What factors should be considered in determining the length of reasonable notice?

Cabott v. Urban Systems Ltd., 2016 YKCA 4

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It goes without saying that determining what length of notice is “reasonable” in circumstances of dismissal without cause, is not a precise science and it is very much dependent on the specific facts of each particular case.  But what factors are appropriate to be considered by the employer?  The answer to that question is the important message to be taken from Cabott vs. Urban Systems Ltd., a recent decision of the Yukon Territory Court of Appeal.

Cabott was employed in a senior professional position with Urban Systems Ltd, having commenced her employment in Whitehorse on or about April 3, 2013.  She was dismissed without cause on or about May 27, 2014, only 14 months after she was hired.  Urban Systems gave Cabott two weeks pay as required under the Territory’s labour legislation and an additional 12 weeks of pay in lieu of notice.  Cabott sued for wrongful dismissal arguing the company failed to provide her with reasonable notice.

At trial, the judge referred to the so-called Bardal factors in his determination of reasonable notice.  The Bardal factors have been the foundation for the court’s determination of reasonable notice since 1960 and were originally enunciated in the Ontario High Court case Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140.  Included in the Bardal factors are such considerations as: the character of the employment, the length of service, the age of the employee and the availability of similar employment, having regard to the employee’s experience, training, and qualifications.  What is important to recognize is that all of the Bardal factors arise from within the context of the employment relationship and within the context of the contract of employment. 

In fixing the appropriate length of reasonable notice in Cabott the trial judge referred to the various Bardal factors and then continued on to say: “However, when one considers also the plaintiff’s age of 53 years…. the  expectation of secure employment and possible transition of work and retirement to Vancouver…. I conclude an appropriate period of notice in this case is six months”.

Urban Systems Ltd. appealed the trial judge’s decision arguing the award of six months notice was excessive and should be reduced. The court of appeal carefully reviewed the wealth of case law dealing with reasonable notice and made a number of observations.  First, the court stated that five months notice was at the very high end of the range of reasonable notice in cases similarly situated to Cabott v. Urban Systems Ltd.  The trial judge in Cabott awarded six month’s pay in lieu of notice,  one full month beyond what the appeal court determined was the very high end of the range.  Secondly,the court determined, upon reviewing the British Columbia jurisprudence on reasonable notice, that an average notice period of two to three months was more appropriate for cases similar to Cabott.

In Cabott, the appeal court found that, absent special circumstances, the notice  Cabott was entitled to, based on the Bardal factors, was in the vicinity of three months.  At trial, however, the trial judge referred to Cabott’s “expectation of secure employment and the possible eventual transition of work and retirement to Vancouver” as additional factors to be considered in fixing what the length of reasonable notice should be.  In other words, the trial judge treated these factors as special circumstances justifying an increase in the notice period to six months.

The court of appeal found that the trial judge erred in considering the additional factors of secure employment and transition of work and retirement to Vancouver in determining the appropriate length of notice.  These additional factors were not part of the contract of employment. Had they been intended to be part of the contract, they would have had to have been explicitly referred to in the contract.  As the court put it, the unilateral life plan of the employee cannot be considered a special circumstance justifying an increase in the length of reasonable notice. The court of appeal reduced the notice period from six months to four months.

The takeaway from Cabott for employers and employees is that the length of reasonable notice continues to be based essentially on the Bardal factors or some version of the Bardal factors.  Factors that are outside the employment contact, as important as they may be to the employee, are not a consideration in fixing the length of reasonable notice.

 

What did you just call me on Facebook!!

Pritchard v. Van Nes, 2016 BCSC 686

Facebook postings are free to make in the first instance, but can prove very costly in the end. Pritchard and Van Nes, a recent decision of the British Columbia Supreme Court, is a stark reminder about how serious the impacts of thoughtless social media postings can be, especially when they are defamatory in nature.

The Pritchard and Van Nes families became neighbours in 2008.  At the time of the events in question, Mr. Pritchard was a music teacher at a local school. He had been teaching at the school for the previous three years and by all accounts was well regarded.

