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Contractors may be employees entitled to reasonable notice |
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Written by Aaron Rousseau
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Wednesday, 30 January 2008 |
Courts will examine more than just the contract
 Vess Ivanov thought he had contracts in place that protected him from the responsibilitiesof being an employer. One of his employees, Ilona Slepenkova, knew better, and successfully sued him for wrongful dismissal.
Slepenkova, a real estate salesperson, worked as a “buyer’s agent” for the Vess Ivanov Team. She signed a series of twelve-month agreements with Vess Ivanov, each one of which identified her as an independent contractor. The contracts also required that she report, for tax purposes, that her income was earned as an independent contractor, which she did.
When Slepenkova refused to sign a new contract that eliminated her bonuses, Ivanov terminated her. The contracts provided that Ivanov could terminate Slepenkova’s services without cause on two weeks’ notice, which is exactly what he tried to do. Slepenkova claimed that she was Ivanov’s employee, and sued for wrongful dismissal.
When an individual claims to have been an employee, even though there is a contract that says otherwise, he or she has the onus of proving the claim. Courts will consider a number of factors in evaluating whether a party is an independent contractor or an employee, including the level of control the purported employer exercises, who owns the tools, who bears the chance of profit and the risk of loss, and ultimately whose business it is.
Ivanov had substantial control over Slepenkova, instructing her on how to show properties, directing her to attend team meetings, requiring her to put his name down on her trade record sheets, and requiring her to work exclusively for him. While Slepenkova provided her own car, Ivanov provided her with an office, pager, forms, and promotional materials.
Slepenkova had little chance of loss, as Ivanov paid for secretaries, advertising and overhead, and guaranteed Slepenkova a minimum income. Slepenkova also had limited chance for profit, as Ivanov paid her a flat-rate commission for every property and she had only some modest opportunities for bonuses.
The court had little trouble in finding that the business was Ivanov’s. He generated a large volume of clients through his advertising, hired a team of agents to handle showings, and collected the commissions. The court ruled that Slepenkova was Ivanov’s employee.
Having found that she was an employee, the court rejected the two week notice provision in the contract. Slepenkova had been on three successive 12-month contracts. There was also a gap of several months between two of the contracts, during which Slepenkova had continued working and Ivanov continued to pay her.
The court found that Slepenkova was clearly an indefinite term employee and the fixed-term contracts could not hide or change that fact. Slepenkova was entitled to more minimum notice under the Employment Standards Act than the contract provided, so the court struck out the notice provision and substituted a term of reasonable notice. In the end, the court awarded Slepenkova six months’ wages in lieu of notice.
Ivanov fell into two of the same traps that catch many employers. First, Ivanov thought he could rely on a contract that called an employee an independent contractor. The wording of the contract, however, is just one factor that courts take into account in making that determination. Second, Ivanov tried to use a series of employment contracts to go around the Employment Standards Act minimums. Again, the courts will look to the substance of the relationship, not to the form.
I offer the following advice to employers hiring contract workers:
1. Stating in the contract that an employee is an independent contractor can be useful for tax purposes, helpful when a worker is close to the line, and will convince employees who fail to obtain proper advice that their entitlements are limited. Where there is little basis for the claim that a worker is an independent contractor, however, the employer should not expect the claim to stand before the courts.
2. A contract that has a provision for notice on termination should either state that it relies on the minimum notice under the applicable legislation, or state a greater amount of notice than the minimum.
3. Obtain appropriate advice. At the very least, an employer’s standard contract language should be reviewed by a specialist employment lawyer, and ideally it should be updated periodically as well.
Aaron Rousseau is a lawyer with Lang Michener LLP. His practice includes advising employers on all aspects of employment and labour law. He also acts for executives on employment law matters. Reach him at 416-307-4081 or
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