Court Provides Excellent Summary of Distinction Between Employee/Dependent Contractor and Independent Contractor
Employment Law and Human Rights
Court Provides Excellent Summary of Distinction Between Employee/Dependent Contractor and Independent Contractor
Written by Michael J WeilerTCF Ventures Corp. v. The Cambie Malone’s Corp. 2016 BCSC 1521Can a corporation bring a “wrongful dismissal “action? The answer is yes.TCF Ventures Corp (“TCF”) sued The Cambie Malone’s Corporation (“Malone’s”) for wrongful dismissal. TCF was the incorporated entity of Tim Fernback who provided a range of financial and commercial services through TCF. In 2009 Mr. Fernback answered a job posting for CFO of Malone’s. He was awarded the job which the court found was not full time but rather Malone’s expected Mr. Fernback to work “in the order of 3 days a week” and that it would be acceptable for Mr. Fernback to have other clients even though he had taken this position at Malone’s. The parties agreed Mr. Fernback could provide his services by way of his personal corporation TCF.In November 2009 Mr. Fernback took on the duties of COO as well and had his income increased from $75,000 to $100,000 per year and he worked full time. In 2012 his COO duties were removed, his compensation reverted to $75,000 but he took on additional duties of raising capital for which he was to be paid a 4 % finder’s fee.Malone’s ended the relationship in November 2012. TCF sued for wrongful dismissal. Malone’s argued, inter alia, that relationship between it and TCF was that of an independent contractor and not an employee or “dependent contractor” and as such TCF was not entitled to any notice.The court found that “the essential nature of the relationship was akin to an employer-employee situation, as opposed to a pure independent contractor” and as such Mr. Fernback/TCF was entitled to reasonable notice of termination.Sometimes I find a case that provides a very useful and succinct summary of the law. TCF v Malone’s is one such case so I will quote at length from the decision with respect to the distinction between an independent contractor and an employee and the intermediate relationship of “dependent contractor”:Nature of the relationship It is necessary to determine the essential character of the relationship between the plaintiff and the defendant. Mr. Fernback provided his services to the defendant by way of his personal corporation; that was an arrangement that was acceptable to both parties. It was done at the behest of Mr. Fernback. It is clear that he had his reasons for doing so—principally, it seems to me, to enable him to achieve significant tax savings. A related factor is Mr. Fernback’s practice to be almost constantly looking for other job opportunities and situations. The evidence disclosed a nearly incessant sending of resumes and expressions of interest for a wide range of positions. While that might have been, for some employers, a matter of concern or dissatisfaction, it was not an issue for Mr. Yehia (although I do not believe he was fully aware of the extent of Mr. Fernback’s endeavours on that front). He knew from the outset that Mr. Fernback wished to have the latitude of pursuing additional or supplementary business as circumstances allowed, and he did not object, presumably so long as those activities did not interfere with Mr. Fernback’s ability to fulfil his obligation to CMC. Indeed, the initial agreement contemplated that Mr. Fernback would work only on a part-time basis for CMC. There were material differences between the format that these parties had and what one might characterize as a purely conventional, traditional arrangement whereby a worker is hired as an employee. In that type of structure, the individual is on the company payroll and generally receives paychecks each pay period where the statutory deductions are made by the employer and remitted to the relevant authority, in addition to a host of other earmarks of a typical salaried employee. The jurisprudence of employment law has, in relatively recent times, evolved to recognize the realities of the modern workplace and the fact that the relationship between workers and those to whom they provide their services is not simply binary—either employee-employer or independent contractor. In a number of decisions, the courts have come to acknowledge that there are a variety of different arrangements that the parties may have. The approach to be taken is to examine the situation from a functional perspective. The result has been the recognition of relationships that fall within an area between the two traditional models. Dealing with a similar issue in Kahn v. All-Can Express Ltd., 2014 BCSC 1429, I made the following comments, which I feel are pertinent to the matter at hand: … Based upon a number of authorities to which I have been referred, I am satisfied that the common law with respect to this issue has evolved into a more nuanced state, one that reflects the reality of an economy where many workers perform services for others in arrangements that are specifically structured such that they are neither employer-employee relationships nor are they properly characterizable as independent contractor relationships. In effect, the courts have recognized that these sorts of relationships, depending upon their particular features, can fall at different points along a continuum, ranging from pure employer-employee situations to classic independent contractor arrangements: Hillis Oil and Sales Ltd. v. Wynn’s Canada,  1 S.C.R. 57; Stewart v. Knoll North America Corp., 2007 BCCA 11; and Movassaghi v. Steels Industrial Products Ltd., 2012 BCSC 1663. In that analytic framework, there is a recognition of what is sometimes labelled a dependent contractor status. It is neither of the traditional positions, but rather has some features of each. … In Mancino, Mr. Justice Lederman stated the following at paras. 