Six-figure win for miscategorized “contractors”

Six-figure win for miscategorized “contractors”

Six-figure win for miscategorized “contractors” A rose by any other name would still smell as sweet – it’s a sentiment that employers may want to remember after an Ontario judge confirmed, yet again, that calling an employee a contractor won’t always make it true.


Lawrence and Marilyn Keenan had both worked for Canac Kitchens for the majority of their adult lives, joining in 1976 and 1983 respectively but, in 1987, the pair were told they would be categorized as independent contractors from then on.

Under the new agreement, Keenan Cabinetry would be responsible for paying the sub-contractor kitchen installers, providing vehicles to pick up kitchens and delivering them to the job sites to be installed.

Canac set the rates to be paid to the installers and paid those amounts to the Keenans, who in turn paid the installers. The Keenans were also held accountable for any damage to cabinets while in transit and were expected to maintain insurance to cover the liability.

The couple continued to be paid by Canac on a piece work basis but the figure was increased to reflect the fact that they were being paid gross, without deductions for income or payroll taxes.

For over two decades, the arrangement worked well for all parties involved and the Keenans worked exclusively for Canac with the only exception coming in 2007 when business became too slow and Canac turned a blind eye to the two installing kitchens for a competitor.

Despite taking on the additional work, Canac was still responsible for 66-80 per cent of the Keenan’s revenue from 2007 to 2009.

During the lengthy tenure, the Keenans considered themselves part of the Canac workforce, wearing company-branded shirts, using Canac business cards and enjoying employee discounts. Lawrence Keegan even received a signet ring from the company to mark 20 years’ service.

However, in 2009, Canac informed the Keenans that the company was closing down so their service would no longer be needed. They were provided with no notice.

The case

At the initial trial, Justice Graeme Mew applied the five key principals to distinguish employees from independent contractors. They are:
  • Whether the agent was limited exclusively to the service of the principal.
  • Whether the agent is subject to the control of the principal not only as to the product sold, but also as to when, where and how it is sold.
  • Whether the agent has an investment or interest in what are characterized as the tools relating to his service.
  • Whether the agent has undertaken any risks in the business sense, or alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission.
  • Whether the activity of the agent is part of the business organization of the principal, or in other words, whose business is it?
Justice Mew found that the exclusivity factor heavily favoured the Keenans as they had worked exclusively for Canac for over 20 years and the even when they began accepting other work, the vast majority of their income was earned through work for Canac.

The four other factors also favoured the plaintiffs but Canac pushed ahead with an appeal, arguing that exclusivity should be considered around the time of the termination.

Ultimately, the Court of Appeal disagreed with Jusice Eileen Gilesse commenting that “exclusivity cannot be determined on a ‘snapshot’ approach because it is integrally tied to the question of economic dependency.”

She upheld the previous award of 26 months’ notice – equivalent to $125,000 each – noting the Keenan’s length of service, type of role held and ages at time of termination (61 and 63).

“This recent Court of Appeal decision is a reminder that the legal nature of a service relationship is not defined by the terms the parties use to describe it,” says leading employment lawyer Meredith Hayward.

“Rather, the legal nature of the relationship is determined by the conduct of the parties over the entire length of the relationship,” she added.  

“Further, it appears that the although the 24 month cap on notice periods, absent exceptional circumstances, is acknowledged by the Court of Appeal, the bar for what is ‘exceptional’ appears to have been lowered.”

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