One of the most common issues that arises in workplace disputes is whether an individual is an employee or independent contractor in law. It can be convenient for various reasons (tax, etc.) for employers and individuals to agree on a working arrangement that labels the individual as an independent contractor, but when the working relationship breaks down and the contractor is terminated, the individual could claim he or she is an employee at law, and thus entitled to severance pay. The British Columbia Supreme Court recently applied the “modern approach” to determining whether an employment relationship existed at law in Ventures Corp. v The Cambie Malone’s Corporation, 2016 BCSC 1521.
Tim Fernback applied for the position of CFO which had been advertised as an employment opportunity by The Cambie Malone’s Corporation (“CMC”). After being selected for the position, Mr. Fernback proposed a working arrangement whereby he would provide financial and commercial services through his own corporation, TCF Ventures Corp. (“TVC”). Mr. Fernback suggested that TVC would render invoices for fees of $75,000.00 per year, charge GST, and that the agreement would have a 30-day termination clause. A formal written agreement was never executed, although the parties did generally proceed as Mr. Fernback had suggested. In the course of his duties, Mr. Fernback had authority over several employees, he was provided an office, a phone local, email accounts, business cards, and a designated parking space. His computer and phone were supplied by CMC, and he participated in CMC’s benefits plan and had access to an expense account. Nevertheless, the evidence demonstrated that Mr. Fernback regularly pursued outside business interests and opportunities during the term.
In November of 2009, Mr. Fernback’s role was expanded from CFO to include COO. His days of work increased from three to five days per week. However, by 2012 the relationship began to sour, and the COO title was dropped. Mr. Fernback continued in his CFO role although the company had hired someone else to take over certain accounting tasks. Mr. Fernback then took on an assignment which required him to raise capital for CMC in return for a commission. In November 2012, Mr. Fernbac was terminated, and he sued for wrongful dismissal, claiming that he was an employee of CMC, and that he was entitled to a severance pay in the range of 12 to 18 months.
At trial, the court found that Mr. Fernback was an employee at law, and awarded him 9 months severance pay. The Court noted:
“The 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. In a number of decisions, the courts have come to acknowledge that there are a variety of different arrangements that the parties may have. The approach to be taken is to examine the situation from a functional perspective.”
This decision is another example that substance can trump form when it comes to analyzing a particular working relationship, and that is generally irrelevant if the parties agree at the outset at the individual is to be treated as an independent contractor. Furthermore, this case demonstrates that the courts likely no longer consider themselves bound by the traditional view of the employer-employee relationship when resolving disputes in the modern workplace. It is crucial for employers and employees to seek legal advice before entering into an “independent contractor” relationship to avoid any potential surprises down the road in the event of a breakdown in the working relationship.