One of the benefits to employers
who hire independent contractors to assist in the workplace is that
there is no obligation to provide reasonable notice of termination
or pay in lieu when the relationship ends. The danger to employers
is that, like employees, dependant contractors are in fact
owed reasonable notice on termination and the distinctions between
an independent and dependant contractor are not always clear.
A decision of the Ontario Superior
Court of Justice from earlier this year demonstrates just how
costly mischaracterizing such relationships, whether intentionally
or not, can be for employers.
In Keenan v. Canac Kitchens,
the employer, Canac Kitchens ("Canac"), maintained what
it believed to be independent contractor relationships with two
individuals, Lawrence and Marilyn Keenan, for 25 and 32 years
respectively. On that basis, when it came time to end the
relationship, Canac did not provide any notice of termination or
pay in lieu.
Despite having written agreements
with Lawrence and Marilyn that purported to confirm they were
independent contractors, the Court disagreed with the Canac's
characterization of the relationship and found the individuals to
be dependant contractors instead.
In coming to its decision, the
Court looked at the following factors:
Whether or not the agent is
limited exclusively to the service of the principal.
Whether or not the agent is
subject to the control of the principal not only as to the product
sold, but also as to when, where, and how it is sold.
Whether or not the agent has an
investment or interest in what are characterized as the tools
relating to his service.
Whether or not the agent has
undertaken any risks in the business sense, or, alternatively, has
any expectation of profit associated with the delivery of his
service as distinct from a fixed commission.
Whether or not the activity of
the agent is part of the business organization of the principal for
which he works. In other words, whose business is it?
The Court found that each of the
above factors favoured the interpretation that the Keenans were
dependant contractors. Given their 25 and 32 years of service, the
Court awarded each individual substantial damages representing 26
months' notice of termination.
While not discussed in this case,
employers who mischaracterize independent contractor relationships
may also be faced with legal exposure relating to the Canada
Revenue Agency ("CRA") and Workplace Safety and Insurance
If the CRA reviews and reclassifies
an independent contractor relationship as a dependant one, the
employer could face significant costs and penalties. For example,
in some cases employers can be made to repay not only their share
but also the dependant contractor's share of Canada Pension
Plan contributions, Employment Insurance premiums and or
withholding taxes. Penalties and interest may also be levied on the
under-remittance of these taxes. Employers can also be required to
make retroactive Employer Health Tax payments. Such
reclassifications by the CRA are not rare.
As well, with limited exceptions,
all persons working in the construction industry (whether
employers, workers or contractors) must register with the WSIB.
Without regard to the industry in which the employer and
contractor operate, the WSIB has the authority to determine whether
an individual is an independent operator or a worker of an
employer. The degree of dependence of that individual on one
client may result in a finding that the person is a worker of that
client, irrespective of any agreement or contract between the
workplace parties. Once the individual is determined to be a
worker, the "employer" is responsible for the payment of
WSIB premiums for that individual as well as all of the other
obligations that an employer has to a worker under the
Workplace Safety and Insurance Act.
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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