The Ontario Court of Appeal recently confirmed not only that dependent contractors are entitled to reasonable notice of termination, but that 26 months can be an appropriate notice period for long-service dependent contractors.

Employee? Independent contractor? Dependent contractor?

It’s not news that employers cannot rely on independent contractor language in their agreements to later avoid providing reasonable notice of termination or other common law entitlements. Courts will invariably look at how the parties conducted themselves (both with each other and other relevant persons such as customers) to determine if an individual is an employee or contractor. The actual relationship is determinative and not the language used in the agreement.

Until relatively recently, that inquiry focused on whether the individual was an employee or an independent contractor. Now there is an intermediate category – the dependent contractor – which falls on the continuum between employee and independent contractor.

Dependent contractors, like employees, are entitled to reasonable notice of termination; and the amount of notice can be substantial. The Court of Appeal confirmed these points in Keenan v. Canac Kitchens, 2016 ONCA 79.

Background

We outlined the facts and the lower court’s decision in Keenan v. Canac Kitchens in our earlier blog post – click here. To review briefly, Canac Kitchens Ltd. (“Canac”) manufactured and sold kitchen cabinets. The Keenans, a husband and wife, worked for Canac for 32 years and 25 years respectively, as delivery and installation supervisors, until Canac closed its operations in 2009.

Canac hired the Keenans as full-time employees but years later advised them they would become contractors instead. Canac also made other stipulations at that time, such as requiring the Keenans to use their own trucks and hold their own insurance.

Canac asked the Keenans to sign an agreement reflecting the new arrangement. The agreement described the Keenans as “sub-contractors” and required them to devote “full-time and attention” to Canac. Mrs. Keenan signed the agreement and the Keenans continued working for Canac.

In 2009, Canac told the Keenans their services were no longer needed without advance notice or pay in lieu thereof. The Keenans brought a wrongful dismissal action, seeking pay in lieu of reasonable notice. Canac argued that the Keenans were not entitled to notice because they were independent contractors.

Five factors to consider for dependent contractors

The trial judge decided that the Keenans were dependent contractors after considering 5 factors: (1) exclusivity of service; (2) control; (3) ownership of tools; (4) participation in risk and opportunity for profit; and (5) an assessment of the question – whose business is it? Each factor tended towards a finding that the Keenans were dependent contractors.

Exclusivity of service

On appeal, Canac argued that the Keenans were independent contractors because they hadn’t worked exclusively for Canac during their last two years of service (they had also worked for a competitor). The Court of Appeal dismissed this argument; finding that the trial judge properly looked at the full history of the parties’ work relationship and the two years of non-exclusive service did not alter the high degree of exclusivity demonstrated in the overall history.

26 months’ notice

The Court of Appeal also left intact the trial judge’s generous award of 26 months of pay in lieu of notice. The Court of Appeal reasoned that 26 months was warranted given the Keenans’ long service, age and supervisory-level positions. In particular, the court highlighted that the Keenans worked for Canac for the entirety of their working lives.

What to do differently

The Court of Appeal’s decision is an important reminder that a service relationship is not defined by the terms used by the parties (employee, independent contractor or dependent contractor) but by how the parties actually conduct themselves.

Canac should have entered an enforceable agreement with the Keenans with a specific provision for notice upon termination. In other words, the agreement should have clearly stated what the Keenans would be entitled to upon termination.

It is also important to review and update agreements over time, particularly as roles evolve or change – remembering that new consideration needs to be provided in exchange for agreeing to different terms.