An employee’s right to implied reasonable notice of termination in the absence of an express termination provision depends on various factors, such as age, length of service, and character of employment. Very few awards have exceeded 24 months.
The Ontario Court of Appeal recently upheld a lower court’s decision finding that two long service, dependent contractors should have been provided 26 months of notice. Keenan v Canac Kitchens Ltd., 2016 ONCA 79 sheds light on the factors that lead to a finding of a “dependent contractor” relationship, and the circumstances that led to this extraordinary result.
The plaintiffs, Lawrence and Marilyn Keenan, worked for Canac Kitchens Ltd. (“Canac”) for 32 and 25 years, respectively. Initially, the plaintiffs were employed as foremen, supervising installation crews. In 1987, they were informed that they were to be converted to independent contractors.
Under the new arrangement, they were given new titles, required to obtain insurance coverage, and to provide their own trucks and construction tools. Canac provided the plaintiffs with records of employment and draft agreements ending their employment, and agreeing to the new arrangement. They did not obtain legal advice, and only Mrs. Keenan signed the new agreement.
Despite these changes, for all intents and purposes, the Keenans’ day to day working relationship with Canac remained the same. They worked exclusively for Canac until it closed its operations and terminated them without any advance notice. The Keenans brought an action for wrongful dismissal, seeking pay in lieu of notice.
Ontario Superior Court of Justice
The Ontario Superior Court of Justice concluded that the Keenans were not employees, but were “dependent contractors”, and entitled to reasonable notice of termination. In arriving at this determination, the court considered the following:
- The plaintiffs worked exclusively for the defendants until 2007. Any work done for other customers was infrequent and driven by economic necessity.
- Canac unilaterally set the Keenans’ rates for service and dictated their work flow.
- While the Keenans owned their own truck and supplied their own tools, this arrangement was not dissimilar to their arrangement as employees. Further, Canac still provided pagers, phones and office space to conduct their work.
- The Keenans were exposed to very little business risk of loss or chance of profit, as the majority of their work came from Canac.
- The business arrangement between the parties was primarily for Canac’s benefit. To the outside world and their customers, the Keenans appeared to work for Canac.
Court of Appeal
Canac appealed the decision, citing two grounds of appeal: first, the Keenans were independent contractors because they did not work “exclusively” for Canac during their last two years of service; and, second, the case did not present any ‘special circumstances’ to warrant notice in excess of 24 months.
In considering the full 30 year relationship between the Keenans and Canac, the Court of Appeal dismissed Canac’s arguments. The Keenans were economically dependent on Canac for a number of years. Despite the fact that a marginal percentage of their work came from competitors, the substantial majority of their work continued to be performed for the benefit of Canac. The Court found that the dependent contractor relationship was not simply a snapshot of the last two years of service, and any period of non-exclusivity did not affect the entire working relationship.
The Court of Appeal also upheld the trial judge’s award of 26 months’ pay in lieu of notice. In the Court’s decision, the lack of an explicit finding of ‘exceptional circumstances’ was not fatal to the award. The Court concluded that given the Keenans’ ages at the time of termination, their length of service, and the character of their positions, 26 months was appropriate.
Note to Employers
This decision serves as a reminder that employers must monitor employment relationships and document any transitions from an employment relationship to a contractor relationship. Contracts should be reviewed and updated, and require fresh consideration each time any agreement is amended. Whether employment or contract for services, an express termination provision, properly drafted and implemented, can limit the company’s liability on termination of the relationship.
Any notice period provided in the agreement should never be less than the statutory minimums required by the applicable employment standards legislation, to protect against the possibility that the relationship might later be found to be one of employment. In such a case, a notice period less than the legal minimum standard would be void, and the court would then imply an obligation to provide reasonable notice.