Canadian Contractors: May Actually Be Employees
Many organizations mistakenly believe that engaging a worker as an “independent contractor” or allowing them to file taxes as a contractor insulates them from employment law claims, including on account of severance claims. As a recent decision from the Saskatchewan Court of Appeal confirms, tax filings and employment claims are different issues, and the form of the working relationship matters as opposed to the labels or the types of documents used will determine notice claims arising upon termination.
In Saskatoon Minor Basketball Association v MacDonald, 2025 SKCA 42, the Court confirmed two lower court rulings which awarded substantial severance to Ms. Randi MacDonald, who worked for the Association for 16.5 years. During her tenure, MacDonald worked from home, invoiced the Association for her services, and filed taxed as an independent contractor.
When, as a result of the COVID-19 pandemic, the Association was forced to reorganize, they offered MacDonald three choices – she could either accept a three-month contract, apply for a new position (which she was not qualified for), or accept six weeks severance. MacDonald accepted the contract position without agreeing that this constituted settlement.
Her legal case then involved a claim for severance as a result of the lack of work following the term contract. The lower court awarded MacDonald 22 months of severance on the basis that she had been an employee entitled to reasonable notice or pay in lieu of notice as a result of being terminated.
In its appeal decision, the Court of Appeal reviewed the evidence and noted that there were various documents exchanged over the years, including reference to MacDonald received a “salary”. There was also nothing on the record to demonstrate that there was any measure of independence about how the work would be performed. Instead, the role, which began as an entry-level administrative position, evolved to oversight and administration of the organization, based on stipulated requirements. Perhaps most damning was that there was a document which claimed to be an “Independent Contractor Agreement” but there were, however, no clear provisions which confirmed that the relationship was one of independent contractor. Further, MacDonald was not referred to using this term, and instead appeared to the outside world to be an employee of the Association.
In upholding the decision that MacDonald was an employee, the Court found that the evidence favoured the relationship being one of employment. The factors which supported this included the nature of the role, the length of the relationship and the integration within the organization. The result was an obligation to provide 22 months of notice of termination, less the three months of working notice provided.
Takeaway for Employers
This decision confirms the importance of closely reviewing contract documents and related practices. A careless use of the independent contractor label can have substantial consequences upon termination. The Canadian courts will closely consider the nature of the work relationship, including the extent to which there is control over the work and integration into the organization. This analysis will focus on the substance of the relationship as opposed to simply relying upon the form of documentation used. Indeed, even if the worker files taxes as a contractor, it remains entirely possible that there are potential damages claims upon termination under employment or contract law.