In late December of last year the Court of Appeal recognized the existence of the dependent contractor in the case of McKee v. Reid’s Heritage Homes Ltd.
In this case, the plaintiff was an in-house sales agent for Reid’s Heritage Homes. Reid’s is a new home builder that originally retained the services of McKee to sell new homes in the Guelph area. McKee would conduct the sales of the new homes within model homes supplied by Reid. She began her work with Reid in around 1987 and she was paid through her own registered corporation. Over the years she became very busy with her work through Reid and over time, she hired, trained and managed her own sub-agents with whom she split her commissions on their sales without any intervention, direction or interference from Reid.
In 2004, a corporate sales manager was hired by Heritage Homes to restructure their entire sales force, inclusive of their relationship with McKee. In 2005, Heritage Homes told McKee that she and her sub-agents would have to work for Heritage as direct employees. McKee, (who was 64 years old at the time) decided that she would agree on the terms as well as a 100-lot assurance to McKee for the following 2 years. After this, Heritage pulled back the refusal to agree to 100 lots per year and from that point forward, the relationship between McKee and Reid Heritage fell apart. McKee sued Reid for wrongful dismissal. After a 4 day trial in Guelph, the Judge released a 51 page Judgment that noted that an original agreement that was made between McKee and Reid in 1987 was “spent” after the sale of the initial 69 homes which she was retained for to sell.
The main issue in the trial was whether or not McKee was an employee or an independent contractor, or even a dependent contractor. The trial Judge found that the plaintiff was an employee and as such she was entitled to pay in lieu of reasonable notice which was assessed at 18 months or about $400,000.00. The Judgment was appealed to the Court of Appeal, and the major analysis, important to this article, is the Ontario Court of Appeal’s analysis of employee vs. dependent contractor.
The court revisited many cases leading up to the “intermediate” category of a dependent contractor. The basic test set up by the Court of Appeal was to determine whether or not a worker is a contractor or an employee. The next step is required only if the first step results in the contractor conclusion – and it determines whether that contractor is independent or dependent, for which a worker’s exclusivity is determinative as it demonstrates economic independence. The Court explained that if a contractor is in a position of economic vulnerability, then it would make sense to carve out a dependent contractor category out of a broader existing contractor category and leave the definition of employee intact.
The trial Judge’s determination that McKee was an employee is in fact determinative under the law. They noted that McKee worked exclusively for the defendant’s company. They also found that McKee’s work was subject to the defendant’s control, as to where she sold, her promotional methods, what she was to sell and how much she was to sell it for. Thirdly the Court found that McKee performed her sales function in model homes provided to her by Reid’s Heritage Homes and they were in control of these tools. Fourthly, McKee was financially dependent on Reid’s Heritage Homes and fifthly, the sales force of which McKee was a member of was a crucial element of Reid’s business organization. The fact that she operated her own corporation within her work for Reid was not determinative of her work status. The Court also found that it did not matter that she had her own sub-agents. Technically, and employee can act as a conductor between higher management and staff within their divisions. The Court also addressed her first agreement with Heritage Homes from 1987. That agreement held that either party could terminate the agreement by giving each other 30 days notice. The Court found that if McKee was an employee at Heritage Homes from 1987 to 2005 then that 30 day notice period in the 1987 agreement contravenes the Employment Standards Act.
The Court, in conclusion did not interfere with the 18-month notice order. It is important for employers to be aware that because their employees remain within their own corporations to control their own taxes, it simply does not mean that they are going to be labelled as dependent contractors. The Court of Appeal in this case confirmed that this intermediate category of a dependent contractor does in fact exist and because of this, employers that engage contractors into contracting relationships will have to be careful because if it is found that the relationship creates one of economic dependency it may give rise to reasonable notice.
