As work patterns change in the modern era, the line between independent contractor and employee can often become blurry. A recent decision by the Superior Court of Justice underscores the heavy potential cost for an employer that attempts to retain workers as independent contractors – and finds itself on the wrong side of the line.
In Keenan v. Canac Kitchens, the Court was asked to determine whether a husband and wife (the “Plaintiffs”) were employees or independent contractors of an installer of kitchen cabinets (the “Defendant”). The husband had worked for the company since 1976 and the wife since 1983. It was not in dispute that the Plaintiffs were employees up until October 1987.
In 1987, the Plaintiffs were called into a meeting with upper management and told that their engagement would continue as independent contractors and they should incorporate.
The Plaintiffs did so and began to work under this new arrangement:
- The Plaintiffs were responsible for engaging and paying installers;
- The installers engaged by the Plaintiffs would use their own trucks;
- The Defendant would set the rates to be paid to the installers;
- The Plaintiffs would be paid gross piecework rates, without source deductions, in addition to the amounts they were to pay to the installers;
- The Plaintiffs were required by contract to devote their full-time attention to the Defendant’s business;
- Other than a brief period where a minority of work was performed for a competitor, the Plaintiffs worked exclusively for the Defendant for 22 years; and
- The installers working under the Plaintiffs identified themselves as employees of the Defendant.
The Court considered these factors and found that the Plaintiffs were dependent, rather than independent contractors. The Court was particularly focused on the relationships between the parties “on the ground” and the fact that the benefit of the relationships was almost completely enjoyed by the Defendant.
As the Court held that the Plaintiffs were dependent contractors, the Court found that they were entitled to reasonable notice. Given their long service, the Court awarded a remarkable 26 months of notice.
Despite good faith and best intentions on both sides, and even a well-crafted and explicit independent contractor agreement, the courts are increasingly willing to let the “facts on the ground” override.
This decision underscores the importance of proceeding carefully and with legal advice prior to engaging workers under an independent contractor arrangement.