Many employers hire independent contractors to assist in their workplace and in most cases, the assumption is that doing so will result in minimal or no notice of termination having to be paid at the end of the relationship. A recent case has confirmed that that assumption can be a risky one to make.
Earlier this year, the Ontario Superior Court of Justice released its decision in the case of Keenan v. Canac Kitchens. For those familiar with employment law in Ontario, the name Canac Kitchens will be familiar as it has been on the losing end of a number of employment law cases.
In this particular case, Lawrence and Marilyn Keenan were employed by Canac Kitchens beginning in 1976 and 1983 respectively. In 1987, both were advised that their employment was coming to an end but that they could carry on as independent contractors. Independent contractor agreements were signed and the Keenans carried on as before. They continued working for Canac until the company closed its operations in 2009. No notice of termination or pay in lieu of notice was provided.
The court looked back at the 2009 Ontario Court of Appeal decision in McKee v. Reid’s Heritage Home Limited and confirmed that employment relationships exist on a continuum, with employees at one end, independent contractors at the other, and dependent contractors in the middle. The court also confirmed that unlike independent contractors, dependent contractors are entitled to reasonable notice of termination. In determining the status of the Keenans, the court looked to the following:
- Whether the individuals were limited exclusively to the service of the company;
- Whether the individuals were subject to the control of the company, not only as to the product sold, but when, where and how it was sold;
- Whether the individuals had an investment in the “tools” relating to their service;
- Whether the individuals undertook any risk in relation to their business, or had an expectation of profit apart from a fixed fee or commission; and
- Whether the business was that of the individual or the company.
While there were some factors in this case which suggested an independent contractor agreement, the court was particularly fixated on the fact that the Keenans worked exclusively for Canac until 2007. Although they did some small amount of work for a competitor between 2007 and 2009 due to a shortage of work at Canac, the judge accepted that Canac turned a blind eye to same. In other words, for all intents and purposes the Keenans provided services only to Canac for almost the entire duration of the relationship. Moreover, Canac had almost complete control of the work performed by the Keenans.
As a result, the court found that although the Keenans were contractors, they were in a dependent relationship to Canac and therefore entitled to notice of termination. Due to the 32 and 25 years of service provided by Lawrence and Marilyn respectively (which resulted in an average length of service of 28.5 years between the two of them), the court found that a whopping 26 month notice period was reasonable.
As always, independent contractor agreements should be entered into with careful consideration as to the true nature of the relationship between the parties. As the saying goes, “if it walks like a duck and talks like a duck, the chances are good that it’s a duck”. In such a case, no amount of contractual drafting will lead to another conclusion.