|
Employment - Independent Contractor (2). Pringle v. Zenova Group PLC
In Pringle v. Zenova Group PLC (Ont CA, 2026) the Ontario Court of Appeal allowed an appeal, this brought against a defendant's successful "motion under r. 21.01(3)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194," where "the motion judge concluded that the appellant was an independent contractor – not an employee – for the purposes of the Employment Standards Act".
Here the court considers the 'Belton' test to distinguish independent contractor versus employee:[2] For the reasons that follow, I agree with the appellant that, while the motion judge identified the correct legal test for the characterization of the parties’ relationship, as articulated in this court’s decision in Belton v. Liberty Insurance Co. of Canada (2004), 2004 CanLII 6668 (ON CA), 72 O.R. (3d) 81 (C.A.), she made an extricable error of law in its application. ....
....
[15] In determining whether the appellant was an independent contractor or an employee for the purposes of the ESA, the motion judge considered the five Belton factors:(1) Whether or not the appellant was limited exclusively to the service of Zenova;
(2) Whether or not the appellant was subject to the control of Zenova;
(3) Whether or not the appellant had an investment or interest in what are characterized as the “tools” relating to his service;
(4) Whether or not the appellant had undertaken any risk in the business sense or had any expectation of profit associated with the delivery of his services, as distinct from his fixed compensation; and
(5) Whether or not the activity of the appellant was part of the business organization of Zenova; in other words, whose business was it? ....
a. Legal Framework
[25] There is no single and universally applicable criterion for determining whether a worker is an employee: 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, at para. 46. The context, including the statutory context if there is one, shapes the analysis. “[T]he same worker may be ruled to be an ‘employee’ in one legal forum, but self-employed in another forum, if such a conclusion is harmonious with the differing policy considerations in the respective forums.”: Geoffery England et al., Employment Law in Canada, 4th ed. (LexisNexis Canada, 2005), at § 2.4.
[26] In this case, the appellant asserts that he was an “employee” for purposes of the ESA, even though he intended to be an “independent contractor” for tax purposes.
i. The Employment Standards Act context
[27] Section 1 of the ESA defines an “employee” to include “a person, including an officer of a corporation, who performs work for an employer for wages” and “a person who supplies services to an employer for wages”. The definition also includes a person who was formerly an employee.
[28] Under s. 3(1)(a) of the ESA, subject to certain exceptions which are not relevant here, “the employment standards set out in [the] Act apply with respect to an employee and his or her employer if […] the employee’s work is to be performed in Ontario”. Section 5 of the ESA prohibits contracting out of or waiving an employment standard and provides that any such contracting out or waiver is void.
[29] “Employment standards” include the right to make a complaint to the Ministry of Labour under s. 96(1) of the ESA: Heller v. Uber Technologies Inc., 2019 ONCA 1, 145 O.R. (3d) 81, at para. 36, aff’d on other grounds 2020 SCC 16, [2020] 2 S.C.R. 118. A forum selection clause ousts that right and is thus void pursuant to s. 5 of the ESA: Heller, at paras. 41-42. There is no dispute between the parties that, if the appellant was an “employee” of Zenova under the ESA, the forum selection clause in the Agreement is void.
ii. The “Belton” Principles or Factors
[30] In Ontario, courts look to the Belton principles or factors in determining whether a worker is an “employee”.
[31] Belton involved a wrongful dismissal claim in which this court upheld the trial judge’s conclusion that the plaintiffs, who were commissioned sales agents, were employees. It accepted that the trial judge, in finding that the agents were employees rather than independent contractors, had applied the appropriate principles or factors (i.e., the five factors applied by the motion judge here). This court also affirmed that the fact that the parties’ contract stated that it did not create an employer-employee relationship was not determinative.
[32] The Belton list of factors is not exhaustive, and the weight to be given to any particular factor depends on the context. Not all five criteria need to point to an employment relationship for there to be such a relationship; sometimes the criteria might point in different directions, and not all the criteria will necessarily be relevant. What is important is to look at the “total relationship” between the parties; that is, one must “examine all the possible factors which have been referred to in [the] cases as bearing on the nature of the relationship between the parties concerned.”: Sagaz, at para. 46.
