A. INTRODUCTION
The Ontario Court of Appeal decision
in McKee v. Reid’s Heritage Homes Ltd.
recognized the existence of “dependent contractors,” who,
as a result of this status, may be entitled to reasonable
notice of termination of their contract, or compensation
in lieu of notice. While the Court of Appeal held that
the plaintiff McKee was in fact an employee, it clearly
stated that the status of “dependent contractor” exists
in law.
As many charities and not-for-profits
use the services of contractors who are not hired as employees,
this decision should cause these organizations to review
their contracts to protect them from potential claims arising
from termination. Contractors may take the position that
they fall within the category of dependent contractors and
are entitled to receive compensation in the event the contract
should be terminated.
B.
WHAT IS A “DEPENDENT CONTRACTOR”?
The Court of Appeal noted that the “intermediate
category” of dependent contractor is defined by economic
dependency in the work relationship. The existence of economic
dependency requires that the dependent contractor be provided
with reasonable notice of termination. In this respect,
the dependent contractor’s rights are similar to that of
an employee.
The factors that are considered by a
court in determining whether a person is a dependent contractor
are:
1)
The duration and permanency of the relationship;
2)
The degree of economic reliance on the part of the
contractor; and
3)
The degree of exclusivity of services.
The Court of Appeal noted that exclusivity
is a hallmark of the dependent contractor category, compared
to the broader category of independent contractors, as in
many circumstances exclusivity demonstrates economic dependency.
C.
THE QUANTUM OF REASONABLE NOTICE
While the Court of Appeal did not address
the issue of the amount of notice that a dependent contractor
may be entitled to receive upon termination, previous judicial
decisions have determined that the length of notice will
depend on such factors as: the duration of the relationship
between the parties, the importance of the exclusive contract
to the party being terminated, and the time needed by the
terminated party to re-establish itself in a viable business
with a different organization. Therefore, a dependent contractor
who has provided exclusive services to an organization for
a significant period of time may have a substantial monetary
claim.
D.
CONCLUSION
In light of the McKee decision,
charities and not-for-profits need to draft contracts to
protect themselves from liability in the event of termination.
A written contract should clearly identify the status of
the parties and should also define the termination rights,
including any notice of termination that will be provided
to the contractor.
