By Graeme McFarlane

Ah, the true independent contractor—the rarest of all the beasts. In the jungle of employment law, it is sought after for its rich cost savings, lower head counts and workplace efficiencies. If only all businesses could have one…

Sound familiar? Many employers still believe that contracting work to individuals will provide them with benefits. However, all too often, those benefits are ill-defined and do not materialize. Further, few “true” independent contractors actually exist, and if an employer does not create and manage a contractor relationship properly, it can be exposed to significant liability.

Prized for its most apparent attributes, few beware its bite.

Contracting an Easy Way Out?
The Ontario Court of Appeal has upheld a trial decision in which 2 contractors were provided damages equal to a 26 month notice period: Keenan v. Canac Kitchens Ltd., 2016 ONCA 79. The plaintiffs were a husband and wife who had begun their relationship with the defendant in 1976 and 1983 respectively. In 1987, the company called them to a meeting at which they were informed that their relationship with the company had now changed. They were no longer going to be employees. Rather, they would be contractors responsible for their own expenses and would be paid a piece rate for the cabinets they installed.

While the agreement went on at some length to address the typical factors associated with differentiating employees and contractors, it described the plaintiffs as “sub-contractors” and required them to dedicate their “full-time and attention” to the defendant’s business. In 2009, Canac shut down its operations and the plaintiffs’ relationship with the company was terminated without notice. At the time of this termination the plaintiffs worked approximately 75 per cent for the defendant and 25 per cent for another cabinet company.

Decision Weighed by Dependency
At trial, the judge focused on the question as to whether the plaintiffs were dependent or independent contractors. Curiously, the issue as to whether they were contractors at all was not argued. In any event, the judge found that the plaintiffs had met the test set out in Belton v. Liberty Insurance Co., 2004 CanLII 6668.

In essence that the plaintiffs had a high level of exclusivity to the defendants, were economically dependent on them, and that the defendants had significant control over the plaintiffs business. As a result, they were deemed to be dependent contractors and were entitled to receive reasonable notice of termination. Noting that the plaintiffs had worked in some fashion or another for the defendants for 32 and 25 years, he awarded them both damages based on a notice period of 26 months.

Court Notes Exceptional Circumstances
The Defendant appealed, and a three judge panel unanimously dismissed the appeal. One of the bases for the appeal was that the trial judge erred on not recognizing that the plaintiffs did a substantial amount of work for one of the Defendant’s competitors. When deciding this issue, the appeal court held that it was not appropriate to only look at a snapshot of the work flow in the relationship. Instead, the court must look at the full history of the relationship. In this case, the plaintiffs had worked for virtually all of their work lives in the services of the defendant, and that the “substantial majority” of their work continued to be performed for the defendant. The appeal court found no reason to interfere with the trial judge’s decision on this issue.

The Court then looked at the 26 month notice period which exceeds the normally expected limit of 24 months. While there are decisions which provide for notice periods beyond 24 months, those are usually limited to situations where there are exceptional circumstances. The trial judge had not discussed the exceptional circumstances requirement at all when providing his reasons.

The court of appeal declined to interfere with the 26 month determination, but did note that the “exceptional circumstances” requirement was met. The panel found that the length of service (32 and 25 years), the plaintiffs’ age (63 and 61), the fact that for a generation they were the public face for the Defendant, and their lengthy reliance on the Defendant to provide for themselves and their family provided “circumstances” justifying the 26 month award.

Unicorns Can Bite
This case is yet another example of the folly employers can enter when engaging in having “contractors” perform work normally done by employees. In reality, there are very few circumstances where the loss of control of managing a true contractors work is offset by real benefits monetary or otherwise. In addition, regardless of the label, these individuals can and will sue the company for damages. This case shows just how serious the results of that can be. Unicorns can bite and they will.

Graeme McFarlane is a partner at Roper Greyell LLP, a firm focused on partnering with companies to find solutions to workplace issues.

(PeopleTalk Winter 2016)