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Dependent contractors receive 26 months’ pay in lieu of notice

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The common law in Ontario, relating to dependent contractors, is now well established. Employment relationships exist on a continuum; with the employer/employee relationship at one end of the continuum, and independent contractors at the other end. Between those two points, lies a third intermediate category of relationship, now termed “dependant contractors”.

Like employees, dependant contractors are owed reasonable notice on termination. In Belton v. Liberty Insurance Company of Canada (2004), 70 O.R. (3d) 81, at paragraph 11, the following principles were articulated to distinguish independent contractors from employees, when considering the status of a commissioned agent:

  1. Whether or not the agent was limited exclusively to the service of the principal.
  2. Whether or not the agent is subject to the control of the principal not only as to the product sold, but also as to when, where, and how it is sold.
  3. Whether or not the agent is an investment or interest in what is characterized as the tools relating to his service.
  4. Whether or not the agent has undertaken any risks in the business sense, or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission.
  5. Whether or not the activity of the agent is part of the business organization of the principal for which he works. In other words, whose business is it?

These principles have been adapted to cases involving dependent contractors and were specifically examined in the recent case of Keenan v. Canac Kitchens, 2015 ONSC 1055 which was just released in January 2015.

In Keenan v. Canac Kitchens, the plaintiffs were employees of Canac until 1987 at which time they were told that they would no longer be employees, but instead, would carry on their work for Canac as independent contractors.

The plaintiffs were told that:

  • they should incorporate.
  • that they would be responsible for paying installers.
  • the installers would provide their own trucks and would pick up kitchen cabinets from Canac and deliver them to job sites, where they would be installed.
  • Canac would set the rates to be paid to the installers and pay the plaintiffs, who, in turn, would pay the installers.
  • the plaintiffs, as Delivery and Installation Leaders, would, as before, also be paid on a piece work basis for each box or unit installed. But, the amount paid would be increased to reflect the fact that the Delivery and Installation Leaders were being paid gross, without deductions for Unemployment Insurance, Canada Pension Plan, or Income Tax.
  • Delivery and Installation Leaders would now be responsible for damage to cabinets while in transit, and were expected to obtain insurance to cover such liability.
  • and that they were required to sign a four page agreement which purported to confirm the terms of the agreement between the plaintiffs, as a subcontractor of Canac, engaged in the delivery, installation, and service of kitchen cabinets, vanities, and countertops.

Two of the provisions on the first page of this document, included the following:

“You understand, that as a subcontractor of Canac, you will devote full-time and attention to the business of Canac and shall report to Canac’s Installation Manager.”

“As much time as is necessary to fulfill the terms and conditions of the contract in attending to the business of Canac and shall report to Canac’s Installation Manager.”

The Keenans did not incorporate, however they did register the business name “Keenan Cabinetry”. They obtained the insurance required by their agreement with Canac, and they registered with what was then known as The Workers’ Compensation Board. Although they were responsible for cutting cheques to the installers they supervised, the installers were not their employees. And Keenan Cabinetry never registered as an employer with the Canada Revenue Agency for the purposes of withholding taxes and other source deductions.

With the exception of a few jobs on weekends, helping out with the installation of windows and doors, which were not invoiced through Keenan Cabinetry, the plaintiffs worked exclusively for Canac until 2007 when they worked for a competitor as well, but still the vast majority of their work was still performed for Canac. They enjoyed employee discounts. They wore shirts with company logos. They had Canac business cards. Mr. Keenan received a signet ring for 20 years of loyal service. To the outside world, and in particular, to Canac’s customers, the plaintiffs were Canac’s representatives.

The judge found, based on the facts in relation to the above-noted test set out in Belton v. Liberty Insurance Company of Canada that the plaintiffs were in a dependent contractor relationship.

Of equal interest was the assessment of the reasonable notice period which should apply.

The defendants argued that if a finding was made that the plaintiffs were dependant contractors, only Mr. Keenan should be compensated based on a tribunal finding, which it was acknowledged was not binding on the court, that in the context of certain workers’ compensation obligations, Ms. Keenan was an employee of Keenan Cabinetry and presumably should not be awarded notice. The judge found that both plaintiffs should be compensated. He found that Mr. and Ms. Keenan, respectively, gave the defendant approximately 32 and 25 years of service.

The judge appeared to take into consideration the multiple cases against Canac involving terminations of employees and noted that employees with 27.5 years of service had been given 26 months’ notice in at least one of those cases.  The judge averaged the length of service of Mr. and Ms. Keenan with the result being 28.5 years. Under the circumstances, the judge concluded that 26 months’ notice was reasonable.

RT Takeaways:

  1. This case reminds us once again that the mere existence of a written contract purporting to define the relationship between the parties, will not be determinative. Rather the court will look to the actual facts and evidence in the particular circumstance to determine the relationship between the parties.
  1. Furthermore, while the historical thinking has been that dependent contractors are entitled to less reasonable notice than employees, this case is demonstrative of the fact that the gap appears to be disappearing. This is certainly a case where the dependent contractors were awarded a reasonable notice period quite comparable to that of an employee.
  1. This case is also demonstrative of the fact that what used to be considered the common-law “cap” of 24 months for reasonable notice periods for employees, is also not a cap for dependent contractors.

Patrizia Piccolo

About the Author: Toronto Employment Lawyer Patrizia Piccolo is a trusted advisor to senior executives in transition; provides strategic advice and training to both large and small employers and their human resources and management teams; and is entrusted by employers and their counsel to conduct investigations into harassment and other problematic workplace behaviour. She also advises employers on employment related regulatory issues including, Employment Standards Act, Human Rights Act, Labour Relations Act and Workplace Safety and Insurance Act compliance.