Supreme Court reverses Ont. C.A. ruling on liability for actions of independent contractor

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In January 2001, we reported the case of 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., in which the Ontario Court of Appeal held that an employer was vicariously liable for the wrongdoing of one of its independent contractors (see “Firm held liable for misconduct of independent contractor” on our Publications page). The case stemmed from the loss by the plaintiff to Sagaz of a lucrative contract to supply Canadian Tire Corporation with seat covers. The plaintiff sued after it learned that Canadian Tire had been influenced to award the business to Sagaz by means of a bribe offered by American Independent Marketing (AIM), a consultant retained by Sagaz.

The Court of Appeal had held that AIM had worked “under the direct supervision and direction” of Sagaz, and had “no independent discretion on any significant matter” in pursuit of the contract with Canadian Tire. Accordingly, it held that Sagaz was vicariously liable for the acts of its nominally independent contractor.

AIM “IN BUSINESS ON ITS OWN ACCOUNT”

Now, in a decision released on September 28, 2001, the Supreme Court of Canada has ruled that Sagaz was not vicariously liable for AIM’s actions. In coming to this conclusion, the Supreme Court moved away from the “organization test” applied by the Court of Appeal in determining the relationship between AIM and Sagaz. In fact, the Court stated, “there is no one conclusive test which can be universally applied to determine whether a person is an employee or an independent contractor”. Rather, the Court observed, “the central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account”.

The Court then considered the evidence of the relationship between AIM and Sagaz and held that the balance favoured viewing AIM as an independent contractor. The factors supporting this conclusion were that:

  • AIM and Sagaz each had separate head offices in different cities;
  • AIM bore its own costs of doing business and was free to take on other activities not in direct competition with Sagaz;
  • AIM was responsible for determining how it was to represent Sagaz; and
  • AIM bore the risk of loss or profit from its work for Sagaz.

In summarizing the reasons for finding AIM to be an independent contractor, the Court stated that “although Sagaz controlled what was done, AIM controlled how it was done”.

For further information, please contact André Champagne at (613) 563-7660, Extension 229.