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Alberta court reaffirms reasonable notice entitlements for dependent contractors

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At the end of a typical employment relationship, it is not uncommon for the parties to disagree over the amount of “reasonable notice” (or pay in lieu of notice) that the employer is required to give to the employee under common law.

However, in situations where an organization has retained an individual as a contractor (and not as an employee), a more fundamental issue may arise upon termination of the relationship: is the contractor entitled to “reasonable notice” (or, indeed, to any notice) of termination at all?

Adding to a growing body of case-law regarding “dependent contractors” is a recent case from the Court of Queen’s Bench of Alberta, Weber v. Coco Homes Inc. (2013 ABQB 180), in which the Court held that “dependent contractors” (as distinct from “independent contractors”) are entitled to reasonable notice of termination, albeit on a lesser scale than in the traditional employment context.

In that case, the Court considered the matter of Kyla Weber (“Ms. Weber”), a real estate agent who was engaged by Coco Homes Inc. (“Coco”) through her holding company, Goldngirl Investment & Consulting Ltd., to sell homes in Okotoks, Alberta from March of 2006 until June of 2008, at which point Coco terminated the engagement without notice. Ms. Weber then commenced an action against Coco, claiming entitlement to termination pay at common law.

At trial, the evidence was that, for the duration of the engagement, Coco paid Ms. Weber on a commission basis, and that Ms. Weber only received payment when she sold a home. To facilitate the sale of these homes, Coco provided Ms. Weber with a furnished office in a model home, business cards identifying Ms. Weber’s affiliation with Coco, and promotional materials describing the Coco homes that Ms. Weber was tasked with selling. Coco also fixed Ms. Weber’s hours, facilitated her training, and required a commitment of exclusivity—i.e. she was not permitted to sell new homes for anyone else.

However, the arrangement with Coco was not Ms. Weber’s only source of income — in that regard, during the period in question, she also worked in the resale market as a realtor for Keller-Williams, and approximately 30% of her income came from this secondary engagement.  Furthermore, Coco also demonstrated that Ms. Weber was given some degree of control in the engagement—for example, she independently retained the services of an assistant to support her work with Coco.

Turning first to the question of whether Ms. Weber was an employee or a contractor, the Court examined eight fundamental characteristics of Ms. Weber’s engagement by Coco (i.e. Remuneration/Benefits, Exclusivity, Control, Tools, Risk and Opportunity, Whose Business, Duration, and Dependence) and concluded that the engagement was more in the nature of a principal/ contractor arrangement than an employment relationship.

From there, the Court went on to consider the extent of Ms. Weber’s dependence upon the relationship with Coco, and determined that she had functioned as a “dependent contractor” (i.e. rather than an “independent contractor”).  In that regard, the Court recognized that Ms. Weber had an overall dependence on Coco, and that Ms. Weber “did not have the degree of independence to operate independently, with little interference or guidance” – accordingly, the Court concluded that Ms. Weber’s “relationship with Coco is best described as that of a dependent contractor, and she is thus entitled to some degree of reasonable notice; albeit less than what an employee would be entitled to.”

In reaching this conclusion, the Court explicitly acknowledged its prerogative to “imply a term requiring reasonable notice to terminate a relationship with a dependent contractor in situations where the governing agreement does not contain express terms governing the required length of notice to terminate such agreement.”  In other words, the Court affirmed that the “default” termination entitlements of dependent contractors are more akin to the entitlements of employees than they are to the entitlements of independent contractors.   Although the Court did not comment on the extent of independent contractors’ entitlements to notice of termination, it is well-established that (absent contractual terms to the contrary) independent contractors are generally not entitled to the same sort of “reasonable notice” that is typically owed to employees and dependent contractors.

As to the appropriate “reasonable notice period” for Ms. Weber, the Court considered the following factors:

  • the character of the engagement;
  • the length of service;
  • the age of the contractor;
  • the availability of similar opportunities;
  • the experience, training and qualifications of the contractor; and
  • the mitigation efforts of the contractor following termination.

In light of her two years and three months of service to Coco, the Court found that Ms. Weber was entitled to two months’ notice; however, based on the Court’s determination that she had failed to take adequate steps to mitigate her damages, that entitlement was arbitrarily reduced by 20%.  In the result, Ms. Weber was awarded damages of $21,250.

This case serves to remind organizations of the importance of putting a comprehensive contractor agreement in place prior to the commencement of the relationship, particularly where the organization does not wish to find itself subsequently facing an obligation to provide the contractor with reasonable notice of termination.  In light of the absence of a statutory requirement to provide notice of termination to contractors in Alberta (and in Ontario), parties are entitled to agree on the amount of notice (or pay in lieu), if any, that will be required in order to terminate the contract. Only where no explicit and enforceable agreement exists will courts imply a term of “reasonable notice” into a principal’s relationship with a dependent contractor.

Regardless of whether the parties intend or expect to create a dependent or an independent contracting relationship, implementing a contract that outlines the parties respective rights and obligations from the outset can avoid unnecessary dispute, aggravation and expense  in the long term (and particularly upon the termination of the relationship).

Ryan D. Campbell