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The Final Word on Dependent Contractors

I wrote last year about the Ontario Superior Court of Justice’s decision in the case of Keenan v. Canac Kitchens (a link to same can be found here:  http://www.employmentandlabour.com/?s=Canac).   Last week the Ontario Court of Appeal upheld the Superior Court’s decision in Canac, and added some additional guidance with respect to the law surrounding dependent contractor relationships.

First, a quick reminder as to the facts of this particular case.  Lawrence and Marilyn Keenan were employed by Canac Kitchens beginning in 1976 and 1983 respectively.  In 1987, both were advised that their employment was coming to an end but that they could carry on as independent contractors.  An independent contractor agreement was signed by Marilyn and the Keenans carried on as before.  They continued working for Canac until the company closed its operations in 2009.  No notice of termination or pay in lieu of notice was provided.

While there were some factors in this case which suggested an independent contractor agreement, the lower court was particularly fixated on the fact that the Keenans worked exclusively for Canac until 2007.  Although they did some small amount of work for a competitor named Cartier between 2007 and 2009 due to a shortage of work at Canac, the judge accepted that Canac turned a blind eye to same.  In other words, for all intents and purposes the Keenans provided services only to Canac for almost the entire duration of the relationship.  Moreover, Canac had almost complete control of the work performed by the Keenans.

As a result, the Superior Court found that although the Keenans were contractors, they were in a dependent relationship to Canac and therefore entitled to notice of termination.  Due to the 32 and 25 years of service provided by Lawrence and Marilyn respectively (which resulted in an average length of service of 28.5 years between the two of them), the court found that a whopping 26 month notice period was reasonable.

Canac contended that the trial judge erred: (i) in finding that the Keenans were in an exclusive relationship with Canac; and (ii) in awarding 26 months of notice.  The Ontario Court of Appeal determined that while the Keenans performed some work for Cartier, the substantial majority of their work was for Canac.  More specifically, of the approximately 32 and 25 years of service which Lawrence and Marilyn gave to Canac, all but two were exclusively in the service of Canac.  The court further stated that the full history of the working relationship between the parties must be examined, and not just a snapshot at the time of termination.

In addition, the Court found that because of the age and length of service of the Keenans, the fact that for over a generation they were Canac’s public face to the outside world, and the fact that their income had come from Canac during the entirety of their working lives, an award in excess of 24 months was justified and the trial judge’s finding for a 26 month notice period was reasonable.

A copy of the Court of Appeal’s decision in Keenan v. Canac Kitchens may be found here:  http://www.ontariocourts.ca/decisions/2016/2016ONCA0079.htm.

The Final Word on Dependent Contractors

What If Your Independent Contractor Is Really a Dependent Contractor?

Many employers hire independent contractors to assist in their workplace and in most cases, the assumption is that doing so will result in minimal or no notice of termination having to be paid at the end of the relationship.  A recent case has confirmed that that assumption can be a risky one to make.

Earlier this year, the Ontario Superior Court of Justice released its decision in the case of Keenan v. Canac Kitchens.  For those familiar with employment law in Ontario, the name Canac Kitchens will be familiar as it has been on the losing end of a number of employment law cases.

In this particular case, Lawrence and Marilyn Keenan were employed by Canac Kitchens beginning in 1976 and 1983 respectively.  In 1987, both were advised that their employment was coming to an end but that they could carry on as independent contractors.  Independent contractor agreements were signed and the Keenans carried on as before.  They continued working for Canac until the company closed its operations in 2009.  No notice of termination or pay in lieu of notice was provided.

The court looked back at the 2009 Ontario Court of Appeal decision in McKee v. Reid’s Heritage Home Limited and confirmed that employment relationships exist on a continuum, with employees at one end, independent contractors at the other, and dependent contractors in the middle.  The court also confirmed that unlike independent contractors, dependent contractors are entitled to reasonable notice of termination.  In determining the status of the Keenans, the court looked to the following:

  • Whether the individuals were limited exclusively to the service of the company;
  • Whether the individuals were subject to the control of the company, not only as to the product sold, but when, where and how it was sold;
  • Whether the individuals had an investment in the “tools” relating to their service;
  • Whether the individuals undertook any risk in relation to their business, or had an expectation of profit apart from a fixed fee or commission; and
  • Whether the business was that of the individual or the company.

While there were some factors in this case which suggested an independent contractor agreement, the court was particularly fixated on the fact that the Keenans worked exclusively for Canac until 2007.  Although they did some small amount of work for a competitor between 2007 and 2009 due to a shortage of work at Canac, the judge accepted that Canac turned a blind eye to same.  In other words, for all intents and purposes the Keenans provided services only to Canac for almost the entire duration of the relationship.  Moreover, Canac had almost complete control of the work performed by the Keenans.

As a result, the court found that although the Keenans were contractors, they were in a dependent relationship to Canac and therefore entitled to notice of termination.  Due to the 32 and 25 years of service provided by Lawrence and Marilyn respectively (which resulted in an average length of service of 28.5 years between the two of them), the court found that a whopping 26 month notice period was reasonable.

As always, independent contractor agreements should be entered into with careful consideration as to the true nature of the relationship between the parties.  As the saying goes, “if it walks like a duck and talks like a duck, the chances are good that it’s a duck”.  In such a case, no amount of contractual drafting will lead to another conclusion.

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What If Your Independent Contractor Is Really a Dependent Contractor?

Overtime Pay Included in Calculation of Damages for Reasonable Notice

In the latest in the long saga of wrongful dismissal cases against Canac Kitchens, Justice Lederman of the Ontario Superior Court has confirmed that overtime pay is included in the calculation of damages for reasonable notice.

The 48-year-old shipping supervisor had been employed by Canac for 24 years when his employment was terminated. There was a dispute as to whether the employee’s base salary was $52,000 or $65,000 per year, but both parties agreed that the employee had earned $96,703.34 in 2006, $91,794.61 in 2007, and $38,115.95 in the first five months of 2008, inclusive of overtime. Upon termination, the employee was only paid a lump sum equal to the amounts to which he was entitled for pay in lieu of notice and severance pay under the Employment Standards Act, 2000 (the “ESA”) and benefit continuation for the minimum period under the ESA. The employee brought an action against the employer for wrongful dismissal.

On the issue of whether damages should be calculated based on the employee’s annual base pay, without any reference to overtime pay, the employer argued that the employee would have had limited opportunity to work overtime in 2008 and therefore the damages for reasonable notice should be calculated without regard to overtime. The employee submitted that, in view of the significant overtime worked in the past years, his damages should be assessed based on his total earnings, including overtime.

The Ontario Court held that if overtime has been paid in the years immediately preceding the termination, it is appropriate to take that overtime into account when assessing damages for wrongful dismissal. Calculation of damages in wrongful dismissal actions is based on global compensation that the employee was receiving. In this case, overtime pay had become an integral part of the employee’s anticipated income and should be considered as compensable damages. The fact that the overtime hours were declining was irrelevant.

The employee was awarded 20 months of reasonable notice, calculated based on his average earnings over the past 2.4 years, including overtime.

When terminating the employment of employees who have worked significant amounts of overtime, employers should be mindful that, at common law, absent a contractual termination provision limiting the employee’s entitlement, the employee is entitled to reasonable notice that includes all elements of the employee’s compensation. As a result, to avoid the risk of litigation on this issue, employers may need to calculate the employee’s separation package on the employee’s average earnings, not their base rate alone.

Olivares v. Canac Kitchens

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Overtime Pay Included in Calculation of Damages for Reasonable Notice