[33] As noted in Braiden v. La-Z-Boy Canada Ltd., 2008 ONCA 464, 294 D.L.R. (4th) 172, at para. 33, the five Belton factors were modelled on the factors listed in Sagaz, a case dealing with the employee/independent contractor issue in the context of vicarious liability for a tort. Gillese J.A. cited the following passage from para. 47 of Sagaz:The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks. [34] After listing the five Belton factors, Gillese J.A. noted, at para. 34, that the question “whose business is it?” is key:In many ways, the question posed at the end of the fifth principle – whose business is it? – lies at the heart of the matter. Was the individual carrying on business for him or herself or was the individual carrying on the business of the organization from which he or she was receiving compensation? [Emphasis added.] ....
c. Discussion
[38] Whether someone is an independent contractor or employee is a question of mixed fact and law, which, subject to an extricable error of law, is reviewable only for palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 37.
[39] Although the appellant takes issue with some of the motion judge’s factual findings and the weighing of certain factors, he also contends that the motion judge made extricable errors of law.
[40] Respectfully, I agree that the motion judge made an extricable error.
....
[43] I agree that the motion judge’s conflation of the appellant’s status as shareholder and role as employee led her into error.
[44] I begin by noting that the only information about the appellant’s shareholding is that he held 10% of Zenova Ltd.’s shares at the time the company went public, and was issued a comparable proportion of shares in the public company. There is no other information in the record that indicates the number of shares the appellant ultimately held in the public company. Nothing, however, turns on the size of the appellant’s shareholding or whether he was properly characterized as a “major” shareholder. As I will explain, the appellant’s status as a shareholder and founder of Zenova should not have driven the motion judge’s analysis of the fourth and fifth Belton factors, which helped ground her conclusion that the appellant was an independent contractor.
[45] I say this for several reasons.
[46] First, it is not uncommon for employees to have shares in the company for which they work. As noted in Employment Law in Canada, “[c]ompanies obviously can and frequently do employ shareholders.”: at § 2.45. An employee may own shares in their employer’s company for reasons related to their employment (e.g. having been granted stock options as part of their compensation package), or for reasons unrelated to their employment (e.g. because the shares are considered a good investment). Similarly, an independent contractor could acquire shares in the company to which they provide services for reasons related to their role as a contractor (e.g. as compensation), or for reasons unrelated to the contract (e.g. as a personal investment). As such, having shares in the company to and for which services are provided does not, in itself, point to whether a person is an independent contractor.
[47] Second, this is the case even if the appellant was a “major” shareholder, as described by the motion judge, or had acquired shares as a founder of Zenova. As the authors note in Employment Law in Canada, “[e]ven a major shareholder with controlling interest in the company may be its employee.”: at § 2.45.
[48] In observing that a person may have multiple statuses in relation to a corporation, the textbook authors refer to the English Privy Council decision in Lee v. Lee’s Air Farming Ltd., [1960] 3 All E.R. 420 (P.C.), and the Supreme Court decision in Guildford v. Anglo-French Steamship Co., 1882 CanLII 34 (SCC), [1883] 9 S.C.R. 303. In each case, the fact that the individual in question was a shareholder of the defendant company did not affect entitlements arising from his status as an employee.
[49] Although these cases pre-date Sagaz, Belton and other contemporary cases distinguishing between employees and independent contractors, they are nonetheless instructive, in that they underline that an individual may have dual status. An individual may be both a shareholder and either an employee or independent contractor. Sagaz’s admonition to consider the “total relationship” in assessing whether an individual is an employee or independent contractor does not override the concept of dual status.
[50] Third, the motion judge’s focus on the appellant’s status as a founder and shareholder caused her to lose sight of the nature of an independent contractor relationship as compared to an employment relationship, which, in turn, caused her to misapply the fourth and fifth Belton factors (risk/profit and business integration).
[51] Specifically, the motion judge’s approach failed to recognize that when an individual provides services as an independent contractor, there are two businesses: the business receiving the services, and the independent business supplying the services. Sagaz defines an independent contractor as someone who is performing services “as a person in business on his own account”: at para. 47.
[52] A person with their own business bears the risk of loss and the expectation of profit, depending on how much business they attract, how much they can charge, and their expenses. The person is working on their own account and for their own separate business. Even if they were to acquire shares in the company they provide services to, and thus have an incentive to help that business to prosper, they would remain an independent contractor.
[53] In contrast, where there is an employment relationship, the worker is not in business on their own account. Rather, the worker is working on account of the employer. In other words, there is one business – the business that employs the worker.
[54] In describing the fourth Belton factor, this court has explained that the chance of profit factor relates to the opportunity to profit from the delivery of services. In Belton, at para. 11, the relevant inquiry is described as “[w]hether or not the agent has undertaken any risk in the business sense, or, alternatively, has any expectation of profit associated with the delivery of his services” (emphasis added).
