Multijurisdictional Employers Take Note: Ontario Court of Appeal Allows Action Involving Ontario-based Employee of a Foreign Company to Proceed

In Pringle v Zenova Group PLC, the Court of Appeal for Ontario held that an action from a company founder and shareholder could proceed in Ontario, despite the fact that the company was incorporated in and primarily operating in England. The Court of Appeal also found the company founder and shareholder was an employee under the Employment Standards Act, 2000, and invalidated the independent contractor agreement’s forum selection clause for contracting out of minimum employment standards.

Multijurisdictional employers should note the potential for Ontario proceedings to take place in Ontario when employees perform work in Ontario.

Background

The appellant co-founded Zenova Ltd. (incorporated in England and Wales and owned by Zenova Group PLC) and, through a holding company, held 10% of its shares when the company went public. To attract investment, Zenova Group PLC’s Board offered him the role of Director of Product Development, structured as an independent contractor through his holding company. The appellant was never a corporate officer or director.

In 2022, Zenova terminated the independent contractor agreement, alleging that the appellant had breached the agreement by providing his services to other businesses and not devoting his full time and attention to Zenova. The appellant sued for wrongful dismissal in Ontario; Zenova moved to stay the action based on a forum selection clause in the agreement requiring disputes to be adjudicated in England and Wales.

The Lower Court Decision

The motion judge granted Zenova’s stay, finding that the appellant was an independent contractor under the five-factor test in Belton v. Liberty Insurance Co of Canada: (1) exclusivity of service; (2) control; (3) investment in tools; (4) risk/chance of profit distinct from fixed compensation; and (5) whose business the activity belonged to.

The motion judge found limited exclusivity (confined to “business hours”) and limited control, treated his shareholder status as an indirect expectation of profit meaning that he was carrying on business for himself, and gave significant weight to the parties’ expressed intention to characterize the appellant as an independent contractor.

Ontario Court of Appeal’s Decision

The Court of Appeal reversed the motion judge’s decision, holding that the appellant was an employee, that the forum selection clause was therefore void for contracting out of minimum employment standards legislation, and that Ontario had jurisdiction over the dispute.

The Independent Contractor Agreement

The Court held the Belton factors were misapplied by the motion judge and made the following findings:

Shareholder statuswas wrongly emphasized by the motion judge; employees commonly hold shares (e.g. via stock options or private investment); even a controlling shareholder may be an employee, and one person may have multiple statuses in relation to a corporation.

The appellant was effectively required to work exclusively for Zenova: the agreement required his whole time and attention during business days and hours, additional time as needed, and non-competition during the term and for one year after.

The Court gave control more weight than the motion judge. For skilled workers, modern law focuses on control over when and where work is done, not how. The agreement gave Zenova control over place of service, work outside the principal office, company rules, regulations and policies, and additional hours. Though Zenova was hands-off day-to-day, it reserved broad contractual control and later relied on the whole-time and additional-hours clauses to terminate the appellant. This was a “telling” reservation and later assertion of control.

The appellant’s only investment in tools was $150 per month toward office rent. Zenova paid for his laptop. The lack of significant investment in his office and equipment was consistent with employment.

Any indirect shareholder profit was not the risk Belton contemplates (risk from delivering the work itself). He was paid a fixed salary in equal monthly instalments plus expenses with no ability to affect profitability by how or by whom the work was performed.

Shareholder interest in the business activities of Zenova, did not speak to whether the appellant’s activities were integrated into Zenova’s business. Given the full-time nature of his role, his public presentation as an employee, the presentation of his Ottawa office as Zenova’s Canadian office, and his product testing and manufacturing duties, the work performed was Zenova’s business, not the appellant’s.

Finally, the Court found that the contractual “independent contractor” label could not overcome the clear substance of the relationship. That the agreement provided that it was not an employment relationship was not a significant factor. The true substance takes priority. The appellant was an employee.

Forum Selection Clause Invalid

Applying Heller v Uber Technologies, the Court held that the right to make a complaint to the Ministry of Labour under s. 96(1) of the ESA is a minimum ESA standard. Under s. 3(1)(a), the ESA applies where an employee’s work is performed in Ontario, and s. 5 voids any contracting out of an employment standard regardless of a foreign forum clause. Because the forum selection clause would block an Ontario Ministry of Labour officer from hearing ESA complaints, it wasinvalidated.

Jurisdiction Simpliciter and Forum Non Conveniens

With the forum selection clause invalidated, the Court considered whether Ontario had jurisdiction simpliciter and whether England was a more convenient forum (the appellant bearing the onus on the former; the respondents on the latter).

The Court held that jurisdiction simpliciter was established. Applying the test of whether there is a “’good arguable case’ that there is a ‘real and substantial connection’ between the action and Ontario,” the Court found that the appellant performed his work in Ontario where Zenova’s principal Canadian office was, and where the agreement provided that it would be performed. Additionally, the alleged breach occurred in Ontario.

With respect to forum non conveniens, Zenova argued that England and Wales was a more convenient forum based on the location of witnesses and documents. The Court did not find this determinative due to modern videoconferencing technology. Although the Court did not affirmatively find that Ontario was the most appropriate forum, it did find that England was not clearly more appropriate.

The Court allowed the appeal, set aside the stay, declared the forum selection clause void under the ESA, and permitted the appellant’s wrongful dismissal action to proceed in Ontario, ordering a statement of defence within 30 days.

Key Takeaways for Employers

Shareholder status, even as a major controlling shareholder, does not determine employee versus independent contractor status; any indirect shareholder profit or loss is separate from an assessment of the work actually performed under the contract.
A hands-off day-to-day approach will not necessarily defeat employee classification where the agreement reserves control over where and when work is performed. Later reliance on those control provisions can be especially telling.
Where the ESA applies because work is performed in Ontario, a forum selection clause that would prevent an employee from filing a Ministry of Labour complaint may be void as contracting out of ESA minimum standards.
Work performed in Ontario or an alleged contractual breach occurring in Ontario, may support Ontario jurisdiction over a wrongful dismissal action even against a company not incorporated or carrying on business there. This is distinct from forum non conveniens on which the Court found only that the respondents had not shown that England was clearly more appropriate. Although this decision involves a company incorporated outside of Canada, the Court’s reasoning does not appear to distinguish between a company incorporated outside Canada and a company incorporated in another Canadian province.

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