The recent Supreme Court decision of Glimhagen v. GWR Resources Inc., 2017 BCSC 761, illustrates how an independent contractor can become a dependent contractor – an intermediate category on the spectrum between employee and independent contractor – as the relationship between contractor and company evolves, as well as the risk a company faces if it fails to address such changes in the contract for service, particularly in connection with contractual termination provisions.
Lars Glimhagen (“Glimhagen”) began providing services to GWR Resources Inc. as an independent contractor in 1989. For a flat monthly fee, Glimhagen provided GWR Resources with accounting and computer consulting services. He worked the hours necessary to complete the assigned task using the company’s equipment and office space. At the same time, Glimhagen maintained and received revenue through his own accounting business.
Glimhagen’s role at GWR Resources began to change in the late 1990s, when he assumed some of the tasks and responsibilities previously delegated to his sister, who also worked for GWR Resources. In addition to accounting responsibilities, Glimhagen managed the company’s office operations, attended to administrative chores, and acted as a personal assistant to the Chief Financial Officer.
By 2008, Glimhagen’s responsibilities at GWR Resources had further increased. He was responsible for preparing quarterly financial reports in coordination with the CFO. Reflecting his integral role within the company, and his uninterrupted service, his monthly fee had increased significantly and he often accepted stocks in GWR in lieu of cash reimbursement.
In 2010, Glimhagen became CFO of GWR Resources and a formal employee of the company, although this role was short lived. After a change in the composition of the board in 2012, relations between Glimhagen and GWR Resources soured. That fall, GWR Resources terminated Glimhagen’s employment without cause or reasonable notice.
The British Columbia Supreme Court was tasked with deciding whether Glimhagen’s status changed from an independent contractor to a dependent contractor at some point before 2010 (when he became an employee). To this end, the court considered the following factors, as adopted from TCF Ventures Corp. v. The Cambie Malone’s Corporation, 2017 BCCA 129:
- Whether Glimhagen was largely limited exclusively to the service of GWR Resources;
- Whether Glimhagen was subject to the control of GWR Resources, not only as to the tasks performed, but also when, where and how they were performed;
- Whether Glimhagen had an investment in or interest in the tools necessary to complete the tasks for GWR Resources;
- Whether by performing his duties, Glimhagen undertook risk of loss or possibility of profit apart from his fixed fee remuneration;
- Whether Glimhagen’s activity was part of GWR Resources’ business organization or closer to his own;
- Whether Glimhagen and GWR Resources’ relationship was long standing; and
- Whether Glimhagen and GWR Resources relied on one another and closely coordinated their conduct.
The court found that Glimhagen became a dependent contractor in around 2000, after he took over tasks and responsibilities previously tasked to his sister. It was at that time that Glimhagen became an integral part of GWR Resources’ operations, and the point at which his years of service started accumulating for the purpose of calculating reasonable notice of termination. Based on Glimhagen’s 12 years of combined service as a dependent contractor and employee, the court awarded 12 months’ reasonable notice in the amount of $78,000.
GWR Resources argued that Glimhagen provided services to two other companies during the reasonable notice period, and his earnings, which amounted to some $130,000 in fees, should be deducted from the damage award. The court rejected this argument on the basis that Glimhagen would have billed these companies whether or not he was working for GWR Resources. This is a clear reminder that income earned during the reasonable notice period will not be deducted from a reasonable notice award if the employee would have earned it had he continued to work for the employer.
Takeaway for Employers
Glimhagen highlights that the relationship between a service provider and company may change over time, and the cost of failing to address such changes and adjust contractual terms accordingly. It also highlights the importance of having enforceable, written termination provisions, and the prudence of obtaining a release when offering a person new status or new terms of engagement. A periodic audit of the company’s agreements with contractors and employees is good practice. Reviewing and, if necessary, negotiating and amending contracts with dependent contractors to address notice of termination requirements can mitigate uncertainty, clarify each party’s legal obligations, and avoid costly actions for wrongful termination. Had GWR Resources taken such steps, it may have avoided the dispute, the costly award, and the time and financial costs of litigation.