In the case of McKee v. Reid Heritage
Homes,1 the Court of Appeal has now confirmed the
intermediate category of the dependent contractor. As a
result, employers must now provide reasonable notice upon
termination for both employees and dependent contractors.
Employers, in order to be aware of the defining features between an
employee, an independent contractor, and the new intermediary
category of the dependent contractor, need to take a closer look at
the essence of the relationships with workers.
McKee v. ReidHeritage Homes
In 1987, Reid Heritage Homes, a new home builder, entered into a
handwritten contract with Elizabeth McKee agreeing that McKee would
sell 69 homes for Reid, exclusively and in exchange for commission.
The agreement included a termination provision providing that with
30 days' notice, either party could end the agreement.
In the years following, and after the initial 69 homes were
sold, McKee continued to sell homes for Reid, being paid commission
through her incorporated business. McKee hired and trained her own
contingent of sales staff to assist with her work. McKee paid these
staff through the commission she obtained from Reid.
Beginning in 2000, under new management, the company underwent
restructuring that affected the way McKee was to operate within the
company. Consequently, the relationship between McKee and
management deteriorated. Ultimately, McKee sued for wrongful
The trial judge found that McKee was clearly an employee of Reid
Heritage Homes. After considering her age, years of service,
position, qualifications and likelihood of finding comparable
employment, the court awarded her 18 months' severance pay in
lieu of notice.
The Court of Appeal upheld the trial court's finding that
McKee was an employee of the company as determined by the trial
judge. The court also confirmed the intermediary "dependent
contractor" status, outlining what it entails.
Defining the Worker as an Employee, Independent or Dependent
Employers should be aware that the dependent contractor falls
under the contractor category. Courts will first determine whether
a worker is an employee or a contractor in the normal way,
answering questions such as:
Who supplies the equipment?
What degree of control does the employer impose over the
How is the worker paid?
Does the worker hire and direct workers?
If the worker is found to be a contractor, the next stage begins
to determine whether that contractor is independent or dependent.
The sole factor in this determination is exclusivity
— whether the employer is the only source of income for
the contractor. Exclusivity inherently implies that the contractor
is economically dependent on the employer, and is entitled to
reasonable notice upon termination, just like an employee.
At the first stage, when the courts are determining whether
someone is a contractor or an employee, exclusivity is but one
factor that is considered. However, once it has been determined
that the worker is a contractor, exclusivity becomes the sole and
defining factor. Employers, resting on the laurels that they are in
a contractor relationship, may be surprised to find that they are
responsible for providing reasonable notice to contractors found to
be in this intermediary position — not quite a
contractor, not quite an employee.
Tips for Employers
Employers are advised to consider the essence of their
relationship with their workers, particularly contractors, given
that dependent contractors are now entitled to reasonable notice of
termination, just like employees.
To manage this obligation, employers can take steps to ensure
they are engaging in best practices by reviewing current
relationships with workers and taking steps when entering into new
relationships. Employers should be aware of the following:
Are your contractors working exclusively for you? Where your
contractor is economically vulnerable by virtue of their
exclusivity, employers will be responsible for providing reasonable
Are contractors performing an essential function of your
business? If so, they are more likely to be seen as employees.
Are workers operating under a valid contract? Employers should
ensure that they are working under valid contracts with clearly
What termination provisions, if any, are contracted? Contract
should have termination provisions that at least match, if not
exceed, the legislated standards
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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