February 3rd, 2017 by FH&P Lawyers

The modern workplace is changing and with it the court’s notion of who is an independent contractor and who is an employee. The consequence of this evolution in understanding can have significant financial consequences for employers. Whereas an employee who is terminated without cause is entitled to reasonable notice and the protections afforded by employment standards legislation, true independent contractors are not entitled to such protections.

In TCF Ventures Corp. v. The Cambie Malone’s Corporation, 2016 BCSC 1521, the TCF Ventures Corp. (“TCF”), a corporation, sued The Cambie Malone’s Corporation (“CMC”) for wrongful dismissal damages. In 2009, the defendant hired TCF’s principal (Mr. Fernback) to be its CFO. The agreement was between Malone’s and TCF, not Mr. Fenwick. The defendant terminated its working relationship with the TCF in 2012 and TCF sued for wrongful dismissal damages. Malone’s argued that TCF, as a corporation, was not entitled to any wrongful dismissal damages. The relationship was essentially an agreement between two corporations. TCF was not an employee of Malone’s; rather, it was independent contractor. Accordingly, it did not have a right at common law to notice.

The British Columbia Supreme Court disagreed noting that “[t]he jurisprudence of employment law has, in relatively recent times, evolved to recognize the realities of the modern workplace and the fact that the relationship between workers and those to whom they provide their services are not simply binary—either employee-employer or independent contractor.” The Court noted that parties may have a variety of different arrangement so “[t]he approach to be taken is to examine the situation from a functional perspective.” The three following factors are key in this analysis:

  • the duration/permanency of the relationship;
  • the degree of reliance/closeness of the relationship; and
  • degree of exclusivity

In the case at bar, the Court found that notwithstanding that Mr. Fenwick provided services through a corporation and was free to provide services to others, the arrangement entailed a significant element of personal service. Mr. Fernback, as CFO, was functionally integrated into CMC’s organization. The Court stated as follows at paragraph 51:

“CMC set out to hire a CFO; it wanted a professional person to provide certain services to the corporation. That entailed having a specific, identified, and qualified person to perform those functions. The person CMC selected was Mr. Fernback. It was his package of attributes that CMC wanted to have working for it, and that is what occurred.”

The court held that the essential nature of the relationship was akin to an employer-employee situation, as opposed to a pure independent contractor. Accordingly, TCF was entitled to damages for wrongful dismissal.

This case serves as an important reminder that courts will look beyond the words in a contract to determine the true nature of a relationship. In such a scenario, the old adage applies: if it looks like an employment relationship and it smells like an employment relationship, it probably is an employment relationship (even if it is, in fact, an agreement between two corporations).