In 2009, the Ontario Court of Appeal in McKee v Reid’s Heritage Homes Ltd. formulated a two-step test to determine whether a worker was a dependent contractor or an independent contractor in the employment law context. The dependent contactor status was created as an intermediate category to protect workers that were incorrectly classified as independent contractors to limit their entitlements upon termination. Since McKee, the courts continue to carefully scrutinize the nature of a working relationship based on the conduct of the parties against their expectations - or the “true substance of the relationship.” In McKee, the court determined that economic dependence arising from an exclusive or near exclusive work relationship is the hallmark of the dependent contractor status. However, the court did not expressly state that an exclusive work relationship was necessary to be classified as a dependent contractor and, as a result, each case was left to a highly subjective interpretation.
In the past three years, the Ontario appellate courts released four appellate decisions affirming and clarifying the test to determine whether a worker is a dependent contractor. In Thurston v Ontario (Children’s Lawyer), the Ontario Court of Appeal confirmed that the exclusivity of a working relationship remains the hallmark of the dependent contractor test and is determinative of the worker’s status. Thurston is the third of four post-McKee appellate court decisions that counsel should consider when advising clients regarding contracts and termination in employment matters. We suggest that Thurston resolves any ambiguity that a lack of exclusivity is determinative and prevents a worker from being classified as a dependent contractor.
Existence of an Intermediate Category
In 1936, the Ontario Court of Appeal in Carter v Bell & Sons (Canada) Ltd. recognized the existence of an “intermediate” position “where the relationship of master and servant does not exist but where an agreement to terminate the arrangement upon reasonable notice may be implied.” The court in Carter emphasized the permanency of the working relationship between the parties as a determinant in delineating this intermediate category.
In the years that followed, the courts in other Canadian jurisdictions then found such intermediate workers in a number of reasonable notice cases, particularly wherein the worker was economically dependent on the defendant, generally due to complete exclusivity or a high-level of exclusivity in their work.
The Ontario Court of Appeal implicitly 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. 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.
In Mancino v Nelson Aggregate Co., the Ontario Court of Appeal applied the reasoning in Paper Sales to self-employed truckers, requiring reasonable notice where the work relationship was permanent and exclusive in nature, such that the plaintiff was in a “position of economic dependence.” Mancino exemplified the applicability, in Ontario, of the intermediate category analysis beyond merely sales or distributorship relationships.
Finally, in 2008, the Ontario Court of Appeal again implicitly recognized the intermediate category where the case required the court to determine the status of a commissioned salesperson. In Braiden v La-Z-Boy Canada Ltd., Gillese JA noted the trial judge’s suggestion that a “third category of relationship had emerged, between [the employer-employee and independent contractor relationship categories], in which reasonable notice of termination must also be given.”