Part I – Helping your lawyer help you: Issues with contractors

January 5, 2017 | BY SHANNON Q

 A lawyer’s time is expensive, as anyone who has reviewed a legal bill knows. It’s why bringing legal work in-house is often viewed as a way to save costs on legal spend. But even if your in-house counsel doesn’t charge by the hour, there is an imputed cost of their time. There is also an opportunity cost of their working on your issue. There is always something else important they could be doing.   So if you’re like me – a “non-lawyer” – it’s important to prepare effectively in advance for a meeting with your lawyer. That way you will avoid multiple turns at the issue, get the advice you need sooner and maybe even make your lawyer’s Christmas card list.  And of course, you’ll save time and money.

So in this first of a series of articles on helping your lawyer help you, we’re going to start with a topic that’s part employment and part procurement: What you need to know when your company is creating, renewing or terminating an independent contractor relationship.

I interviewed Erika Holt, one of our Calgary-based lawyers who has 10 years of experience with commercial contract negotiation and litigation matters.  Here are her thoughts:

What are the common scenarios you see when approached for advice?

Most often I’ve been approached for advice at the termination stage, either by the corporation or by the consultant.

What would you  want to know from the “client” about the issue?

  • Has the termination already occurred?
  • If so, was any notice/severance provided?    
  • Why do you want to terminate?    
  • If it because of performance issues provide details around that?    
  • Is there a contract in place?
  • Was the consultant working exclusively for the    corporation and, if not, what proportion of their business is attributable to the corporation?
  • How long did the consultant work for the corporation?
  • To what extent did the relationship between the consultant and the corporation resemble an employment situation? (e.g. management of time and control over day-to-day activities; provision of supplies, equipment, and office space; level of reliance by each party on the other party etc.)

What documents would you want to have on hand to review and why?

  • Contract between the parties including any renewals or amendments
  • Correspondence between the parties relating to contractual negotiations and termination
  • Any documents relating to the issue of cause (e.g. warnings, notices)
  • If there is no formal written agreement, emails or even a handshake agreement can sometimes form a contract. So, if there is no formal agreement we will want to discuss anything that could be construed as a contract.

What special circumstances would you flag as being important for the client to disclose?

  • In addition to the information set out above, the client should also disclose any verbal discussions on those matters.
  • Any part you played in the performance issues. (Could it be argued we somehow contributed to the problems?)

What general advice do you have for companies?

  • Get a written contract in place that clearly sets out the parties’ relationship (i.e. that the consultant is an independent contractor) and termination rights.   Without one, it’s much easier for a court to find that the consultant was a dependent contractor or even an employee, and therefore entitled to reasonable notice of termination. Reasonable notice imposed by a court is often longer than would be set out in an agreement.
  • But entering into a contract doesn’t eliminate this risk entirely. Despite what the contract states, in some circumstances a court can consider the substance of the relationship, including looking at the duration/ permanency; the degree of closeness and reliance; and, most importantly, the extent of exclusivity, which need not be 100%. Consideration to these factors should be given to this at each stage of the relationship:
    • At the engagement stage when determining how to structure the relationship;
    • At the renewal stage, when considering whether the termination and notice provisions continue to be reasonable in light of the overall duration; and
    • On termination, particularly if some or all of these factors are present.
  • If you have any questions in relation to contractual negotiations, renewals, termination, or the likely characterisation of the relationship, you should consult legal.

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