The relationship  between the neighbours began to deteriorate in 2011 when the Van Nes’s installed a large fish pond along the rear of their property.  The two level pond included waterfalls that ran continuously both day and night.  The resulting noise from the waterfalls disturbed the Pritchards, especially at night when it interrupted their sleep.  After the Pritchards made a number of complaints to the local municipality, and to the Van Nes’s themselves,  the Van Nes’s commenced a series of petty harassments against the Pritchards as “payback” for the complaints.  The harassments consisted of such things as parking vehicles on the street  so as to partially block access to the Pritchards’ driveway.  The Van Nes’s permitted their dog to regularly trespass on the Pritchard property where it frequently defecated.   At another point, they set off a small explosion in their backyard during one of their frequent late night parties and claimed the explosion was from a stick of dynamite.

Ultimately, the relationship between the neighbours degenerated further with a series of of Facebook postings over a relatively brief period of time made by Ms. Van Nes about Mr. Pritchard.  The Pritchards commenced a court action against the Van Nes’s in nuisance for the noise from their pond and in defamation for the Facebook postings made about Mr. Pritchard.  The Van Nes’s declined to defend the law suit and default judgment was entered against them on the question of liability.  This review deals only with the defamation part of the law suit.

Ms. Van Nes’s first post accused Mr. Pritchard of hanging mirrors in the backyard outside of his house in order to monitor activities in the Van Nes backyard.  The only evidence put before the court established that Ms. Pritchard had hung just one ornamental mirror outside the back of the house as a feng shui decoration.  The evidence established there was never more than one mirror in the Pritchard backyard and that it was never used by the Pritchards to monitor the Van Nes property.

The post further accused Mr. Pritchard of videotaping the Van Nes children 24/7 while they played in their backyard.   Followup posts went further suggesting Mr. Pritchard was videotaping the daughters of friends that had come to stay with the Van Nes’s.  It was suggested that Mr. Pritchard’s behaviour was becoming obsessive and abnormal.  Ms. Van Nes posted that the behaviour was all the more alarming because of Mr. Pritchard’s position as a school teacher.  Eventually, the posts raised the suggestion, though it was never explicitly stated by Ms. Van Nes herself, that Mr. Pritchard might be a paedophile.  These posts prompted a small explosion of replies from Facebook friends variously referring to Mr. Pritchard as a freak, a creeper, a scumbag, a nightmare, a douche bag, mentally disturbed, a peeper, and a pedo.  Eventually the postings, re-postings and replies prompted one Van Nes Facebook “friend” to contact the principal at Mr. Pritchard’s school.  The email communication essentially advised the principal he had a paedophile on his hands in the person of Mr. Pritchard and that the school better take care of the problem before something happens.  No evidence was was put before the court to prove the allegation Mr. Pritchard was videotaping anything or anyone in the Van Nes’s backyard, let alone that he was videotaping children for any improper purpose.  In the end, all of the allegations made publicly against Mr. Pritchard had been made without any evidentiary support.

Mr. Pritchard was traumatized by the allegations.  He was no longer able to interact with his students as he once properly and comfortably did out of fear of being misinterpreted.  He had problems traveling with his classes on school outings.  He declined job opportunities out of fear the Facebook allegations would surface afresh.  He drastically reduced his extra-curricular activities with students. It was said his love of teaching was lost.  The evidence before the court also indicated that a couple of neighbours reacted to and commented negatively on Mr. Pritchard as a result of the false allegations made against him.

As stated above, the Van Nes’s chose not to defend the Pritchards’ action against them, insofar as the determination of liability was concerned.  Even though they had not attended the substantive portion of the trial, the Van Nes’s were permitted to and did attend at the court for the assessment of damages  and costs.  They were permitted to make submissions on these two subjects.

Ms. Van Nes was found liable not only for her own Facebook postings, but for all of the republications of her comments by Facebook “friends”, and for the correspondence between one of the “friends” and the principal at Mr. Pritchard’s school.  Mr. Pritchard was awarded $50,000 in general damages, $15,000 in punitive damages and costs of the court action.

It bears being reminded that no social media platform is the place to vent frustration, anger, or hurt in a way that could be considered defamatory.  Impugning the character of someone through allegations that have no evidentiary support can have far reaching serious and negative impacts.  Not only can we be held responsible for our own comments that may be defamatory, we can also be held responsible for the comments of every one else who replies to, re-posts or otherwise repeats our comments.

 

When a Director on a Non-Profit Board Goes Rogue

George v. The B.C. Wildlife Federation, 2016 BCSC 718 (CanLII)

IMG_0468Non-profit boards are often comprised of voluntary individuals elected to term positions at an Annual General Meeting of the particular non-profit.  In many, if not most cases, individuals elected to a non-profit board have a special interest in the purpose, goals and objectives of the particular board to which they are elected.  This is what usually attracts the individual to the non-profit in the first place.

