While many are familiar with the two main classifications of workers in Employment Law, namely employees and independent contractors, there is a third category that is rarely discussed. Specifically, this third classification is known as dependent contractors. The legal importance of this third classification is that companies who obtain the services of a dependent contractor are obligated to provide reasonable notice when terminating the working relationship, similar in nature to the notice that is provided to an employee. The Ontario Superior Court of Justice’s recent decision of Keenan (c.o.b. Keenan Cabinetry) v. Canac Kitchens, a Division of Kohler Ltd. provides a demonstration of the entitlements that a dependent contractor may be entitled to upon termination of the working relationship.
Marilyn Keenan and Lawrence Keenan (“the Keenans”) both worked for Canac Kitchens (“Canac”) as employees in the position of Foreman, supervising the work of Canac’s installers. Lawrence Keenan began working for Canac in 1979, while Marilyn Keenan began working for Canac in 1983.
In 1987, Canac approached the Keenans and informed them that they would no longer be considered employees of Canac and that they would carry on working as independent contractors. In this regard, the Keenans would perform the same duties that they performed as employees with some minor changes. Specifically, Canac would pay the Keenans directly (without any deductions for Employment Insurance, Canada Pension Plan, or Income Tax) and the Keenans would pay the installers that they supervised directly, and the Keenans would be responsible for any damage done to the projects while in transit to the installation site, thereby requiring the Keenans to obtain insurance to cover this liability. The Keenans were also provided with a written agreement which indicated that they were to devote their full-time and attention to Canac.
This working relationship continued until March of 2009 when the Keenans were informed that Canac was closing its operations and therefore no longer required their services. In response, the Keenans initiated legal proceedings seeking their common law notice entitlements as a result of the termination of their working relationship.
In reaching a decision, the Ontario Superior Court of Justice determined that the issue to be decided was whether the Keenans were independent contractors or dependent contractors. Accordingly, the Court applied the legal test articulated in Beltron v. Liberty Insurance Company of Canada. Specifically, to determine whether a worker is an independent contractor or a dependent contractor, the following questions are asked:
- Whether or not the agent was limited exclusively to the service of the principal.
- Whether or not the agent is subject to the control of the principal not only as to the produce sold, but also as to when, where and how it is sold.
- Whether or not the agent has an investment or interest in what are characterized as the tools relating to their service.
- 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 their service as distinct from a fixed commission.
- Whether or not the activity of the agent is part of the business organization of the principal for which the agent works.
In reviewing these five points in the context of the facts of the matter, the Court determined that each were answered in favour of finding that the Keenans were dependent contracts, and awarded 26 months notice, totaling $124,484.04.
Lessons for Employers
While hiring workers as independent contractors can provide an opportunity to avoid the costs associated with common law notice, the actual circumstances and operations of the working relationship will determine whether the worker is an independent contractor, employee or dependent contractor. Accordingly, having a written agreement in place stating that the worker is an independent contractor may not be sufficient to establish this working relationship and avoid the obligation of providing common law notice. As a result, Employers should seek legal advice from an Employment Lawyer when establishing and or ending such a working relationship to obtain an assessment of their exposure.
Lessons for Employees
The above decision is very important for all workers, as it provides an example of what a working relationship involving a dependent contractor looks like and an idea of the notice entitlements that one can receive when the working relationship is ended by the Employer. Of course, each case will be decided on its own set of facts, which in some situations may result in a finding of a dependent contractor, while in other it may not. However, a worker should not simply assume that they are an independent contractor simply because of being provided with this title, but rather seek the advice of an Employment Lawyer to determine whether there is an entitlement to notice upon termination of the working relationship.
Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us to see how.
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