In 2009, the Ontario Court of Appeal, in the decision of McKee v. Reid's Heritage Homes Ltd. confirmed the existence of an intermediate category of “dependent contractor”, which falls between an employee and an independent contractor. A dependent contractor relationship exists where a worker, who is labelled as an independent contractor, can demonstrate a certain minimum economic dependency on the company for which they provided services, demonstrated by complete or so-called “near-complete exclusivity”.
This significant development was intended to provide a further degree of protection to contract workers who rely on a significant portion of their income from a single client. Indeed, although dependent contractors are not entitled to any of the benefits afforded to employees by provincial employment standards legislation (e.g. vacation time and pay, overtime, and protected leaves of absences), they are, unlike independent contractors, entitled to reasonable notice of termination of their services, similar to what an employee would receive.
Later, in 2016, in the Keenan v. Canac Kitchens Ltd. decision, the Court of Appeal stated that a “high level of dependency and exclusivity” is needed to establish the dependent contractor relationship, and that the determination of exclusivity required consideration of the full history of the relationship.
For over a decade, the exact level of dependency and exclusivity that is required to turn an independent contractor into a dependent contractor remained heavily contested and the object of many legal disputes.
The Ontario Court of Appeal recently issued a decision that provides some much-needed guidance as to the level of “economic dependency” that is required from a contractor before they are deemed to be “dependent”. In Thurston v. Ontario (Children’s Lawyer), 2019 ONCA 640, the Court found that the Plaintiff, a contractor who derived 39.9% of her total earnings from the Defendant, was not a dependent contractor. Significantly, the Court stated that while near-complete exclusivity should not be reduced to a specific number to be determinative of the dependent contractor status, “near-exclusivity necessarily requires substantially more than 50% of billings”.
Ms. Thurston was a lawyer who provided services to the Office of the Children’s Lawyer (“OCL”) pursuant to a series of fixed-term agreements between 2002 and 2015, initially for two-year terms and then from 2012 on an annual basis. As each fixed-term agreement came to an end, she applied for and was reappointed to the OCL’s Personal Rights Legal Panel. However, in March 2015, following the expiry of the last agreement, Ms. Thurston was given notice that her retainer would not be renewed for another term.
As a result, Ms. Thurston brought a claim against the OCL, alleging that she was a dependent contractor and therefore entitled to 20 months’ notice of termination. The OCL argued that she was an independent contractor and brought a motion for summary judgement dismissing the claim. The motion judge initially found in favour of the Plaintiff, on the basis that there was a long-term relationship between Ms. Thurston and the OCL, that her work was integral to the organization, and that she was perceived to be an OCL lawyer. The OCL appealed.
The key issue before the Ontario Court of Appeal was whether the motion judge erred in finding that the Plaintiff was a “dependent contractor”.
At the appeal stage, the Court highlighted the fact that during the time she was a member of the OCL Panel, Ms. Thurston had the ability to work for others. In fact, she continued to work as a sole practitioner and maintained her own private legal practice, which formed a majority of her billings. While her OCL work varied from a low of 14.8% to a high of 62.6% of her annual total billings, it only accounted for an average of 39.9% of her annual billings over the 13-year period.
Based on the average percentage, the Court found that Ms. Thurston was not a dependent contractor and emphasized that near-exclusivity necessarily requires substantially more than 50% of billings. If it were otherwise, exclusivity – the “hallmark” of dependent contractor status – would be rendered meaningless. While the OCL was no doubt a significant client of Ms. Thurston, the average annual billings that she received from the OCL, only 39.9% of her total earnings, did not rise to the level of establishing economic dependency.
The Court also went on to note that an independent contractor does not become dependent by virtue of their length of service. The longevity of Ms. Thurston’s relationship with the OCL did not transform it into a relationship of “enduring dependency”. The Plaintiff continued to maintain her own private legal practice and the terms of the retainer made it plain that she had no entitlement whatsoever to any minimum level of work.
In the end, the Court determined in a unanimous decision that there was insufficient dependency to substantiate a claim that she was a dependent contractor and engage the right to reasonable notice of termination.
Although there still is no “secret formula” or “blueprint” to define the threshold of economic dependency with precision, we now have clear direction from an appellate court that near-exclusivity requires substantially more than a majority of the income coming from a certain source, even where the loss of a client represents a significant loss of business for the contractor.
Notwithstanding the fact that this is a welcome decision, many disputes will undoubtedly continue to turn on the proper characterization of a worker’s status, often only when the relationship between the parties has turned sour and when it is too late the “fix” the issue. Employers should remember that the courts will continue to employ a contextual analysis and consider a wide range of factors in making a determination regarding a worker’s status.
If you are an employer that is unsure of how to properly categorize a worker, or if exclusivity and dependency are a genuine risk, a member of our Employment, Labour and Equalities team is available to assist.