Canadian HR Reporter is the national journal of human resource management. It features the latest workplace news, HR best practices, employment law commentary and tools and tips for employers to get the most out of their workforce.
Issue link: https://digital.hrreporter.com/i/1202688
22 www.hrreporter.com F E A T U R E S EMPLOYERS are generally familiar with the distinction between employees and independent contractors. But a third category of workers — "dependent contractors" — has become more widely recognized over the past decade. Recent developments in evaluating whether a contractor is dependent or independent might become based largely on one key factor: exclusivity. Background A dependent contractor is a contractor who is economically dependent on their principal. Dependent contractor status is not limited to individuals. Any contracting entity (including a corporation) can be found to be a dependent contractor. When evaluating whether a dependent relationship exists, courts will look behind written agreements to determine the relationship's true nature. How the parties labelled their relationship is not determinative. Generally, the rights of dependent contractors fall between those of employees and independent contractors. Principals must provide dependent contractors with reasonable notice of termination of their contract or payment in lieu of reasonable notice. The amount of notice or payment depends on the circumstances, but it will likely be less than those found in employer-employee relationships, with similar time frames, compensation, prospects for reemployment or replacement work. Although the legal concept of a dependent contractor has yet to be formally recognized by all Canadian The Ontario Court of Appeal is the only Canadian appellate-level court to directly engage — in recent years — the complexities surrounding dependent contractors. In its most recent decisions, the Ontario Court of Appeal suggests that exclusivity is the key factor. In the 2019 Thurston v. Ontario (Children's Lawyer), the appeal court found that exclusivity does not restrict the contractor to only one client (meaning the principal in question). "Near-complete exclusivity" would suffice, but to be considered a dependent contractor, "substantially more than 50 per cent" of the contractor's income must be earned from that principal. Turning to the facts of the case, Barbara Thurston was a lawyer who provided legal services to the Office of the Children's Lawyer (OCL) over 13 years in a series of fixed-term contracts. These contracts were not automatically renewed; Thurston had to apply for a new contract each time. Thurston's work for the OCL accounted for between 14.8 per cent and 62.6 per cent of her independent legal practice's annual earnings. The average was 39.9 per cent. When the last contract expired in 2015, Thurston was denied a new contract. Subsequently, she brought a claim for 20 months' notice of termination on the basis that she was a dependent contractor. The Court of Appeal concluded that Thurston was not a dependent contractor and listed multiple considerations in support, such as the OCL not guaranteeing a minimum amount of work for Thurston. THURSTON V. ONTARIO (CHILDREN'S LAWYER) jurisdictions, nationwide recognition is likely inevitable. Further, dependent contractor status can be determined by the courts and applied retroactively, as long as claims are commenced within the relevant limitation periods. Recent developments in B.C., Ontario Courts in several Canadian jurisdictions have grappled with how to differentiate between dependent contractors and independent contractors by setting out a litany of factors or tests to be considered. These are not always consistent, even within the same jurisdiction. For example, the British Columbia Supreme Court in the 2018 Pasche v. MDE Enterprises Ltd. referred to seven "indicia of a dependent contractor relationship." Meanwhile, the same court in the 2019 Liebreich v. Farmers of North America referred to four tests that can be further divided into 12 factors. The latter case appears to adopt an all-encompassing approach to determining whether a worker is an employee, dependent contractor or independent contractor, but without direction from the British Columbia Court of Appeal, it is not clear which factors or tests are preferable. A look at recent legal decisions that delve into the question of whether a contractor is dependent or independent suggests exclusivity is a key factor, according to George Green, a partner at McKercher in Saskatoon 40% Average amount of total billings by Barbara Thurston at Office of the Children's Lawyer (OCL) 2015 Annual contract is not renewed 20 MONTHS Thurston claimed she was a dependent contractor entitled to 20 months' notice of termination 50% The near exclusivity of a dependent contractor "necessarily requires substantially more than 50 per cent of billings": Court of Appeal for Ontario F O C U S O N : E M P L O Y M E N T L AW DEFINING THE DEPENDENT CONTRACTOR Employers and principals ought to proactively address the potential risk. The longer this risk is ignored, the higher the potential damages could be.