Dependant Contractors – More than 50% of Income

A dependent contractor is a status that is essentially a middle ground between an employee and an independent contractor. Where a court has determined that the individual does not fall into the category of employee, the court will undertake a test to determine whether the worker is either a dependent contractor or an independent contractor. It is important to understand if an individual is a dependent contractor, he or she may be entitled to what is called “reasonable notice” on termination, unlike independent contractors.

In the recent case Thurston v. Ontario, the Court of Appeal dealt with a lower court’s ruling whereby the court determined that a sole practitioner lawyer who provided legal services to the Office of the Children’s Lawyer (“OCL”) pursuant to a series of agreements over 13 years, was a dependent contractor. The lawyer had her own independent legal practice and that practice formed a majority of her billings. The work that she billed from the OCL only formed an average of 39.9% of her billings.

The agreement provided the ability for the OCL to terminate the agreement at any time, and provided no guarantee of work. At trial, the motion judge found that the lawyer’s relationship with OCL was continuous over a 13-year period with no break. During that period, the lawyer performed work under the control of OCL and was perceived by the public to be an employee of OCL. In the reasons provided by the judge, he indicated that the permanence of the relationship, the fact that she performed work that was integral to OCL, and the perception that she was an OCL lawyer, all pointed to a dependent contractor relationship.

On Appeal, the Court of Appeal disagreed that she was a dependent contractor and that the judge had misapprehended the nature of the legal standard and failed to give effect to several relevant considerations. The Court indicated that a dependent contractor relationship required “a certain minimum economic dependency, which may be demonstrated by complete or near complete exclusivity”. In overturning the lower court decision, the Court of Appeal noted that the individual was not working exclusively for the OCL, and that she was averaging only 39.9% of her annual billings from that organization. The Court stated that for the purposes of the dependent contractor test, “near exclusivity” requires substantially more than 50% of billings. If it were otherwise, exclusivity – the “hallmark” of the dependent contractor status – would be rendered meaningless.

For employers this decision clarifies that a dependent contractor relationship status can be found where there is total exclusivity between the worker and the organization, but where there is near exclusivity, substantially more than 50% of the contractor’s income will be required to be earned from the contracting party.