Lack of Employee Status Disentitles Worker to Damages

By Daniel Standing LL.B., Editor, First Reference Inc.

In Farren v Elite Service Group Inc. 2020 BCSC 23 (CanLII), Justice Iyer of the Supreme Court of British Columbia refined various factors to determine the true nature of the working relationship, concluding that the plaintiff was an independent contractor. As such, the law of wrongful dismissal did not govern the termination of his services, leaving the plaintiff disentitled to reasonable notice of termination or damages in lieu of such notice.

Key facts

Elite Service Group (“Elite”) is a maintenance and repair company which contracted with Starbucks to maintain and repair its stores across Canada. To carry out this work, Elite contracted with some 53 individuals to provide labour in relation to signage, cleaning, and general maintenance and repair. Mr. Farren and Elite formed a verbal contract to provide maintenance and repair services starting on January 1, 2018. His contract was terminated without notice on April 25, 2018, and in August, 2018, Mr. Farren sued Elite Service Group (“Elite”), alleging wrongful dismissal.

This decision arose from the application of Elite Service Group (“Elite”) for a summary trial on the question of whether Mr. Farren was an employee, as he claimed, or an independent contractor, as Elite argued, at the time the working relationship between the parties came to an end.

The main issues

The two issues on the application were whether the issue was suitable for summary trial, and, if so, the nature of Mr. Farren’s relationship with Elite as being either that of employee or independent contractor.

The court’s decision

1. Summary trial

The court noted that the decision as to whether a matter is suitable for disposition by summary trial is a discretionary one. When, as in this case, the various issues can be decided on the evidence before the court, the summary trial provides a fair, timely and inexpensive avenue to a determination on the merits. Since a determination of the nature of the plaintiff’s relationship with Elite would either end the proceedings or substantially simplify the issues for trial, and in the absence of any conflicting evidence that would possibly require a credibility finding, the judge concluded that it was suitable for determination by summary trial.

2. Employee or independent contractor?

The stakes were high for Mr. Farren in the question of whether he was an employee or an independent contractor at the relevant time. If he was found to be Elite’s employee at the time of his dismissal, then the law of wrongful dismissal would dictate that he was owed reasonable notice of termination or damages in lieu of that notice. If, on the other hand, he was an independent contractor, he would have no such entitlement and his claim stood to be dismissed.

The court in some of its recent jurisprudence, for example, Lightstream Telecommunications Inc. v Telecon Inc., 2018 BCSC 1940 (CanLII) provided a list of factors to determine whether a worker is an independent contractor. Broadly speaking, these factors included the degree to which the worker exerts control, the ownership of equipment or tools, the opportunity for profit or loss, and the degree of business integration. In the remainder of the decision, the court examines these factors in greater detail, before concluding that Mr. Farren’s relationship with Elite was one of an independent contractor.

I. Level of worker control

Under this heading, the court first noted that Elite assigns work to workers such as Mr. Farren, specifies what needs to be done, and provides the work location and timeframe. Workers like Mr. Farren could then accept or decline the assignment, or request that changes be made to the assignment. As a result, Elite had limited power to select Farren for work. According to the court, this factor was neutral.

However, the court concluded that the way Mr. Farren’s wages were paid was characteristic of an independent contractor relationship. Mr. Farren invoiced Elite through his own company on its letterhead, and charged Elite GST. Elite paid him monthly and did not make any deductions or remittances from those amounts.

The court also examined who had control over the method Mr. Farren followed to do his work. It noted that Elite provided no training to Mr. Farren and that other than a brief initial accompaniment by an Elite operations manager, Mr. Faren worked alone using his pre-existing skill and expertise. Furthermore, Elite exercised little control over how Mr. Farren accomplished his tasks since he was free to determine when he completed the work within the specified time range. No one oversaw his work, but he would communicate with Elite frequently by phone and text. This pointed to an independent contractor relationship.

The court noted that Elite exercised its right to terminate Mr. Farren’s services on April 24 or 25, 2019, as the result of a customer complaint. It viewed the right to suspend and terminate as being neutral in this case. However, it determined that Mr. Farren’s relationship with Elite was not exclusive; the uncontested evidence was that Mr. Farren was free to take other work, indicating an independent contractor relationship with the company.

Next, the judge examined Mr. Farren’s level of economic dependence on Elite. Mr. Farren submitted that his invoices issued for the period of January to April 2018, which totalled more than $18,000, was evidence of his economic dependence on Elite. The judge did not agree. Without any evidence about typical levels of remuneration for this type of work or of Mr. Farren’s financial circumstances, it was “not reasonable to find that Mr. Farren was economically dependent on Elite in the way that an employee is financially dependent on an employer.”

The final factor the court considered in relation to worker control was in relation to the ability to hire helpers. The evidence showed that Mr. Farren could and did hire helpers. On his invoices, he did not itemize the hours of work done by each helper, but instead billed Elite for one total sum.

The court summarized the evidence concerning the level of worker control and concluded that the various factors strongly pointed to Mr. Farren being an independent of Elite, not its employee.

II. Ownership of equipment and tools

With respect to the ownership of equipment and tools, apart from a tablet computer and an access card or master key, Elite provided no other equipment or tools to Mr. Farren. Mr. Farren used his own truck and other supplies, tools and materials. This factor, according to the court, pointed to an independent contractor relationship.

III. Opportunity for profit or loss

Likewise, Mr. Farren’s opportunities for profit from his relationship with Elite provided further basis for finding that he was an independent contractor with the company. Although the evidence was not comprehensive, it indicated that Mr. Farren was paid fixed rates for certain routine types of work, leaving him free to do other things, including other work. Other opportunities for profit included the option of paying his helpers less than the hourly labour rate he billed Elite, as well as the possibility of paying less for materials than the set rates he billed Elite. According to the court, even modest opportunities for profit are characteristic of an independent contractor relationship.

IV. Business integration

The last main factor the court considered in making its determination was the degree to which Mr. Farren was integrated in Elite’s business. On this point, the court noted that Mr. Farren was not an irreplaceable part of Elite’s business; he was one of 17 similar handymen and there was no evidence that his departure had any great impact on the company. Additionally, his activities did not represent Elite’s business in any public way; he wore no uniform and displayed nothing that would show he had a relationship with Elite. There was no evidence about how long the relationship between the parties was intended to last, although it lasted only four months. Lastly, there was no “coordination of conduct” between the parties; the communications between them were for the purpose of discussing potential jobs, Mr. Farren’s availability and his progress on outstanding work. The court found that Elite did not rely on Mr. Farren’s work as part of a wider integrated work process. The work performed did not require close coordination; rather, Mr. Farren’s work was routine and repetitive. In summary on this point, the court noted that there was very little integration of Mr. Farren into Elite’s business, which pointed toward a conclusion that Mr. Farren was an independent contractor.

3. Conclusion

The court reached the anticipated conclusion that Mr. Farren was an independent contractor in relation to Elite, since all of the various factors discussed above supported that conclusion. As a result, Elite’s application for summary trial was granted and Mr. Farren’s action against Elite was dismissed, with costs.

Takeaways

A proper characterization of a worker as either an employee or an independent contractor can have significant and far-reaching consequences for both parties. This case illustrates that the true nature of the relationship is not superficial but will depend on a careful examination of the various applicable factors. Prudent employers wishing to characterize the relationship as one of independent contractor may address the various key factors discussed in this case in a written independent contractor agreement, providing further weight to the desired characterization. In the end, though, as with all cases, the result will depend on the entire factual makeup of the relationship and not merely the label that a party attaches to it.

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