When is a contractor not a contractor?

The answer can be costly for employers, warns one leading industry lawyer.

In Ontario the issue of employment status is analyzed by different criteria depending on the particular legislative context: for example, there are different tests under the Employment Standards Act, 2000 (“ESA”) and Labour Relations Act (“LRA”) for determining whether someone is an employee or an independent contractor.  You may already be familiar with the distinction between an employee and an independent contractor.  But did you know that there is a hybrid status between those two: the “dependent contractor”?  The recent decision of the Ontario Court of Appeal in Keenan v. Canac Kitchens shows how the Courts will look at the employment relationship to determine whether someone is an employee, independent contractor, or somewhere in between.

In Canac Kitchens the plaintiffs, husband-and-wife team Lawrence and Marilyn Keenan, each had longstanding relationships with Canac.  While both started as full-time employees, they were both advised at one point that they would no longer be employees and instead would continue to provide services to Canac as contractors, which status they each maintained for the remainder of their time with Canac.  The problem for Canac was that this “contractor” status was not truly independent.  The trial judge found that the Keenans, even when their respective statuses changed from employees to contractors, were dependent on Canac for the overwhelming majority of their work and income: they were “dependent contractors” and as such, no different from employees.  The Court of Appeal concurred, finding that the “high degree of exclusivity” the Keenans provided to Canac constituted dependence and the twenty-six (26) months' notice awarded by the trial court was reasonable in the circumstances.

What that meant for Canac was that they owed the Keenans reasonable notice of termination, of which Canac had given them none on the basis that they were contractors.

This decision is indicative of a growing trend in the courts to provide a level of protection to this type of work that has not always been available.  In essence, this approach is falling more in line with the broadly-inclusive approach taken under the Labour Relations Act where findings of independence are certainly the exception rather than the rule.  Accordingly, employers need to be wary of relying on “contractor status” as a means to avoiding notice obligations, and instead consider ways to minimize exposure, including the use of service agreements with termination provisions.  In that regard, the lawyers at CCP can assist by both assessing employment status and drafting the appropriate agreement for every situation.

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