By Barry W. Kwasniewski and Martin U. Wissmath

Contractor ruled to be an employee, awarded termination damages by Ontario court

A decision of the Ontario Superior Court of Justice (the “court”) released on October 26, 2022, Baker v Fusion Nutrition Inc., 2022 ONSC 5814 (“Baker”), provides a review of the legal principles relating to employee versus independent contractor status, and damages for pay in lieu of notice arising from the termination of fixed term employees. In Baker, the court awarded over $64,000 in damages including for pay in lieu of reasonable notice. Baker reminds employers that they cannot contract out of the minimum standards in Ontario’s Employment Standards Act, 2000 (the ESA), including for fixed-term employment contracts, and if termination provisions are found unenforceable, the court could award damages based on common law principles. In Baker, the court held that the employer miscategorized the plaintiff as an independent contractor, finding that the plaintiff was in fact an employee, and therefore the contract needed to comply with the ESA. This case, and others like it, remind employers of charities and not-for-profit organizations to draft carefully worded termination clauses in employment contracts, and to ensure that anyone providing services is not miscategorized as an independent contractor with inadequate termination clauses that could be struck down by a court.

Whether or not someone is an employee, which entitles them to minimum standards under the ESA, or an independent contractor, is a “factual question to be determined on the evidence” the court stated. Although the plaintiff’s contract with the defendant clearly described him as an independent contractor, that is “not determinative of the nature of his status”. Citing precedent case law, the court noted the following principles to distinguish independent contractors from employees:

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 service;

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?   [Emphasis added.]

On the facts in Baker, which was a default judgment because the defendant did not respond to the statement of claim, and therefore the plaintiff’s pleadings were deemed admissions of the defendant, the court found that the plaintiff met the criteria to be classified as an employee. The court found that the plaintiff’s primary income was from the defendant, for which he worked full-time hours out of the defendant’s head office and under the defendant’s control, without hiring his own helpers, holding himself out as a representative of the defendant’s company, and with no opportunity for profit for the performance of his work tasks. The court inferred that the plaintiff would not have assumed a financial risk. Because he was found to be an employee, the contract was not legally enforceable, including the termination clause.

The termination provisions of the contract included the following clause:

 4.1 Termination for Cause: Both parties may terminate this Agreement at any time without notice of further payment/provisions of services if either is in breach of any of the terms of this Agreement.

Under the ESA sections 54 and 55, termination pay “must be given for all terminations, even those for a just cause,” the court stated, except for certain prescribed employees by regulation. Ontario Regulation 288/01: Termination and Severance of Employment lists the employees that are not entitled to notice of termination or termination pay in subsection 2(1), which includes, “An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” However, the defendant’s termination clause in Baker did not specify wilful misconduct, and for that reason was not ESA compliant, according to the court. Citing precedent from the Ontario Court of Appeal, “absent an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, an employer must pay a terminated fixed-term employee to the end of the contract term.” The court awarded the plaintiff a total of $54,283.56 for the balance of his contract term, plus unpaid wages, vacation and holiday pay.

Ottawa extends EI sick benefits permanently

For employment insurance claims on or after December 18, 2022, potential benefits have been extended from 15 weeks to 26 weeks. Carla Qualtrough, Minister of Employment, Workforce Development and Disability Inclusion, announced the extension on November 25, 2022 (the “Announcement”). The federal government launched consultations on the employment insurance (EI) program in August 2021 and included a commitment to extend the sickness benefit in its 2022 Budget. EI sickness benefits are paid at 55% of an applicant’s average weekly insurable earnings, up to a maximum entitlement of $650 per week for 2023. According to the Announcement, EI sickness benefits “are designed as a short-term income replacement measure and will continue to complement” other supports “for longer-term illnesses and disabilities, including the Canada Pension Plan Disability benefit, and benefits offered through private and employer insurance, as well as supports provided by provinces and territories.”

​Read the January 2023 Charity & NFP Law Update