Years Spent as Contractor to Be Included in Calculation of Reasonable Notice

A recent decision of the Ontario Superior Court in Cormier v 1772887 Ontario Ltd., 2019 ONSC 587 (CanLII) involved the number of years of service that were included in the calculation of notice, whether a termination clause was valid, and also if inappropriate deductions were made from the employee’s pay.

Quick facts

The employer operated a business across Canada that involved marketing and advertising.

A long-time employee (with almost 23 years of service) was dismissed without cause and claimed $136,577.75 in damages for wrongful dismissal. In her claim, the employee submitted that she was entitled to 24 months of pay and benefits in lieu of reasonable notice, and claimed reimbursement of $3,264 that she submitted was wrongfully deducted from her salary while she was an employee.

The employer denied the employee was entitled to any reimbursement, and also denied her entitlement to any damages for wrongful dismissal. It submitted that the employee was only an employee for 13 years (from 2004 to 2017) rather than almost 23 years because she was an independent contractor for the first ten years (from 1994 to 2004) of their relationship. The employer further submitted that the employee had received all her entitlements, and in this regard, it relied on termination clauses in the employment contracts that were signed in 2008 and 2012 as rebutting the common law presumption that the employee was entitled to pay in lieu of notice. However, the employer submitted that if the employee was entitled to pay in lieu of reasonable notice, the appropriate notice period would be 12 and not 24 months.

Decision of the Court

Length of service and reasonable termination notice

In determining the length of service that should be used in the calculation of the reasonable notice period, the Court found that regardless of her employment status throughout the years, there was little to distinguish between her years as an independent contractor and her years as an employee. Even working as an independent contractor, the relationship looked more like one of dependent contractor. Relying on previous court principles,

[47…] over the history of the relationship, the worker worked exclusively or near-exclusively or was required to devote his or her time and attention to the other contracting party’s business is an important factor in determining whether the worker is a dependent or independent contractor: the greater the level of exclusivity over the course of the relationship, the greater the likelihood that the worker will be classified as a dependent contractor.”

Previous court cases relied on to render the court’s decision identified several factors to differentiate a dependent contractor from an independent contractor. The key factors taken from these court cases included:

  1. The extent to which the worker was economically dependent on the particular working relationship;
  2. The permanency of the working relationship;
  3. The exclusivity or high level of exclusivity of the worker’s relationship with the enterprise.

It follows from the factors that the more permanent and exclusive the contractor relationship is, the less it resembles an independent contractor status and the more it resembles an employee relationship. Therefore, the relationship should be classified as a dependent contractor relationship.

The Court concluded that the employee had, in fact, a 23-year employment relationship with the employer, and that the employee was owed a reasonable notice period of 21 months.

Also of importance to employers, the Court found that the termination provision in the employment contract signed in 2012 was a violation of the employee’s obligation to continue benefits under the Employment Standards Act because it had a provision of benefits subject to “the consent of the Company’s insurers”. Therefore, the termination clause is unenforceable because the termination provision in the 2012 employment contract did not equal or provide a benefits package that is better than what is required under the Employment Standards Act at the time of termination.

Inappropriate deductions made from the employee’s pay and total judgment award

On June 28, 2016, the CEO of the employer advised that as a cost-savings measure, the company would have a two-week unpaid vacation program. The plan was implemented by deductions from wages. Therefore, deductions were made in the employee’s pay.

The Court found that this plan violated the Employment Standards Act which prohibits employers from deducting employee wages unless authorized by a court order or the employee’s written authorization is sought. As neither occurred in this case, the employee is owed $3,264 that had previously been deducted from her pay.

The judgment in this case is for a total of $112,863.75, plus pre-judgment and post judgment interest.

Takeaway for employers

This case illustrates that long-service independent contractors can be found to be dependent contractors, and therefore employees, and as such they are owed reasonable notice of termination; and the amount of notice can be substantial. Moreover, common law has created an intermediate category that falls between an employee and an independent contractor, and that is a dependent contractor.

There are five factors employers need to consider when determining if the person who works for him or her as an independent contractor could be found to be a dependent contractor. The factors include:

  1. Exclusivity of service;
  2. Control;
  3. Ownership of tools;
  4. Participation in risk and opportunity for profit; and
  5. An assessment of the question – whose business is it?

The decision reminds employers that how you call a person who provides services to your company, i.e., independent contractor, does not in itself define the relationship. The court will look at how the parties actually conduct themselves throughout the relationship. It is necessary to establish whether the worker is hired under a contract of service or a contract for service. Many employers incur liability by erroneously treating an employee (or dependent contractor) as an independent contractor/self-employed individual when the worker is actually an employee.

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