Ontario court looks at individual's status: employee, dependent contractor, independent contractor?
The Superior Court of Justice in Ontario recently dealt with a wrongful dismissal case that shed light on several important employment law issues. The case involved a sales agent, a company in the point-of-purchase solutions industry, and the complexities that can arise when businesses change hands.
The sales agent argued that he was wrongfully dismissed after more than a decade of service, during which he played a crucial role in building the company's business. He claimed that despite the company's bankruptcy and subsequent takeover by a new entity, his employment should be viewed as continuous.
The sales agent also said that his relationship with the company was that of an employee or dependent contractor, rather than an independent contractor, which would entitle him to certain rights including reasonable notice of termination.
Furthermore, he sought compensation not only for the notice period but also for future commissions on contracts he had negotiated.
Long-standing relationship with the company
The case centred around a sales agent who had been working for a company in the point-of-purchase solutions industry since 2002. The sales agent, who was 75 years old at the time of the trial, had been recruited by the company's principal to build the business in Ontario. Their relationship started with operations in the sales agent's living room and grew from there.
Over the years, the sales agent successfully built the business by targeting specific companies and presenting a revolutionary and patented point-of-sale system. As the business became more successful, the sales agent earned increasingly larger commissions.
In January 2014, the sales agent introduced and closed a deal with a significant new client, which played a large part in ensuring the company's continued existence.
However, on February 4, 2014, the original company made an assignment in bankruptcy. Another company, incorporated by the same principal, took over its business. The sales agent continued to provide the same services to the new company, including managing the significant account he had recently brought in.
On April 29, 2014, the new company wrote to the sales agent, stating that his contract would be terminated effective December 31, 2014, and attempting to significantly change his commission structure in the interim. The sales agent found these changes unacceptable and refused to accept the revised commission structure.
Employee, independent contractor, or dependent contractor?
One of the key issues the court had to determine was the nature of the sales agent's relationship with the company. This classification is crucial in employment law as it affects the rights and obligations of both parties.
The court considered various factors, including the level of control the company had over the sales agent's work, the exclusivity of the relationship, and the economic dependence of the sales agent on the company. After considering the evidence, the court concluded that the sales agent was either an employee or a dependent contractor.
The court emphasised this point by stating:
"Based upon the deemed admissions, affidavit evidence, and [the worker's] oral testimony, I am satisfied that [the worker] was either an employee or a dependent contractor of [the original company] and then [the new company]."
The court noted several factors supporting this conclusion, including:
"[The original company] and then [the new company] controlled the clients with whom [the worker] could work exclusively.
[The worker] was given an office, and it was mandatory that he was there each day.
[The worker's] title was vice president of marketing.
[The worker] worked fulltime for [the original company] and then [the new company].
[The worker] did not have any other clients or work apart from what he did for [the original company] and then [the new company]."
Is there continuity of employment?
Another crucial issue in this case was whether the sales agent's years of service with the original company should be considered when calculating the reasonable notice period. This question often arises in situations where businesses change hands or restructure.
The court decided that the sales agent's entire period of service, including his time with the original company, should be taken into account. This decision was based on several factors, including the fact that the new company had implicitly agreed to continue the sales agent's employment on the same terms as before.
"After [the original company] made an assignment in bankruptcy on February 4, 2014, [the new company] took over the business.
[The worker] was not offered any reasonable notice or compensation from [the original company] and was not even told about [the original company's] assignment into bankruptcy immediately.
There is no evidence that at the time it took over the business, [the new company] sought to terminate [the worker] or that it sought to renegotiate his employment agreement."
Determining the reasonable notice period
In calculating the reasonable notice period, the court considered the traditional Bardal factors: the employee's age, length of service, character of employment, and availability of similar jobs.
The court also took into account the sales agent's significant contributions to the business and the difficulty he would face in finding comparable employment due to his age and specialised experience.
After considering all these factors, the court determined that an 18-month notice period was appropriate. The court stated:
"[The worker] has provided evidence of sales to customers that he procured in the amount of $977,365.22 during the notice period. Ten percent of this amount is $97,736.52."
This calculation demonstrates the court's effort to put the sales agent in the position he would have been in had proper notice been given.
Balancing rights and obligations
In its conclusion, the court awarded the sales agent additional damages based on the commissions he would have earned during the 18-month notice period.
However, the court rejected the sales agent's claim for future commissions beyond the notice period. The court explained:
"[The worker] only gave evidence in respect of an agreement whereby he would earn 10% commission on sales. Although he did state that there was no specific provision that restricted his commissions in the event his employment ended."
The court awarded the sales agent damages for the notice period and costs, demonstrating the significant financial implications that can arise from wrongful dismissal cases.
