"Substantially More Than a Majority" of a Dependent Contractor's Income Must Come from One Client
Non-employee workers may be categorized as "dependent contractors" when they are "economically dependent" on a client. But this economic dependence must represent "substantially more than a majority" of the contractor's income.
The law recognizes "dependent contractors" as an intermediate category of worker between employees and independent contractors. While their working relationship does not otherwise resemble an employment relationship, dependent contractors are afforded the right to “reasonable notice” of the termination of their contracts, similar to the entitlement of many employees.
Many legal disputes will turn on the proper characterization of a worker’s status. Take the situation of a worker who is terminated without any advanced notice. If she is properly characterized as a true independent contractor, she will have no legal claim. But, if she is a dependent contractor, she will have a legal claim to pay-in-lieu of reasonable notice.
To be a dependent contractor, the contractor must be “economically dependent” on a client, such as when a contractor is hired to work exclusively for a client (or with near-complete exclusivity).
How Economically Dependent Must a Contractor Be?
A contractor’s loss of a major client will not necessarily give rise to dependent contractor rights, even if it represents a significant loss of business for the contractor.
The Ontario Court of Appeal clarified in a recent decision that the extent of the contractor’s economic dependence must represent “substantially more than a majority” of her income.
In that case, a contractor had worked for a client on 13 successive one-year contracts. She had several other clients, but her income from this major client represented 39.9% of her annual income on average (rising at its highest to 62.6% in one year).
The Court of Appeal was of the view that even this significant loss of business was not sufficient to recognize dependent contractor status and engage the right to reasonable notice of termination:
“Near-complete exclusivity” cannot be reduced to a specific number that determines dependent contractor status; additional factors may be relevant in determining economic dependency. But “near-exclusivity” necessarily requires substantially more than 50% of billings. If it were otherwise, exclusivity – the “hallmark” of dependent contractor status – would be rendered meaningless.”
So, while the sudden loss of a major client may be a shock to a contractor’s business, even this loss of a significant source of income may not be enough to justify dependent contractor status with the implied right to “reasonable notice” of termination. The requisite economic dependence must represent “substantially more than a majority” of a contractor’s income.
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