Contractors in law are distinct from employees. Employees are entitled to a reasonable period of notice if the relationship is terminated by the employer. This is an implied term of any contract of employment at common law. A contractor is usually considered as being independent meaning that they control their work, use their own tools, pay their expenses and are paid a commission or fee for their service. They do not have an obligation to work for the principal, and equally the principal has no obligation to provide them with work. Such independent contractors are not entitled to a period of reasonable notice and may be terminated at will subject to any restriction imposed by the contract itself.
The establishment of an intermediate characterization, the dependent contractor, was first made by the Ontario Court of Appeal (ONCA) in Carter v. Bell & Sons (1936). The inquiry to be made is whether a term of the contract should be implied requiring reasonable notice for termination. What then are the determining factors or tests to establish such a relationship?
The Case Law
The (ONCA) dealt with the history of the determination of a contractor’s status as dependent or independent in two cases being McKee v. Reid Heritage Home Ltd.(2009) and Keenan v. Canac Kitchens Ltd.(2016). The factors examined included the permanency of the working relationship and the economic dependency of the contractor based on the amount of exclusivity granted to them. This intermediate category is not confined to any specific relationship types such as distributorships or sales agreements. The ONCA had this to say, in the McKee decision, about the middle-ground of a dependent contractor relationship:
I conclude that an intermediate category exists, which consists, at least, of those non-employment work relationships that exhibit a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity. Workers in this category are known as “dependent contractors,” and they are owed reasonable notice upon termination.
The Labour Relations Act
Further support for the court’s conclusions are found in the definition of a dependent contractor being:
[A] person, whether or not employed under a contract of employment, and whether or not furnishing tools, vehicles, equipment, machinery, material, or any other thing owned by the dependent contractor, who performs work or services for another person for compensation or reward on such terms and conditions that the dependent contractor is in a position of economic dependence upon, and under an obligation to perform duties for, that person more closely resembling the relationship of an employee than that of an independent contractor.
The legal principles applicable to distinguishing between an employee and independent contractors apply equally to the distinction between employees and dependent contractors. The dependent contractor category is always distinct from the employment category and does not affect the possible range of the employment category.
The first step to take is to decide if the relationship is one of employment or the contracting variety. The tests for doing so were established by the ONCA in Belton v. Liberty Insurance Co. of Canada (2004). If a relationship is found to be one of employment, then reasonable notice is implied. If the result is a contractor relationship, the court must then determine whether it is a dependent or independent relationship. If exclusivity is not sufficient for a finding of an employment relationship, then exclusivity can also be used to determine the type of contractor relationship. Exclusivity then is a hallmark of the dependent contractor and is almost determinative as it shows an economic dependence. Where found, reasonable notice of termination will be implied in the contract.
At Milosevic & Associates, our team of Toronto corporate commercial lawyers regularly represent clients in employment contract disputes. Over the years, our team of exceptional litigators has seen it all and has successfully fought for our clients’ rights. Our impressive track record speaks for itself. Call us at 416-916-1387 or contact us online for a consultation.