Employment Law Canada: Wrongful Dismissal & Misclassification

Canadian Employment Law Group

Employment Law in Canada:<br>A Case Study Analysis

Wrongful Dismissal, Human Rights & Risk Management in the Workplace

Group Presentation | Business Law | 2026

Agenda

Presentation Outline

1

Case Overview & Context

Background details, key timeline events, and fundamental case facts.

2

Parties, Rights & Legal Issues

Key stakeholders involved and the primary statutory questions raised.

3

Legal Application & Court Analysis

How existing employment laws and legal precedents were applied.

4

Remedies & Outcomes

Final court judgments, compensations awarded, and immediate outcomes.

5

Risk Management & Prevention

Strategic recommendations to mitigate future workplace legal risks.

A

Case Overview & Context

Understanding the scenario, parties, and legal framework

CASE SCENARIO

The Case: Dempster's Storage & Delivery Ltd.

The Worker

Sandra "Sandy" Reyes, a long-haul driver at Dempster's, a federally regulated interprovincial transportation company.

The Arrangement

Classified as an "independent contractor" for 8 years, but worked exclusively for Dempster's, used their equipment, and followed their scheduling.

The Termination

Dempster's terminated Sandy's arrangement abruptly, without any notice or severance pay.

The Claim

Sandy filed a claim arguing she was a dependent contractor or employee, thus legally entitled to reasonable notice.

Parties Involved & Key Legal Issues

The Parties

Dempster's Storage & Delivery Ltd.

(Federally regulated)

Sandra "Sandy" Reyes

(Claimed independent contractor)

Federal employment tribunal / courts

Key Legal Issues

Was Sandy an employee, dependent contractor, or independent contractor?

Was the termination without notice lawful?

Did Dempster's violate the Canada Labour Code?

Ethical issue: Was Dempster's misclassifying Sandy to avoid legal obligations?

B

Legal Application & Court Analysis

Identifying the law, applying the test, and analyzing court remedies

Applicable Law & The Legal Test

Relevant Statute

Canada Labour Code

(federally regulated employer)

Keenan v Canac Kitchens, 2016 ONCA 79

(dependent contractor precedent)

671122 Ontario Ltd v Sagaz Industries Canada Inc (SCC)

— central test

The Sagaz Test

(Employee vs. Contractor)

Level of control by employer

Who provides equipment/tools?

Does worker hire helpers?

Degree of financial risk

Opportunity for profit/loss

Applied to Sandy

Dempster's controlled schedule

Dempster's provided equipment

Sandy worked exclusively for Dempster's 8 years

No financial risk / no business profit

Sandy = Dependent Contractor

HOW THE COURT WOULD APPLY THE LAW

How Would a<br>Court Decide?

A step-by-step breakdown of the judicial reasoning and its impact on the final ruling.

Case Study Analysis | Legal Reasoning

STEP 1

Was Sandy an employee or contractor?

<strong><span style="color: #c9a84c;">→</span> Court applies Sagaz test:</strong> finds dependent contractor based on exclusivity (8 years, no other clients, employer's equipment)

STEP 2

Is Sandy entitled to notice?

<strong><span style="color: #c9a84c;">→</span> Yes.</strong> As per <em>Keenan v Canac Kitchens</em>: dependent contractors are entitled to <strong>REASONABLE NOTICE</strong> of termination (same as employees)

STEP 3

Did Dempster's provide notice?

<strong><span style="color: #c9a84c;">→</span> No.</strong> Terminated without any notice or pay in lieu.

STEP 4

Result: Breach of Common Law Duty

<strong><span style="color: #c9a84c;">→</span> Dempster's failed its duty;</strong> Sandy entitled to damages.

Likely Remedies Granted by the Court

Pay in Lieu of Notice

Sandy is entitled to REASONABLE NOTICE. Based on 8 years of service and the Keenan precedent (26 months awarded), a court may award 6–12 months' pay in lieu of notice.

