependent contractor as, although he had the right to work on other projects, it was clearly understood that he would be working long hours for the company and was relying on that income to support himself. The company was, therefore, in breach of contract by terminating the worker without just cause. 

Ultimately, all of the factors will be considered in totality to determine a worker’s status and the label placed on the relationship is not determinative. However, the amount of work being done is associated with the level of integration into the business as a whole, which plays a large role in the analysis, whether or not the worker is free to engage in other business interests. 

Where a worker is dependent on one contract by virtue of the nature of the contract itself, rather than their own choice to reduce work elsewhere, courts will be more likely to afford the worker the protection associated with a status of dependent contractor or employee.

It is also noteworthy that, in 2020, certain amendments to the Canada Labour Code will likely come into force, including s. 167.1, which prohibits an employer from treating an employee as if they were not an employee in order to avoid obligations with respect to standard hours, wages, vacation, holidays and leave. If any complaint is brought with respect to these entitlements, the burden of proof will be on the employer to establish that the worker was not an employee and these obligations do not apply. This amendment will have significant implications on businesses now faced with the presumption that workers are employees. This presumption, coupled with a worker reducing hours elsewhere and taking on more work under an existing contract, will likely make it more probable that the worker’s independent contractor status would be subject to change. 

For more information see:

Malleau v. M.N.R., 2013 TCC 47 (T.C.C.).

•  Dynamex Canada Inc v. Mamona, 2003 FCA 248 (F.C.A.).

•  Robinow and Calian Ltd, Re (Aug. 20, 2017), Doc. YM2707-10847 (Can. Labour Code Adj.)

•  Glimhagen v. GWR Resources Inc., 2017 BCSC 761 (B.C. S.C.).

•  Shaham v. Airline Employee Travel Consulting Inc., 2018 NSSM 18 (N.S.Sm. Cl. Ct.).

Brian Johnston, Q.C., is a partner with Stewart McKelvey in Halifax. He can be reached at (902) 420-3374 or [email protected]

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