9-10:Although the plaintiff in fact ran his own business, an examination of the relationship between the parties shows that there was a dependency that was mutual and permanent in nature….There is no doubt that the plaintiff, to use the words in the Labour Relations Act, was in “a position of economic dependence” upon the defendant which “more closely [resembled] the relationship of an employee than that of an independent contractor”. The fact of dependency continued even after the plaintiff’s change of status from a “dependent contractor” to a broker. In either capacity the plaintiff’s arrangement had all the hallmarks of an employment relationship with the defendant. This relationship was of a permanent and exclusive nature implicit in which was the understanding that it would be terminated only on the giving of reasonable notice. [Citation omitted.] In Marbry Distributors Ltd. v. Avrecan Int. Inc., 1999 BCCA 172, at para. 38, Braidwood J.A. provided the following non-exhaustive list of factors for determining where on the continuum a relationship falls, noting that not one is by itself conclusive nor necessary to determine the type of relationship as one requiring notice: … Those factors are: Duration/Permanency of the Relationship. The longer the duration of the relationship or the more permanent it is, militates in favour of a reasonable notice requirement. Amongst other evidence, the purchase and maintenance of inventory, which contains a permanency aspect, should be considered; Degree of Reliance/Closeness of the Relationship. As these two interrelated sub-factors are increased the more likely it is that the relationship falls on the employer/employee side of the continuum. Included in this factor is whether the sale of the defendant’s products amounted to a significant percentage of the plaintiff’s revenues; and Degree of Exclusivity. An exclusive relationship favours the master/servant classification. Notwithstanding the formal structure (that is, the provision of services through a corporation) and the lack of complete exclusivity, it is my conclusion based on all of the above that the arrangement the parties agreed upon in this case entailed a significant element of personal service. CMC set out to hire a CFO; it wanted a professional person to provide certain services to the corporation. That entailed having a specific, identified, and qualified person to perform those functions. The person CMC selected was Mr. Fernback. It was his package of attributes that CMC wanted to have working for it, and that is what occurred. By way of analogy, this was not a situation where CMC entered into a contract with a third-party corporate entity—say, for example, one of the major accounting firms—to have that firm assign a properly qualified worker to provide the services required. CMC bargained to have Mr. Fernback join its workforce, and that is what happened. There was a permanency to that relationship that persisted for a significant time—some three and a half years. Accordingly, I am satisfied that the essential nature of the relationship was akin to an employer-employee situation, as opposed to a pure independent contractor. My view is that Mr. Fernback was “employed” by CMC between April 1, 2009, and November 2012. Over that span of time, his responsibilities and rate of remuneration changed from time to time. Initially, he was the CFO at $75,000 per year; he subsequently took on the dual COO/CFO role at a rate of $100,000 per year. Finally, in March 2012, he reverted to the CFO job description at a rate of $75,000 per year. That was augmented by the fundraising assignment that he took on. The actual end of the relationship between the plaintiff and the defendant is somewhat shrouded in confusion. Some insight into that is to be found in an email exchange between Mr. Fernback and Mr. Yehia at the end of October. My conclusion is that Mr. Fernback was effectively terminated on November 15, 2012. That date is somewhat arbitrary, as Mr. Yehia and Mr. Fernback carried on their discussion regarding the matter over a period of time. However, it seems to me that, by then, the parties knew that the relationship that had subsisted to then, albeit in somewhat shifting forms, was over. Notwithstanding that, Mr. Fernback appears to have continued to pursue his activities to raise capital for the defendant for a period of time. In fact, the plaintiff subsequently rendered an invoice to the defendant with respect to the commissions related to those funds. I made mention of that invoice earlier. In the result, I find that the relationship between the plaintiff and the defendant was such as to entitle the plaintiff to notice at common law. The termination was without cause. It is my view that, at the point of termination, that is, on November 15, 2012, the rate of remuneration upon which any damages in lieu of notice would be based would be comprised of two components: (a) an annual salary of $75,000 per year, and (b) the commission earned at a rate of 4% with respect to funds generated for the business enterprises of CMC under the Finder’s Fee Contract.The court found that Mr. Fernback through TCF was entitled to gross damages of $131,000 based on 9 months’ notice less $23,000 he earned from another contract.LESSONS LEARNEDMore and more courts are finding that employees who operate through their companies are in fact and law either “employees” or “dependent contractors” and as such are entitled to reasonable notice of termination absent just cause. In this case the notice period of 9 months is certainly in line with the notice period for an employee so there is little reduction for the fact that the Plaintiff here was a corporation.Readers who follow my blog will know what I say the answer is —to avoid litigation, get a formal written, enforceable contract that spells out clearly the nature of the relationship and the amount of notice required to terminate that relationship absent “cause”. The court, in this case, would appear to agree with my philosophy as evidenced by these closing remarks: By way of a final observation, it seems to me that this dispute and this lawsuit are a regrettable outcome of experienced and ostensibly competent businessmen entering into important arrangements without documenting the terms they expect to apply to that relationship. When differences arise, as not-infrequently occurs, litigation, with all the attendant uncertainties and risks, often results. Ultimately, that is to the benefit of no one.
MICHAEL J. WEILER
Mike Weiler has more than 35 years experience in the ever evolving world of employment, labour and human rights law. And experience in this area is critical to protect our clients—this is where law is not just a science but most often an art. Judgment is critical for our clients and that is what we bring to the table based on our years of experience. This means first and foremost knowing the law—keeping updated and current. Experience also means knowing the players in the game and their processes—the LRB, the Employment Standards branch, WorkSafeBC, the courts etc. It means not only seeing the...
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