Keenan v Canac Kitchens, 2015 ONSC 1055 (“Canac Kitchens“) serves as an important reminder that simply using the term “independent contractor” in an agreement is not enough to protect an employer from its obligation to provide, among other things, reasonable notice upon termination.  The nature of a working relationship is generally defined by the actual nature of the relationship, including how the parties conduct themselves, not by the terminology used by the parties to describe their relationship.

Background

In Canac Kitchens  the plaintiffs, a husband and wife, both worked for Canac for over 20 years. Although the Keenans began as employees,  in 1987, they were approached by management who informed them that they would no longer be employees, but instead, would carry on their work as independent contractors.

Under this new arrangement, Canac would set the rates to be paid to the installers and pay the Keenans, who, in turn, would pay the installers. The Keenans would be responsible for damage to cabinets in transit and were advised to obtain insurance to account for that risk. The amount paid to the Keenans increased to reflect the fact that their pay was no longer subject to income tax, Canada Pension Plan or Employment Insurance deductions. The Keenans both signed a new contract confirming these terms of employment and obtained the requisite insurance.

With few exceptions, the Keenans worked exclusively for Canac until 2009 when they were informed that Canac was shutting down their operations and that their services were no longer required. Since Canac considered the Keenans to be independent contractors, they did not provide any prior notice of termination. The Keenans sued Canac, claiming to be dependent contractors entitled to reasonable notice of termination.

Decision

The Ontario Superior Court concluded that the Keenans were entitled to 26 months of notice after they were found to be dependent, rather than independent, contractors of the employer.

In determining the true nature of the relationship between the Keenans and Canac, the court considered five 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?

When applied to the circumstances, for the period between 1987 to their termination in 2009, all five factors tended towards a finding that the Keenans were dependant contractors. In particular:

  • The court emphasized the near exclusivity of service until 2007. Any work outside of Canac was infrequent and conducted on weekends for family and friends. Thereafter, any outside work the Keenans took part in was driven by economic necessity.
  • Canac set the rates, established service standards, dictated work flow, and set the deadlines.
  • While the Keenans owned their own construction tools, the court stressed that by supplying pagers, phones, filing cabinets and office space, Canac supplied the Keenans with tools to carry out their work.
  • Given the near exclusivity of the Keenans work with Canac for over 20 years, the court determined that they were exposed to little business risk and little opportunity to generate additional profit.
  • The court had no trouble finding that the business was Canac’s not the Keenans’. The Canac logo was displayed on their vehicles, their business cards and their shirts, and the business arrangement entered into in 1987 was primarily for Canac’s benefit.

Based on this evidence, the Keenans were found to be dependent contractors and were therefore entitled to 26 months’ notice in an amount exceeding $120,000.

Employer Implications

Where the working relationship between the parties shows that a contractor is not truly independent, the cost is high for employers who are caught off guard.  To minimize the risks associated with such relationships, employers should seek legal advice from an employment lawyer when establishing and/or ending a working relationship.  Counsel will be able to assist your business in determining whether an independent contractor relationship will be practical under the circumstances, and if so, to properly structure the relationship to avoid liability resulting from an ambiguous business relationship.