Worker misclassification is an issue in Ontario employment law, as employers often assume that calling someone an “independent contractor” is enough to avoid an employee’s statutory obligations and the costs associated with termination. A 2025 decision involving a British Columbia company provides a clear example of how courts approach contractor-versus-employee disputes and why misclassification can result in significant wrongful dismissal liability.
Worker misclassification is a recurring issue in Ontario employment law. Employers often assume that calling someone an “independent contractor” is enough to avoid an employee’s statutory obligations and the costs associated with termination.
Ontario courts consistently reject this approach. Instead, they examine the true nature of the working relationship, not the label used in the contract.
A recent decision involving a British Columbia company, resulting in a wrongful dismissal award exceeding $100,000, illustrates how costly misclassification can be and offers important lessons for both workers and employers.
How Ontario Law Distinguishes Employees from Contractors
In Ontario, courts and tribunals do not rely solely on a contract’s wording to determine a worker’s status. Instead, they examine the true nature of the working relationship. This analysis focuses on substance over form.
This analysis focuses on how the relationship functions in practice, including control, integration, and economic dependence.
Why Employee Status Matters Under Ontario Law
Employees are entitled to statutory protections under the Employment Standards Act, 2000 (ESA), including:
- notice of termination
- severance pay (where applicable)
- vacation pay
- public holiday pay
- other employment standard protections.
Employees can also be entitled to common law reasonable notice which often far exceeds ESA minimums.
Indicators of an Employment Relationship
An employee is typically characterized by:
- A high degree of employer control over how work is performed
- Integration into the employer’s business rather than operating a separate enterprise
- Economic dependence on the employer
What Defines an Independent Contractor?
By contrast, an independent contractor generally:
- Operates their own business
- Controls how and when the work is performed
- Uses their own tools and may hire others
- Bears financial risk and has the opportunity for profit
Independent contractors are not entitled to common law reasonable notice, and do not have access to these same protections.
Dependent Contractors: The Overlooked Middle Ground
Ontario law also recognizes a third category known as dependent contractors. These individuals may appear to be contractors but are economically dependent on a single organization for most or all or their income.
Dependent contractors are often entitled to reasonable notice of termination, similar to employees.
Hajdu v. Triple Hair Group Inc: When “Contractor” Was Not Enough
In Hajdu v. Triple Hair Group Inc. (“Hajdu”), a senior executive had been employed since 2020 under a written employment agreement.
After the relationship deteriorated in 2023 and the company terminated the executive, the company argued that the executive transitioned to a contractor and was no longer an employee and therefore was not entitled to notice or severance.
Despite the company’s attempt to characterize the executive as a contractor, the court rejected this characterization, finding that the original employment agreement remained in effect. Despite the alleged transition to contractor status, the executive:
- continued to work in a senior leadership role
- was integrated into the business
- did not operate an independent enterprise separate from the company
The court emphasized that labelling someone a contractor does not make them one. The analysis turned on how the relationship functioned in practice.
Why the Worker Succeeded
The worker succeeded for several key reasons:
- Ongoing Employment Relationship
The court found that the company did not terminate or replace the employment contract, making the employer’s unilateral attempt to reclassify the worker ineffective. - Economic Dependence
The worker was financially dependent on the company and did not provide services to other clients, strongly supported the finding of employment or, at a minimum, dependent contractor status. - Control and Integration
The company exercised control over the worker’s duties, and his role was integral to the business.
The court found that the ongoing economic relationship, economic dependence, and control and integration were classic indicators of an employment relationship. As a result, the court awarded eight months’ pay in lieu of reasonable notice, along with unpaid wages and vacation pay, totaling more than $100,000.
If you are economically dependent on one company and function like an employee, you may be entitled to notice of termination or damages, regardless of what your contract says.
Key Takeaways About Employee vs. Contractors Status in Ontario
- Courts look at substance, not labels
- Employees and dependent contractors may be entitled to reasonable notice
- Economic dependence and integration are key factors
- Misclassification can lead to significant wrongful dismissal liability
- A recent case resulted in damages exceeding $100,000
Frequently Asked Questions About Employee vs. Contractor Status
How do Ontario courts decide if someone is an employee or contractor?
Courts assess control, integration, and economic dependence, focusing on how the relationship works in practice.
Does calling someone a contractor avoid termination pay?
No. Mislabeling a worker does not eliminate statutory or common law obligations
What is a dependent contractor in Ontario?
A dependent contractor is economically reliant on one organization and may be entitled to reasonable notice of termination.
Can a contractor sue for wrongful dismissal?
Independent contractors generally cannot, but dependent contractors may have wrongful dismissal-style claims.
What damages can result from misclassification?
Damages may include reasonable notice, unpaid wages, vacation pay, and other statutory entitlements.
Conclusion
The decision demonstrated that courts prioritize the substance of the working relationship over formal labels. The Hajdu wrongful dismissal decision notes that misclassification is not a technical issue but a substantive legal risk.
If your employer has improperly classified you as a contractor and is attempting to deprive you of your rights, please get in touch with a member of the Whitten and Lublin team to discuss further. Contact us online or call 416 640 2667.
Author – Jordan Cantor
