Employment Law Update
Courts Weigh in on ‘Independent’ Contractor Relationships in Construction
By: Jeremy Schwartz
Independent contractors, the so-called “sole-proprietors” are a significant part of the construction industry. Work is often transitory in nature and individuals who want to stay busy may work for more than one contractor over the course of a year. Even the Employment Standards Act excludes “construction employees” from many of its minimum protections, including from termination and severance entitlements.
So perhaps construction companies can’t be blamed for assuming there was something unique or special about employment in the construction industry.
Although the Ontario Superior Court found in the contractor’s favour in Fisher v. Hirtz and Group Five Inc. and ruled that the worker was an independent contractor, it rejected the company’s argument that different rules should apply to construction workers.
The facts in the case were relatively straightforward. Ms. Fisher worked as a painter and general labourer for Group Five. She submitted invoices, paid her own taxes, provided her own WSIB coverage, and had the ability to accept or reject assignments. Once she accepted an assignment, however, Group Five personnel supervised her work and though she provided some tools Group Five also supplied tools and all materials. She worked almost exclusively for Group Five.
There was no written agreement. The court noted that, not surprisingly, each party took advantage of that by trying to cast the relationship in their preferred light: Group Five characterized Ms. Fisher as an independent contractor so it could avoid liability for common law pay in lieu of notice, while Ms. Fisher characterized herself as an employee.
The decision notes that Ms. Fisher’s brother worked as a labourer. Apparently he used a corrosive cleaning chemical which caused some damage. Group Five demanded Ms. Fisher pay for that damage. She refused. This ended the relationship between them.
Somewhat surprisingly, the court does not explain whether Ms. Fisher’s brother was employed by Group Five or Ms. Fisher. The backcharge suggests strongly that Ms. Fisher employed him. If that were the case, it should have been a significant factor in the court’s determination of her status. Employees generally don’t have their own employees. But the brother is not referenced further in the decision’s fact or analysis sections, leaving the reader to wonder.
Ultimately, the court found that despite her subjective belief that she was an employee (which was relevant to the court’s deliberation), objectively, she was an independent contractor.
The court found that her dependency on Group Five for work was “self-induced”. She was not in fact precluded contractually from working for other contractors. The court found that there was no express or implicit understanding that she was precluded from working for others.
The court also found that the ownership of painters’ tools was not determinative, and held that “given the nature of the painting trade, the control of the tools provides little information about the nature of the relationship.”
Courts have found that independent contractors with long, almost exclusive relationships may shift status to that of “dependent contractors,” thus giving rise to an obligation to provide reasonable notice of termination. Group Five’s relationship with Ms. Fisher lasted only 16 months. The court found the varying lengths of assignments over such a short period was insufficient to suggest enduring dependency.
What Construction Employers Need to Know
Contractual relationships with workers in the construction industry may be unique, but the courts are ever reminding contractors that the law will not necessarily treat them uniquely.
To put that another way, Group Five got lucky. Absent a written agreement, Ms. Fisher seized the opportunity at trial to try to characterize their relationship as one of employment. Had Ms. Fisher signed a written agreement characterizing her as an independent contractor and enshrining her right to work for others and accept or reject work from Group Five, her position would have been far more difficult to support.
Despite the exclusions in the ESA applicable to “construction employees” from termination and severance entitlements, the courts have not rejected the principle that construction employees may still be entitled to reasonable notice at common law. The theory goes that employers and employees are always free to contract for something in excess of the ESA’s minimum guarantees. So courts are free to consider, on a case-by-case basis, whether the contract between them expressly or implicitly includes a term providing for notice of termination.
In Scapillati v A. Potvin Construction Limited, the Ontario Court of Appeal held that a construction employee was not entitled to reasonable notice. However, the Court of Appeal referred to the industry practice of seasonal employment and layoffs, and the Legislature’s decision to exclude construction employees from entitlement to termination and severance, only as “relevant” factors to consider.
In light of the Court of Appeal’s intentional refrain from drawing a bright line, courts have been willing, depending on the circumstances, to find that the parties had contracted to provide something more than the minimum ESA guarantees, or lack thereof.
In several recent cases, courts seized on the Scapillati refrain and held that construction employees were entitled to reasonable notice at common law – despite the fact that they were excluded from ESA notice and severance and despite evidence of any custom of contracts being terminable without notice (McClelland v. King Coating Roofing Inc. (2016 CarswellOnt 12017), and Kuntz v. Dordan Mechanical Inc. (2014 CarswellOnt 433)).
Although the court in Fisher found that Ms. Fisher was an independent contractor, it found in the alternative that she would have been entitled to reasonable notice at common law (although the issue of her legal entitlement was not fleshed out in the court’s analysis). In other words, had she been found to have had employee or dependent contractor status, the ESA exclusion would not have barred her from entitlement to common law reasonable notice (which the court found would have been two months).
Strikingly, employers of “construction employees” as defined by the ESA who explicitly contract to provide only the minimums required by the ESA on termination of employment (which for now are nil) should be able to lawfully escape any liability for ESA termination and severance AND common law reasonable notice. One cannot contract out of the ESA, but parties are free to contract out of common law reasonable notice.
Consider a construction employer who terminates the employment of a 65 year old construction carpenter who has worked for the company almost exclusively for 25 years. If that relationship were governed by a written agreement that explicitly limited the carpenter to the minimum entitlements in the ESA on termination, he likely is entitled to nothing more than his outstanding wages and vacation pay. Absent such express agreement, there is at least some risk that a court would find the employee entitled to a significant award of common law notice.
If ever there were an industry in which contracting in writing with workers is far from the norm, construction is one. If ever there were an industry in which contracting in writing would provide a valuable hedge against potential legal exposure, construction is most certainly one.
For more information please contact:
Jeremy Schwartz at email@example.com or 416-862-7011