The High Cost of Misclassifying Workers

misclassifying employees

We often discuss the rampant misclassification of workers (see, for example, here and here), usually in the context of “independent contractors” that are employees in all but name. However, the existence of a third category, somewhere between those two classifications, has become more widely recognized by the courts over the years. As a result, a worker may be found to have been working as a contractor but because they were so dependent on the organization, they were a dependent contractor and therefore entitled to more protections than an independent contractor. This can result in significant liability for an employer. 

This was the case in Liebreich v. Farmers of North America, where the employer was ordered to pay damages to a worker after the Court held that the worker was, in fact, a dependent contractor and not an independent contractor as alleged by the employer. 

Background

The Plaintiff started as a part-time independent contractor at Farmers of North America (“FNA”) in 2002. As time passed, her hours increased to full time and she became more integrated into FNA’s operation. In 2015, FNA was experiencing a financial decline, and as a result, the Plaintiff was asked to sign an Employment Agreement (the “Agreement”) which cut her remuneration and benefits. In July 2016, the Plaintiff submitted a request for vacation time which was approved. When the Plaintiff took her pre-approved vacation, FNA took the position that the leave was unapproved and that the Plaintiff had abandoned her position. Consequently, the Plaintiff’s employment was terminated for cause. 

The Plaintiff brought an action for wrongful dismissal. In its defence, among other things, FNA argued that the Plaintiff was an independent contractor before signing the Agreement and, accordingly, that period should not be considered when assessing damages for wrongful dismissal.

Decision

In determining whether the Plaintiff was in an employment relationship prior to signing the Agreement, the Court considered the following factors:  

  1. Level of Control FNA had over the Plaintiff’s Work – the Court noted that: the Plaintiff was subject to direction from FNA and did not have an option to refuse; her key performance indicators were set by FNA; her work schedule was dependent on and set by FNA; FNA paid her wages, which included vacation pay and banked overtime; she was economically dependent on FNA; and she worked exclusively for FNA. The Court concluded that overall, this test strongly indicated that the Plaintiff was in an employment relationship with FNA before signing the Agreement. 
  2. Ownership of Equipment and Tools – the Court noted that the Plaintiff was provided with a cell phone by FNA to perform her job though she used her own laptop. However, as it appeared that the Plaintiff only required a cellphone and a laptop to perform her job, the Court considered this factor to be less important in the overall analysis and, therefore, neutral.
  3. Profit/Loss Opportunity  – the Court noted that the Plaintiff did not benefit from the success of  FNA, nor was she liable for the consequences of its financial failure; she did not share in the risks of the business, nor was she responsible for investment and management. The Court concluded that this test clearly indicated that the Plaintiff was in an employment relationship with FNA.   
  4. Business Integration – the Court noted that the Plaintiff had business cards indicating her position within FNA; was part of the senior management team, according to FNA, her loss was substantial to the business; and she had a permanent and lengthy relationship with FNA that ran continuously for approximately 13 years prior to her signing the Agreement. The Court concluded that this test indicated that the Plaintiff was in an employment-like relationship with FNA.

Given the above factors, the Court concluded that the Plaintiff was never fully independent from FNA’s operation, notwithstanding her independent contractor designation. As the Court wrote:

“I conclude that Ms. Liebreich was either an employee, or a dependent contractor very near the end of the continuum during the 2002-2015 period. For the purposes of the analysis that follows, I will treat Ms. Liebreich as being a dependent contractor – however, as will be seen, it is my view that this is a distinction without a difference in this case.”

The Court concluded that the Plaintiff was a dependent contractor and therefore entitled to have her reasonable notice period calculated based on the entire length of her relationship with FNA. The Plaintiff was awarded 8.5 months’ pay in lieu of reasonable notice, which amounted to $70,833.33. She was also awarded $97,650.00 in unpaid employment-related entitlements and $16,500.00 in punitive and special damages.  

Our team is here to help you. If you are an employer with concerns about the classification of your workforce, you can contact us for advice. Similarly, if you are an employee with questions about your own classification, you can also contact us for advice.

 

 

Anique Dublin

I am a law clerk specializing in Employment Law services. I was drawn to employment law because of the human interest component of the practice. Every new case involves a unique and highly personal story. Whether it is a discrimination or harassment claim, or a contract negotiation, it typically involves complex relationships between people in the workplace and, therefore, wrought with emotions. This makes employment law unlike many other areas of law.