[55] Here, in applying the fourth Belton factor, the motion judge lost sight of these concepts, finding that the appellant might profit indirectly from the delivery of his services under the Agreement because of his status as a shareholder. Even accepting that he might profit indirectly, it is not the indirect chance to profit as a shareholder that is relevant to whether he was providing services to Zenova on his own account or as an employee. Both independent contractors and employees may hold shares and benefit indirectly from their work if they do so.
[56] While the appellant may have had an expectation of profit or a risk of loss from his shareholding in Zenova, this is not the type of profit or loss that is contemplated by the fourth Belton factor. The question is whether, in carrying out the services, the appellant had a risk of loss or an expectation of profit. He may have been paid a fixed amount, but could he maximize his earnings by, for example, hiring employees and reducing the expenses associated with the delivery of his services so that the work contemplated by the Agreement could become more profitable? Conversely, did he bear a risk of loss if he underestimated the cost of providing the services? The absence of a risk of loss or expectation of profit in the delivery of his services would point to an employment relationship.
[57] Similarly, in the motion judge’s analysis of the fifth Belton factor – the appellant’s integration into Zenova’s business/“whose business was it?” – she again emphasized the appellant’s status as a founder and shareholder of Zenova. In doing so, she misapprehended how this factor works. The motion judge answered the question “whose business was it?” in a way that separated this question from its purpose. The respondents make the same mistake when, at para. 84 of their factum, they state: “The question ‘whose business is it?’ admits of only one answer on these facts: the Appellant’s work was in furtherance of his own entrepreneurial venture, a company he co-founded, promoted, and partially owned, not in service of another’s business.”
[58] Even if the Zenova business could be said to have been the appellant’s in one sense because he had been a founder and remained a shareholder of Zenova, what matters is whether, in performing services under the Agreement, the appellant was carrying on Zenova’s business or his own separate business. The issue is whether the appellant was “carrying on business for him or herself or […] carrying on the business of the organization from which he or she was receiving compensation”: Braiden, at para. 34. The fifth Belton factor asks whether and to what extent the appellant, in performing his services, was integrated into the business of Zenova, or was part of the Zenova organization; if it was Zenova’s business, this would point to an employment relationship.
[59] The motion judge interpreted the fourth and fifth Belton factors as supporting her conclusion that the appellant was an independent contractor and not Zenova’s employee. As I have explained, she erred in her consideration of each of these factors by conflating the appellant’s status as a shareholder and founder of Zenova with his role in providing services. Having concluded that the motion judge made errors of law in her determination that the appellant was an independent contractor of Zenova, it is necessary to conduct the required analysis afresh. Here the court considers "the relevance and importance of the statement in the Agreement indicating that it was not an employment contract":iii. The parties’ characterization of their relationship is not a significant factor
[75] The appellant contends that whether he was an employee or an independent contractor is to be determined by the court irrespective of how the parties characterized their relationship, and that it was an error for the motion judge to refer to this as a factor deserving “significant weight”. The respondents assert that it was appropriate for the motion judge to consider the parties’ mutual intention as reflected in the label they attached to the Agreement. According to the respondents, courts routinely look to intention in borderline cases, where the relationship is not clearcut.
[76] The motion judge correctly noted that “the fact that a contract does not refer to an employer-employee relationship is not determinative of the issue”: Belton, at para. 11. The “not determinative” or “not always determinative” language from the case law (Sagaz, at para. 11) suggests that the parties’ characterization may be relevant.
[77] However, I do not agree with the motion judge’s view that clause (c), which provided that the Agreement was not an employment contract, was entitled to “significant weight” in this case.
[78] The relevance of the parties’ characterization of their relationship in determining whether a worker is an employee or independent contractor has been addressed in two reported decisions of the Superior Court as well as judgments of the appellate courts of other jurisdictions.
[79] In Gerling v. Camrose Regional Exhibition & Agricultural Society, 2022 ABCA 210, 51 Alta. L.R. (7th) 110, involving the appeal of a judgment after trial awarding damages for wrongful dismissal, the Alberta Court of Appeal concluded that the trial judge had erred in characterizing the respondent as the appellant’s employee.