Damages for Lost Income

Sandy may also recover lost wages and employment benefits she would have received during the notice period, including CPP and EI contributions withheld.

Possible Punitive Damages

If the court finds that Dempster's intentionally misclassified Sandy to avoid legal obligations, punitive or aggravated damages may be awarded for bad faith termination.

Misclassifying workers as independent contractors does NOT eliminate legal obligations — courts look at substance, not labels.

SECTION

C

Risk Management & Prevention

Strategies to avoid, reduce, and transfer legal risk

RISK MANAGEMENT STRATEGIES

How Could This Have Been Avoided?

Conduct a proper worker classification review. Apply the Sagaz test before engaging any contractor. If criteria indicate dependency → classify as employee.

Use written employment/contractor agreements that clearly define: notice periods, termination provisions, scope of work, tools ownership, and exclusivity terms. Review contracts annually.

Obtain Employment Practices Liability (EPL) Insurance to cover wrongful dismissal claims, human rights complaints, and related litigation costs. Understand policy limits and exclusions.

Set aside financial reserves to cover potential notice pay and severance obligations for all long-term contractors. Budget for potential tribunal costs.

Source: Risk Management Framework — Avoid | Reduce | Transfer | Retain

Consequences of Inaction

Cost of Inaction

Retroactive liability for unpaid statutory benefits (CPP, EI, vacation pay)

Human rights complaints and tribunal investigations

Wrongful dismissal lawsuits — potentially 6–24+ months notice pay

Punitive/aggravated damages for bad faith conduct

Reputational damage and negative media exposure

Class action risk if multiple workers are similarly misclassified

Courts look at the substance of the relationship — not what the contract says.

SCC, Sagaz Industries

Ethical & Policy Considerations

Fairness to Workers

Sandy contributed 8 years of exclusive service. Denying notice and benefits violates the principle of fairness and good faith in employment relationships. Employers must not exploit contractor labels to avoid obligations.

Public Policy

Employment standards laws exist to protect vulnerable workers. Courts will "look behind the label" of contractor agreements to prevent exploitation. The Keenan decision reinforces this public protection rationale.

Professional & Ethical Obligations

Business professionals must uphold ethical standards in managing HR relationships. Misclassification is not just a legal risk — it undermines trust, damages morale, and harms the employer's reputation.

Suggested Reform:

Federal legislation should create a clear statutory definition of "dependent contractor" with automatic entitlements — reducing ambiguity and litigation.

Sources & References

<i>Canada Labour Code</i>, RSC 1985, c L-2

<i>671122 Ontario Ltd v Sagaz Industries Canada Inc</i>, [2001] 2 SCR 983

<i>Keenan v Canac Kitchens</i>, 2016 ONCA 79, [2016] OJ No 455

<i>Queen v Cognos Inc</i>, [1993] 1 SCR 87

<i>RBC Dominion Securities Inc v Merrill Lynch Canada Inc</i>, 2008 SCC 54

McInnes, Mitchell & Delaney, <i>Canadian Business and the Law</i> (textbook)

<i>Employment Equity Act</i>, SC 1995, c 44

<i>Personal Information Protection and Electronic Documents Act</i> (PIPEDA), SC 2000, c 5

<i>Ontario Human Rights Code</i>, RSO 1990, c H.19

Alberta Human Rights and Citizenship Commission, <i>Pre-Employment Inquiries Information Sheet</i> (2017)

AI assistance was used for brainstorming and slide formatting in accordance with the Group AI Usage Policy. All content was critically reviewed and rewritten by the group.

Thank You — Questions & Discussion

We welcome your questions and look forward to the discussion.

Key Takeaways

Sandy qualifies as a dependent contractor under the Sagaz test

Dempster's is liable for reasonable notice pay (est. 6–12 months)

Misclassification carries serious legal, financial, and reputational risk

Prevention: proper contracts, classification reviews, EPL insurance

Group Member 1 | Group Member 2 | Group Member 3 | Group Member 4 | Group Member 5

Business Law | 2026