Between employees and independent contractors exists a third, lesser known category of employment relationship: the dependent contractor. Unlike independent contractors, and subject to specific contractual termination provisions, dependent contractor relationships cannot generally be terminated without notice, or pay in lieu thereof. Dependent contractor status in law can therefore undermine the flexibility and efficiency that many employers hope to realize through retaining contractors to provide services.
How can employers mitigate the risk of a finding of dependent contractor status? It starts with understanding what makes a dependent contractor “dependent”, something the Ontario Court of Appeal recently clarified in Thurston v. Ontario (Children’s Lawyer).
The plaintiff, Barbara Thurston, was a sole practitioner lawyer who provided legal services to the Office of the Children’s Lawyer (“OCL”) pursuant to a series of fixed-term contracts for a period of 13 years. When her last contract expired in 2015, it was not renewed by OCL. Ms. Thurston then brought a claim alleging that she was a dependent contractor rather than an independent contractor, and was therefore entitled to common law reasonable notice of termination. She claimed a notice period of 20 months.
In addition to her work for OCL, the plaintiff maintained an independent legal practice, which formed a majority of her billings. Her OCL work accounted for an average of about 40% of her total annual billings throughout the 13 years she was retained to provide legal services to OCL.
At the Superior Court of Justice, the motion judge found that the plaintiff’s relationship with OCL was continuous for a 13-year period with no break, and that in recent years, an increasingly larger portion (50%-60%) of the total billings from her legal practice, and thus her income, came from OCL. The motion judge also considered that Ms. Thurston performed her work under OCL’s control, performed work that was integral to OCL, and was perceived by the public to be an employee of OCL. In the motion judge’s view, these factors were sufficient to “tip the balance” in favour of finding dependent contractor status.
On appeal, however, the Ontario Court of Appeal overturned the motion judge’s decision, finding that the minimum level of economic dependency required for dependent contractor relationships was lacking in Ms. Thurston’s case. Writing for a unanimous Court, Justice Huscroft held that “the motion judge misapprehended the nature of the legal standard and failed to give effect to several relevant considerations in applying that standard. The result is an unreasonable decision that cannot stand.”
The Court of Appeal’s decision reaffirms that dependent contractor status requires demonstration of “complete or near-complete exclusivity,” or other compelling indicators of “a certain minimum economic dependency.” Noting that the litmus test of “minimum economic dependency” is ambiguous, the Court of Appeal reasoned that exclusivity is the factor most determinative of dependence and therefore dependent contractor status. Further, the Court explained that the determination of dependent contractor status “must be made having regard to the purpose of the concept: the extension of the common law entitlement to notice of termination from employees to dependent contractors.”
While acknowledging that the dependent contractor inquiry is “highly-context specific,” the Court offered the following guidance: “‘near-exclusivity’ necessarily requires substantially more than 50% of billings. If it were otherwise, exclusivity – the ‘hallmark’ of dependent contractor status – would be rendered meaningless.”
Applying this test to Ms. Thurston’s employment with OCL, the Court of Appeal held that, while the loss of OCL as a client would have a “substantial impact” on her legal practice and her income, its share of 40% of her average total billings over the span of her retainer did not meet the requisite threshold of exclusivity or near-complete exclusivity. Justice Huscroft also found that the motion judge did not take into account the following relevant considerations:
- Thurston’s contracts with OCL contemplated that she would continue her private practice and required her to confirm that she did not work exclusively for the OCL;
- She continued to operate her private legal practice during the entire period of her retainer, which constituted the main source of her total income throughout the period;
- She had her own office, supplies, and staff;
- She was not guaranteed a minimum number of files or amount of work with the OCL; and
- OCL reserved the right, at its sole discretion, to terminate her retainer agreement at any time, without fault and without liability.
Employers will welcome the clarity provided by the Court of Appeal and the high-bar for dependent contractor status moving forward from Thurston.