February 23, 2016
A textbook example of the legal distinction between employees, dependent contractors, and independent contractors that we explore in Chapter 3 of The Law of Work was issued recently by the Ontario Court of Appeal. The decision is called Keenan v. Canac Kitchens.
Anyone who studies employment law is well aware of Canac Kitchens and its parent company Kohler Ltd. This employer has adopted a strategy of terminating employees by giving them statutory minimum notice even when the contract requires a much, much longer notice period, challenging the employee to hire a lawyer and sue to recover their contractual entitlements. In other words, the employer knowingly violates the contract, aware that most employees cannot afford a lawyer or will not sue. In an earlier case, Canac experienced the wrath of the late, great Justice Echlin for what I believe is unethical behaviour, who described Canac’s treatment of an employee as “harsh, malicious, reckless, outrageous and high-handed”. I use Kohler/Canac as a case study on access to justice in employment law in my book The Law of Work (p. 311).
In this new case, decided by the Court of Appeal, Canac went to a new low by giving no notice at all to two workers terminated after about 30 years’ of loyal service.
Brief Facts from Keenan v. Canac Kitchens
Lawrence Keenan (LK) was hired in 1976, and his wife Marilyn Keenan (MK) in 1983. Both held the position of ‘foreman’, which involved supervising the installation of cabinets for customers. Both were terminated in 2009, without cause. The employer argued that it was not required to provide any notice because in fact neither LK or MK were their employees. According to Canac, the Keenans were self-employed entrepreneurs running their own cabinet installation business and Canac just happened to be one of their customers. Since the Keenans were not engaged under an employment contract, the implied term in employment contracts requiring reasonable notice did not apply, Canac argued.
Canac, like many employers, attempted to structure the work arrangement so as to avoid employment-related obligations and risks. So in 1987, it announced to the Keenans that they would no longer be employees, but instead would be independent contractors. They would perform essentially the same job as they had done as employees, at basically the same rate of pay, but henceforth no statutory deductions would be taken from their pay and the Keenans would assume liability for any damage caused to the cabinets in transit to their destination. Canac issued them a T-4 that indicated that both Keenans had “quit” (employees who quit aren’t entitled to notice or to unemployment insurance).
Were the Keenans Contractors or Employees?
The main issue in this case was whether the Keenans were employees of Canac, independent contractors, or whether they fell in the intermediate category known as “dependent contractors”. On page 24 of my text, I included this diagram to demonstrate:
Workers falling with the Employee and Intermediate Category (dependent contractors) are entitled to receive notice of termination.
The first question in cases involving worker status is whether the worker is an employee or a contractor. In deciding that question, the courts consider a variety of factors described by the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada. When I teach this material, I encourage students to use what I call the “Scorecard Approach” to assessing whether the worker looks more like an employee or a person in business for themselves. The idea is you read the facts and fill in this scorecard:
In the Keenan case, the key facts included the following:
* The customers buying the cabinets were all Canac’s customers.
* The Keenans presented themselves as employees of Canac (wore Canac uniforms, were required to have Canac logo on the van)
* The Keenans worked exclusively or almost exclusively for Canac.
* Canac provided the Keenans with phones, pagers, and an office at the Canac premises
* Canac fixed the price of products, established the deadlines, and assigned the clients.
Based on these facts, there was a strong argument that the Keenans were “employees” and not contractors at all. However, the lower court ruled that the Keenans fell into the ‘contractor’ category.
Are the Keenans Dependent or Independent Contractors?
Since the Keenans were ‘contractors’ the next questions becomes whether they are dependent or independent contractors. Only if they are dependent contractors would they be entitled to reasonable notice of termination. Both the lower court and court of appeal had little trouble finding that they were dependent contractors.
The main issue in this assessment is whether the workers work exclusively or almost exclusively for the alleged employer. That is the principle taken from an earlier Court of Appeal decision called McKee v Reid’s Heritage Homes. In the Keenan decision, the Court of Appeal confirmed that 100% exclusivity is not the test for dependent contractor status. In the final couple of years of their work, the Keenans had performed some work for another company with Canac’s knowledge and implied consent. The Court rejected the employer’s argument that this lack of exclusivity of work made the Keenans independent contractors. The Court of Appeal wrote:
Of the approximately 32 and 25 years of service that Lawrence Keenan and Marilyn Keenan respectively gave to Canac, in all but two of those years they exclusively served Canac. With this history of the work relationship between the parties in mind, I see no fault in the trial judge’s finding of the requisite high degree of exclusivity.
The Court of Appeal upheld the lower courts’ ruling that the appropriate period of reasonable notice was 26 months, which is certainly at the far outer range of what courts’ order. One has to wonder whether this outcome might not be reflect the courts’ distaste of this employer’s long history of flaunting its contractual obligations to provide reasonable notice of termination to its terminated employees.
Questions for Discussion
A court will look past an agreement that says that a worker “is an independent contractor and not an employee” and still find that the worker is an employee. Why do you think that courts are prepared to ignore clear contractual language and find that an employment contract exists?
Cross Reference to Law of Work
Chapter 3 explores how courts decide if workers are employees, dependent contractors, or independent contractors.