Most non-profit organizations are incorporated in  Canada under provincial variations of a Society or Societies Act.   In George, the act in question was the Society Act, R.S.B.C. 1996, c.433, the British Columbia Act.  Nova Scotia has its own act, the Societies Act, R.S.N.S. 1989. c.435.  Regardless of the provincial jurisdiction involved, these acts articulate the basic law governing the incorporation of non-profit organizations, the conduct of business, and the ultimate wind up of non-profit organizations.  Both the B.C. and N.S. acts prescribe certain provisions that must be included in the by laws and memorandum of  association of all non profit organizations, including provisions for the election and removal of directors.

Directors are generally elected at the Annual General Meeting of the non-profit organization by the membership.  In both B.C. and in N.S., a director can only be removed from the board by special resolution.  A special resolution requires at least 75% of the members entitled to vote at a general meeting of the society, voting in favour of the director’s removal.  Where a non-profit organization fails to act in accordance with its by laws and articles of incorporation, its actions and decisions can be challenged in court.

In George, the non-profit in question was the British Columbia Wildlife Federation (the “Federation”).  An issue arose around email correspondences and other verbal communications between the Vice President of the Board and at least two employees of the Federation.  In short, the email correspondences were of an inappropriate nature, sexual in orientation and directed to both a male and a female staff member.  When the Vice President was asked to cease and desist from using the Federation’s email server for sexually oriented email correspondences and from speaking inappropriately with staff, he failed to co-operate.  This was even after being informed in writing that he was in conflict with the Code of Conduct governing the behaviour of directors on the Federation Board.  He was further advised that if he continued in violation of the Code, the matter would be remitted to the full Federation Board for appropriate action. The Vice President essentially ignored the warnings and continued the impugned behaviour.

At a meeting of the full Board, a motion was passed by a simple majority of directors to suspend the Vice President from his Board responsibilities for the remainder of his term, which was three months.  The Vice President challenged the Board’s decision in court.  He argued that the suspension was, in fact, a removal and that the motion passed by the Board was not legal or within the authority of the Board.  His position was that a removal required  a minimum three quarters majority vote of the members called to a general meeting of the Federation and not a simple majority vote of Board members.

The Federation argued that the suspension was not a removal and that it only prevented the Vice President from performing his functions as an officer and director of the Federation for the remainder of his term.  Officially, the Vice President continued as an officer and director of the Federation, but without the ability to exercise his duties and responsibilities.  Furthermore, the Vice President was not precluded from running for election again at the next Annual General Meeting of the Federation.  In determining the Federation Board had not acted for any improper purpose and that it had acted in good faith, the court decided in favour of the Federation and declined to intervene in its disciplinary action with respect to the Vice President.

Problems with individual directors on non-profit boards are not uncommon.  Because they are generally elected by the membership, directors can only be removed by the membership.  As stated earlier, both in B.C. and N.S., a minimum three quarters majority of the members must vote in favour of the removal.  This can make removal of a director quite difficult.  Discipline of a director, on the other hand, who has acted contrary to a code of conduct, or contrary in some other way to the interests of the organization he or she is a board member of, is confirmed by the court in George to be well within the purview of the  board.  Equally important, the court confirmed in George that suspension of a rogue director’s responsibilities is a step that, if and when warranted, can be taken by a non-profit board of directors on a simple majority vote.

The B.C. court’s decision in George,provides very helpful direction for all non-profit organizations in dealing with elected directors who, even after being warned, continue to act in ways contrary to the best interests of the non profit.  Suspension may be as practically effective as removal, without the formality of a three quarters majority vote of the general membership.

 

When Council Rejects Staff Planning Recommendations Only One Question Ultimately Matters

Scotia Legal Services Inc. (Re), 2016 NSUARB 31 (CanLII)

Municipal governments are only permitted by law to act within the authority and power granted by legislation.  When a municipal government makes a planning decision that is not within it’s legislative authority, that decision can be challenged legally, most often by way of an appeal to the Nova Scotia Utility and Review Board (the “NSUARB”).

