Dependent Contractors & Reasonable Notice

People providing services are either employees or contractors (typically called independent contractors). Where an employer decides to terminate the services of an employee without cause, the employee is entitled to “reasonable notice” or pay in lieu of notice as determined by an employment contract or common law, and subject to employment standards minimums.  Because independent contractors do not have the benefit of these statutory minimum standards, many companies assume that unless a contract specifically requires a notice of termination, they do not have any obligations to provide one. This is not necessarily the case.

Increasingly, our courts have rejected different treatment of employees and independent contractors regarding rights to reasonable notice. Thus, even if a court finds that there was a true contractor relationship, it will still consider how ‘dependent’ the independent contractor is on a single company for income. One possible result is that a right to reasonable notice may be implied into the services contract. This approach was confirmed in 2009 in two decisions; one from the B.C. Supreme Court; the other from the Ontario Court of Appeal.

In Smith v. Centra Windows Ltd., the court made it clear that the question of whether or not a person is entitled to notice of termination is not decided strictly by a finding of whether the person is an employee or a contractor. The B.C. court confirmed previous decisions that recognized there was a ‘continuum of relationships’ in which a contractor could find himself. One end of the continuum was the traditional employer-employee relationship, and the other end was a truly independent contractor, in every aspect, including economic. On the facts of that case, the court found that Mr. Smith was more like an employee. Based on his 14 years with the company and his age of 50 years, he was awarded 15 months of pay in lieu of notice.  

The rights of a dependent contractor to reasonable notice was also confirmed in late December 2009 by the Ontario Court of Appeal in McKee v. Reid’s Heritage Homes Ltd.  The court confirmed that the initial step is usually to determine whether or not the individual is an employee or contractor.  If the individual is found to be a contractor, the next step is to determine whether the contractor was independent or dependent.  Did the contractor work exclusively or nearly exclusively for the company, creating an economic dependency? Finally, once the individual is found to be a dependent contractor and entitled to reasonable notice, the assessment of what that should be will be based on the same factors  one would look at if the individual was an employee (age, years of service and position being the primary criteria).  

The policy underlying these decisions is that courts want to extend the same safeguards of the employment relationship to self-employed workers who have a high economic dependency on the company they provide services to, but who may not otherwise qualify as employees.  

Whether or not an individual is an employee, dependent contractor or independent contractor, is not always clear cut. Even if the parties agree what their status is, the court will not confirm that status if the facts do not support the ‘category’ agreed to.  For that reason, it is important that anyone entering into these relationships have a written agreement dealing with how the relationship, whatever it may be, can be terminated.  In my opinion, it would also be prudent to ensure that all but the most clear cut examples of an independent contractor relationship include termination provisions that meet the minimum required by applicable employment standards legislation, just in case the relationship is later deemed to be that of a dependent contractor or even employer-employee.

This blog is written by Nicole Byres of Clark Wilson LLP and made available by BCBusiness to provide general information on employment law, and is not a substitute for competent legal advice from a lawyer licensed to practice in your jurisdiction. Neither the reading of this blog, nor the sending of unsolicited comments or emails creates a lawyer-client relationship with the writer or Clark Wilson LLP.