In a recent decision1, the Ontario Court of Appeal has confirmed that years spent as a dependent contractor may count for calculating notice of termination for a contractor turned employee who was terminated without cause.
In 1994, the individual was hired by the company as a freelance wardrobe stylist. There was no written agreement.
For most of the next ten years, the stylist worked nearly full-time and exclusively for the company. During slow periods, she occasionally worked fewer hours and sometimes worked for others. The worker invoiced the company weekly for her services. The company did not consider her to be its employee or agent. It considered her an independent contractor operating a sole proprietorship type of business. The company paid her invoices without withholding any amounts, including for taxes, or premiums for the Canada Pension Plan or Employment Insurance.
In 2004, the stylist was hired as an employee under a written contract. The contract said that 2004 would be the stylist's start date for calculating years of service. The contract also contained a termination provision that specified what she would receive if terminated.
Thirteen years later, the stylist was terminated without cause. She was given pay in lieu of notice calculated based on 13 years as an employee. The worker sued arguing that she was entitled to notice calculated based on her nearly 23 year working relationship.
What did the courts say?
The judge decided the case without a full trial in a legal process called summary judgment.
The judge said the stylist was a dependent contractor for the first ten years of the relation, from 1994 to 2004 when she became an employee. This was significant because like employees, dependent contractors -- contractors who are economically dependent on their principal -- are presumed to be entitled to reasonable notice of termination without cause. The judge said that even if the stylist had been an independent contractor it would have been "wrong in principle to ignore these years" of the relationship in determining the reasonable notice period. The judge awarded the stylist 21 months' pay in lieu of notice because he judged the termination provision in her contract was unenforceable. The appeal court upheld the judge's decision.
What are the takeaways for employers?
Employers should be aware that prior, consecutive service as a dependent contractor will likely count for calculating notice of termination if that contractor becomes an employee. The judge's decision also leaves open the possible argument that prior service as an independent contractor may be included in length of service for calculating notice of termination. To manage both risks, employers should ensure that individuals moving from contractor to employee sign a written employment agreement with an enforceable termination provision that limits their termination entitlements.
1. 2019 ONCA 965 (CanLII)
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