Worker classification – substance over form prevails

In Canada, a worker can provide services to a business as an employee, dependent contractor, or independent contractor. From an employment perspective, a common issue is whether the parties' intentions matter when classifying the relationship. For example, if both parties are sophisticated and choose to enter an independent contractor agreement, rather than employment relationship, does that impact the analysis of whether the classification is correct?

In the recent Ontario Court of Appeal decision of Pringle v. Zenova Group PLC, 2026 ONCA 549, the Ontario Court of Appeal confirmed that it does matter – but not very much. What do we mean by this?

Background facts:

• The appellant, Shawn Pringle ("Pringle"), sued the respondent companies, Zenova Group PLC and Zenova Ltd. ("Zenova") for wrongful dismissal.
• In 2018, Pringle helped co-found a fire safety and heat management business.
• In 2021, the business started marketing its products and sought investment. Zenova Group PLC was incorporated in England and Wales, and Pringle, through his corporation, owned slightly more than 10% of shares.
• To attract investment, Zenova formalized the working relationship with Pringle. He was offered and accepted a position as Director of Product Development for a salary of £80,000 per year.
• He was given the option of being an employee or an independent contractor. For tax reasons, he chose to be classified as an independent contractor. He entered into a Contract for Services Agreement (the "Agreement") between himself, his corporation, and Zenova Ltd.
• In July 2022, Pringle was terminated for alleged cause.
• Pringle sued for wrongful dismissal, claiming he was an employee of Zenova, not an independent contractor.

Lower court decision:

• Zenova brought a motion to stay the action on the basis that Pringle was an independent contractor and a forum selection clause in favour of England and Wales in the Agreement prevailed.
• The motion judge agreed with Zenova.
• In doing so, the motion judge found that Pringle was an independent contractor, emphasizing that he had an ownership interest in Zenova as a shareholder and therefore had the opportunity to be exposed to profits/losses of the business. The motion judge also afforded "significant weight" to the fact that Pringle had asked to provide the services as a contractor to reduce his tax liability. He had also agreed with a clear statement in the Agreement that it was not an employment contract.
• As Pringle performed as an independent contractor, the motion judge found the forum selection clause to be enforceable and permanently stayed the Action.
• Pringle appealed the decision.

Appellate court decision:

• On appeal, Pringle argued that the motion judge had conflated his role as a worker and his role as shareholder and given too much weight to the parties' contractual arrangement.
• The Court of Appeal agreed with Pringle. Among other things, the Court of Appeal found:
  • The motion judge had conflated Pringle's status as a shareholder and role of Director, Product Development. Share ownership could coexist with him being either an employee or contractor and was not determinative of Pringle's classification.
  • On the facts, Pringle worked exclusively for Zenova and was subject to a fair amount of control by Zenova. He was not exposed to profit or loss in carrying out his duties as Director, Product Development as he received a fixed salary. Pringle was also fully integrated into Zenova's business – he was carrying out Zenova's business, not his own.
  • The motion judge also erred by affording "significant weight" to the parties' characterization of the relationship as an independent contractor relationship. While the parties' characterization may be relevant, it is not determinative. The true substance of the relationship takes priority over the parties' characterization of it.
  • The Court of Appeal found that the fact the Agreement stated it was not an employment agreement was not a significant factor, as (i) the Agreement was inconsistent with the substance of the parties' relationship; and (ii) the evidence suggested that the contractual characterization did not mean much to Zenova – it was the substance that mattered.

Outcome:

• The Court of Appeal found that Pringle was an employee.
• As Pringle was found to be an employee, the forum selection clause was deemed void as contrary to the Ontario Employment Standards Act.
• The Court of Appeal allowed the appeal, reversed the stay of action, and permitted the action to proceed in Ontario.
• Costs of the motion and appeal were awarded to Pringle in the total sum of $26,900.

Takeaways:

This decision is an important reminder that substance trumps form when it comes to worker classification. Even if parties have crystal clear intentions at the start of the relationship or the best drafted contract, that is not sufficient to overrule the actual realities of the relationship. It is the substance of the relationship that matters, not the form.

If you would like a refresher on the key differences between the three different categories of workers, please visit our earlier blog post, Employee v. Independent Contractor v. Dependent Contractor – What's the difference? And why does it matter?.

For companies - make sure your paperwork matches up with your practices. If hiring contractors, make sure they have the flexibility, independence, and detachment from your business to truly align with the classification. If that is not possible, speak with your legal counsel about whether you may be better off hiring them as employees.

For workers - if you feel you have been misclassified, speak with legal counsel. You may be able to challenge the classification, but it is important to first understand the rights and risks that come with that.

In all cases, Lee Workplace Law would be happy to help with your employment and workplace