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Can Reasonable Notice of Termination Exceed 24 Months for Dependent Contractors?

The Ontario Court of Appeal’s Decision in Keenan v. Canac Kitchens Ltd., 2016 ONCA 79

Background

Lawrence Keenan (hereinafter “Mr. Keenan”) started working for Canac Kitchens Ltd. (hereinafter “Canac”) in 1976. Until 1983, Mr. Keenan worked as a kitchen cabinet installer. Mr. Keenan then became a foreman and was responsible for supervising installations of Canac kitchens in new homes.  Likewise in 1983, Marilyn Keenan (hereinafter “Mrs. Keenan”), who is the wife of Mr. Keenan, began her formal employment with Canac as a foreman.

Both Mr. and Mrs. Keenan were hired as fulltime employees of Canac, but in October 1987 they were told that they would now be considered contractors, which subsequently effected a change in job title to Delivery and Installation Leader. An agreement was presented to Mr. and Mrs. Keenan a short time after this change, which stated the Keenans were required to devote “full-time and attention” to Canac. Mrs. Keenan was the only one to sign the agreement (para 10).

However, for all intents and purposes, the nature of the relationship between Canac and Mr. and Mrs. Keenan and their work duties remained the same as prior to October 1987. For example, Mr. and Mrs. Keenan continued to enjoy employee discounts, received accolades for 20 years of loyal service, wear work shirts with Canac’s logo, and used Canac business card. Mr. and Mrs. Keenan worked exclusively for Canac until 2006. In 2007, as a result of Canac’s business slowing down, Mr. and Mrs. Keenan began doing some work for a competitor of Canac. Canac was aware of this and was described as turning a blind eye to it. However, a substantial majority of Mr. and Mrs. Keenan work continued to be for Canac.

On March 15, 2009, Canac requested Mr. and Mrs. Keenan to attend a meeting at which point Canac informed them that operations were closing and that Mr. and Mrs. Keenan were no longer needed. Mr. and Mrs. Keenan were not given anything upon their termination, including statutory entitlements or otherwise.

After their termination, Mr. and Mrs. Keenan brought an action against Canac.
 
At trial, the principal issue became whether Mr. and Mrs. Keenan were dependent or independent contractors. Canac did not call any evidence.

Relying on the five (5) principles set out in Benton v. Liberty Insurance Co. of Canada (2004), 70 O.R. (3d) 81, 2004 CanLII 6668 (C.A.) and the endorsement that the principles apply to distinguishing employees from dependent contracts from McKee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916 at para 32, the trial judge found that all five (5) principles indicated that Mr. and Mrs. Keenan were dependent contractors after 1987. The trial judge emphasized Mr. and Mrs. Keenan’s economic dependence on Canac and their high level of exclusivity working for Canac.

The trial judge’s finding that Mr. and Mrs. Keenan were dependent contractors entitled Mr. and Mrs. Keenan to reasonable notice on termination. As a result, the trial judge awarded the equivalent of twenty-six (26) months’ pay in lieu of notice.

Issues

There were two central issues for the Court to consider:

  1. when is the characterization of exclusivity of a business/employment relationship determined?
  2. can exceptional circumstances support an award for a reasonable notice period in excess of 24 months?

The Ontario Court of Appeal’s Decision

Issue 1 – Nature of the Relationship and Exclusivity

The Court rejected Canac’s submission that the trial judge erred in its finding that Mr. and Mrs. Keenan were dependent contracts with regard to exclusivity. Exclusivity is an essential consideration when determining the economic dependency and, subsequently, whether the relationship is a dependent or independent contractor relationship. The Court found that it is inappropriate to take a snapshot of the relationship to determine exclusivity, as Canac argued, but rather the full history of the relationship is required. Meaning, “[i]t is for the trial judge to determine whether, after examining that history, the worker was economically dependent on the company, due to exclusivity or a high level of exclusivity.” (para 25). The Court took note of the trial judge’s consideration of the last two-years of the relationship when Mr. and Mrs. Keenan did some work for a competitor, but did this consideration within the context of the entire thirty-two (32) and twenty-five (25) year relationship between the Mr. and Mrs. Keenan and Canac respectively.

Therefore, this ground of appeal was dismissed.

Issue 2 – Notice Period

In Canac’s submission that the trial judge erred in awarding damages of twenty-six (26) months, it argued Lowndes v. Summit Ford Sales Ltd., [2006] O.J. No. 13 (C.A.) which set out that only exceptional circumstances would support a reasonable notice period beyond twenty-four (24) months.

While the Court agreed that the trial judge failed to expressly articulate the exceptional circumstances he relied on to make the twenty-six month finding, it did not interfere with the award. The Court reasoned that Mr. and Mrs. Keenan’s age, length of service, and character of their positions justified an award in excess of twenty-four (24) months. The Court also took note of how Mr. and Mrs. Keenan were held out to the outside world as the public faces of Canac and how there was a high degree of economic dependence on Canac for the entirety of their professional lives. As such, twenty-six (26) months notice was reasonable in the circumstances.

Our Thoughts

This decision serves as an important reminder that terms of the employment contract do not alone determine the character of the employment relationship. Behaviour and how the relationship is being held out to the public can have a profound effect on the rights and obligations that flow from the relationship.

Perhaps more importantly, however, is the decision’s impact on the principles of the reasonable notice period. It appears that the Court will not be constrained by placing upper limits on what could be considered reasonable. The decision highlights that a determination of what is a reasonable notice period is highly fact-specific. This is not to say that an award exceeding twenty-four (24) months is now the new normal. Rather, it just leaves open the possibility, if, like in this case, it is fair and justifiable to find a reasonable notice period which exceeds twenty-four (24) months.

The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.