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Employment Law’s Middle Child: The Dependent Contractor

Misclassification of Workers

The rise of the gig economy made worker classification a hot button topic. You’ve probably read about companies like Uber insisting on classifying its workers as independent contractors. While controversial to some, employers can benefit from this sort of classification in the form of fewer employment law obligations, such as not having to provide termination pay, overtime pay, vacations, or provide reasonable notice of dismissal.

Sometimes, workers ask or even insist on being “paid as a contractor” because they can write off some expenses. However, these workers often fail to realize that contractors do not have the same legal protections that employees enjoy; furthermore, courts, tribunals and government agencies like the CRA will not blindly accept the way that the parties describe their relationship and can impose their own judgment as to whether an “independent contractor” is really an employee. This can often result in substantial penalties and liability.

What you might not have read about is that there is an intermediate category between independent contractor and employee – you guessed it, “dependent contractor.” A dependent contractor typically has a higher degree of autonomy and financial risk than an employee but is economically dependent on the employer as their source of a substantial majority of their income. They are contractors for tax and other purposes but are entitled to reasonable notice of termination.

The Decision in Breezemax

Worker classification issues are not exclusive to the gig economy; and in some cases, it can be beneficial for workers to be treated as contractors rather than as employees. The decision in Cvjetkovich v Breezemax Web (Ca) Ltd., 2024 BCSC 808 (“Breezemax”) underscores that classification can be an issue even for workers in roles close to the C-suite, and highlights a key benefit that contractors enjoy – tax treatment. Furthermore, the decision also provides us with two key takeaways:

  1. A default judgment does not mean the courts will accept your conclusions; and
  2. Courts will analyze several factors to determine whether a worker is an employee, or an independent/dependent contractor, and these may vary by jurisdiction and by adjudicative body (e.g.: the CRA will take a different approach than a court).

1) Courts will Draw Their Own Conclusions

In Breezemax, the plaintiff was a Senior Vice President of Sales for a digital marketing company. He sued for wrongful dismissal and obtained a default judgment when the company failed to defend. In the case of a default judgment, the facts are deemed to be true, but as this decision shows, courts can still make their own conclusions. The court did just that and found that the plaintiff was a dependent contractor, and not an employee, as he argued.

In this case, the plaintiff and the defendant employer mutually agreed from the outset that the plaintiff would be a contractor, though neither party specified whether the relationship was one of dependent or independent contractor. As a contractor, the plaintiff enjoyed preferential tax treatment and fewer payroll deductions. The plaintiff’s tax treatment was a significant factor for the Court, as it took notice of the fact that he enjoyed the better tax treatment of a contractor, yet only claimed to be an employee after termination.

2) Determining Dependence

The tax treatment here brings us to the second takeaway, which is that different jurisdictions will approach the question of employee or independent/dependent contractor through their own lens. In Breezemax, we see how the Supreme Court of British Columbia approached the question. In this case, the court focused largely on the degree of control the employer had over the plaintiff, and on the plaintiff’s tax treatment, and determined that he was a dependent contractor. Interestingly, the court made its findings without devoting much analytical space to the factor of exclusivity, which speaks to the degree of a contractor’s economic dependence on an employer.

The approach in Breezemax contrasts with the approach that the Ontario Court of Appeal took in Thurston v. Ontario (Children’s Lawyer), 2019 ONCA 640 (“Thurston”). In Thurston, the Court of Appeal stated that exclusivity and economic dependence are determinative in establishing a dependent contractor relationship. Accordingly, a contractor is dependent when a substantial majority of their income is from one employer, such that the contractor is economically dependent on that employer, putting them in a similar position to an employee. Consequently, the court in Thurston devoted a lot of analytical space to exclusivity.

It is this notion of exclusivity and economic dependence which entitles dependent contractors to reasonable notice, and why it is interesting that the court in Breezemax did not give it much consideration, focusing instead on other criteria, perhaps because of the default judgment. It will be interesting to see if future decisions in British Columbia follow the approach in Breezemax.

Finally, the difference in approaches discussed above reminds us that in addition to courts, administrative entities such as the CRA, or a provincial labour board, also approach the question of employee or contractor through their own analytical lens. For example, the CRA uses a two-step test that considers the parties’ intent at the outset, and then examines their relationship to see if it matches their intent.

The Upshot

It is important to note that courts will analyze a variety of factors, including:

  • degree of control,
  • economic dependence,
  • tax treatment, and
  • the intention of the parties, when determining whether there is an employment or contractor relationship.

Ultimately, these decisions remind us that many factors are considered, and neither the employer nor the worker can rely solely on how each party characterized the relationship.

In closing, this decision accentuates that worker classification is not a clear-cut issue. Whether you are an employee or an employer, if you have a question about worker classification we can provide strategic advice on how to approach your particular case. If you are unsure about your own, or an employee’s, classification, contact us – if you think you need an employment lawyer you probably do!

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