The Municipal Government Act in Nova Scotia is intended to and does provide municipal governments with broad authority to encourage and facilitate, sound and sustainable community planning, using such tools as Municipal Planning Strategies (“MPS”) and Land Use By Laws (“LUB”).  Once an MPS is in place, however, a municipal government must, in all of its planning decisions, reasonably carry out the intent of its MPS.  In fact, when an appeal of a planning decision of council is taken to the NSUARB,  the question of whether council’s decision reasonably carries out the intent of the MPS, is all that really matters to the outcome of the appeal. Scotia Legal Services Inc. (Re) provides an effective reminder of what can happen when a council loses sight of this simple principle and the awkward position that planning staff can sometimes be put in as a result.

It is important to remind ourselves  that municipal councils are not obligated to agree with or implement every staff planning recommendation. There may be, and sometimes are, legitimate reasons why a council might be disinclined to accept a staff planning recommendation, but those reasons cannot run contrary to the intent of the MPS.  Even if council’s rejection of a staff planning recommendation is well reasoned, rational, and perhaps even perceived on some level to be in the best interests of the community, its decision is subject to being overturned on appeal to the NSUARB if the decision fails to carry out the intent of its MPS.

Scotia Legal Services Inc. (“Scotia”) owned a property located on Gaspereau Avenue in the Restricted Commercial Zone (as defined under the Town of Wolfville’s (the “Town”) MPS).  The Restricted Commercial Zone permits a home owner to use a portion of the home for certain commercial uses.  The restricted commercial uses must be of the type and nature that they are compatible with or complementary to a residential neighborhood.

By way of a Development Agreement entered into between Scotia and the Town in 2005, Scotia expanded its Gaspereau Avenue building to comprise several residential apartments and two commercial office spaces.  The residential units rented with relative ease, but Scotia did not succeed in maintaining occupation of the commercial office spaces and they remained vacant for a significant periods of time.

Scotia then applied to amend the 2005 Development Agreement seeking to convert the two commercial office spaces to a fourth residential apartment.  The Town’s Municipal Planning Strategy permitted multi-residential unit buildings in the Restricted Commercial Zone, but limited such buildings to a maximum of four residential units per building.

Town planning staff reviewed Scotia’s application to amend its Development Agreement.  It was determined the proposed amendment was consistent with the intent of the MPS as the type of use contemplated by the amendment was permitted within the Restricted Commercial Zone.  Staff recommended approval of the proposed amendment.

When the amendment came before Council it had three essential options for responding to the staff recommendation. Council could pass the recommended motion,  amend and then pass the motion, or Council could vote to defeat the motion.  Regardless of which option Council chose, the intent of its MPS had to be kept clearly in the forefront of its decision making.

In Scotia Legal Services Inc. (Re), Town Council chose to reject planning staff’s recommendation and defeated the motion to approve Scotia’s amended development agreement.  In its reasoning for doing so, Council argued that the “intent” of the Restricted Commercial Zone in Wolfville’s MPS was to expand certain commercial uses and strengthen the downtown commercial business district.  Council’s position was that the proposed amended development agreement failed to carry out the intent of the MPS in its attempt to convert commercial space to residential space.  While the reasoning of council was clearly not capricious, and appeared in all respects to be carefully thought out and intended for the benefit of the Town, the NSUARB determined the decision failed to reasonably carry out the intent of the Town’s MPS.  The Restricted Commercial Zone expressly permitted the type of development contemplated by Scotia. Consequently, to refuse to approve the amendment automatically meant failure to carry out the intent of the MPS.

The peculiar, and perhaps awkward position for planning staff was that the evidence upon which the NSUARB made the determination that council had failed to reasonably carry out the intent of its MPS, had to be elicited from the same staff who had recommended approval of the amendment in the first place.  Not the most comfortable position for any employee to be put in.

Another important take away from Scotia Legal Services Inc. (Re) is that the NSUARB has no authority to substitute its opinion of what is “good planning” for that of council’s.  The NSUARB can only intervene where it is shown that council has made a decision that fails to reasonably carry out the intent of its MPS.

Welcome to my “man cave”.

Motta v. Clark, 2016 ABQB 211 (CanLII)cropped-img_0468.jpg

Once in a while, a case comes along provoking some sobering thought.  Motta v. Clark is one such case.   It raises the issue about the potential liability for personal injury damages arising from the seemingly simple act of inviting a friend over to the house for a social evening.

Ronald Clark invited his good friend Joe Motta over to his house on a Friday evening for a social night in Clark’s “man cave”, his garage.  There was a history of Clark entertaining friends in his garage and Motta had been invited to drink beer and socialize on numerous prior occasions.  While the evidence showed that both Motta and Clark had consumed a substantial amount of beer both in the time leading up to and during the evening in question, alcohol was found not to factor into what ultimately transpired.

