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So what exactly is a “dependent contractor”?

dependent contractor

I have often commented on the widespread misclassification of workers and, more specifically, the common practice of treating a worker as an Independent Contractor when they are really an employee in all but name. After all, if someone has a title on the organizational chart, a corporate email address, an office, and an assistant, and is expected to be at work every day, can they really be “independent”?

Traditionally, we approached the classification as a dichotomy: workers were either employees or Independent Contractors. However, in recent times, we have seen more widespread adoption of the notion of Dependent Contractors. This “hybrid” is a somewhat ambiguous concept which allows workers that operate as contractors, and enjoy the tax benefits of doing so, to also benefit from some of the protections afforded to employees.

As is often the case, the devil is in the details. How do you determine whether someone is a Dependent Contractor, as opposed to an Independent one or an employee? And if they are found to be an Independent Contractor, what does that mean? In many cases, this issue comes to the fore when the relationship ends, and the worker wants “reasonable notice” of dismissal as opposed to the minimal notice of termination that Independent Contractors receive. That was the background in Thurston v. Ontario (Children’s Lawyer), in which a lawyer that provided legal services to the Office of the Children’s Lawyer (OCL) for thirteen years was advised that her contract would not be renewed, and then took the position that she had been a Dependent Contractor entitled to reasonable notice of dismissal.

Background

The Plaintiff was one of several hundred lawyers retained by the OCL. She worked pursuant to a series of fixed-term contracts with no automatic right of renewal which included the following terms:

  • The term may be extended or subsequently renewed in the discretion of the Children’s Lawyer.
  • The OCL makes no guarantee of the total value or volume of work to be assigned to you. You confirm that in your capacity as an OCL agent, you are not an employee of the OCL.
  • The Children’s Lawyer, or her designate, reserves the right, at her sole discretion, to terminate this retainer agreement at any time, without fault and without liability.

The Plaintiff did not work full-time for the OCL. In fact, her independent practice formed the majority of her work and income. According to the Court, “Her OCL work accounted for anywhere from a low of 14.8% to a high of 62.6% of her annual total billings. Over the 13-year period that she was on the OCL panel, OCL billings accounted for an average of 39.9% of her annual billings.”

The OCL informed the Plaintiff that it would not be renewing her contract after March 2015, and she subsequently brought a claim in which she acknowledged that she was not an employee but alleged that she was a Dependent Contractor and claimed to be entitled to 20 months of notice of termination. In response, the OCL moved for summary judgment, but was unsuccessful. The matter was then appealed to the Court of Appeal of Ontario.

Judicial analysis

The Court of Appeal took the opportunity to comment on the classification of workers and the test to be used in order to assess whether someone is a Dependent Contractor. The Court referred to two leading decisions on this topic: McKee v. Reid’s Heritage Home Ltd. and  Keenan v. Canac Kitchens Ltd. and held that the motion judge “misapprehended the nature of the legal standard and failed to give effect to several relevant considerations in applying that standard. The result is an unreasonable decision that cannot stand”.

According to the reasons provided by the Court of Appeal, “…the motion judge noted the permanence of the respondent’s relationship with the OCL, the fact that she performed work that is integral to the OCL, and the public perception that she was an OCL lawyer.”

Some of the key portions of the Court of Appeal’s decision are:

[23] As this court set out in McKee at para. 30, dependent contractor status is a non-employment relationship in which there is “a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity”. “Minimum economic dependency” is a vaguely worded standard, and its application yields outcomes that are highly context-specific: McKee, at para. 38. It follows that a judge’s decision as to the nature of a working relationship is generally entitled to deference.

[25] In distinguishing dependent from independent contractors, McKee made clear that exclusivity of service provision, and therefore of income, is key. As the court put it, “exclusivity is determinative, as it demonstrates economic dependence”; exclusivity, the court said, is a “hallmark” of the dependent contractor category: McKee, at para. 34. In Keenan, at para. 25, this court emphasized that exclusivity was “integrally tied to the question of economic dependency” and that the determination of exclusivity requires consideration of the full history of the relationship in question.

[27] In cases in which a dependent contractor relationship was found to exist but exclusivity was not absolute, substantially more than a majority of the dependent contractor’s income was earned from the contracting party.

[31] The motion judge did not properly take account of the following considerations:

  • the respondent’s contracts with the OCL contemplated that she would continue her private practice and required her to confirm that she did not work exclusively for the OCL;
  • the respondent continued to operate her private legal practice during the entire period of her retainer;
  • the respondent was not guaranteed a minimum number of files or amount of work with the OCL;
  • the OCL reserved the right, at its sole discretion, to terminate the respondent’s retainer agreement at any time, without fault and without liability;
  • the respondent had her own office, supplies, and staff; and
  • the respondent’s private practice constituted the main source of her total income throughout the period.

[32] In short, the OCL was one of the respondent’s clients – a very important client, but only one of her clients. The loss of a client will be more or less significant to any contractor, but care must be taken in applying dependent contractor case law to professionals such as lawyers working under retainer agreements.

Takeaways

So what does this case mean? For one thing, it should put a damper on the increasingly common practice of asserting that workers received the tax benefits of being a Contractor but should also receive the protections afforded to employees. Undoubtedly, there are many people that are paid as contractors when they really are employees, and their legal position and entitlements should reflect the factual reality. Although the courts have adapted to allow for the “middle ground” of Dependent Contractors, and the definition thereof is not absolute, this decision affirms that there must be more than a significant relationship or substantial reliance on the business of one customer or client before a Dependent Contractor relationship will be found. The term “dependent” has to mean something well beyond that.

By Stuart Rudner

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Rudner Law, Employment / HR Law & Mediation

Employment Lawyers and Mediators at Rudner Law
Rudner Law is a firm specializing in Canadian Employment Law. They provide clients with strategic advice regarding all aspects of the employment relationship, negotiate and advocate on their behalf and represent them before courts, mediators and tribunals. Blog posts are written by Stuart Rudner, the principal and founder of Rudner Law, Brittany Taylor, a Senior Associate at Rudner Law, Nadia Zaman, an Associate at Rudner Law and Anique Dublin, a Law Clerk at Rudner Law. Read more
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