Economically ‘dependent contractors’ in Ontario entitled to reasonable notice period
The growing gig economy in Canada was once limited to more temporary arrangements, such as ride-sharing and informal assignments with freelancers. However, the lure of flexible employment has attracted employers and workers from all fields.
Today, it is not uncommon for chief executives too to be in a ‘consulting’ role. And you can hardly miss the growth of platforms such as Fiverr and Upwork. So prevalent has freelancing become in Canada that you can find virtually any talent, skill and expertise for temporary hire – sorry, consultancy. Unfortunately, that has also meant uncertainty as employers can terminate employment without reasonable notice.
Why businesses choose ‘independent’ contractors/consultants/freelancers
Businesses love independent contractors. Having an independent contractor keeps the company’s:
- payroll smaller,
- liabilities lower,
- and reduces the administrative burden
of managing a large team of people with rights under the Ontario Employment Standards Act. A company does not have to make tax deductions, file T4s, adhere to minimum employment standards, offer termination pay or even provide reasonable notice period for termination.
“What is a dependent contractor?” Ontario court clarifies
Being on the ‘roster’ of a company as an independent contractor is risky business… for the worker. Independent contractors go by many different titles today, such as ‘consultant’, ‘freelancer’ and ‘contractor’.
Traditionally this ‘master and servant’ relationship has been broken down into two distinct categories:
- Independent contractor
However, Ontario courts have shoehorned a third ‘Goldilocks’ category, in the interests of justice. So, now, it looks more like this:
>> Dependent contractor
- Independent contractor
Reasonable notice period for dependent contractors
The decision of the Ontario Court of Appeal in Elizabeth McKee v. Reid’s Heritage1 in 2009 clarified the law with regards to reasonable notice periods at the conclusion of the relationship. The court concluded
non-employment work relationships that exhibit a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity. Workers in this category are known as “dependent contractors” and they are owed reasonable notice upon termination.
The court expanded that understanding in Marilyn Keenan v. Canac Kitchens2 in 2016. In this case, the Keenan’s didn’t perform solely exclusive work for Canac. Rather, they received between 66.4% and 80% of their revenue from Canac. The court noted that exclusivity of work must be determined through worker history and the level at which it was dependent on the employer.
…between 1987 and the beginning of 2007 approximately 97.5% of the Keenans’ income was from Canac.Of the approximately 32 and 25 years of service that Lawrence Keenan and Marilyn Keenan respectively gave to Canac, in all but two of those years they exclusively served Canac.
What this means is that a worker does not have to be solely and exclusively be engaged by the employer, a “high degree of exclusivity” is enough to form an economically dependent relationship.
In 2019, the court offered a further clarification on how much a contractor’s employee should be. In Barbara Thurston v. Ontario3, the court states
Putting the respondent’s case at its highest, over the course of her retainer an average 39.9% of her annual billings came from the OCL…that is a significant percentage of the respondent’s billing, and the loss of the OCL retainer would have had a substantial impact …But that is not determinative of her status as a dependent contractor
The finding essentially says that ‘significant’ income is not the same as ‘near-complete exclusivity’. Moreover, “’near-exclusivity’ necessarily requires substantially more than 50% of billings”.
There are several characteristics of the ‘employment’ relationship the court will look at before it will find a reasonable notice period for the end of the relationship should have been given:
- Duration for which the worker has worked for the employer
- Whether this was the sole occupation of the worker
- Whether the work was such that the independent contractor ‘appeared’ to be an employee
Understanding the gig economy
What does it mean for employers?
For employers it means all the attempts to separate a worker from the company payroll and limit their ESA rights can diminish. Workers who have devoted their labour to the company like any other employee are entitled to reasonable notice period.
An independent and third-party can become a ‘dependent contractor’ if he or she can demonstrate a minimum economic dependency on the company.
What does it mean for freelancers, consultants and contractors in Ontario?
Though this is a positive development for independent contractors everywhere, the barriers to enforcing this right remain high. Freelancers are likely to prioritize ending the relationship on a positive note than dragging an employer through the court. However, for workers who have worked just like employees for a particular employer for many years, this is a resounding success.
In the growing ‘Uberized’ economy this case may be just one of the first to achieve an equitable balance. Canada has shunned at-will employment and accorded rights to workers in all types of employment. Whether you are an employer looking to structure your workforce or an independent contractor being treated unfairly, we can help. Soni Law is a compassionate team of lawyers that helps find mature solutions.
1 Elizabeth McKee and Bribet Holdings Inc. v. Reid’s Heritage Homes Ltd.
2 Marilyn Keenan and Lawrence Keenan c.o.b. as Keenan Cabinetry v. Canac Kitchens Ltd., a division of Kohler Ltd., and Kohler Canada Co.
3 Barbara Thurston v. Her Majesty the Queen in Right of Ontario as represented by the Office of the Children’s Lawyer (Ontario)