Tuesday, 16 September 2014

Contractor Entitled to "Reasonable Notice" Due to Economic Dependence

When it comes to assessing whether an individual providing services is employed by an employer, or an "independent contractor", the decision will often turn on an assessment of the degree of control that the alleged employer exercises within the relationship.  However, equally important is the degree of economic autonomy of the purported contractor, regardless of how the parties have structured the arrangement.  In a recent decision of the B.C. Supreme Court, an employer in the trucking industry learned that the form of the contractual relationship has very little influence on that assessment.

In Khan v. All-Can Express Ltd., the employing company ("Ace") was a subsidiary of a larger logistics enterprise that operated a courier business in British Columbia.  Ace retained primarily owner-operators to cover its routes, including the plaintiff, Mohammed Khan ("Khan"), but did employ at least 3 drivers, as well.  Khan owned and was responsible for all costs associated with his truck, had to provide a relief driver if he was to be absent, and filed his income taxes as a 'self-employed' individual.  He was paid on a 'piece-work' basis (i.e., by the loads he carried).  He signed a contract for services (affirming his self-employed status) when he commenced driving for Ace, and also agreed to the terms of a non-competition agreement with Ace.  The Court also heard evidence that Khan worked full-time hours for Ace, wore a uniform provided by the company and carried a company-supplied cell phone, was bound to follow company policies, and his truck bore a company logo.  After 5 years with Ace, Khan was terminated following three incidents in which he was alleged to have tried to divert business to another logistics company.

Before weighing the evidence, the Court observed that the common law "has evolved into a more nuanced state, one that reflects the reality of an economy where many workers perform services for others in arrangements that are specifically structured such that they are neither employer - employee relationships nor are they properly characterizable as independent contractor relationships" (para. 21).  In effect, rather than recognizing only employment and independent contractor relationships, the law now places relationships at varying points along a continuum.  Along that spectrum, the courts have recognized intermediary relationships, sometimes called "dependent contractor" arrangements.  After reviewing the evidence, the Court concluded that Khan was in such a dependent contractor relationship with Ace, and that he was, therefore, entitled to reasonable notice of termination of the contract.  With respect to the form of the relationship the parties had documented, the Court said:
I realize that the contract which the plaintiff signed at the time of commencing his relationship with Ace clearly stipulates that he is an "independent contractor". With respect, that is not necessarily determinative of the issue, if the consequence of the plaintiff signing the document is to significantly circumscribe the rights available to him at law in the event of termination. In the contract at hand, while the label is spelled out, important consequential conditions which the defendant seeks now to enforce, particularly that the plaintiff can be terminated without notice, are not articulated. The document specified some terms, such as the requirement that the plaintiff would provide his own vehicle, that he would file his income tax, indicating a status of self-employed and so on. The plaintiff can be taken to have understood those terms. However, I am not convinced that it automatically follows that he must be bound by conditions that were not set out in the agreement.
After finding that Ace did not have just cause to end the contract without notice (because of its failure to properly investigate allegations of breach of fidelity), the Court held that Ace should have provided Khan with 4 months' notice of termination.

The decision in this case reflects a growing recognition of how the provision of services has changed over time.  The form of the relationship will typically take a back seat to the realities of the arrangement, particularly where the party providing his or her services is not overly sophisticated and the other indicia demonstrate control and dependency.  Where the employing entity maintains significant control, both in terms of the work and economically, the courts will find a way of 'implying' an obligation to provide reasonable notice of termination into the contract.  However, it may, in some circumstances, be possible to avoid this result by incorporating a termination provision in the contract - something which was not done in the Khan case.

Before entering into independent contractor relationships, it is important to assess both the benefits and the risks involved.  A mischaracterization of the arrangement could result in substantial costs to the employer, as well as heightened regulatory scrutiny. 

Do you need advice on your contractual relations with service providers?  Need help determining whether to retain a contractor or hire an employee?  Feel free to contact Lance Ceaser for guidance.


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