Twenty-six months of severance for a Dependent Contractor???
Since the Ontario Court of Appeal’s decision in McKee v. Reid Heritage Homes in 2009, the category of workers deemed “dependent contractors”, as opposed to either employees or independent contractors, has become more accepted. The concept continues to develop legally, and the Court of Appeal’s recent decision in Keenan v. Canac Kitchens provides clarity on a key aspect of the analysis and continues the trend of broadening the category of dependent contractors.
As the court made clear in McKee, one of the main factors in determining whether a contractor is an independent or dependent contractor is that of exclusivity, because exclusivity will indicate whether the contractor was financially dependent on the company (hence, a dependent contractor).
In Keenan, the Court considered whether the factor of exclusivity should be considered at the time of termination of the contract, or over the entire life of the contract. It found the latter.
Facts of the Case
Mr. and Mrs. Keenan initially worked for Canac Kitchens for twelve years and four years respectively as employees. Then, in 1987, Canac Kitchens informed them they would be required to carry on their work as contractors. Pursuant to the new agreement, the Keenans were referred to as “Delivery and Installation Leaders”. The Keenans hired installers, supervised the installation process, paid the installers money received from Canac Kitchens, bore responsibility for any damage to the cabinets during transit, and were expected to carry insurance to cover that responsibility. They were paid on a piece work basis, and their pay was not subject to deductions for income taxes, employment insurance, or CPP.
Importantly, the agreement required the Keenans to devote “full-time and attention” to Canac Kitchens.
For the next twenty years, the Keenans worked exclusively for Canac Kitchens in this capacity (save some minor work for family and friends outside of normal working hours). However, starting in 2007, due to a decrease in work provided by Canac Kitchens, the Keenans began performing work for Cartier, a competitor of Canac Kitchens. Nonetheless, the majority of their income continued to come from Canac Kitchens. Over the next three years, their income from Canac Kitchens accounted for 66 to 80 per cent of their total income.
Canac Kitchens terminated the agreement with the Keenans in 2009, providing no notice or pay in lieu thereof and taking the position that the Keenans were independent contractors, and as such, not entitled to any notice or pay in lieu thereof.
Decision and Appeal
At trial, the main issue was whether the Keenans were dependent or independent contractors. The trial judge found that they were dependent contractors and found that the reasonable period of notice was twenty-six months.
Canac Kitchens appealed the decision, arguing that the trial judge had erred in finding that the Keenans were dependent contractors, as well as in awarding twenty-six months without making an explicit finding of exceptional circumstances warranting a notice period beyond the usual cap of twenty-four months.
Canac Kitchens argued that in the years immediately preceding the termination of the Keenans’ contract, they had not been working exclusively for Canac Kitchens, and therefore the factor of exclusivity was not met. The Court of Appeal rejected this argument. The key analysis on this point is found at paragraphs 25-26 of the decision:
Exclusivity cannot be determined on a “snapshot” approach because it is integrally tied to the question of economic dependency. Therefore, a determination of exclusivity must involve, as was done in the present case, a consideration of the full history of the relationship. It is for the trial judge to determine whether, after examining that history, the worker was economically dependent on the company, due to exclusivity or a high level of exclusivity. (emphasis added)
The trial judge was fully aware that the Keenans did some work for one of Canac’s competitors in the last two years of the relationship – but he considered that information in context. Lawrence Keenan worked exclusively for Canac from 1976 to 2007. Marilyn Keenan worker exclusively for Canac from 1983 to 2007. Their agreement with Canac demanded nothing less. The services that the Keenans provided to Cartier were for a relatively short period, and done in response to a slowdown in work from Canac. Canac turned a “blind eye” to that work.
Impact of this Decision
This decision provides welcome clarity regarding how the court will analyze the factor of exclusivity. It is clear from this decision that performing work for another company for a period of the contract will not automatically render the worker independent. Each case will be assessed based upon its own particular circumstances.
The decision is also notable in that it upheld the award of 26 months, an unprecedented award for the Court of Appeal, and particularly because the plaintiffs were contractors.
In light of this decision, companies who make use of contractors should carefully review the arrangements they have to try to minimize their exposure to the possibility of award for wrongful dismissal, particularly where long-service workers are concerned.
If you are a company that uses contractors under the guise of independent contractor agreements, we strongly recommend that you contact us to review your arrangements, in order to minimize the risk of a finding that your contractors are actually dependent contractors entitled to pay in lieu of notice at common law. If you are a worker and are unsure regarding your status as an employee, dependent contractor, or independent contractor, please contact us before signing any agreement.
by Cody Yorke
Author - Extraordinary Damages in Canadian Employment Law