Historically, when Clark entertained friends in his garage, it was his practice and that of his guests to urinate in the backyard when the need was called for.  They did not use the bathroom in the house.  On this particular night, however, Motta apparently needed to have a bowel movement and asked Clark if he could use the bathroom in the house.  Clark was happy to oblige telling Motta to use the upstairs bathroom.

For reasons unimportant to this review, Clark several weeks prior had disabled the motion sensor lighting meant to illuminate the back of the house at night in the vicinity of the outside entrance.  The house was in complete darkness with no lights turned on inside or out.  Motta was able to find the back door entry to the house.  He opened the door, stepped onto the landing inside the door with his left foot and began reaching around in the dark with his right arm for a light switch which he thought was on the wall to the left just inside the entrance.  He then brought his right foot through the door expecting to place it on the landing inside the door.  Instead, his right foot came down  on the first step of the staircase leading to the basement from the left side of the landing inside the back entrance.  He tumbled down the staircase suffering significant injuries.  At trial, only the question of liability for the injuries remained to be determined by the court.

Liability in this case, turned on the Occupiers’ Liability Act of Alberta, a statute very similar to occupiers’ liability legislation in other parts of Canada including Nova Scotia.  All versions of occupiers’ liability legislation across Canada impose some variation of the duty on the occupier of a property to “take such care as in all the circumstances of the case is reasonable to see the visitor will be reasonably safe in using the premises for the purposes for which the visitor is invited or permitted by the occupier to be there or is permitted by law to be there.”

The court determined that it was reasonably foreseeable by Clark that a visitor entering the back door of his house in the dark and without any light on in or outside the house might, even if exercising care, risk falling down the basement stairs.  That reasonable foreseeability gave rise to a duty of care owed by Clark to Motta to ensure the house was reasonably safe for the purpose for which Clark invited Motta to use it.

The trial judge found that Clark breached his duty of care to Motta.  Clark had invited Motta to join him for a social evening in his garage.  He permitted Motta to access the Clark residence for the purpose of using the upstairs washroom.  Clark knew that the outside lights at the back door of his house had been disabled.  He also knew that there were no lights on in the house when he told Motta he could enter the house and use the bathroom.  Clark knew that Motta would have to reach out over the stairwell to get the light switch he needed to turn on in order to see where he was going.  The first step down the staircase to the basement was virtually on the immediate left as one entered the door from outside.  In all of this, Clark was found to have breached his duty to Motta to ensure that the house was reasonably safe under the circumstances to authorize Motta to enter the house and use the washroom.

On the other hand, the court also found that Motta contributed in some measure to the cause of his own injuries.  He could have returned to the garage to request Clark’s assistance in finding the lights in the house.  He had a lighter and a cell phone that he could have used to provide enough illumination to note the stairs and find the light switch.  In the end, the court apportioned liability 2/3rds to Clark and 1/3rd to Motta.

The case reminds us that unintended accidents can happen on our properties whenever we invite people to our homes for social reasons or otherwise.  While we all carry house insurance that in many cases will cover these accidents, there may be things we’ve done (e.g., like disabling motion sensor lights designed to illuminate important areas at night)that might possibly void our coverage.  Even with insurance protection, it is useful to be reminded from time to time, that when we invite friends over to our homes, we owe them a legal duty to ensure our properties are reasonably safe for their use.

 

 

Implied Terms in a Dependent Contractor Relationship

Keenan v. Canac Kitchens Ltd., 2016 ONCA 79 (CanLII)

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In a recent post, we looked at the question of whether a worker was an employee,  a contractor, or something in between, and why the answer to that question might be important.

Another recent Ontario Court of Appeal case, Keenan v. Canac Kitchens, has provided an opportunity for the court to comment further on the nature of the exclusivity factor required to establish an dependent contractor relationship.  In addition, the court in Keenan elaborated on how the length of notice for termination of a dependent contractor relationship should be determined.

In Keenan, a husband and wife (the “Keenans”) had been in the employ of Canac Kitchens since 1976 and 1983 respectively.  At the time of Mrs. Keenan’s employment by Canac in 1983, both of the Keenans worked as foremen for the company.  It was common ground that until October of 1987, the Keenans were employees of Canac and the company deducted and remitted Income Tax, EI and  CPP on behalf of all its employees, as required by law.

