How Dependent Must a Dependent Contractor Be?
The distinction between employees, independent contractors, and dependent contractors is a well-established part of Canadian employment law. But where to draw the line between independent contractors and dependent contractors in any given circumstance remains contested. What level of dependency is required to turn an independent contractor into a dependent contractor? A recent decision of the Ontario Court of Appeal, Thurston v Ontario (Children’s Lawyer), 2019 ONCA 640, provides some concrete guidance.
Ms. Thurston provided legal services to the Office of the Children’s Lawyer (“OCL”) for 13 years under a series of fixed term retainer contracts. Her last retainer expired in March 2015, and at that time she was told that her retainer was not going to be renewed and to wind down her work. She claimed that she was entitled to 20 months’ notice of termination because she was a dependent contractor. The OCL applied to summarily dismiss the claim, but was unsuccessful in the lower Court.
Ms. Thurston’s work with the OCL amounted, on average, to 39.9% of her annual billings over thirteen years, but in the years leading up to the end of her retainer it increased to over 50%. The lower Court found that this was enough to create a dependent contractor relationship, despite that the retainer agreement did not guarantee any amount of work, acknowledged that Ms. Thurston was not an employee, and allowed the OCL to terminate the agreement at any time without liability. The lower Court found it important that there was a long-term relationship between Ms. Thurston and the OCL in which she did work that was vital to the organization, and that Ms. Thurston was perceived to be an OCL lawyer.
The Ontario Court of Appeal disagreed. For a dependent contractor relationship to arise, the key concern is the exclusivity (or near-exclusivity) of the relationship between the parties, as the purpose of the category of “dependent contractor” is to extend the requirement of reasonable notice to contractors who are sufficiently economically dependent on the other contracting party. The Court stated that “[e]xclusivity is a categorical concept – it poses an either/or question, and ‘near-complete exclusivity’ must be understood with this in mind” (at para 30). An independent contractor does not become dependent by virtue of length of service or because they can only do certain kinds of work with the contracting party.
While there is no magic number that defines the threshold of economic dependency, the Court held that Ms. Thurston would have to depend on OCL for “substantially more than 50% of [her] billings” to potentially be considered a dependent contractor (at para 30). While the OCL was an important client of Ms. Thurston’s, the average yearly billings that she received from the OCL, over the length of her relationship with the OCL, did not rise to the level of establishing economic dependency. She continued to maintain her own practice independent of her work with the OCL, and there was no guarantee that OCL would provide her with a particular volume of work. While the loss of the OCL’s work was significant, that was not enough to entitle her to reasonable notice. Accordingly, the Court allowed the appeal and dismissed Ms. Thurston’s action.
What should be taken from this? Maintaining independent contractor relationships requires avoiding situations where a contractor is exclusively, or nearly exclusively (meaning substantially more than 50%), reliant on a contracting party for their income. What work they do or how long they have done it is not relevant to classifying a contractor as independent or dependent (although it may be relevant to the notice period to which a dependent contractor is entitled). At the end of the day, a contextual analysis is required when determining whether a contractor is independent or dependent, and Field Law’s Labour + Employment Team is able to help.