Not all persons who provide services in exchange for compensation fall neatly within either the definition of “employee” or “independent contractor”. Somewhere on the continuum between these two concepts lies the “dependent contractor” – a person who works for him or herself but provides services on a consistent and regular basis to only one (or a limited number of) organizations. It may come as a surprise to many that dependent contractors enjoy some of the same rights as employees – most importantly, the right to reasonable notice of termination.
For more than 20 years, Canac Kitchens contracted with the Keenans, a husband and wife kitchen cabinet installation team. Although the Keenans had originally been employees of Canac, in 1987, the Keenans signed a new contract with Canac which identified them as independent contractors. Although the Keenans did do some work for one other company, the vast majority of their revenues were from Canac.
In March 2009, Canac informed the Keenans that the business was shutting down and their services were no longer needed. Since Canac considered the Keenans to be independent contractors, they did not provide any prior notice of the termination. The Keenans sued Canac and claimed that as dependent contractors, they were entitled to reasonable notice of termination.
In determining the nature of the relationship between the Keenans and Canac, the court considered five factors: exclusivity, control, investment/interest in tools, business risk or expectation of profit, and “ownership” of the business.
The court found strong evidence of exclusivity in the Keenan’s service to Canac, despite the fact that they performed some work for another company (with the knowledge of Canac). The court also noted that the Keenans considered themselves to be loyal Canac employees.
The court also found that Canac exercised control over all aspects of the services performed by the Keenans. Although the contract between Canac and the Keenans was framed as an independent contractor agreement, the court was of the view that the contract was a tool by which Canac attempted to avoid employment responsibilities to the Keenans, rather than truly reflecting the nature of their relationship.
The Keenans owned the construction tools they used throughout their work for Canac but the court found that by supplying an office, phone and filing cabinet used by the Keenans in the course of their services, Canac had supplied the Keenan’s with tools to carry out their services.
With respect to the business risk/profit consideration, the court noted that the Keenans had worked almost exclusively for Canac for 20 years, suggesting the Keenans were subject to little business risk. As well, since Canac paid them a commission per installation, there was no expectation of profit.
Last but not least, the court found that the business was Canac’s, not the Keenans’s. The court indicated that public perception was important in determining whose business it was: the Keenans wore Canac shirts, had Canac business cards, and their vehicles displayed the Canac logo. They were Canac to the “outside world”, demonstrating that the business was very much Canac’s and not their own.
Based the cumulative effect of the evidence, the court found that the Keenans were dependent contractors and awarded them 26 months’ severance.
This case is an important reminder that the nature of a service relationship is not defined by the terms used by the parties (employee or independent contractor) but by how the parties actually conduct themselves. It is also a good example of the risks associated with not implementing an enforceable contract: if Canac had an enforceable contract with the Keenans which provided for notice of termination, the result would have been very different.