If you need to discuss the issues of independent, dependent contract status vs that of an employee please feel free to give our Burlington Ontario Employment Lawyers a call at Haber & Associates. at 905.639.8894
Matt Lalande
I always counsel employers that it is best to help employees with their job search if employers need to terminate them without cause. The reason for this is an employment agreement is a contract. Employment law isn’t simply govern by legislation by it is govern by common-law, and contract law is made up of a century of common-law. If the contract is severed, damages must paid. Damages are in the form of wrongful dismissal damage, which is essentially payment for breach of contract. Therefore, if there is a breach of contract than damages must be paid and mitigation is extremely relevant. Mitigation is basically an employee’s effort to look for new employment, in order to mitigate their damages. Therefore, if you provide job search assistance through the payment or contribution to an outplacement service or a job search service the employees may take advantage of this and try to use the services to get on with their careers. It is an incentive for employers because if the employee, in essence, finds a new job early on than the damages paid through lump sum or salary continuance will obviously be lessened. In short, the faster a terminated employee mitigates his or her job loss, the less the employees claim for wrongful dismissal will be worth. Also, it will show good faith on behalf of the employer, if the employer helps the terminated employee in searching for new employment. Lastly, the issue of mitigation can easily be brought up at an examination for discovery, given that the outplacement service was offered to that terminated employee. A strong defence around the employees failure to mitigate can be built.
With respect to reference letters the same theory applies. If you assist your terminated employees in finding employment then the less the employees wrongful dismissal claim will be worth. The problem is obviously the administration process in larger corporations. You will have employers and human resources personnel answering the phone that are not familiar with the employee. However despite this, it is always a good idea and widely accepted practice that an employer provide a reference letter to an employee in order to guard against any bad faith claims and it also helps build a mitigation defence. The best idea is to provide a scripted letter of reference and scripted answers with respect to any questions asked about any employee that is terminated. The employer has an obligation to be honest however, not defamatory.
Unfortunately, our courts have negatively remarked on defendant employers who had refused to provide terminated employees with reference letters.
Therefore, yes provide an outplacement service opportunity for your terminated employees. The cost will be minimal and it will benefit the company if a wrongful dismissal suit is issued. Also, provide a scripted reference and scripted answers to questions that are neutral if you are unsatisfied with the employees performance, or if you are satisfied with the employees performance and the termination was simply due to downsizing.
If you have any questions, please do not hesitate to contact me.
If you would like a refernce letter template, please call me to set up an appointment.
Matt R. Lalande
Hamilton Employment Lawyer | Mississauga Employment Lawyer | Burlington Employment Lawyer
Of review of the November 2009 Court of Appeal decision of Brien v. Niagara Motors Ltd is an interesting read. In this case the appellant employer raised three grounds of appeal from a wrongful dismissal decision which awarded 24 months severance plus Wallace (for bad faith) damages of two months.
Firstly, the employer argued to the Court of Appeal that the trial judge erred in treating the respondent employee as a 23-year employee even though there was a two-year gap in her employment after 6 years when she left to have her second child. The employee had been invited back to work for the employer after two years. She had exhausted her maternity leave and was not working. She did not return for family reasons. She was not looking for another job, nor did she work anywhere else within the 2 year gap. She was reintegrated into the employer’s employment as if she had never left. The Court of Appeal noted that, for example, she immediately provided with a 2 weeks vacation within the first year without first working for 12 months as a new employee would have to. For these reasons, the COA did not give effect to this ground of appeal
The second issue is whether the two months award for Wallace damages ($8,826.56) can survive the decision of the Supreme Court of Canada in Honda Canada Inc. v. Keays, 2008 SCC 39, which was released following argument but before the reasons in this case were released by the trial judge. For those who don’t know – the Honda case gave the employment landscape quite the tilt with respect to damages. The Supreme Court Re-formulated the legal principles surrounding both the availability of “Wallace damages” and the manner in which they can be awarded. The appeal was allowed on this ground. Although the appellant’s conduct in wrongfully alleging misconduct against the respondent was improper, any claim for punitive damages based on that conduct was abandoned before the trial.
