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Dependent Contractors Entitled to Notice?

Written by on September 7, 2020 in Employment Law Blog, Focus on Canadian Cases

One of the most significant cases decided in Ontario last year was Cormier v. 1772887 Ontario Limited (St. Joseph Communications), in which the Superior Court and Court of Appeal considered the wrongful dismissal claim of a contractor who later became an employee. By confirming that the time spent as dependent contractor is a relevant factor in calculating reasonable notice, this Court’s decision opened the door to an equal entitlement for independent contractors.

The Facts

Kelly Cormier worked for St. Joseph Communications, a marketing and advertising company, as a freelance wardrobe stylist and then as a fashion studio manager. From 1994 to 2004, Cormier worked as an independent contractor, compensated on an hourly or project basis. She invoiced St. Joseph weekly, and the company paid her without withholding taxes, CPP premiums, or employment insurance premiums. Throughout that ten-year period, Cormier generally worked for St. Joseph full-time and exclusively.

In 2004, Cormier became an employee of St. Joseph pursuant to a written employment contract. Each time she was promoted, Cormier signed a new agreement, the last of which contained a termination clause which purported to limit her entitlements to those required by the Employment Standards Act, 2000, and stated that her “original hire date” in 2004 would be recognized as her start date for the calculation of her years of service,

When she was terminated without cause in 2017, Cormier rejected the severance package offered her and sought twenty-four months’ pay and benefits in lieu of reasonable notice, based on twenty-three years of service to the company.

St. Joseph argued that the termination clause should be enforced, and alternatively, that Cormier’s work as an independent contractor should be ignored in the determination of the notice period.

The Case

Decision of the Ontario Superior Court of Justice

Justice Paul Perell determined that the termination clause was void because it contravened the ESA by providing Cormier with less group benefit entitlements than the minimum obligations set out in that statute.

He went on to reject St. Joseph’s argument that from 1994 to 2004 Cormier was an independent contractor. He conducted a review of the relevant factors differentiating independent contractors from dependent contractors, including the extent of the worker’s economic dependency, the permanency of the working relationship, and the exclusivity or a high level of exclusivity of the worker’s relationship with the employer, before concluding that the parties’ working relationship should be classified as a dependent contractor relationship.

Perell J. accordingly held that Cormier was entitled to twenty-one months’ notice. He granted Cormier a judgment in the amount of $112,863.75, plus pre-judgment and post judgment interest.

Significantly, Justice Perell noted that even if he had concluded that Cormier was an independent contractor from 1994 to 2004, he would not have ignored those years in determining the reasonable notice period. Doing so would, in his view, be “wrong in principle.”

Decision of the Court of Appeal

St. Joseph’s appeal was dismissed by the Court of Appeal later in the year. The court agreed that the termination clause was unenforceable. It noted that Perell J. used the correct legal test for determining that Cormier was a dependent contractor, and held that twenty-one months constituted reasonable notice.

The Takeaway

The Court of Appeal did not address Justice Perell’s opinion that ignoring years worked as independent contractor when determining reasonable notice would be “wrong in principle”, as this view was “obiter”, or incidental to the decision. As such, it will not be binding on a court considering a similar matter in the future.

However, the notion that years of service as an independent contractor could impact the determination of reasonable notice would be a significant change to the common law. Independent contractors are not currently entitled to common law reasonable notice and such service does not impact reasonable notice for an independent contractor turned employee. Only dependent contractors who transition to employees are entitled to have their time spent as contractors considered in the calculation of their reasonable notice upon termination. This case raises the possibility that in the future independent contractors might be similarly entitled. For now, it remains to be seen whether other judges will take a similar approach to the non-binding –but very significant—views expressed by Justice Perell.

Regardless, this decision serves as a reminder for employers that how a worker is identified in an agreement will not necessarily determine how they will be classified by a court. Employers must continually and honestly evaluate their employment relationships with contractors to determine if they are in practice what they claim to be in form.

Employers that choose to transition a dependent contractor to an employee should be aware that the worker’s time spent as a dependent contractor will be included in a reasonable notice calculation upon termination. Employers might wish to address this by requiring the employee to enter into an agreement that contains an enforceable termination clause limiting their entitlement. However, they must carefully and clearly draft such a provision to ensure that it complies with the ESA. Employment contracts should contain a “failsafe” clause which specifically provides that in no event will an employee receive less than their minimum statutory entitlements. Given Justice Perell’s obiter opinion and the possibility that the law may evolve to provide a reasonable notice entitlement to independent contractors who are transitioned into an employee relationship, employers might wish to consider similarly requiring independent contractors who become employees to enter into an employment agreement with an enforceable termination clause and a failsafe clause.

As we’ve seen recently with respect to termination clauses, employment law is constantly changing. We urge employers to seek legal advice regularly so that their agreements and policies are in line with the most recent developments.

Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. We can be contacted at contact@minken.com or call us at 905-477-7011. Sign up for our newsletter to receive up-to-date Employment Law information, including new legislation and Court decisions impacting your workplace.

Please note that this article is for informational purposes only and does not constitute legal advice.

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