Are Your Independent Contractors "Dependent"?
The following article was written by Michael D. A. Ford, Q.C. of Davis LLP.
Human resource practitioners often need to determine whether an individual is an employee or an independent contractor. In some industries, the use of independent contractors is common place.
A trend is emerging in employment law decisions creating a third category of worker called the "dependent contractor."
The Ontario Court of Appeal in McKee v. Reids Heritage Homes said that there may be situations where the individual is so dependent upon the company, that a court may imply a term requiring reasonable notice to terminate the relationship where the contractual agreement does not contain an express termination notice.
In Drew Oliphant Professional Corp v. Dr. Kelly Harrison, 2011, ABQB 216, the Alberta Court of Queen's Bench observed:
"In recent years, a third category has developed, in which the party contracting is considered a "dependent contractor". In those cases, notice of termination is required notwithstanding the absence of an employment relationship."The courts have come to this conclusion in order to extend the safeguards of the employment contract to self-employed workers who are subject to relatively high levels of subordination or economic dependency, but technically do not qualify as employees in the strict sense. If there is a high level of subordination or a high degree of dependency on the company, then notice of termination will be required, unless the contract expressly provides for notice.
Defining a Worker as "Dependent"
The factors examined by the courts to determine whether the worker is a dependent contractor have included:
- Duration/permanency of the relationship. The longer the duration of the relationship, the more likely the finding of a dependent contractor.
- Degree of reliance/closeness of the relationship. A high degree of reliance on the company can be a hallmark of the dependent contractor. A marketing or sales representative who is selling only the company's product is an example of this.
- Degree of exclusivity. An exclusive relationship with the company is likely to support the conclusion of dependency. If a contractor is doing a significant amount of work for several different companies, the contractor is probably independent.
While none of these factors by themselves justify the finding of a dependent contractor relationship, the presence of a combination of these factors may substantiate such a claim.
What kind of notice is required? A recent Alberta Court of Queen's Bench decision stated that a dependent contractor is entitled to some degree of reasonable notice, although something less than what an employee would be entitled to.
What You Should Do If You Have a Dependent Contractor
From a practical human resources perspective, it is important for you to review those situations where you have independent contractors. It is essential to determine whether they are "independent" or "dependent." If they are "dependent" then it is important to expressly state in the contract the amount of notice required to terminate the relationship. Failure to do so will allow a court, in the event of a dispute, to determine what the reasonable notice should be in order to terminate the dependent contractor relationship.