While the respondent’s misconduct in this respect could have led to a proper award of mental distress damages as defined in Keays, the mental distress that the respondent suffered upon her termination and the manner of that termination was not of the nature and scope to qualify for compensatory damages in accordance with that decision, as the respondent did not seek any medical attention, professional assistance or undergo any therapy for her mental distress.
The third ground of appeal is based on the double counting of the Employment Standards Act severance payment of $20,240. This probably meant that the employee was paid statutory termination pay that was also counted into the payment in lieu of notice. The lawyers agreed to remove this.
In the result, the appeal was allowed in part, and the damages calculation was reduced by $8,826.56 plus $20,240.
This case may be a minor precedent setter with respect to calculating damages in cases where the employee takes a stretch off work and is re-hired. In the long run, does it really matter? It is all circumstantial and factual based but it is good to remind ourselves of these cases.
If you are in the Halton regions and your company needs employment assistance please do not hesitate to give Haber & Associates a call at 905-639-8894 and ask for me, Matt Lalande.
E. Payment of Wages under the Ontario Employment Standards Act
By Hamilton Employment Lawyer | Mississauga Employment Lawyer · Comments (0)I am often asked simple questions by small businesses in the community and I am surprised that the majority of the small business owners I talk to do not know the first thing about employment standards. If you hire employees you need to at least be aware of the minimums of what is required for you to know as a business owner.
Part V, Sections 11 to 14 of the Ontario Employment Standards Act deals with the payment of wages.
The Act indicates that as an employer you must establish a recurring pay period and a recurring pay day for your employees. You shall then pay all wages earned during each pay period, other than accruing vacation pay, no later than the established pay day. There prescribed manner is by cash or cheque payable to the employee only. You can obvioulsy use direct deposit to pay your employees, but the account must be in the employee’s name; no person other than the employee or a person authorized by the employee has access to the account.
You also need to provide your employees with statements. On or before your employee’s pay day, you are to give to your employee a written statement setting out several things including the pay period for which the wages are being paid; your employee’s wage rate, if there is one; and the gross amount of wages to be paid. You are also to state the amount and purpose of each deduction from wages and the total net amount being paid out the your employee. The statements need to be in writing or you can email the statements to your employees – ideally the information should be kept separate from the cheque.
Your employees has the right to a vacation pay statement. If your employee requests a vacation pay statement you must prepare one and provide the information no later than seven days after the request or the first pay day after the employee makes the request. You only have to legally provide the information with respect to each stub year or vacation entitlement year only once. If your employee has agreed that vacation pay will be paid on each pay cheque as it is earned, you technically do not need to keep records and provide statements about vacation pay. You must then pay it separately from the amount of wages being paid out, and prepare a separate statement that sets out the vacation paid that will be paid – you do need to keep a record of this information.
If employment ends – besides the obvious providing of the ROE - you must pay your employee’s wages no later than the later of seven days after the employment ends or what would ordinarily have been your employee’s next regular pay day.
With respect to deductions- the ESA notes that deductions can only be made 3 ways – through Statutory Deductions -such as EI, CPP and Income Tax. You CANNOT deduct more than the statute allows and you are not allowed to make deductions if the money is not remitted to the proper authority. You are also allowed to make deductions if set out by Court Order. If you get a Court Order – follow it. Don’t make deductions any other way – even if you employee ends up owing you money (i.e. breaking stuff accidentally). You can also make deductions via written authorization, if your employee has signed a written statement authorizing the deduction that specifies the amount of money to be deducted or it provides a method of calculating the specific amount of money to be deducted.
Be careful – Your employee’s verbal authorization or a general statement that he or she owes you money is not sufficient to allow a deduction from wages. Even if you have authorization – it is illegal to make deductions to cover a loss due to work mishaps – i.e. over or under counting money, spoiling items or breaking things. You should never deduct money from your employee’s pay cheque to cover these things.
It all seems like simple stuff – but it is required by law.
If you have any questions please do not hesitate to contact me through the contact form, or you may visit www.haber-lawyer.com and contact me via email at matt.lalande@haber-lawyer.com