Independent Contractor? Call Me What You Want, You Still Owe Me Money

Employers like to call some workers “independent contractors”. They think it gets them out of all kinds of obligations. Often, they convince people to refer to themselves that way by suggesting there are all sorts of tax advantages to being an independent contractor. It sounds attractive too. “Be your own boss.” “Own your own business.”

If a person truly is an independent contractor, there are some tax advantages that might be available. On the other hand, someone with this status may lose out on a lot of other benefits. Not the least of these is that companies usually say they owe nothing to an independent contractor when the relationship ends. No notice of termination. No severance pay. No compensation for benefits.

All we have to do is look at the mess that Canac Kitchens got itself into when it tried to say that Marilyn and Lawrence Keenan were independent contractors. The case, Keenan v. Canac Kitchens Ltd., was decided by the Ontario Court of Appeal in January.

The Keenans worked for Canac for decades (he since 1976 and she since 1983). In 2009, Canac called them to a meeting and said their services were no longer required. They were 63 and 61 years of age, respectively.

They weren’t offered a penny. No notice, no pay in lieu of notice, no compensation for benefits – nothing. Canac said that, because they were independent contractors, they were entitled to nothing.

Back in 1987, Canac had told the Keenans that they were being changed to contractors, but nothing else about the nature of their work changed. They continued to get employee discounts, wore Canac clothing, and used its business cards. To the outside world, they were Canac’s representatives.

The case hinged on this question: were the Keenans independent or dependant contractors?

Dependent contractors have rights more akin to employees than independent contractors. In deciding whether someone is a dependent contractor, it is important to determine whether that person is doing so much work for the company that the worker is economically dependent on it. The Keenans were doing other work, but the Court of Appeal said that because there was a “high degree of exclusivity”, probably meaning most of their work was done for Canac, the Keenans had to be treated as dependent contractors.

The trial court and Court of Appeal said that the Keenans were entitled to 26 months of notice. They were awarded $125,000. If they had been independent contractors without a contract, they might have ended up with nothing.

The name you give to your relationship can have some effect, so it’s important to be careful with contract language. But courts prefer to look at what’s really going on. It took $125,000 to clean up the mess in Canac’s kitchens. That gives us a good lesson in dealing properly and fairly with people who are employees or dependent contractors – whatever you choose to call them.

To read more about the Keenan’s case and dependent contractors, see our previous blog post.