When An Independent Contractor Is An Employee

Publication: Dismissal and Employment Law Digest
Article Date: January 21, 2015

The British Columbia Supreme Court in the case of Khan v. All-Can Express Ltd., 2014 BCSC 1429, 2014 CarswellBC 2246, sets out an interesting approach to the interrelationship of independent contractor and an employee.

The Plaintiff owned and operated his own vehicle as a truck driver for the defendant company over a term that lasted from June 2006 to September 2012. When the relationship first began the Plaintiff and Defendant entered into an agreement wherein the Plaintiff truck driver described himself as a self-employed subcontractor without any financial connection to the Defendant express company. This document that was signed between the parties at the outset of their relationship clearly indicated that the Plaintiff, Khan, was an independent contractor, nonetheless the court decided that the terms of the contract, although self-evident, were not the end of the issue.

The driver Plaintiff was responsible for all costs associated with the vehicle’s operation, he filed his income taxes as self-employed and he understood that he was a self-employed owner operator. Although the agreement describes the Plaintiff as a self-employed subcontractor, there is a clause in the agreement that provides for a restrictive non-compete covenant for a period of 12 months after the termination of the independent contractor agreement. A clause more often part of a traditional executive employment contract.

In this case, as in a number of corporate cases, the court looks behind the “corporate veil” and decides to consider the “functional reality” and finds that the truck driver was an employee, although the agreement provides otherwise. The court analyzes the commercial relationship in some detail. It is argued by the Defendant that Mr. Khan, as an independent contractor, was responsible for the provision of his own truck, that further, he paid his own WCB premium, filed his taxes and declared himself self-employed. He received no benefits from the company nor did he receive a paid vacation.

Nonetheless, Justice Williams indicates that the matter is not that clear, “I am satisfied that the common law with respect to this issue has evolved into a more nuanced state, one that reflects the reality of an economy where many workers perform services for others in arrangements that are specifically structured such that they are neither employer – employee relationships nor are they properly characterizable as independent contractor relationships.” The court goes on to find, after reviewing a number of cases, that in this case “this relationship was of a permanent and exclusive nature implicit in which was the understanding that it would be terminated only on the giving of reasonable notice.”

The court defined the Plaintiff’s relationship with the Defendant as one of “dependent contractor”. As a consequence, in order to terminate the Plaintiff without cause, the Defendant was required to provide notice or otherwise was liable for damages in lieu of notice of four months’ salary based on five years’ service. The court relies on a statement found in the case of Mancino v. Nelson Aggregate Co. (1994), 49 A.C.W.S. (3d) 47, where Mr. Justice Lederman stated the following:

“Although the plaintiff in fact ran his own business, an examination of the relationship between the parties shows that there was a dependency which was mutual and permanent in nature. …

There is no doubt that the Plaintiff, to use the words in the Labour Relations Act, was in ‘a position of economic dependence’ upon the defendant which more closely [resembled] the relationship of an employee than that of an independent contractor. The fact of dependency continued even after the plaintiff’s change of status from a dependent contractor to broker. In either capacity, the Plaintiff’s arrangement had all the hallmarks of an employment relationship with the Defendant. This relationship was of a permanent and exclusive nature implicit in which was the understanding that it would be terminated only on the giving of reasonable notice.”

The court, on the facts, looked behind the terms of the agreement and found, not an independent contractor but an employee.

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