It is well established in employment law that employees are entitled to reasonable notice prior to their termination, but independent contractors are not. There has been some controversy over whether a third category of "dependent contractor" exists and, if so, whether dependent contractors are entitled to reasonable notice. The Ontario Court of Appeal recently resolved this controversy in Ontario, concluding that dependent contractors did exist and are entitled to reasonable notice – although such creatures are rare, and are much more likely to be true employees.
In McKee v. Reid's Heritage Homes Ltd.1the plaintiff sold homes for the defendant for approximately 18 years. When she was first hired, she signed a contract with a 30-day notice provision. She was paid a fixed rate through her corporation for each home sold, and also had a number of subagents whom she supervised. After the relationship between the plaintiff and defendant fell apart in 2005, the plaintiff sued the defendant, claiming damages for reasonable notice.
The plaintiff won at trial and the trial judge awarded damages based upon an 18-month notice period.
On appeal, the defendant argued that the plaintiff was a "dependent contractor" instead of an employee – meaning that she was only entitled to the 30 days' notice set out in her original contract (a clause that was void if she was an employee because it contravened the Employment Standards Act). The Court of Appeal confirmed that the intermediate category of "dependant contractor"did exist, and that they are owed reasonable notice upon termination. However, the Court of Appeal also concluded that the plaintiff was an employee and not a dependant contractor. The Court of Appeal stated that the category of dependant contractor was a "carve out" from the category of independent contractor. In other words, the first task of a court is to apply the normal test for determining whether a person is an employee or a contractor. Only if the result of that test is that the person is a contractor should a court then consider whether they are an independent or dependant contractor.
The Court of Appeal stated that the hallmark of a dependent contractor was (as you might expect) dependency or "exclusivity of the work." That is also a factor weighing in favour of the employee category. Despite the fact that exclusivity is the"hallmark" of the dependent contractor category, it continues to be a factor in determining whether the worker is not a contractor at all, but rather an employee, in the first-step analysis.
In the result, the Court of Appeal concluded that the trial judge followed the correct legal test for determining whether a person was an employee or a contractor, and agreed that the plaintiff was an employer: she worked exclusively for the defendant for almost 20 years, the defendant told her when and how to sell, and the plaintiff's activity as an integral part of the defendant's business. The fact that she was paid through a corporation did not make her a contractor, nor did the fact that she used sub-agents: the Court of Appeal concluded that was no different than a middle-manager acting as an intermediary between subordinate staff and higher management.
This case clarifies that dependent contractors exist as a category of law; however, it also makes it clear that dependent contractors are a subset of the contractor category, and that most people are (and will remain) employees rather than contractors.
Chris Rootham practises in employment law with the law firm Nelligan O'Brien Payne LLP.
1 2009 ONCA 916.