Founder, Shareholder, Contractor: When and Who Is the Employee in Ontario?

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A founder. A shareholder. A contractor. An employee. In Pringle v. Zenova Group PLC, 2026 ONCA 549, the Ontario Court of Appeal (the “Court”) confirmed that these labels are not mutually exclusive and that worker classification turns on the substance of the service relationship, not how the parties choose to describe it, even when they execute the contract.

In Pringle, a co-founder and shareholder of a company (the “Appellant”) entered into a services contract with the company, being engaged pursuant to a consulting agreement. Notwithstanding his own choice in the matter, the Court concluded that he was, in fact, an employee for the purposes of the Employment Standards Act, 2000 (the “ESA”).

In doing so, the Court emphasized that a worker’s status as a founder or shareholder must be kept separate from the analysis of whether that individual is otherwise providing services as an employee or carrying on business on their own account.

Background

The Appellant co-founded a fire safety and heat management business that was incorporated in England and Wales. Following a period of product development and growth, during which he retained a shareholder interest in the overarching business, the board of directors asked the Appellant to enter a formal service arrangement with the company. He elected to provide his services as an independent contractor for tax purposes, and the parties entered into a “Product Development Consultant Contract for Services,” pursuant to which he served as the company’s Director of Product Development.

The relationship ended when the company purported to terminate the agreement for cause. The Appellant subsequently commenced an action in Ontario seeking damages for wrongful dismissal and breach of contract. In response, the company sought to stay the proceeding based on a forum selection clause requiring company disputes arising under the agreement to be litigated in England and Wales. The Appellant argued that he was an employee for the purposes of the ESA and that the forum selection clause was therefore unenforceable.

The Court’s Analysis

The Court’s analysis focused on the proper characterization of the relationship between the Appellant and the company. Applying the well-established factors from Belton v. Liberty Insurance Co. of Canada, the Court concluded that the substance of the relationship pointed toward employment rather than as an independent contractor or just an owner.

In reaching that conclusion, the Court emphasized two key principles: first, that worker classification depends on the reality of the functional relationship rather than the parties’ chosen label; and second, that an individual’s status as a founder or shareholder (and any tax structuring or preference/benefit) must be analyzed separately from the nature of the services being provided, how they are directed and how they may be separately compensated.

Substance Over Contractual Labels

In determining whether the Appellant was an employee or an independent contractor in the performance/delivery of services/work, the Court applied the Belton factors, pursuant to which the courts consider a number of non-exhaustive factors, including:

1. the degree of exclusivity in the relationship;
2. the degree of control exercised by the organization;
3. the worker’s investment in tools and equipment;
4. the worker’s exposure to business risk and opportunity for profit; and
5. the extent to which the worker is integrated into the organization’s business.

No single factor is determinative, and the analysis must focus on the totality of the relationship. Overall, the Appellant was required to devote his full working time to the company and, notably, the company relied on those obligations when it terminated the agreement, alleging that he had not been exclusive and was providing services to other businesses. He was also subject to company policies and oversight, made little investment in the tools required to perform his work and was compensated through a fixed annual payment.

The Court further noted that the Appellant was integrated into the company’s operations, serving as its Director of Product Development and acting as part of its management team. Viewed as a whole, the relationship was more consistent with employment than an independent contractor arrangement.

Founder, Shareholder, Employee: Separate Roles, Separate Analyses

In the first instance, the motion judge placed significant weight on the Appellant’s status as a founder and shareholder of the company when considering whether he was an employee or an independent contractor. In particular, the motion judge concluded that his ownership interest gave him an opportunity to profit from the success of the business and supported the view that he was carrying on his own entrepreneurial venture. The Court rejected this approach.

The Court held that the motion judge erred by conflating the Appellant’s role as a shareholder with his role as a service provider. While the Appellant stood to benefit from the company’s success through his ownership interest, that potential benefit arose by virtue of his status as a shareholder, a status he would have held regardless of how the company chose to engage his services. The relevant inquiry was whether, in providing those services, the Appellant was carrying on business on his own account or carrying on the company’s business. In answering that question, the Court emphasized that a founder or shareholder may also be an employee, just as a shareholder may also be an independent contractor and, in applying the Belton factors, concluded that the Appellant was carrying on the company’s business rather than operating a business of his own. Separate consideration and separate compensation, for separate interests or contributions to the business, should be treated as distinct from one another.

In this case, the classification issue was particularly significant, as the parties’ agreement contained a forum selection clause requiring disputes to be litigated in England and Wales. Having concluded that the Appellant was an employee for the purposes of the ESA, the Court held that the forum/jurisdiction clause was void as an impermissible attempt to contract out of an employment standard, namely an employee’s right to make a complaint under the ESA. The classification undermined application of the rest of the contract.

With the forum selection clause set aside, the action was allowed to proceed in Ontario.

Key Takeaways for Employers

• Worker classification depends on the reality of the relationship, not the label used in any contract or agreement between the parties, regardless of how it is drafted. While carefully drafted contractor agreements remain important, courts will look beyond contractual language and assess how the relationship operates in practice. The substance of the arrangement will ultimately determine whether a worker is an employee or an independent contractor.
• Ownership interests and/or tax structures do not exclusively determine worker classification. A founder, shareholder, executive, contractor or consultant may simultaneously occupy multiple roles within an organization or provide distinct services to the company. When assessing worker status, courts will focus on the nature of the services being performed rather than the worker’s ownership interest in the business or whether they are being taxed at source or as a contractor.
• International and multi-jurisdictional organizations should exercise caution when engaging workers in Ontario. Even where a worker agrees to be treated as an independent contractor and performs services under a contract governed by foreign law, Ontario employment standards legislation may nevertheless apply if the substance of the relationship is one of employment.
• Misclassification can undermine contractual risk allocation. Where a worker is later found to be an employee, contractual provisions drafted on the assumption of an independent contractor relationship may not withstand scrutiny. The clear risk is that misclassification and a deemed breach of the ESA can undermine the rest of the contract, leaving the common law to apply.

The Workplace Law Group at Aird & Berlis LLP provides practical, strategic guidance on all aspects of employment law, including worker classification, employment agreements, workplace policies and workplace disputes. Given the potentially significant consequences of worker misclassification, employers should ensure that the practical realities of the relationship support the intended characterization of the parties. Please contact the authors or a member of the team if you have questions about this decision or require assistance reviewing your workforce arrangements.