Implied Terms in a Dependent Contractor Relationship

Keenan v. Canac Kitchens Ltd., 2016 ONCA 79 (CanLII)

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In a recent post, we looked at the question of whether a worker was an employee,  a contractor, or something in between, and why the answer to that question might be important.

Another recent Ontario Court of Appeal case, Keenan v. Canac Kitchens, has provided an opportunity for the court to comment further on the nature of the exclusivity factor required to establish an dependent contractor relationship.  In addition, the court in Keenan elaborated on how the length of notice for termination of a dependent contractor relationship should be determined.

In Keenan, a husband and wife (the “Keenans”) had been in the employ of Canac Kitchens since 1976 and 1983 respectively.  At the time of Mrs. Keenan’s employment by Canac in 1983, both of the Keenans worked as foremen for the company.  It was common ground that until October of 1987, the Keenans were employees of Canac and the company deducted and remitted Income Tax, EI and  CPP on behalf of all its employees, as required by law.

In 1987, Canac advised the Keenans that the working relationship between the company and the Keenans was to be changed.  The Keenans would no longer be employees of Canac, but would continue on as contractors.  As evidence of the change, the Keenans received Records of Employment  from Canac, and Canac no longer made statutory deductions or remittances on behalf of them.  The Keenans commenced making their own remittances to the CRA and were responsible to do so for their own employees.  Notwithstanding these changes, the Keenans continued to qualify for Canac employee discounts, wear Canac uniforms, and be provided with Canac business cards.  In addition, Canac gave Mr Keenan a special ring in 1996 in recognition of 20 years of service to the company.

Until 2007, the Keenans worked exclusively for Canac.  Thr0ughout 2006, however, business at Canac went into decline and in order to maintain their income, the Keenans commenced working part of their time at another company.  Canac was aware of this and the bulk of the Keenans’ revenue continued to be generated through Canac.

In 2009, Canac decided to shut down operations for business reasons.  It did not provide the Keenans any notice, pay in lieu of notice, or severance.  It did not provide the Keenans with any the minimum statutory notice prescribed by legislation.  Canac’s position was that the Keenans were independent contractors.

At trial, and on appeal, Canac argued that since the Keenans were not working exclusively for Canac at the time of the termination of their contracts, there was no element of exclusivity at that point and they were not, therefore, dependent contractors.  As independent contractors, Canac believed the Keenans were not entitled to notice or pay in  lieu of notice.  The trial judge rejected this argument on the basis the Keenans continued to be either exclusive, or “near exclusive” contractors to Canac up until the time of their dismissal.  While it might have been true technically, that the Keenans were contracting to two companies at the time of their termination from Canac,  there continued to be a substantial long-term economic dependency on Canac.

The court of appeal upheld the trial judges decision, adding that the question of exclusivity cannot be answered by looking what at might be happening at a given point in time, as Canac was attempting to do.  It was necessary to look at the entire term of the relationship.  In the last two years of their relationship to Canac, the Keenans did a modest amount of work for a competitor of Canac. Canac knew and chose to disregard this knowing the reason was the decline in Canac’s business.  When the appeal court looked at the whole term of the relationship between Canac and the Keenans, it concluded that the minor aberration 0f the last two years could not disturb the fact they were economically dependent on Canac throughout their relationship with the company, including the last two years.  This economic dependency, born of exclusivity, is the hallmark of the dependent contractor relationship.

Canac also appealed the trial court’s award of 26 months of notice for both Mr. and Mrs Keenan.  In its appeal, the company relied on an earlier Ontario Court of Appeal case that established a maximum notice period of 24 months, which could only be exceeded on a finding of exceptional circumstances.  There was no finding made by the trial judge in Keenan of the exceptional circumstances which would justify a notice award exceeding 24 months, though there was evidence that a 26 month notice period had been discussed.

Using the Bardal factors (the Bardal factors have been discussed in an earlier post), the Court of appeal chose to uphold the trial court’s award of 26 month’s notice for each of the Keenans.  In arriving at this decision, the Court of Appeal had regard to the length of service of the Keenans, their respective ages at the time of termination, the supervisory nature of their positions, the fact they were the public face of Canac for the best part of a generation, the degree of dependency they had on Canac and the difficult they would likely encounter in replacing their income with alternative employment.

The important takeaways from the Keenan case include the court’s emphasis on having to look at the entirety of the relationship in assessing whether there is the kind of exclusivity and economic dependence required to establish a relationship of dependent contractor.  Exclusivity does not have to be absolute where economic dependency clearly continues to exist.  The second takeaway is that the determination of reasonable notice for terminating a dependent contractor relationship is the same as that for an employee.  Most importantly, there is no hard and fast limit in determining the maximum length of notice that may be awarded.  The court will continue to have regard to the facts and circumstances of each individual case and making this determination.

 

 

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