Dependent Contractor

McKee v. Reid's Heritage Homes Ltd., 2009 ONCA 916 (CanLII)

(1) Employee vs. dependent contractor

[22] RHH submits that the law provides for an intermediate position of “dependent contractor” between employee status and independent contractor status. I agree. The caselaw’s evolution demonstrates the existence of an intermediate category, defined by economic dependency in the work relationship, requiring, inter alia, some reasonable notice for termination.

[23] RHH further submits that the trial judge erred in determining that McKee was an employee because a proper application of the law to this case necessitates a conclusion that McKee was a dependent contractor of the sort defined above. For the reasons that follow, I disagree. Although I conclude that a “dependent contractor” category exists, I nevertheless conclude that the existing principles defining the employee category remain intact. Employing these principles, the trial judge concluded that McKee is an employee, a decision for which he is owed substantial deference.

[29] Finally, recognizing an intermediate category based on economic dependency accords with the statutorily provided category of “dependent contractor” in Ontario,[1] which the Labour Relations Act, S.O. 1995, c. 1, Sch. A, s. 1(1), defines as:

[A] person, whether or not employed under a contract of employment, and whether or not furnishing tools, vehicles, equipment, machinery, material, or any other thing owned by the dependent contractor, who performs work or services for another person for compensation or reward on such terms and conditions that the dependent contractor is in a position of economic dependence upon, and under an obligation to perform duties for, that person more closely resembling the relationship of an employee than that of an independent contractor.

[30] I conclude that an intermediate category exists, which consists, at least, of those non-employment work relationships that exhibit a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity. Workers in this category are known as “dependent contractors” and they are owed reasonable notice upon termination.

[32] Having concluded that there is an intermediate category between independent contractor and employee, namely “dependent contractor”, I also conclude that the legal principles applicable to distinguishing between employee and independent contractors apply equally to the distinction between employees and dependent contractors. In this way, the dependent contractor category arises as a “carve-out” from the non-employment category and does not affect the range of the employment category.

[33] In Braiden, at para. 35, Gillese J.A. employed the general principles for distinguishing between an employee and an independent contractor, as laid out by Juriansz J.A. in Belton v. Liberty Insurance Co. of Canada (2004), 2004 CanLII 6668 (ON CA), 72 O.R. (3d) 81 (C.A.), at para. 11. Had Braiden been a contractor, he would have been a dependent contractor, as he worked exclusively for the defendant, La-Z-Boy: Braiden at para. 35. However, Gillese J.A. did not have to consider what sort of contractor Braiden might be, because she concluded that Braiden was in fact an employee: Braiden at para. 37.

[34] In this way, the proper initial step is to determine whether a worker is a contractor or an employee, for which the Sagaz/Belton analysis, described in the next section, controls. Under that analysis, the exclusivity of the worker is listed as a factor weighing in favour of the employee category (Belton’s first principle). The next step, required only if the first step results in a contractor conclusion, determines whether the contractor is independent or dependent, for which a worker’s exclusivity is determinative, as it demonstrates economic dependence. Therefore, exclusivity might be a “hallmark” of the dependent contractor category vis-à-vis the broader category of contractors. However, it continues also as a factor in determining whether the worker is not a contractor at all, but rather an employee, in the first-step analysis.

[35] This process of analysis serves the policy purposes that underlie the jurisprudence. In summarizing the caselaw, Geoffrey England, Roderick Wood & Innis Christie, Employment Law in Canada, 4th ed. (Markham, Ont.: LexisNexis Canada) vol. 1, at s. 2.33, describes the frequently stated policy reasons for recognizing an intermediate category:

These decisions have frequently acknowledged the policy justification for using the “intermediate” status doctrine in order to extend the safeguards of the employment contract to self-employed workers who are subject to relatively high levels of subordination and/or economic dependency, but who, technically, do not qualify as “employees” strict sensu.

[36] Given this concern to safeguard workers who are formally “contractors” but who are in a position of economic vulnerability, it only makes sense to carve the dependent contractor category out of the broader existing contractor category and leave the range of the employee category intact. Therefore the appropriate analysis for distinguishing employees from “contractors” generally is the existing analysis for distinguishing employees from independent contractors.

[40] In the present case, the trial judge reviewed the Sagaz balancing inquiry. Although he did not explicitly reference the five Belton principles, his description of the “established practice” between McKee and RHH was clearly patterned on them:

[Principle 1:] [T]here was a tacit agreement, carried out in practice for almost twenty years, that the plaintiff would sell “exclusively” for the defendant. [Principle 2:] The defendant assigned particular subdivisions to the plaintiff, built model homes and told her which lots she could sell. The defendant told her [when she] could sell, and maintained control over how the lots were sold. The defendant set the prices and conditions of sale, and retained the right to set the hours that the model homes were open.... [Principle 3:] [T]he principle tool was the model home – provided by [RHH]. [Principle 4:] The plaintiff here had no risk in the business and was paid on a strictly commission basis. [Principle 5:] Finally, the plaintiff’s activity in the present case is part of the business of the defendant. Selling the homes is the most integral part of the defendant’s business. It is the defendant’s business in which the plaintiff is engaged.

[44] In my opinion, the trial judge’s decision is defensible under the legal principles defining work relationships and the employee category.

[45] Recently, Gillese J.A., writing on behalf of the court, applied the Belton principles in Braiden, at paras. 33-36. She emphasized the fifth principle at para. 34:

In many ways, the question posed at the end of the fifth principle -- whose business is it? -- lies at the heart of the matter. Was the individual carrying on business for him or herself or was the individual carrying on the business of the organization from which he or she was receiving compensation?