The conundrum of distinguishing between a dependent and an independent contractor may finally be resolved by a recent decision of the Ontario Court of Appeal.
The determination of status as a dependent contractor may have significant ramifications for “employer-principals”. As opposed to that of an independent contractor, such a relationship will give rise to the obligation of fair notice with respect to termination, which recent cases have determined to be based on similar principles as a wrongful dismissal case.
This being said, it may be slightly easier to contract out of this common-law obligation as there are no statutory complications that require compliance.
The case came to the Court of Appeal after a successful trial award in the plaintiff’s favour. The facts are fairly straightforward.
The plaintiff had worked as legal counsel for 13 years under a series of retainer contracts. Each contract was for a fixed term of 12 or 24 months and required her to apply for this agreement to be renewed each successive year. The contract also offered no guarantee of work and gave the option to the employer not to renew. It also gave the employer the right to terminate, even in the currency of the agreement, with impunity.
Her final retainer, but not the last day of active work, came in March of 2015. She was then told that her retainer would not be renewed. She was given 12 months to close down her active files. Her income from the employer had been roughly 40% of her annual billings from total sources over most of her 13-year tenure, although it had increased to over 50% in her final year with the employer. The plaintiff brought a claim seeking 20 months in notice due to the fact that she was a dependent contractor.
The plaintiff was successful on the first motion decision in that the employer’s motion to dismiss the case failed. In making this decision, the first judge agreed with the plaintiff’s position that her relationship to the employer was one of a dependent contractor, even though no award had been made. The employer appealed the decision.
In reversing the lower court’s decision, the Court of Appeal looked to determine if there was “a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity”.
This Court also stated, as in a prior decision, that “exclusivity of service provision, and therefore income, is key”. It is this focus on exclusivity that guided the Court’s decision. The high-water mark for the most part of the earnings ratio in the case at hand was 40%, which was considered to be too light to create a relationship of “exclusivity or near-exclusivity” to signal dependency.
Accordingly, this factor of the relative proportion of income from this single source compared to total income was considered as a decisive issue in the reasoning of the Court of Appeal.
There were other arguments which were not considered in the reasons above and readily could have led to fatal blows to the plaintiff’s case. The contracts were well-drafted with little wiggle room. In addition, considerable advance notice had been given before the terminal date.
To date, dependency has been defined in financial terms. Might other factors arise to lead to such a determination such as an employee revoking a resignation decision in view of a promise of a higher salary or more responsibility? Perhaps. One would expect that dependency, and particularly prejudicial reliance upon promises, contractual or otherwise, may come from more than an accounting analysis.
The Takeaway for All Parties
The case does provide tight reasoning on the test for a dependent contractor relationship which will likely stand the test of time. Both parties to such a contested issue will have a better awareness of the likely result of litigation. This may also compel each to structure a fair contractual termination provision and avoid such unnecessary costs.
Get Advice Before You Act
If you have questions about this issue or any employment issue, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise employees and employers on issues in the workplace. Contact us online or by phone at 416-364-9599 to schedule a consultation.
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