In a recent decision of the Ontario Superior Court of Justice, a trial judge awarded 26 months of notice to two plaintiffs who were both found to be dependent contractors of the employer.

In Keenan v. Canac Kitchens, 2015 ONSC 1055, the plaintiffs were a husband and wife who had both been initially hired by Canac Kitchens (“Canac”) as employees. Mr. Keenan was hired by Canac in 1976 as an installer of kitchen cabinets. Mr. Keenan later became a Delivery and Installer Leader, supervising the delivery, installation and service of Canac’s kitchen cabinets. Ms Keenan, who had previously assisted her husband in the performance of his duties on an informal basis, was hired by Canac as a Delivery and Installer Leader in 1983.

In 1987, Canac informed the plaintiffs that they would no longer work for Canac as employees, but instead would carry on their work for Canac as independent contractors. Canac advised the plaintiffs that, as part of the new arrangement, the plaintiffs would be responsible for paying installers. Canac would pay the plaintiffs, who, in turn, would pay the installers. The amount paid to the plaintiffs would be increased to reflect the fact that their pay was no longer subject to income tax, Canada Pension Plan and Employment Insurance deductions. Unlike before, the plaintiffs would now be responsible for damage to Canac’s cabinets. The plaintiffs were expected to obtain insurance to cover this liability.

The plaintiffs were subsequently provided with a written agreement purporting to confirm the terms of the new arrangement. The agreement required the plaintiffs to devote their full time and attention to Canac’s business. The plaintiffs considered the agreement to be consistent with what they had been told by Canac about the new arrangement. They also believed that the new arrangement would not result in any change to their income. Accordingly, Ms Keenan signed the agreement on the plaintiffs’ behalf.

In 2009, Canac informed the plaintiffs that it was closing its operations and that their services were no longer required.

At trial, Canac took the position that it was not required to provide the plaintiffs with any notice that their services were being terminated on the basis that the plaintiffs were independent contractors. The plaintiffs argued that they were dependent contractors who, like employees, are entitled to reasonable notice at common law.

Decision

The Court considered the following principles set out in Belton v. Liberty Insurance Company of Canada (2004), 70 O.R. (3rd) 81, in determining whether the plaintiffs were dependent or independent contractors:

  1. Whether or not the agent was limited exclusively to the service of the principal.
  2. Whether or not the agent is subject to the control of the principal not only as to the product sold, but also as to when, where, and how it is sold.
  3. Whether or not the agent as an investment or interest in what are characterized as the tools relating to his service.
  4. Whether or not the agent has undertaken any risks in the business sense, or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission.
  5. Whether or not the activity of the agent is part of the business organization of the principal for which he works. In other words, whose business is it?

The Court found that, when applied to the circumstances, each of these principles indicated that the plaintiffs were dependent contractors. In particular, the Court emphasized the nearly complete exclusivity of the relationship between Canac and the plaintiffs between 1987 and 2009.

Having concluded that the plaintiffs were dependent contractors, the Court went on to assess what amount of notice was appropriate in the circumstances. The Court rejected Canac’s argument that the amount of notice to which the plaintiffs were entitled was 16 to 18 months and instead found that the plaintiffs were entitled to 26 months of notice. As a result, Canac was ordered to pay the plaintiffs approximately $125,000.00.  

Commentary

This decision serves as a reminder to employers that the Court will consider the substance of a relationship between an employer and a contractor when determining whether the contractor is entitled to reasonable notice upon termination of his or her services. A written agreement that the worker will provide his or her services as an independent contractor may be insufficient to protect an employer from being required to provide reasonable notice at common law.

The importance of an employer’s conduct vis-à-vis contractors is underscored by the significant period of notice found to be reasonable in this decision. This case demonstrates that an employer may be required to provide considerable notice of the termination of a contract where the relationship between the parties shows that a contractor is not truly independent.

To minimize the risks associated with such relationships, employers may wish to set out a contractor’s entitlements upon the termination of the contract in a written agreement. Any such agreement should be in clear and unambiguous language and should comply with minimum statutory requirements. Nevertheless, there may be some risk that such an agreement may be considered an acknowledgement of an individual’s status as an employee.