Being classified as a dependent contractor versus an independent contractor is important for several reasons. For one, dependent contractors are entitled to reasonable notice or pay in lieu of notice. However, independent contractors enjoy no such entitlement. Despite this difference, classifying workplace relationships can be a tricky endeavor. Canadian courts rely heavily on the context of the working arrangement. The terms of a contract, though persuasive, are not the only deciding factors. They are not determinative.
Accordingly, Canadian courts have established five tests to consider when attempting to determine whether a dependent contractor relationship exists between an agent and his or her principal:
- Exclusivity: Whether or not the agent was limited to serving the principal exclusively;
- Control: Whether or not the agent was subject to the control of the principal, not only as to the product or service sold, but also as to when, where and how it was sold;
- Tools: Whether or not the agent had an investment or interest in what are characterized as the “tools” relating to his or her service;
- Risk: Whether or not the agent had undertaken any risk in the business sense or, alternatively, had any expectation of profit associated with the delivery of his or her service as distinct from a fixed commission;
- Organization: Whether or not the activity of the agent was part of the business
organization of the principal for which he or she worked. In other words, whose business was it?
The Ontario Court of Appeal’s recent decision in Thurston v. Ontario (Children’s Lawyer) shed further light on the exclusivity test. Thurston was a lawyer who provided legal services to the Office of the Children’s Lawyer (the “OCL”) in accordance with a series of agreements over a 13-year period. She brought a claim alleging that she was a dependent contractor and was therefore owed 20 months’ notice of termination.
The Court analyzed the terms of the agreement between Thurston and the OCL, which included the following “no guarantee of work” clause:
“The OCL makes no guarantee of the total value or volume of work to be assigned to you.”
The Court rejected Thurston’s argument, mainly on the grounds that the income she received from the OCL only made up 40% of her total billings throughout the duration of her relationship with the OCL. Though the Court sympathized with Thurston’s significant economic loss, such a loss was insufficient to establish exclusivity under the test, or the requisite economic dependency that is at the root of a dependent contractor relationship.
The Court went on to state that “near-exclusivity” status of a contractor requires “substantially more than 50 percent” of one’s business. This means that an agent cannot claim dependent contractor status unless at least 50% of their billings originate from the principal in question. Even then, Courts will not readily imbue an agent with such status without evidence of substantial economic dependence.
The OCL raised the issue of whether Thurston’s economic dependency was self-induced. Though it was intrigued by the argument, the Court did not affirm or negate it, deciding instead to focus solely on the percentage of Thurston’s billing.
One can anticipate that in future cases, employers may argue that even if evidence of economic dependency rising to the levels of “near-exclusivity” exists, the dependency was self-induced by the agent. Presumably, this is a relevant factor that works against agents attempting to assert dependent contractor status. For now, an agent’s billing percentage could be wholly determinative of the matter.