Many workers in Ontario are told they are independent contractors and assume they have no right to notice, severance, or compensation if the working relationship ends. However, the legal reality is more complicated.
In some cases, a worker may not be a true independent contractor. They may be an employee who has been misclassified. In other cases, they may fall into a middle category known as a dependent contractor, sometimes also spelled dependant contractor.
A dependent contractor is generally a worker who operates as a contractor but is economically dependent on one client, company, or organization. If that relationship is ended, the dependent contractor may be entitled to common law reasonable notice or compensation instead of notice.
What Is a Dependent Contractor?
A dependent contractor is a worker who is not necessarily a traditional employee, but who is also not fully independent. The key issue is usually economic dependence.
A worker may be considered a dependent contractor if they:
- Worked mainly or exclusively for one company or client;
- Relied on that company for most of their income;
- Had a long-term working relationship with the company;
- Was integrated into the company’s business;
- Had limited ability to build their own separate client base; and
- Was treated, in practice, more like part of the business than an outside contractor.
The title in the contract is not the deciding factor. Calling someone an “independent contractor” does not automatically make them one. Courts look at the actual substance of the working relationship.
Dependent Contractor vs Independent Contractor
The difference between a dependent contractor and an independent contractor is important because it can affect a worker’s rights after termination.
A true independent contractor is usually in business for themselves. They may have multiple clients, control their own work, take on financial risk, advertise their services, and operate independently.
A dependent contractor may have more independence than an employee, but they are economically dependent on one company. This dependency can create an entitlement to reasonable notice if the relationship is terminated.
Can a Dependent Contractor Receive Severance or Notice in Ontario?
Yes. A dependent contractor may be entitled to common law reasonable notice, or compensation instead of notice, when the working relationship ends.
This is sometimes described by workers as severance, although the legal analysis may involve common law reasonable notice rather than statutory severance pay under employment standards legislation.
The amount of notice may depend on several factors, including:
- Length of the working relationship;
- The worker’s age;
- The nature of the role;
- The degree of economic dependence;
- The availability of similar work; and
- The terms of any written agreement.
Long-term dependent contractors may have significant claims, especially where they worked for one company for many years and relied on that company for most or all of their income.
How Courts Determine Dependent Contractor Status
Ontario courts have considered dependent contractor status in several important cases.
In M. v. Reid’s Heritage Homes Ltd., the Ontario Court of Appeal described dependent contractors as workers with a minimum level of economic dependency, which may be shown through complete or near-complete exclusivity.
This means courts will often look closely at whether the worker depended on one company or client for their livelihood.
Economic Dependence and Exclusivity
One of the most important factors in a dependent contractor case is whether the worker was economically dependent on the company.
In K. v. Canac Kitchens Ltd., the Ontario Court of Appeal found that long-term workers who had been economically dependent on the company were entitled to 26 months’ notice.
The court looked at the full history of the relationship, including how long the workers had worked with the company and how dependent they were on that work.
Does More Than 50% of Income Make Someone a Dependent Contractor?
Not necessarily. In T. v. Ontario (Children’s Lawyer), the Ontario Court of Appeal considered whether a lawyer who received an average of 39.9% of her annual billings from the Office of the Children’s Lawyer was a dependent contractor.
The court found that this was not enough. It stated that near-exclusivity requires “substantially more than 50% of billings.”
This does not mean there is a simple mathematical test in every case. However, it does mean that courts will closely examine the worker’s income, client relationships, and level of dependence before deciding whether they were a dependent contractor.
Dependent Contractor vs Employee
A dependent contractor is different from an employee, but both may have rights when a working relationship ends.
An employee may be entitled to minimum standards under employment legislation, as well as common law reasonable notice unless there is an enforceable termination clause.
A dependent contractor may not receive all of the same statutory protections as an employee, but they may still be entitled to reasonable notice at common law.
This is why it is important not to assume that a contractor agreement removes all rights. The real working relationship matters.
Dependent Contractor vs Employee
A dependent contractor is different from an employee, but both may have rights when a working relationship ends.
An employee may be entitled to minimum standards under employment legislation, as well as common law reasonable notice, unless there is an enforceable termination clause.
A dependent contractor may not receive all of the same statutory protections as an employee, but they may still be entitled to reasonable notice at common law.
In some situations, a worker may not only qualify as a dependent contractor, but may have been fully misclassified as an independent contractor instead of an employee. To learn more about employee rights and contractor misclassification, see our guide on employee misclassification in Ontario.
This is why it is important not to assume that a contractor agreement removes all rights. The real working relationship matters.
What If You Signed an Independent Contractor Agreement?
Signing an independent contractor agreement does not necessarily end the analysis.
A written agreement can be important, but courts will also consider what actually happened in practice. If the company treated the worker like a long-term part of the business, or if the worker became economically dependent on that company, the worker may still have a claim.
This can be especially important where a worker:
- Worked for the same company for many years;
- Did not have other meaningful clients;
- Was expected to be available like an employee;
- Used the company’s systems, tools, or email address;
- Performed core work for the business; or
- Was terminated without meaningful notice.
What Should You Do If You Were Terminated as a Contractor?
If you were terminated as a contractor, do not assume you have no rights.
You may wish to speak with an employment lawyer if:
- You worked mainly for one company or client;
- You relied on that company for most of your income;
- You worked with the company for a long period of time;
- Your contract was ended suddenly;
- You were offered little or no notice; or
- You believe you may have been misclassified.
Depending on the circumstances, you may have a claim for severance or termination compensation, wrongful dismissal damages, or common law reasonable notice.
Speak With an Employment Lawyer
Dependent contractor cases are fact-specific. The wording of the agreement matters, but so does the actual working relationship.
If you were treated as a contractor but depended on one company for your income, Monkhouse Law Employment Lawyers can review your situation and help you understand whether you may be entitled to compensation. Contact us today for a free 30-minute phone consultation.