Dependent contractor ‘has a degree of vulnerability and dependence on the employer,’ says lawyer
A company owned and operated by a worker that contracted trucking delivery services for 14 years was a dependent contractor entitled to 10 months’ notice of termination of the contract, a British Columbia court has ruled.
The classification of dependent contractor is between the traditional employee and independent contractor identifications, says Trevor Thomas, partner and co-founder of Ascent Employment Law in Vancouver.
“Over a period of time, this new type of worker emerged where they weren’t quite an employee or independent contractor and they fell in the middle of the spectrum,” he says. “This type of person has a degree of vulnerability and dependence on the employer and they don’t have the same leverage an independent contractor would have, but they still aren’t quite in an employee relationship - that’s why courts have developed the third category of dependent contractor.”
The worker, 61, owned and operated Borly Holdings, a commercial trucking business of which he was the sole shareholder and director. In 2010, Borly entered into an agreement with Country Lumber, a company selling construction materials to large and small construction and building customers in Langley, BC. Country Lumber had its own fleet of trucks and drivers to deliver its products, but it also contracted out delivery to owner-operators of trucks.
There was no formal written agreement, and Borly had one truck at the time. The worker worked exclusively for Country Lumber through Borly and, over time, he acquired two more trucks for his business. Country Lumber paid Borly for its services, and Borly paid and hired drivers for its trucks.
Exclusive services
Borly’s trucks had Country Lumber decals on them and it was the worker’s understanding that if he provided services for anyone else with those decals on his truck, Country Lumber would terminate the arrangement. He also worked full-time hours from Monday to Friday, with occasional weekend work.
The worker only took time off when business at Country Lumber was slow, and he and other drivers had to fill out Country Lumber vacation request forms to take time off. On a few occasions, Country Lumber’s shipping manager disciplined or terminated Borly drivers for performance or conduct issues, as he did for Country Lumber’s entire driving fleet.
Country Lumber also set strict requirements for how, when, and where its products were delivered by the worker and other Borly drivers. Borly drivers were also required to have Borly tracking technology installed on their cellphones and to park their trucks on Country Lumber property for quick loading the next day.
Country Lumber covered partial fuel costs and the full cost of oversize load permits, while Borly was responsible for servicing its trucks and insurance.
Borly continued providing its services to Country Lumber for 14 years until Feb. 9, 2024, when Country Lumber’s yard manager told the worker that business was slow and he suggested that the worker look for other work. On March 15, Country Lumber terminated their agreement, providing a written letter of termination the next day along with a reference letter.
Wrongful dismissal claim
Borly commenced an action for wrongful dismissal, arguing that it was a dependent contractor entitled to reasonable notice of termination of 16 months. Country Lumber countered that Borly was an independent contractor and the contract for services was between two business that benefitted equally from the arrangement, so no notice of termination was required.
Country Lumber also argued that, if Borly was a dependent contractor, only one month’s notice was necessary due to the “highly commercial nature” of their agreement.
The court agreed with Country Lumber that an employee or dependent contractor relationship couldn’t exist with both the worker and Borly, and the worker clarified that he wasn’t claiming that he, as an individual, was an employee or dependent contractor – the issue was over Borly’s status.
The court noted that the Ontario Court of Appeal established that “employment relationships may exist on a continuum between pure employee and pure independent contractor” with several factors to determine the nature of the relationship. Some of the factors established in BC jurisprudence include:
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The extent of the agent’s work done in service of the principal
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How much control the principal has over the agent
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Who provides the tools
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The risk of loss or possibility of profit by the agent
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How much of the agent’s activity is part of the principal’s business organization
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The length of the relationship
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Whether the parties relied on one another and closely co-ordinated their conduct.
Dependent contractor
Where a worker or contractor falls on the spectrum of categories - employees, dependent contractors, and independent contractors – depends on the power and vulnerability in the relationship, says Thomas.
“On the employee side of things they have little power, while at the other end they have more power because as a business entering a commercial relationship as a contractor, it has more power and leverage and isn’t as dependent on the employer,” he says. “So employees are afforded protections under employment standards legislation and courts, while at the opposite end independent contractors are in business for themselves so they don’t have the same protection.”
Considering these factors and noting that there was no written contract providing any details of the relationship, the court determined that Borly was a dependent contractor. Key factors included the requirement for Borly trucks to carry Country Lumber branding, adherence to Country Lumber’s working hours, Country Lumber’s control over daily tasks and discipline of Borly drivers, and the integration of Borly into Country Lumber’s operations over a 14-year exclusive working arrangement. The evidence showed that Borly’s operations were heavily co-ordinated with and economically dependent on Country Lumber, said the court.
Country Lumber’s control over Borly’s work and the exclusivity of the arrangement were two of the biggest factors, according to Thomas.
“[Borly] only worked for Country Lumber, so its income was solely dependent on this work,” he says. “There were no opportunities to work or make any money from anywhere else, so this there was a high degree of dependence on this work and on the relationship.”
“Country Lumber was basically exerting its control over [Borly’s] employees and the court found that the operations of [Borly] were largely dictated by Country Lumber,” adds Thomas. “These are all little puzzle pieces that, when they come together, they form this bigger picture, because where there's a high degree of control, that's indicative of more of an employee-employer relationship.”
Reasonable notice
While Borly pushed for 16 months’ notice of termination, the court settled on a 10-month notice period after considering the traditional Bardal factors including the nature and duration of the work, the age of the worker, and the availability of alternative work. Ten months reflected the length of the relationship, the control Country Lumber exercised over Borly, the commercial nature of Borly, and the tax benefits Borly received from being a contractor, the court said.
Using revenue data from the six months before the termination and applying an after-tax income ratio of 36 per cent, the court calculated Borly’s net income loss for the 10-month notice period as $96,594.
Borly secured alternative trucking work following the termination that earned $13,640.09 in net income, so the court deducted that amount from the damages. Country Lumber was ordered to pay Borly $82,953.91.
Misclassification
Country Lumber’s missteps started by misclassifying Borly as an independent contractor from the beginning, says Thomas.
“It could have started off as saying, ‘We think this is going to be an independent contractor relationship,’ but after a couple of months, they should have reassessed the relationship and looked at all these different factors - they should have started asking these questions early on in the relationship,” he says. “That's really important for any working relationship where you initially label someone as an independent contractor, because as the relationship goes on and things start to evolve, you might find that it almost morphs into more of an employee-employer relationship.”
That’s why it’s essential for employers to understand the nature of the classification spectrum and the evolution of their relationships with their contractors, Thomas adds.
“It's easy to jump into one of these relationships, but as it progresses over time, keep an eye on it to make sure that the relationship doesn't change from independent contractor to employee or dependent contractor, or even the other way as well,” he says.
