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A brave new world? – Probably not but employers sometimes have to deal with 26 months’ notice and “dependant contractors”

misclassification-employees-as-contractorsThe Ontario Court of Appeal has further shattered the “24 month maximum” myth. In Keenan v. Canac Kitchens Ltd., the Court of Appeal upheld a Trial Judge’s finding that two long service workers were “dependent contractors” and therefore entitled to 26 months’ reasonable notice on termination.

We do not think that this appeal decision is particularly ground-breaking. While unusual, it is not the first time that a Court has awarded more than 24 months’ notice (we are aware of at least one case where a court awarded 30 months). Also, dependant contractors have long been a recognized category of worker. However, the decision does provide Alberta employers with some valuable reminders:

  • Before engaging a worker as an “independent contractor”, consider that the label that the parties agree to and put on the relationship will most likely be irrelevant to a Court’s view of whether the worker is an employee or contractor. Most contactor agreements contain a clause stating something like “the parties agree that [NAME] is an independent contractor and not an employee”. That clause is of no value to an employer when trying to defeat the worker’s wrongful dismissal lawsuit.
  • A court will look at the true nature of the relationship. As shown by the Trial Judge in Canac, this means examining a series of factors including: “exclusivity, control, investment, risks, expectation of profit and, whose business is it?” Even after these factors are analysed and an employer believes that it is appropriate to treat a worker as an independent contractor, that employer really has no comfort that when the relationship ends the worker will not claim that he or she is an employee and sue for wrongful dismissal.
  • In our experience, it is usually the worker that wants to be treated as an independent contractor, mostly likely because of the tax advantages. Employers should make this decision carefully and after a thoughtful analysis. It often provides the employer with no advantages. Most employers are already set up to make employment related deductions and pay statutory entitlements such as vacation pay so there may be little advantage to the employer – especially if the intention is to retain the worker for the long term.
  • Certainly, there are many times when it is very appropriate to treat a worker as an independent contractor. In cases that appear to be on the line, employers may want to treat the worker as an employee. If an employer is concerned about possible severance obligations (that independent contractors are not entitled to), it has the option of (a) hiring the employee with a written employment agreement that limits the employee to the statutory minimum pay in lieu of notice, or (b) hiring the employee on a short fixed term contract. Both of these options may be increasingly appropriate in today’s economy where there may be no need for those specific services indefinitely or a few months down the road.

By Benjamin Aberant and Shana Wolch, McCarthy Tétrault LLP

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Employer Advisor, McCarthy Tétrault LLP

Employment and labour lawyers at McCarthy Tétrault LLP
McCarthy Tétrault through their Employer Advisor blogs offers their perspectives on the latest legal developments applicable to the workplace. It provides their insights on legislative and regulatory developments, as well as new case law, while providing practical tips for employers and their human resources professionals when managing the workforce. McCarthy Tétrault is a Canadian law firm that delivers integrated business law, litigation services, tax law, real property law, labour and employment law nationally and globally. Several of their blog posts will be republished with permission on First Reference Talks. Read more
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