Although perceived as a subtle difference, the job classifications of “contract of service” and “contract for services” entails vastly different consequences for employers. The former is considered an employment relationship, with an obligation to provide reasonable notice upon termination. The latter is considered an independent contractor relationship, with no obligation to provide reasonable notice. However, there also exists an intermediate category, that of dependent contractors. Under this category, in the absence of just cause, employers are required to provide the worker with reasonable notice upon termination of employment.
Thus, determining the “status” of the worker is essential in determining an employer’s obligations upon termination. The dependent contractor status was recently affirmed by the Ontario Court of Appeal in Keenan (c.o.b. Keenan Cabinetry) v. Canac Kitchens, a Division of Kohler Ltd (“Canac”).
In Canac, Lawrence Keenan worked for the defendant, (“Canac”), for approximately 32 years. Although his job title changed, Lawrence’s main role was to supervise the delivery, installation and service of Canac’s kitchen cabinets. Lawrence’s wife, Marilyn Keenan, was also employed with Canac. Marilyn was a foreman for Canac and worked for the company for 25 years.
The issue addressed was whether the two (2) plaintiff’s, (the “Keenans”), were independent or dependent contractors.
Up until 1987, the Keenan’s were considered employees of Canac. However, in October of 1987, the Keenan’s were summoned to a meeting with Canac management. During the meeting, they were informed they would no longer be employees of Canac but rather, would carry on their work as independent contractors. The Keenan’s were told they should “incorporate” and were forced to sign a document indicating they were subcontractors of Canac. They were each provided with a Record of Employment indicating their last day of work to be October 16, 1987.
Between 1987 and 2007, the Keenan’s worked almost exclusively for Canac. They each enjoyed employee discounts, wore shirts with company logos and had Canac business cards. Additionally, Lawrence Keenan received a signet ring for 20 years of loyal service to the company. From an outside perspective, the Keenan’s were Canac’s representatives.
In 2007 business slowed down. The Keenan’s began assuming work from Canac’s competitor, Cartier Kitchens. However, the majority of the Keenans’ work, up until their termination in 2009, remained from Canac. Based on these facts, the court was left to determine the status of both the Keenans’ positions with Canac.
The court considered the following factors in determining the status of the Keenans’ positions:
- Whether or not they were limited exclusively to the service of Canac
- Whether or not they were subject to the control of Canac not only as to the product sold, but also as to when, where, and how it was sold.
- Whether or not they had an investment or interest in what were characterized as the tools relating to their service.
- Whether or not they undertook any risks in the business sense, or, alternatively, had any expectation of profit associated with the delivery of their service as distinct from a fixed commission.
- Whether or not their activity was part of the business organization for Canac. In other words, whose business was it?
Other than some occasional weekend work, the court found that the Keenan’s worked exclusively for Canac. Additionally, Canac maintained effective control of the business, including the setting of deadlines and dictating the flow of the work. Although the Keenan’s owned some of their own tools, Canac’s business premises, phones and filing cabinets enabled them to carry out their services. On the question of “whose business was it?”, the answer was clear: Canacs. All contractors, even installers, were required to display Canac’s logo on their vehicles they used to transport Canac’s product to the job site.
Thus, the evidence was clear – the Keenan’s were dependent contractors and entitled to reasonable notice. This decision was upheld on appeal.
Employment relationships exist on a continuum; with the employer/employee relationship at one end of the spectrum and independent contractors at the opposite end. Between those two (2) points lies a third category, dependent contractors. When a worker is found to be a dependent contractor, the relationship is treated as one of employment. Although courts will consider the factors above in making a determination, what the analysis ultimately comes down to is exclusivity and economic dependence.
The court has clearly stated that workers who are not employees may still be dependent contractors and thus, entitled to reasonable notice upon termination. This has potentially significant financial ramifications for employers who engage contractors. Given that the distinction between independent and dependent contractors is difficult to ascertain, employers who use contractors should be alive to the fact that just because an individual is labelled an independent contractor does not prevent the court from finding otherwise.