In Keenan v. Canac Kitchens, Lawrence Keenan worked for the defendant, Canac Kitchen, from 1976 to 2009 (33 years). He worked as a kitchen installer for 6 or 7 years, then became a foreman in 1983. Although Lawrence’s job title changed to Delivery and Installer Leader, his duties were, essentially, unchanged. Lawrence’s spouse, Marilyn, began working for Canac Kitchens in 1983 as a foreperson. Before that, she had helped out her husband on an informal basis. She, too, continued to work with the defendant until 2009 (26 years).
The issue at trial was whether the plaintiffs were employees, dependent contractors or independent contractors. The court stated that:
There was no doubt that until October 1987, the plaintiffs were employees of Canac. Then, in mid-October 1987, they were summoned to a meeting with Canac management, at which they were told that they would no longer be employees, but instead, would carry on their work for Canac as independent contractors. The plaintiffs were also told that they should incorporate.
This is a fairly typical scene in these sorts of cases.
Under the new arrangement, the plaintiffs would be responsible for paying installers. The installers in turn would provide their own trucks and would pick up kitchens from Canac and deliver them to job sites, where they would be installed. Canac determined the rates that installers were paid and pay the plaintiffs, who, in turn, would pay the installers. The plaintiffs continued to be paid on a piece work basis for each box or unit installed. Canac, however, increased the amount paid to reflect the fact that the Delivery and Installation Leaders were being paid gross, without deductions for income tax, employment insurance or Canada Pension Plan. In addition, the plaintiffs would be responsible for damage caused to the cabinets while in transit, and were expected to maintain adequate insurance to cover such liability.
The plaintiffs were given a form of agreement for signature. They did not seek legal advice, nor did Canac suggest that they should. They felt that they could trust Canac and “if they wanted to keep their jobs, they had no other choice but to agree to Canac’s terms.” The agreements were signed and Records of Employment issued indicating that the Keenan’s had quit.
The Keenan’s never incorporated as recommended by Canac and never registered as an employer with the Canada Revenue Agency, despite cutting cheques to the installers. The Keenan’s did obtain insurance and registered with the then workers compensation board.
Except for the odd job here or there, the Keenan’s worked exclusively for Canac. In fact, the agreement that the plaintiffs signed precluded them from doing work for any other kitchen cabinet companies (though it does seem that Canac “turned a blind eye” to this).
The Keenan’s continued to consider themselves employees of Canac and:
- They enjoyed employee discounts
- They wore shirts with Canac logos
- They had Canac business cards
- Lawrence Keenan received a signet ring from Canac for 20 years of loyal service
- The outside world, and in particular, Canac’s customers, believed that the Keenan’s were Canac’s representatives.
In March 2009, the plaintiffs were called to a meeting and were told that Canac was going to close its operations and their services would no longer be required. They sued.
Types of Relationships
Historically, there were two types of relationships - employment or independent contractor.
In deciding on the type of relationship that exists, consideration is generally given to the following:
- Whether the agent was limited exclusively to the service of the principal.
- Whether the agent is subject to the control of the principal not only as to the product sold, but also when, where, and how it is sold.
- Whether the agent has an investment or interest in what are characterized as the tools relating to his service.
- Whether the agent has undertaken any risks in the business sense, or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission.
- Whether the activity of the agent is part of the business organization of the principal for which he works. In other words, whose business is it?
The Supreme Court of Canada in Sagaz considered the test to be applied in determining if an individual was an employee or independent contractor and sought to simplify the many tests:
Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan JA that a persuasive approach to the issue is that taken by Cooke J in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks. [emphasis added]
Although things were complicated enough with only two types of relationships, our courts have added an additional complication when they acknowledged an intermediate category of relationships that has some characteristics of both an employee and independent contractor.
The Court of Appeal impliedly recognized this “intermediate category” of relationships in Braiden v. La-Z-Boy Canada Ltd. and expressly did so in McKee v. Reid’s Heritage Home Limited. Courts use “intermediate category” and “dependent contractor” interchangeably.
The Court considered these earlier cases in Keenan and held that:
Employment relationships exist on a continuum; with the employer/employee relationship, at one end of the continuum, and independent contractors at the other end. Between those two points, lies a third intermediate category of relationship, now termed dependent contractors.
Dependent contractors are owed reasonable notice of termination (just like employees). The Court also noted:
In the development of the jurisprudence on the existence of an intermediate category between employee, on the one hand, and independent contractor, on the other hand, a finding that the work was economically dependent on the defendant due to complete exclusivity or a high level of exclusivity weighs heavily in favour of the conclusion that the intermediate category should apply.
The Court concluded that, on the evidence, the Keenan’s were engaged as dependent contractors and then went on, briefly, to consider their entitlement to common law reasonable notice. It averaged the plaintiffs service (28.5 years) and awarded each of the plaintiffs twenty-six (26) months reasonable notice of termination. In reaching this conclusion, the Court considered “many of the employment law cases involving Canac” and, in particular, Cardenas v Canac Kitchens where a 43 year old shift supervisor, who had worked for Canac for 27.5 years, was awarded 26 months common law reasonable notice.
Another even more recent example of this disconcerting trend is Tetra Consulting v Continental Bank et al. where the plaintiff, Lewis Cassar (“Cassar”), an expert in the banking sector, owned the other plaintiff, Tetra Consulting. The defendant, Continental Bank, contracted with Tetra Consulting to provide services and expertise in obtaining approval from the federal regulator. The Bank was not, at the time, “up and running”.
It was the shared intention of all parties that Cassar would become an employee of the Bank once the regulator had given their approval. He was held out to third parties as being an employee of the Bank. He had a business card identifying him as an employee of the Bank. The federal regulator was presented with an organizational chart on which Cassar was identified as the Bank’s Chief Compliance Officer and Chief Anti Money Laundering Officer. As part of the regulatory approval process, the Bank advised the regulator that Cassar would remain in those positions well into the future.
The majority shareholder of the Bank changed his business plans and the entire venture suddenly collapsed. Tetra and Cassar were orally advised of their immediate termination by the Bank.
The Court considered the relationship issue:
The evidence in the record is that he worked exclusively for the Bank for 60-70 hours per week, he had no other employer during the entire period of the relationship, he used the Bank’s tools, had an office and email address there, was subject to the Bank’s control, and represented himself to third parties as the Bank’s employee. These are all indicia of a dependent contractor who is entitled to the same type of reasonable notice of termination as an employee: McKee v Reid’s Heritage Homes Ltd., 2009 ONCA 916 (CanLII), at paras 22-25.
The Court considered the “usual” factors in deciding on the period of reasonable notice. Concerning Cassar’s age (61 years), the Court observed that, “older age employees should be granted longer notice periods upon termination, as should those who occupy more sophisticated positions”. In the end, the Court determined that the period of reasonable notice in this case was 8 months pay in lieu of notice.
Things you might take away from this
While the parties should have a written contract in place, the reality is that what they chose to call their relationship is largely irrelevant. It is the substance of the relationship (the actual workings of it) that will determine what it really is. In other words, simply saying that a relationship is one of principal and independent contractor will not make it so. A contract is important - with protective terms if there is a misclassification of the relationship.
The intermediate category is a dangerous and potentially costly thing indeed.