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DEPENDENT CONTRACTORS VS INDEPENDENT CONTRACTORS

Posted On: August, 12 2015

Distinguishing at law between a dependent contractor and an independent contractor can be challenging at the best of times. This issue is important to businesses and organizations because like employees, dependent contractors are owed reasonable notice upon termination, while independent contractors are not. In his decision in Keenan v. Canac Kitchens, 2015 ONSC 1055 Justice Mew provided some additional guidance in making this important distinction. Justice Mew identified the following principles as relevant in determining whether the dependent contractor category should apply to the business arrangement:

  1. Whether or not the contractor was limited exclusively to the service of the principal.
  2. Whether or not the contractor is subject to the control of the principal not only as to the product sold, but also as to when, where, and how it is sold.
  3. Whether or not the contractorhas an investment or interest in what are characterized as the tools relating to his service.
  4. Whether or not the contractor has undertaken any risks in the business sense, or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission.
  5. Whether or not the activity of the contractor is part of the business organization of the principal for which he works. In other words, whose business is it?

In particular, Justice Mew stressed that complete exclusivity or a high level of exclusivity weighs heavily in favour of the conclusion that the dependent contractor category should apply to the business arrangement.

In this case,the plaintiffs, Lawrence Keenan and Marilyn Keenan, were formerly employees of Canac Kitchens("Canac"). Immediately following the termination of the plaintiffs' employment with Canac, Canac drafted a service agreement to set the terms of their new business arrangement which the plaintiffs signed. Under theterms of the agreement, Canac set the rates to be paid to the installers and pay the plaintiffs, who, in turn, paid the installers. The plaintiffs, now operating under the name Keenan Carpentry, supervised the delivery, installation, and service ofkitchen cabinets for Canac for 22 years. Justice Mew found that with some minor exceptions, the plaintiffs worked exclusively for Canac, and further found that Canac condoned the limited outside work performed by the plaintiffs. In addition, the plaintiffs enjoyed employee discounts with Canac; they wore shirts with company logos; and they had Canacbusiness cards.Justice Mew found that to Canac's customers, the plaintiffs were Canac's representatives.

Justice Mew concluded that the plaintiffs were dependent contactors of Canac due to the fact that all of the relevant principles favoured the plaintiffs to a lesser or greater degree with the endresult that their business arrangement was almost exclusively for the benefit of Canac.

Justice Mew's decision reaffirms that businesses and organizations are well-advised to consider the intermediate category of dependent contractors when structuring their business arrangements with contractors.Absent a carefully structured arrangement, businesses and organizations may be held liable for reasonable notice upon termination of theirbusiness arrangement with a contractor who a court deems to be dependent.

 

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