When The Label Doesn’t Stick: Misclassification And Forum Selection

In Pringle v. Zenova Group PLC, 2026 ONCA 549, the Court of Appeal for Ontario held that a company founder, shareholder, and independent contractor was, in substance, an employee under the Employment Standards Act, 2000 (“ESA”). As a result, the Court declared the employment agreement's exclusive English forum selection clause void and permitted the wrongful dismissal action to proceed in Ontario.

Background

In 2018, the appellant, together with two others, co-founded a fire-safety business. When the company sought outside investment, it wanted to demonstrate that it had an established management team under contract. In 2021, the appellant was offered the role of Director of Product Development at £80,000 per year and elected to be retained as an independent contractor for tax purposes. The parties signed a three-year “Product Development Consultant Contract for Services.” The appellant worked full-time from Ontario. In September 2022, the respondents terminated the agreement for alleged cause. The appellant sued in Ontario for wrongful dismissal. The respondents moved to stay the action, relying on a clause giving exclusive jurisdiction to the English and Welsh courts.

The Motion Judge’s Decision

Applying the five Belton factors, the motion judge concluded the appellant was an independent contractor. She treated his founder and shareholder status as highly relevant to a risk of loss or an expectation of profit and gave significant weight to the contractual statement that the agreement was not an employment contract. She stayed the action.

The Court of Appeal’s Analysis

In applying the well-established Belton factors, the Court concluded that the motion judge had committed an error of law by conflating the appellant's status as a shareholder and company founder with his role as a service provider. The Court emphasized that these are legally distinct relationships. An individual can simultaneously be a shareholder, a founder, and an employee.

After reconsidering the evidence, the Court found numerous indicators of an employment relationship, including:

1. the appellant was required to work exclusively for the respondents;
2. the agreement gave the respondents significant control over the “when and where” of his work, including approval of vacation time and sick leave;
3. the appellant had negligible investment in tools;
4. the appellant received fixed compensation with no ability to enhance profitability through the performance of his work; and
5. multiple indicators showed integration into the respondents’ organization such as his title, email, business cards, listed Canada office, management-team role, and being held out as an employee.

Contract Labels Are Not Determinative

One of the most significant aspects of the decision is the Court's treatment of the parties' contractual language. The agreement clearly stated that the appellant was not an employee, and he had specifically requested consultant status for tax purposes. Nevertheless, the Court held that contractual labels carry little weight where they are inconsistent with the reality of the relationship.

The Court reiterated that employment status depends on substance, not drafting. Simply calling someone an independent contractor cannot displace the protections of the ESA if the working relationship is, in fact, one of employment.

Jurisdiction and Forum

Because the appellant was an employee working in Ontario, the Court held that the forum selection clause requiring litigation in England was void. Ontario had jurisdiction simpliciter. The services were performed in Ontario; the agreement contemplated performance at the respondents’ principal office in Canada; and the alleged breach occurred when the termination letter was received in Ontario. The respondents would reasonably have expected to face a claim in Ontario.

On forum non conveniens, the respondents bore the onus of showing that England was clearly the more appropriate forum. They failed to do so. The action concerned an employment contract performed and allegedly breached in Ontario, and both the breach and the asserted just cause were connected to Ontario. While witnesses and documents existed in both jurisdictions, modern technology diminishes the weight of physical location. England was not shown to be clearly more appropriate.

Key Takeaways

1. The reality of the relationship always matters more than the contract.
2. Founders and shareholders can also be employees.
3. The opportunity to benefit from an increase in share value is different from the opportunity to earn business profits through entrepreneurial risk.
4. Control remains an important indicator.
5. A forum selection clause that eliminates an employee’s right to complain under the ESA is void.
6. Performance and breach in Ontario can establish jurisdiction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.