Using independent contractors to create a flexible workforce is a risky proposition. If a company accurately categorizes a worker as an independent contractor, it is free from:
- Making payroll deductions and remittances
- Adhering to minimum standards legislation
- Providing common law reasonable notice of the end of the working relationship
If the company gets it wrong, the worker may be considered an employee, exposing the company to all of these liabilities.
There is also a third possibility. Even if the company gets the relationship right, but allows the worker to become economically dependent on the work it provides, the worker may be considered a “dependent contractor” entitled to common law reasonable notice of the end of the working relationship. If the relationship has been a lengthy one, that liability can be very large.
What makes a worker a dependent contractor?
Courts have attempted to clarify the level of exclusivity necessary to determine if a worker is a dependent or independent contractor. In the 2009 Ontario Court of Appeal decision, McKee v. Reid’s Heritage Homes, the court characterized dependent contractors as having “a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity.” This standard was expanded on in the 2016 Ontario Court of Appeal decision Keenan v. Canac Kitchens Ltd. In this decision, the court stated that the Judges must determine exclusivity by reviewing a worker’s history and determining the level at which the worker was economically dependent on the employer. In Keenan, the worker was awarded 26 months’ notice.
Most recently, in the 2019 decision, Thurston v. Ontario (Children’s Lawyer), the Ontario Court of Appeal noted that in order for a contractor to be considered dependent on an employer or client, that specific working arrangement must account for “substantially more than a majority” of a contractor’s income. In this decision, a lawyer who was working under a contract agreement had an average of 39.9% of their annual billings coming from the Office of Children’s Lawyer. The court held that this was insufficient to make a determination that the worker was economically dependent on the employer and stated that a finding of, “Near-exclusivity requires substantially more than 50% of billings.”
This decision was a surprising departure from the existing case law on the distinction between dependent and independent contractors. In the past, the Court of Appeal had refused to enforce a hard cap on the amount of exclusivity. While there is still room for interpretation on the meaning of the phrase “substantially more”, the 50% figure does remove a great number of cases and working arrangements from consideration for dependent contractor status.
Next steps if you are a contractor or employer
As a worker it is important to know what your rights, entitlements and obligations are with regard to a working arrangement that you have with your employer. Many contractors may be under the mistaken belief that they are not entitled to notice of their dismissal as a result of their contractor status.
As an employer, it is crucial to clearly communicate to your workers which category their arrangement falls under. Mis-categorization often forms the basis of worker’s claims against their employers. Having a properly worded contract that explains the terms of the agreement is helpful, but not determinative of the issue. Courts will look to the actual substance of the working arrangement to determine which category suits the worker best.
Are you a contractor who has been miscategorized? Are you an employer who needs advice on proper categorization for your workers? Contact Monkhouse Law today for a free 30-minute consultation.
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