In 1987, Canac advised the Keenans that the working relationship between the company and the Keenans was to be changed.  The Keenans would no longer be employees of Canac, but would continue on as contractors.  As evidence of the change, the Keenans received Records of Employment  from Canac, and Canac no longer made statutory deductions or remittances on behalf of them.  The Keenans commenced making their own remittances to the CRA and were responsible to do so for their own employees.  Notwithstanding these changes, the Keenans continued to qualify for Canac employee discounts, wear Canac uniforms, and be provided with Canac business cards.  In addition, Canac gave Mr Keenan a special ring in 1996 in recognition of 20 years of service to the company.

Until 2007, the Keenans worked exclusively for Canac.  Thr0ughout 2006, however, business at Canac went into decline and in order to maintain their income, the Keenans commenced working part of their time at another company.  Canac was aware of this and the bulk of the Keenans’ revenue continued to be generated through Canac.

In 2009, Canac decided to shut down operations for business reasons.  It did not provide the Keenans any notice, pay in lieu of notice, or severance.  It did not provide the Keenans with any the minimum statutory notice prescribed by legislation.  Canac’s position was that the Keenans were independent contractors.

At trial, and on appeal, Canac argued that since the Keenans were not working exclusively for Canac at the time of the termination of their contracts, there was no element of exclusivity at that point and they were not, therefore, dependent contractors.  As independent contractors, Canac believed the Keenans were not entitled to notice or pay in  lieu of notice.  The trial judge rejected this argument on the basis the Keenans continued to be either exclusive, or “near exclusive” contractors to Canac up until the time of their dismissal.  While it might have been true technically, that the Keenans were contracting to two companies at the time of their termination from Canac,  there continued to be a substantial long-term economic dependency on Canac.

The court of appeal upheld the trial judges decision, adding that the question of exclusivity cannot be answered by looking what at might be happening at a given point in time, as Canac was attempting to do.  It was necessary to look at the entire term of the relationship.  In the last two years of their relationship to Canac, the Keenans did a modest amount of work for a competitor of Canac. Canac knew and chose to disregard this knowing the reason was the decline in Canac’s business.  When the appeal court looked at the whole term of the relationship between Canac and the Keenans, it concluded that the minor aberration 0f the last two years could not disturb the fact they were economically dependent on Canac throughout their relationship with the company, including the last two years.  This economic dependency, born of exclusivity, is the hallmark of the dependent contractor relationship.

Canac also appealed the trial court’s award of 26 months of notice for both Mr. and Mrs Keenan.  In its appeal, the company relied on an earlier Ontario Court of Appeal case that established a maximum notice period of 24 months, which could only be exceeded on a finding of exceptional circumstances.  There was no finding made by the trial judge in Keenan of the exceptional circumstances which would justify a notice award exceeding 24 months, though there was evidence that a 26 month notice period had been discussed.

Using the Bardal factors (the Bardal factors have been discussed in an earlier post), the Court of appeal chose to uphold the trial court’s award of 26 month’s notice for each of the Keenans.  In arriving at this decision, the Court of Appeal had regard to the length of service of the Keenans, their respective ages at the time of termination, the supervisory nature of their positions, the fact they were the public face of Canac for the best part of a generation, the degree of dependency they had on Canac and the difficult they would likely encounter in replacing their income with alternative employment.

The important takeaways from the Keenan case include the court’s emphasis on having to look at the entirety of the relationship in assessing whether there is the kind of exclusivity and economic dependence required to establish a relationship of dependent contractor.  Exclusivity does not have to be absolute where economic dependency clearly continues to exist.  The second takeaway is that the determination of reasonable notice for terminating a dependent contractor relationship is the same as that for an employee.  Most importantly, there is no hard and fast limit in determining the maximum length of notice that may be awarded.  The court will continue to have regard to the facts and circumstances of each individual case and making this determination.

 

 

Employee? Independent Contractor? Something in between? What’s the differance and does it matter?

McKee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916 (CanLII)

Aandrew-montgomery-lgre you an employee, an independent contractor or possibly something in between the two? The answer is not merely academic. It can have important and perhaps even unanticipated implications.  To make things just a little more complicating, the answer to the question is not so much found in the wording used in a contract to describe the relationship,  it is more in the character and in the nature of the relationship.  In other words, just because a written document may refer to an individual as an employee, or as an independent contractor, or something else, the words themselves do not necessarily make the individual one or the other.  The presence or absence of certain salient characteristics in the relationship must be examined in order to determine whether the relationship is one of employment or that of an independent contractor.

