When an employer terminates an employment contract without cause, the employee is entitled to reasonable notice.  Where the worker is an independent contractor rather than an employee, however, the work relationship can be terminated without notice once the work of the independent contractor has been completed.

The law also recognizes an intermediate category of work relationships which falls short of the degree of direction and control needed to establish an employment contract, but which involves a level of exclusivity that is inconsistent with an independent contractor relationship.  In this situation, the worker is called a “dependent” contractor because his livelihood depends on the company that provides the work.  A dependent contractor, like an employee, is entitled to reasonable notice of termination.

Carmen Sarnelli was a locksmith for 17 years.  He trained with his father, and then took over his father’s business in the year 2000.  About two thirds of Sarnelli’s business came from the defendant Effort Trust Company.  When Effort terminated the relationship at the end of August, 2005, the plaintiff’s business was no longer viable.  He continued to work for a short period of time, but in 2006 he closed his business and sold the inventory.

In a recently released trial decision, Mr. Justice Matheson referred to a series of Canadian cases that recognize the existence of an intermediate situation where an employment relationship does not exist, but where an agreement to terminate the relationship on reasonable notice is nevertheless implied. The permanency of the working relationship between the parties is an important factor in establishing this intermediate category.  A finding of a dependent contractor relationship is more likely where the contractor works exclusively, or with a high level of exclusivity, for a single company.  This element of exclusivity tends to make the contractor economically dependent on the company that provides the work.

Mr. Justice Matheson also referred to five principles that the courts can look to in determining whether or not a dependent contractor relationship exists:

1. Does the contractor work exclusively for one organization?
2. Is the contractor subject to the control of a single employer, not only as to the product or services supplied, but also as to when, where, and how products and services are supplied?
3. Does the contractor have an investment or interest in the tools or equipment required in order to provide his work?
4. Does the contractor undertake any risk in association with his business, and does he have a corresponding expectation of profit associated with the delivery of his work (as opposed to working for a fixed hourly rate or commission)?
5. Is the activity of the contractor an integral part of the business organization for which he primarily works?

The judge concluded that Mr. Sarnelli was a dependent contractor.  In making this determination, the judge took note of the fact that Sarnelli was on call at all times, day or night.  Two thirds of his annual billings were for the defendant, so the plaintiff was highly reliant on the defendant.

Another factor that influenced the decision was the fact that Sarnelli had an exclusive distribution contract with the supplier of a particular “high security” lock that Effort Trust preferred to use in some of its buildings.  The witnesses called at trial established that the defendant had no complaints about the plaintiff’s work.  The defendant had seven telephone numbers with which it could reach Sarnelli, indicating a high degree of reliance on him.  Other locksmiths that worked for Effort Trust provided only one or two numbers.

There was also an Effort Trust tradesman list, in which Sarnelli was the only locksmith listed.

The plaintiff had asked for nine months notice.  Since the plaintiff did not seek other customers after the termination, the court concluded that there had been a failure to mitigate, and that six months notice was sufficient.

Under the “dependent contractor” concept, workers who are not employees can still claim compensation if an ongoing contract is terminated without notice or cause.

Richard Hayles, B.A., J.D.

Link: Sarnelli v. Effort Trust Company, CanLII – 2011 ONSC 1080 (CanLII)

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