Workers are typically thought of as either “employees” or “independent contractors”. Employers seek to classify their workforce as “contractors” to avoid paying for mandatory benefits under the Employment Standards Act (ESA), among other things, which only protects employees as defined under the ESA.

However, Canadian courts recognize an intermediate position where, although the worker is not an employee, they are still economically dependent on one contract. These so-called “dependent contractors” are entitled to reasonable notice upon termination of the contractual relationship.

In a recent decision, the Ontario Court of Appeal in Thurston v Ontario (Children’s Lawyer), 2019 ONCA 640, clarified the circumstances in which someone can be classified as a “dependent contractor”. The Court ruled that a dependent contractor relationship is one in which there is “a certain minimum economic dependency, which may be demonstrated by compete or near-complete exclusivity.”[1] This decision could be highly relevant for workers in the modern economy who depend on precarious contract work to make a living.

Background

Ms. Thurston was a sole practitioner lawyer who provided legal services to the Office of the Children’s Lawyer (“OCL”) for 13 years. Each year, the OCL had Ms. Thurston and its other lawyers sign a fixed-term contract, which made up about 40% of Ms. Thurston’s annual income. According to the contract, the OCL made no guarantee of the total value or volume of work that Ms. Thurston would receive, and the OCL could terminate the contract in any circumstances, without notice. When the OCL decided not to renew her contract in 2015, Ms. Thurston claimed that she was a dependent contractor, and therefore that she was entitled to 20 months’ notice of termination.

The Motion Judge’s Decision

When Ms. Thurston filed her lawsuit at the Superior Court claiming that she was a dependent contractor, the OCL brought a motion asking the judge to dismiss the case. The motion judge ruled against the employer. The motion judge noted that the relationship was continuous and permanent for 13 years and that Ms. Thurston was seen as an employee by the public. In addition, 40% of Ms. Thurston’s average billings from her legal practice came from OCL. The OCL appealed the motion judge’s decision to the Court of Appeal.

The Court of Appeal’s Decision

The Court of Appeal reversed the motion judge’s decision and dismissed Ms. Thurston’s case. The court reaffirmed that a worker claiming “dependent contractor” status must lead evidence showing “minimum economic dependency” on the contract. The court explained that a plaintiff demonstrates economic dependence with evidence of near-complete exclusivity:

In distinguishing dependent from independent contractors, McKee made clear that exclusivity of service provision, and therefore of income, is key. As the court put it, “exclusivity is determinative, as it demonstrates economic dependence”; exclusivity, the court said, is a “hallmark” of the dependent contractor category: McKee, at para. 34. In Keenan, at para. 25, this court emphasized that exclusivity was “integrally tied to the question of economic dependency” and that the determination of exclusivity requires consideration of the full history of the relationship in question.[2]

The court based its conclusion on other court decisions that considered this issue and identified near-complete exclusivity as the key factor. In some cases, courts have decided that someone can be a dependent contractor if “substantially more than a majority” of the dependent contractor’s income was earned through one contract.

In Ms. Thurston’s case, the court ruled that she failed to establish the required degree of exclusivity which would demonstrate her economic dependence on the OCL. Ms. Thurston maintained an independent legal practice throughout her time with the OCL, and her work with the OCL only averaged 39.9% of her annual billings – hardly exclusive service. The court confirmed that “near-exclusivity necessarily requires substantially more than 50% of billings.”[3] While the OCL was certainly an important client for her, the Court of Appeal found that the motion judge’s decision failed to appropriately consider the facts and apply the exclusivity test, and for that reason, the motion judge’s decision was unreasonable in the court’s opinion.

Discussion

The Court of Appeal’s decision is a step backwards for dependent contractors who rely on one contracting party for a large portion of their income but would not meet the Court’s onerous “near-complete exclusivity” threshold. Although the decision simply reaffirmed what the Court of Appeal has said in previous decisions (see for example McKee v Reid’s Heritage Homes Ltd., 2009 ONCA 916; Keenan v Canac Kitchens Ltd., 2016 ONCA 79), nevertheless, the Court’s guidance in this case on what constitutes a dependent contractor is useful to those who work through contracting parties. This case is the latest in a long line of decisions confirming that in classifying a work relationship, courts will focus on the substance of the relationship. For workers whose income depends on precarious contract relationships, this means that an employer cannot hide behind the “independent contractor” label if the facts point to a different conclusion.

If you have any questions regarding your employment situation, consult one of our experienced employment lawyers at Raven, Cameron, Ballantyne and Yazbeck LLP

[1] Thurston v. Ontario (Children’s Lawyer), 2019 ONCA 640  at para 23.

[2] Thurston, supra, at para 25.

[3] Thurston, supra at para 30.

[This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]

By Geoff Dunlop and Raphaёlle Laframboise-Carignan