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The employment relationship middle class

Does there need to be an intermediate distinction between employee and independent contractor?

By Jeffrey R. Smith

How dependent is a dependent contractor? Pretty dependent, according to an Ontario court in a recent decision.

There’s always been a distinction between workers who are fully employed by a company and those who are hired as independent contractors. Employees depend entirely on their employer for income and work and the employer controls their pay and is responsible for statutory deductions like income tax and employment insurance. Workers who are employees are usually allowed to find other work, as long as it doesn’t interfere with the employer’s needs.

Independent contractors are exactly that – independent. They’re hired to perform specific work under a specific agreement, but they are not affiliated with the employer. Usually a company agrees to pay a specific amount of money for a specific job and it’s up to the contractor to supply the tools needed. The company doesn’t usually have a say in how the job is done or the hours it takes, as long as the work is completed. Independent contractors are like their own businesses – they collect income for jobs and take care of their own business expenses and deductions. They can also find business elsewhere with other companies.

Naturally, the distinction between employees and contractors means there’s a difference when it comes to notice of termination. When an employee is terminated without cause, the employer must provide reasonable notice to help bridge the gap to the employee’s next job. However, with an independent contractor, the contract itself generally stipulates how the contract can be terminated. Or the contract simply has an expiry date. Because in theory the contractor is not relying solely on the company for income and has agreed to the contract term, there are no statutory severance obligations outside of the contract.

In recent years, courts have examined the ins and outs of employer-contractor relationships and determined there is a third, intermediate type of employment relationship – the dependent contractor. Dependent contractors are not quite employees, as they are working under a contract similar to that of independent contractors. However, in these cases, the company has more control over the employment relationship that it would for independent contractor, such as when the work is done, supervision, materials used and keeping the contractor from being able to do other work. Dependent contractors are usually entitled to reasonable notice of termination like employees, but not quite as much.

Recently, the Ontario Superior Court of Justice found that two Ontario workers – a husband and wife – on independent contracts were dependent contractors entitled to notice of termination. The workers had worked as full-time employees for about a decade, but their employment was terminated and the employer signed them to contracts in which they would continue to perform similar work but as independent contractors. The workers were paid by the job and were responsible for all their deductions and supplying their own tools and vehicles. After about 20 years of this arrangement, the employer closed down and the contracts were terminated without notice.

However, further analysis of their circumstances revealed the workers were more than just independent contractors. Other than a few informal weekend jobs, the workers worked exclusively for the employer, reported to a supervisor of the employer and wore employer uniforms. The employer also controlled the rates the workers charged to their subcontractors.

Since the employer maintained most of the control in the relationship, the court determined the workers were dependent, not independent contractors. As a result, they were entitled to reasonable notice.

The court also found the workers’ years of service as full employees should be combined with their time as contractors to determine total service time – which was 32 and 25 years, respectively. This service time was deemed to warrant 26 months’ pay in lieu of notice for the couple: see Keenan v. Canac Kitchens, 2015 ONSC 1055 (Ont. S.C.J.).

The size of the notice period awarded in this case raises the question, should dependent contractors really be a thing? Is it worth it to distinguish them from employees? There are definitely differences between independent contractors and employees, but if the employer controls most of the relationship and the contractor is mostly dependent on it, is the contractor essentially an employee anyway?

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Jeffrey R. Smith

Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective.
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