In the recent decision of Glimhagen v. GWR Resources Inc., Mr. Justice Rogers affirmed that there is a third “state” between employee and independent contractor: the dependent contractor. The most significant concern arising from this category of working relationships is what, if any, reasonable notice—or payment in lieu of notice—is owed when a contract is terminated.

It has been long established that employees are owed certain obligations not owed to independent contractors, especially that of reasonable notice. But somewhere between the employee and independent contractor is the “dependent contractor.” In creating this third category, courts purport to recognize that sometimes the parties’ relationship is neither that of employer/employee nor employer/independent contractor, and that rigid adherence to such labels may lead to inequities.

In Glimhagen, the Court held that the plaintiff was entitled to reasonable notice for the years worked for the defendant as a contractor. The plaintiff was in his late sixties; he had a Grade 12 education and a 23-year working relationship with the defendant. In 1988, the defendant and the plaintiff entered into a contractual relationship whereby the plaintiff provided accounting services. In 2010, the plaintiff was hired to be the defendant’s Chief Financial Officer, but his actual employment lasted only two years.

The Court concluded that the plaintiff had, in fact, been a dependent contractor from 2000-10. It emphasized the integral role the plaintiff held in the defendant’s operations from 2000 onwards, and determined that his years of service had accumulated from this time until his termination in 2012.

Accordingly, the plaintiff was awarded damages in lieu of notice equal to 12 times his monthly salary given his 12 years of service. This resulted in an award of $78,000 as payment in lieu of notice.

By contrast, had the Court considered his entitlement to have started only when he became an employee in 2010, this much shorter notice period would likely have meant a settlement of approximately $13,000. In coming to its conclusion, the Court provided the following indicators of a dependent contractorship:

  1. Exclusivity: Whether the agent’s services are generally limited exclusively to the principal;
  2. Control: If the agent is subject to the control of the principal, regarding the product and when/where the agent sells it to the principal;
  3. Interest or Investment: If the agent had an investment in or interest in the tools necessary to perform his or her service for the principal;
  4. Risk of Loss: Whether, by performing his or her duties, the agent undertook risk of loss or possibility of profit apart from the fixed rate of remuneration;
  5. Essential Role: Whether the agent’s activity was part of the principal’s business organization;
  6. Length of Relationship: Whether the relationship was long standing (the more permanent the term of service, the more dependent the contractor); and
  7. Reliance: Whether the parties relied on one another and closely coordinated their conduct.

Glimhagen v. GWR Resources Inc. is a reminder to employers to be aware that referring to workers as independent contractors does not necessarily mean they are one. Working relationships evolve over time, and while a worker may start out as an independent contractor he or she may be more accurately described as a dependent contractor after many years with the same employer. Similarly, workers are reminded that, despite being a contractor, they maybe entitled to notice or payment in lieu thereof upon termination.

The failure to spot a dependant contractor in advance of, or after terminating their contract, may have significant cost consequences. In long-standing working relationships, both workers and employers should regularly review their employment contracts.

Revising contracts to reflect changes in contractor and/or employee status with particular attention to notice of termination provisions can increase the certainty of obligations owed by employers and the entitlement of workers to notice of termination. With greater certainty, the likelihood of costly actions for wrongful termination will be reduced.

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