Dependent Contractors

Written on behalf of Peter McSherry

In our most recent post, the issue of a principal-contractor agreement was reviewed. This week we discuss how it is possible to create a fair and binding agreement by which a person is hired as a contractor and not an employee.

Often employer’s believe that classifying the workplace relationship like this will deny the contractor the right to receive the same reasonable notice as an employee would be entitled by judge made law or “common law”. However, that view is often incorrect, much to the dismay of the employer.

Implied Right of Notice

The law recognizes the relationship of a “dependent contractor”, which seeks to capture situations in which an employee is neither a true contractor nor a true employee, and provides a person in that situation with some added legal protections. Essentially the test of this issue lies in the question of economic dependency of the contractor upon the continuing business from the principal.

Court of Appeal Speaks to this Issue

A recent Ontario Court of Appeal[1] decision provides a good review of the legal issues involved in such a situation.

In this case, the two plaintiffs, husband and wife, had been paid and worked as contractors between 1987 and their termination in 2009. Although each had been directly employed by the company for 11 and 4 years respectively before the contractor relationship began, this was not a decisive factor in the case involving their entitlements to fair notice. This factor was important with respect to the amount of notice they were awarded, which was 26 months, certainly the high end of the expected range.

In terms of responsibilities, both were to provide their own trucks, supervise the installation of kitchens, and pay the installers from funds provided to them by the employer, Canac. In addition, they were each responsible for any damages to the products incurred in the installation and were required to buy their own insurance. They were paid based on the number of units installed.

They had worked initially exclusively for Canac from 1987 to 2006. After that date, they worked for a competitor. The respective percentage income sums from Canac and the second company varied over the ensuing years. Initially the relevant incomes were 80-20, 66-36 and 72-27, weighted in favour of Canac.

The trial judge found that based on these facts, both the husband and wife had established an economic dependency on the Canac work. They were therefore entitled to fair notice. This was upheld by the Court of Appeal after Canac challenged the original trial decision.

What Does This Mean for Workers?

This was not an unusual decision. When faced with similar claims, the court will look to see whether the working  relationship creates an inherent vulnerability for the worker, even though the contractor may receive income from other sources. If so, the principal (i.e company) must provide advance notice of termination (unless there is just cause). The contractor will then be able to claim compensation for the failure to provide notice, similar to an employee.

Termination Clause

This being said, there is no impediment to the parties agreeing to a term in the agreement which sets out a termination provision. This term will “contract-out” of the implied term of fair notice and the claim of the contractor will be limited to that set out in the contract. There do, however, remain rules as to how a valid contract may be established, which should be reviewed with legal counsel.

Get Advice Before You Sign and Before You Act

Your legal rights in this situation often will be based on your particular fact situation. You must know your rights and your risks when you enter into such a contract and also should it be terminated. The assessment of your damage claim is not as straightforward as that of an employee.

If you have questions about your working arrangement with the company or individual you do work for, contact the offices of Guelph employment lawyer Peter McSherry. We can guide you through the issues, help you understand your rights, and defend your position. Contact us online or by phone at 519-821-5465 to schedule a consultation

[1] Keenan v Canac