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Opinion: Are you in an ‘exclusive’ business relationship?

Posted: September 9, 2019 by Carole McAfee Wallace

Many companies engage independent contractors to perform services. And when the relationship turns sour, the parties often fight over whether the independent contractor is actually an employee who’s entitled to notice of termination and other benefits.

In 2009, the Ontario Court of Appeal confirmed that there is an intermediate category between employees and independent contractors. A “dependent contractor” relationship exists where a worker — who was labelled an independent contractor — can show a certain minimum economic dependency on the company, demonstrated by complete or near-complete exclusivity.

If someone is found to be a dependent contractor, the company can’t terminate services without providing reasonable notice equal to what an employee would receive.

In 2016, in a second key decision, the Court of Appeal said a “high level of dependency and exclusivity” is needed to establish the dependent contractor relationship, and that exclusivity can’t be determined by a snapshot. The full work history must be considered.

One recent court case can help to guide businesses looking to assess such working relationships.

On July 31, the Ontario Court of Appeal’s decision in Thurston. v. Ontario (Children’s Lawyer) offered particular insights into the concepts of “exclusivity” and “dependency” when it comes to dependent contractors.

Barbara Thurston, a sole practitioner lawyer, provided legal services to Ontario Children’s Lawyer (OCL) between 2002 and 2015. She was a member of the OCL panel of 380 lawyers and provided services through a series of fixed-term contracts, each of which required reappointment by OCL. The contracts didn’t restrict her ability to work for others, and some of the contracts expressly required her to state that her practice included work for others. The contracts also didn’t guarantee a minimum volume of work.

When OCL didn’t renew Thurston’s contract in 2015, she sued – claiming she was a dependent contractor and entitled to 20 months’ termination pay. The OCL said she was an independent contractor.

Key evidence in this case included a chart that tracked her billings from 2002-2015. Over 13 years, between 14.8% to 62.6% of her overall billings were for OCL. In the last three years it accounted for a respective 62.6%, 47.5%, and 50.1%, and the overall annual average during the 13 years was 39.9%.

The motions judge focused on the continuous 13-year relationship, the fact that Thurston performed work that was integral to OCL’s services, and that OCL had a great deal of control over her work and working conditions. OCL consistently accounted for less than half of Thurson’s work. But considering the permanent nature of the relationship, and the fact that the work was so integral to OCL, the scales tipped in favor of a dependent contractor status.

OCL appealed. Relying on earlier decisions, the Ontario Court of Appeal confirmed that a certain minimum economic dependency may be demonstrated when it comes to extending entitlements for termination notice. Exclusivity, and therefore income, was a key to determining economic dependence.

The court went on to state that “near-complete” exclusivity can’t be reduced to a specific number that determines dependent contractor status, and that additional factors may be relevant. Having said that, the court also said that near-exclusivity requires substantially more than 50% of the billings. Otherwise, exclusivity — the hallmark of dependent contractor status — would be rendered meaningless.

When examining the entire relationship, only 39.9% of Thurston’s earnings came from OCL. This wasn’t a “near-exclusive” relationship.

While additional factors may be relevant, this recent case suggests that a longstanding “independent contractor” with only one source of income could be seen as a “dependent contractor”.

Businesses should ensure that their contractors are permitted to work for others, and do in fact work for others. These businesses should also include express provisions in agreements, where the workers can confirm they perform work for others.

If exclusivity and dependency is a realistic risk, the contracts should also include a termination provision that meets the employment standards for termination, or provides a formula to calculate the notice of termination that meets those minimums.

Details like these could help to avoid costly legal battles in the future.

  • Carole McAfee Wallace is a partner at Fernandes Hearn LLP, and can be reached at 416-203-9551. This column is intended for information purposes only and does not constitute legal advice.

 

 

 

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