In a marked departure from recent entries in The Workplace Matters, this blog entry is not about social media. It is instead about a recent decision – Keenan v. Canac Kitchens Ltd. – where the Court of Appeal affirmed a 26-month notice period for a dependent contractor.
Lawrence and Marilyn Keenan – husband and wife – were dismissed by Canac Kitchens on March 15, 2009. As the Court of Appeal put it, “[t]hey were paid nothing on termination – no notice, no pay in lieu of notice, and none of the usual statutory entitlements”. Canac Kitchens asserted that they were independent contractors and, therefore, had no entitlements upon dismissal.
Lawrence Keenan began working full-time for Canac Kitchens in 1976 as a kitchen installer and then foreman; his wife joined him in 1983 as another foreman. They worked as full-time employees until October 1987, when Canac Kitchens informed them that they would carry on as contractors. They were told that they would provide their own trucks and pick up the kitchens from Canac and deliver them to job sites for installation. Canac would set the rates to be paid to installers and give the Keenans the amounts owing to the installers; the Keenans were then to pay the installers. The Keenans were paid, as before, on a piece work basis for each unit installed. The amount was increased to reflect the fact that they were paid in gross without deductions for tax, EI, or CPP. Canac prepared a draft agreement; Marilyn signed it, but Lawrence did not.
For over twenty years, nothing changed. The Keenans worked exclusively for Canac until 2007, when they did some work for a competitor – Canac turned a “blind eye” to this work. They wore Canac shirts with the Canac logo, used Canac business cards, and Lawrence received a signet ring for 20 years of service. By 2009, approximately 72% of their work remained with Canac.
The trial judge and Court of Appeal both concluded that the Keenans were “dependent” contractors. The trial judge cited the five factors distinguishing independent contractors from employees in Belton v. Liberty Insurance Company of Canada, and concluded that all five favoured a dependent contractor relationship.
At the Court of Appeal, Canac argued that, as the Keenans did not work exclusively for it in the two-year period prior to termination, they were not dependent contractors. The Court of Appeal rejected this “snapshot” approach: a determination of exclusivity must consider the full history of the parties’ relationship. Given that the Keenans worked exclusively for Canac for the vast majority of their working life, the trial judge correctly found “the requisite high degree of exclusivity” to be a dependent contractor.
The Court of Appeal’s decision on this point is undoubtedly correct: it would be bizarre indeed to take a “snapshot” of a relationship instead of assessing the nature of that relationship over time. The Court of Appeal, however, did not comment on the trial judge’s use of the five factors in Belton. Those factors are used to distinguish between an employee and a contractor. In McKee v. Reid’s Heritage Homes, the Court of Appeal clearly stated that the Belton factors should only be used to distinguish between employees and contractors – not to distinguish between dependent contractors and independent contractors. When drawing that later distinction, “a worker’s exclusivity is determinative.”
The Court of Appeal in this Kennan case did not address or comment on the Trial Judge’s use of all five Belton factors – which, in my opinion, was a clear error by the trial judge.
The Court of Appeal also did not comment on whether the trial judge was correct to use the Belton factors at all or, alternatively, whether the Belton factors have been superseded by the Supreme Court of Canada’s decision in McCormick v. Fasken Martineau DuMoulin LLP. This case stated that “control and dependency define the essence of an employment relationship”, and previous decisions listing other factors should be read as explaining or analysing control and dependency.
The Court of Appeal’s result is certainly correct; however, the Court missed an opportunity to provide some helpful clarity on both the legal test for a dependent contractor and the impact of the McCormick decision on earlier decisions, such as Belton.
On the length of the notice period, the trial judge awarded 26 months’ notice on the basis of their length of service (32 and 25 years respectfully). Canac argued that notice periods greater than 24 months are only available in “exceptional circumstances”, and this case was not exceptional. The Court of Appeal’s reasoning for upholding the 26-month notice period is worth quoting in full:
Lawrence Keenan and Marilyn Keenan worked for Canac for approximately 32 and 25 years respectively. Together, their average length of service was 28.5 years. They were 63 and 61 years of age at the time of termination. They held supervisory, responsible positions in which they oversaw the installation of Canac’s products and met with Canac’s customers as its representatives. For over a generation, they were Canac’s public face to the outside world. Over a period of approximately thirty years – the entirety of their working lives – the Keenans’ income had come from Canac and they relied on that income to support themselves and their family. Even during the approximately two years that they provided some services to Cartier, a “substantial majority” of the Keenans’ work continued to be done for Canac. These circumstances justify an award in excess of 24 months and I see nothing wrong in the trial judge’s finding that 26 months’ notice was reasonable.
There is nothing – nothing – in these circumstances that is “exceptional”. There are any number of long-service employees who are the “public face” of a business performing supervisory positions. This passage raises a number of interesting issues:
- Is this the end of the 24-month “cap” on notice? In my opinion, while the Court of Appeal did not say so explicitly, we can put away the notion of the 24-month cap on notice.
- Is character of employment also dead? The Court of Appeal referred to the Keenans as “supervisory”, not “managerial”. Previous court decisions have tended to focus on that distinction, and reserved longer notice periods for “managerial” (i.e. with independent decision-making authority) as opposed to “supervisory” employees. The Court of Appeal has been steadily reducing the value of “character of employment” when assessing notice over the past several years. While this decision does not kill “character of employment” yet, that factor is clearly on life support.
- Do dependent contractors get more notice than employees? This would be a bizarre consequence of this case: employees, after all, are even more vulnerable than dependent contractors. The Court of Appeal was careful never to state that the dependent contractor relationship was relevant to assessing the length of notice, and in my opinion this was on purpose.
- Did marital status play a role? The Court of Appeal referred to the Keenans’ income, plural. It is not clear whether the Court of Appeal would have awarded less notice if only one spouse was terminated instead of both – but surely that cannot be a factor in light of the prohibition against discrimination on the basis of family status in the Ontario Human Rights Code.
This decision is very exciting for both employees and dependent contractors, and will likely be a “game-changer” when looking at reasonable notice.