The court in McKee cited a test referred to as the Sagaz/Belton analysis that is used to determine whether a relationship is one of employment or that of an independent contractor.  The Supreme Court of Canada stated the test in its decision in 671122 Ontario Ltd. v. Sagaz Industries Inc., [2001] 2 S.C.R. 983, 2001 SCC 59:

“The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account.  In making the determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.”

The Ontario Court of Appeal re-stated the Sagaz test in Belton v. Liberty Insurance Co of Canada, 2004 CanLII 6668 (ON CA) in the following five principles:

  1. Whether or not the agent was limited exclusively to the service of the principal;
  2. Whether or not the agent is subject to the control of the principal, not only as to the product sold, but also as to when, where and how it is sold;
  3. Whether or not the agent has an investment or interest in what are characterized as the “tools” relating to his services;
  4. Whether or not the agent has undertaken any risk in the business sense or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission;
  5. Whether or not the activity of the agent is part of the business organization of the principal for which he works.  In other words, whose business is it?”

As stated at the outset, the result of the application of the Sagaz/Belton test is not merely academic.  Numerous practical implications follow from the determination that a worker is an employee or an independent contractor.  What follows here is neither an exhaustive list of the implications, nor an in depth discussion of any one of them.  Included in the list of implications, however, are the following examples:

Statutory Remittances

Employers must deduct and remit on behalf of each of their employees, Income Tax, Employment Insurance premiums and Canada Pension Plan contributions.  Independent contractors make all of their own statutory remittances but, when it comes to Income Tax, they have the advantage of deducting all reasonable business expenses against income earned.  Subject to certain legal differences and procedures associated with different types of business entities, this advantage will apply whether the independent contractor is a sole proprietorship, partnership or corporation.

Pension Plan

Where made available, employees often pay into a pension plan with their employer and the employer will make contributions to the plan on behalf of each employee.  Independent contractors will not have this advantage, though they may create such a scheme for their own employees.

Compensation

Employees are generally paid a wage or salary.  They generally do not share in the financial risk with the employer and, consequently, have no expectation of sharing in the profits of the business.  Independent contractors  bear the financial risk of the  their business and, consequently, share in the profits of the business.  Depending on how they are organized legally as a business, they might take the profit in the form of a salary , dividends or some combination of the two.  They might also have the option of leaving some of the profit in the corporation, as an investment in the business.

Federal and/or Provincial legislation

Certain Federal and/or Provincial labour statues and workplace safety statutes which provide safeguards for employees will not have any application to independent contractors.

Entitlement to Reasonable Notice or Pay in Lieu

Barring just cause for dismissal, employees have both a statutory right and common law right to reasonable notice of dismissal or pay in lieu thereof.   Independent contractors have no entitlement to reasonable notice or pay  in lieu thereof.

Many more differences could be listed and much more could be said about the examples cited above.  One other very important legal distinction that McKee does remind us of, however, is that the courts have long recognized a special type of business relationship that falls somewhere in between that of the employee and that of the independent contractor.  It is the relationship of the “dependent contractor“.

In the case of a “dependent contractor” there is still no employer/employee relationship but, because of certain peculiar characteristics of the business relationship, the courts have been prepared to imply that reasonable notice of termination is a legally binding term of the agreement creating the relationship.  A dependent contractor relationship arises where there is a certain exclusivity and permanence of service being provided by a contractor that makes the contractor economically dependent on the business entity being served in the relationship.  For example, the courts have recognized a relationship of dependent contractor where self employed truckers have exclusive long term contracts with a mining company.  A dependent contractor relationship has also been found where self employed individuals act as exclusive distributors for a paper company.  The important thing to remember here is that where the relationship of dependent contractor is established, the contractor may well be entitled to reasonable notice of termination of the contract because of the economic dependency that often ensues with such a relationship.

Finally, to come full circle, a dependent contractor relationship, cannot be avoided simply by calling the business relationship in the wording of the contract that of an independent contractor.  It is the nature of the relationship that is all important.

If you are working as a self employed individual and providing services exclusively and  over the long term to one client, you may well be a dependent contractor and entitled to reasonable notice in the event of termination of your contract.  As always, if you have concerns about your specific circumstances, you should speak to a lawyer.