Dependent Contractors Get Reasonable Notice (Canada)

The Concept of Dependent Contractor Exists in Canada 

Canadian courts have long held that there is an intermediate position of “dependent contractor” between "employee" status and "independent contractor" status. 

Unlike independent contractors, dependent contracts are owed reasonable notice of termination.

The History of Dependent Contracts

A number of courts in several Canadian jurisdictions have found dependent contractors are owed reasonable notice in a number of wrongful dismissal cases, particularly where the worker is economically dependent on the defendant, generally due to complete exclusivity or a high level of exclusivity in their work: see, e.g., Marbry Distributors Ltd. v. Avrecan International Inc. (1999), 1999 BCCA 172 (CanLII), 171 D.L.R. (4th) 436 (B.C.C.A.), at paras. 35-38, 46; JKC Enterprises Ltd. v. Woolworth Canada Inc. (1986), 2001 ABQB 791 (CanLII), 300 A.R. 1 (Q.B.); Erb v. Expert Delivery Ltd. (1995), 1995 CanLII 8874 (NB QB), 167 N.B.R. (2d) 113 (Q.B.), at paras. 6-14.

Ontario impliedly recognized the existence of an intermediate category for work relationships involving a distributorship agreement in Paper Sales Corporation Ltd. v. Miller Bros. Co. (1962) Ltd. (1975), 1975 CanLII 555 (ON CA), 7 O.R. (2d) 460. There, the court held that a non-employment relationship whereby the plaintiff was “the exclusive distributor of the defendant’s products in [two provinces]” was “closer to a contract of employment than to a commission agency” and thereby required reasonable notice for termination: Paper Sales at pp. 463-64.

Mancino v. Nelson Aggregate Co., [1994] O.J. No. 1559 (C.J. (Gen. Div.)), at paras. 9-13, applied the reasoning in Paper Sales to self-employed truckers, requiring reasonable notice where the working relationship was permanent and exclusive in nature, such that the plaintiff was in a “position of economic dependence”. Mancino thereby exemplifies the applicability, in Ontario, of the intermediate category analysis beyond merely sales or distributorship relationships.

Ontario again impliedly recognized the dependent contractor category where the case required the court to determine the status of a commissioned salesperson. In Braiden v. La-Z-Boy Canada Ltd. (2008), 2008 ONCA 464 (CanLII), 294 D.L.R. (4th) 172, at para. 24, the judge noted the trial judge’s suggestion that a “category of relationship has emerged, between [the employer-employee and independent contractor relationship categories], in which reasonable notice of termination must also be given”.

In conclusion, an employment category known as “dependent contractor” exists in Canada, which consists, at least, of those work relationships that exhibit a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity. In short, a worker will be categorized as a dependent contractor as opposed to an independent contractor when the worker is completely, or almost completely, economically dependent on the employer/business. Such workers are owed reasonable notice upon termination, not unlike employees. 

Use our calculator to see if a worker is an employee or an independent contractor here.

How To Determine Whether Someone Is a Dependent Contractor

More recently, in McKee v. Reid's Heritage Homes Ltd., 2009 ONCA 916, 315 D.L.R. (4th) 129, at para. 39, and elaborated on in Keenan v. Canac Kitchens, 2015 ONSC 1055, at para. 18-21, aff’d 2016 ONCA 79, Ontario courts have held that the following factors are to be reviewed on a contextual and case-by-case basis in determining dependent contractor status:

• Whether or not the agent was limited exclusively (or near exclusivity) 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 is 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 services as distinct from a fixed commission; and,

• 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?

In the end, the more exclusivity, the more control, the more provision of one’s own tools, the more risk/chance of profit, and the more independence an individual has, the more he or she is likely to be held to be an “independent contractor” and vice versa for “dependent contractor.” If someone is found to be an independent contractor, they are not owed reasonable notice upon termination. However, if they are found to be a dependent contractor, then they are owed reasonable notice upon their dismissal.

goHeather lets employers make employment contracts from lawyer-made templates to help them limit the amount of reasonable notice (i.e., severance) they must provide an employee upon termination.