The use of independent contractors has historically been a very attractive option for companies, and in turn, workers, with an estimated 1.8 million Canadians currently operating as independent contractors. For the individual, it generally means more flexibility, the ability to write off business expenses, and more control over work (and life!). For employers, the benefits, at least on its face, are plentiful: decreased cost, assess to specialized skill set, reduced legal risk, etc. However, a new case upheld by the Ontario Court of Appeal highlights one of the main risks in not correctly characterizing the nature of the relationship.
Facts
Marilyn and Lawrence Keenan (the “Keenans”) began working with Canac Kitchens (“Canac”) in the mid-1970’s, as installers and foremen. In 1987, the nature of the working relationship changed, such that Canac notified the Keenans that they would, on a go forward basis, carry on their work with Canac as independent contractors. Some key characteristics of this relationship were as follows:
- The Keenans’ job titled changed to “Delivery and Installation Leaders”, although the job duties themselves remained unchanged
- The installers would provide their own trucks, pick up kitchens from Canac, to be delivered to various job sites for installation
- Canac set the rates to be paid to the installers and the Keenans paid the installers with funds provided by Canac
- The Keenans were responsible for any damage to the cabinets that occurred while in transit and told that they were expected to obtain insurance to cover these costs
- The Keenans would continue to be paid as before on a piece-work basis for units installed, but the amounts were increased to reflect the fact the Keenans were paid gross, without deduction for income tax, employment insurance and CPP
- Marilyn Keenan signed a contractor agreement but Lawrence Keenan did not
- The Keenans continued to enjoy employee discounts, wore shirts with the Canac logo and used Canac business cards and were presented to the outside world as Canac employees
- The Keenans were expected to devote their full time and attention to Canac, which, except for some weekend jobs and work for family and friends, they did until the end of 2006 when the volume of work at Canac had started to slow
In March of 2009, Canac told the Keenans that Canac was closing its doors and that their services were no longer required. Since Canac considered the Keenans to be independent contractors, they did not provide them with notice or pay in lieu of notice. The Keenans subsequently brought a wrongful dismissal action arguing that they were dependent contractors, entitled to reasonable notice.
Decision
The Trial Judge was tasked with evaluating the true nature of the relationship, to determine whether or not the Keenans were truly independent contractors, employees, or a hybrid (dependant contractors). In doing so, the Court considered five factors: exclusivity, control, investment/interest in tools, business risk or expectation of profit and “ownership” of the business. In particular, the Court found:
- strong evidence of exclusivity in the Keenan’s service to Canac, despite the fact the Keenans performed some work for another company after 2006 (with the knowledge of Canac)
- The Keenans considered themselves to be loyal Canac employees
- Canac exercised control over all aspects of the services performed by the Keenans
- The Keenans owned the construction tools they used throughout their work, but Canac provided them with an office, phone, and filing cabinets
- Given the Keenans worked almost exclusively for Canac, they were subject to little business risk
- The Keenans were paid commission per installation, with no expectation of profit; and
- The business was Canac’s not the Keenan’s, with the Keenans being held out to the public (Canac shirts, business cards, vehicles) as part of Canac’s business
Based on the cumulative effect of the evidence, the Court found that the Keenans fell within that intermediary category of dependant contractors and awarded them 26 months’ notice of termination.
Canac appealed the Superior Court’s findings, focusing much attention on the fact that the Keenans were not exclusive to Canac. In addition, they argued that the trial judge erred in setting an award greater than 24 months without detailing a finding of exceptional circumstances.
The Appeal was denied with the Court finding that the notice period offered was in keeping with the Keenans’ age, length of service and character of leadership positions within Canac. On the issue of exclusivity, the Court put great emphasis on the fact that the Keenans were effectively “Canac’s public face to the outside world” for over a generation. Furthermore, on the issue of exclusivity, the Court held that it cannot be determined as a “snapshot”. Rather, it is a question of economic dependency, and for the entirety of their working lives, Keenans’ income had come from Canac.
Takeaways
While it may be enticing to structure a working relationship as an independent contractor, the full picture needs to be assessed to determine if the worker would truly be considered one. To that end, it would be prudent to take a careful look at the manner in which the parties intend to conduct themselves. For example, will the worker be entitled to work for other clients, control the manner in which the worker performs the work, bear risk etc. Furthermore, it would be in the best interest of all parties to have an independent contractor agreement in place which clearly outlines the terms of the relationship, including what happens in the event that either party wishes to end the relationship.