[80] In the course of its decision, the court stated that, “the express intention of the parties in the contract should be given greater weight where the dispute is between the actual parties to the agreement” and that “the parties’ clear understanding of their legal relationship at the time the agreement is signed ‘should be accorded significant weight particularly when the agreement is in plain language, contains no fine print and is not, on its face, oppressive, unfair or difficult to understand’”: at paras. 24, 27. The court cited as authority the trial level decision of Thorburn J. (as she then was) in Shekhdar v. K&M Engineering and Consulting Corp., 2008 CanLII 27483 (Ont. S.C.), aff’d 2013 ONCA 521,[2] which in turn relied on Wellington (County) v. Butler, 2001 CanLII 38739 (ON SCDC), 56 O.R. (3d) 271 (Div. Ct.), a decision on judicial review of a decision of the Pay Equity Tribunal classifying home day care providers for pay equity purposes.
[81] The Alberta Court of Appeal also referred to cases from the Federal Court of Appeal highlighting the parties’ own label and/or their intention as a relevant factor in determining a worker’s status for income tax and pensionable and insurable employment purposes: e.g., Wolf v. Canada, 2002 FCA 96, 56 D.TC. 6853; Royal Winnipeg Ballet v. Canada (Minister of National Revenue), 2006 FCA 87, [2007] 1 F.C.R. 35; 1392644 Ontario Inc. v. Canada (Minister of National Revenue), 2013 FCA 85, 358 D.L.R. (4th) 363. The court went on, however, to state that the “ultimate question” was whether Mr. Gerling performed his services as a person in business on his own account; that is, “whose business was it?”
[82] In 1392644 Ontario Inc., Mainville J.A. noted a trend in the Federal Court (albeit one which “has not gone without criticism”) of affording substantial weight to the stated intention of the parties. He observed at para. 37 that, “[b]ecause the employee-employer relationship has important and far reaching legal and practical ramifications […] the determination of whether a particular relationship is one of employee or of independent contractor cannot simply be left to be decided at the sole subjective discretion of the parties” and that “[c]onsequently, the legal status of independent contractor or of employee is not determined solely on the basis of the parties’ declaration as to their intent. That determination must also be grounded in a verifiable objective reality.” He went on to recognize a two-step test: first, to ascertain the common intention of the parties in entering into the contract; and second, to ascertain whether the subjective intention of the parties is consistent with the realities of the relationship: at paras. 38-40. The central question remained “whether the person who has been engaged to perform the services is, in actual fact, performing them as a person in business on his own account”: at para. 41.
[83] In Ligocki v. Allianz Insurance Company of Canada, 2010 ONSC 1166, 100 O.R. (3d) 624, in the context of determining entitlement to accident benefits, Hennessy J. similarly noted that the declared common intention could not be determinative of the legal nature of the relationship, and it cannot trump the parties’ de facto relationship. Referring to Royal Winnipeg Ballet, at para. 61, she stated that “[a] declared or found common intention of the parties will be disregarded if it does not reflect the actual legal relationship the parties profess to have intended.”: at para. 22.
[84] I take from this review of the case law that, even where courts have specifically referred to the parties’ characterization of their relationship, they have continued to emphasize that the true substance of the relationship takes priority over the parties’ own characterization of it.
[85] In this case, the fact that the Agreement states that it is not an employment agreement is not a significant factor and does not affect the result. I say this for two reasons.
[86] First, clause (c) of the Agreement is inconsistent with the substance of the parties’ relationship. As I have explained, the Belton factors strongly point to an employment relationship in this case.
[87] Second, the evidence suggests that the contractual characterization of the relationship did not mean much to Zenova – it was the substance of the relationship that mattered. For example, under cross-examination, Christopher Gilbert, an ex officio member of Zenova’s board, said, in relation to the appellant’s role, that “[t]he role is the role that you’re required to fulfill however it’s provided. […] You know, you can call yourself an employee; you can call yourself a consultant. I don’t really care from the perspective of the role that the company is asking you to assume”. And despite the label used in the Agreement, the appellant deposed that Zenova “represented to customers and other stakeholders that [he] was an employee of Zenova Group PLC.” This was consistent with his title, business cards, and his office, listed as Zenova’s “Canada Office” on its website.
[88] While the appellant, when given the choice, asked for a consultancy agreement, and may well have believed that he was self-employed, the legal characterization of the parties’ relationship depends on its substance. In the circumstances of this case, it would be wrong to accord clause (c) significant weight. The label the parties attached to their Agreement cannot overcome the conclusion, on a fresh analysis, that the appellant was Zenova’s employee.
|
