BY: JUNKI HONG

It is a fundamental principle of employment law that employees who are terminated without just cause are entitled under “common law” to reasonable notice of termination, or pay if the employer does not want to provide advance working notice. Depending on their age, years of service, position, the job market, and other factors, a court will set the reasonable notice period of up to 24 months, or even more in exceptional circumstances. 

Employers are permitted to circumvent the reasonable notice that a court would otherwise award by specifying another period of notice in the employment contract. However, the contractual notice must still comply with the minimum requirements of employment standards legislation. Since the 1992 Supreme Court of Canada decision of Machtinger v HOJ Industries, termination clauses that violate employment standards legislation (for example, providing less than 2 weeks’ notice to an employee after one year of service) have been declared unenforceable, with full reasonable notice being awarded instead.

The difference between what is required at common law versus employment standards can amount to tens, if not hundreds of thousands of dollars. As such, a well-drafted termination clause in a written employment contract is a useful tool for employers to provide both clarity and certainty regarding their obligations upon terminating the employee. This is especially so in uncertain times like these when the bottom line is ever important.

While the courts in British Columbia have historically allowed some flexibility for the language of termination clauses, a recent decision from the Ontario Court of Appeal called Waksdale v. Swegon North America Inc., 2020 ONCA 391 sets out new rules around the enforceability of termination clauses that could cost Ontario employers a lot of money down the road. We wish to emphasize that this decision is not binding on British Columbia parties or courts; however, it is worth reviewing the decision as we expect to see similar arguments made here on behalf of employees.

In short, the Ontario Court of Appeal held that a “termination without notice” clause in the employment agreement (which did comply with employment standards legislation) was unenforceable because a separate “termination for cause” clause in the same agreement did not.

Facts

Benjamin Waksdale began his employment with Swegon North America Inc. (“Swegon”) on January 8, 2018, as a director of sales. Mr. Waksdale was terminated without cause on October 18, 2018. In accordance with the contract, Swegon paid Mr. Waksdale the minimum amount required under the Ontario Employment Standards Act, 2000 (the “Ontario ESA”). Mr. Waksalde sued Swegon for damages for wrongful dismissal, claiming for 6 months’ pay in lieu of notice for his 8 months of employment. His case was dismissed by the trial judge.

In the appeal, the parties agreed that the “Termination of Employment with Notice” clause complied with the minimum requirements of the Ontario ESA, but the “Termination for Cause” clause violated the Ontario ESA, presumably because it set a lower standard for a with cause termination than that which is required by the Ontario ESA.

The question before the Court was whether the complaint part of the employment contract would be thrown out because of the non-compliant part, even if the contract had a “severability” clause that said this should not happen.

Analysis

The Court referred to an earlier decision of Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 to highlight the following principles:

• The Ontario ESA is remedial legislation, intended to protect the interests of employees. Courts should thus favour an interpretation that “encourages employers to comply with the minimum requirements of the Act” and “extends its protections to as many employees as possible”, over an interpretation that does not do so: Machtinger, p. 1003.
• Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the Ontario ESA. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship: Machtinger, p. 1004.

The Court then went on and stated, “[t]hus, even if an employer’s actions comply with its ESA obligations on termination, that compliance does not have the effect of saving a termination provision that violates the ESA”.

In addition to the remedial protections offered by the Ontario ESA, in consideration of the power imbalance between employees and employers, the Court stated that the correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA, that an employment agreement must be interpreted as a whole and not on a piecemeal basis. The Court further noted that the location of the termination provisions or whether they are linked, is irrelevant. Lastly, the Court rejected the employers reliance on a severability clause in the employment contract, declining to apply the clause to termination provisions that purport to contract out of the provisions of the Ontario ESA. 

We note the Employer in this case has now sought leave to appeal to the Supreme Court of Canada. The Supreme Court of Canada will have to decide whether to grant leave for a further appeal.

Takeaways

This decision has significant implications for employers in Ontario. It raises the bar sky high for an enforceable termination clause and renders termination provisions in many existing employment agreements unenforceable. In effect, Ontario termination clauses will now be struck down for merely having the remote potential of violating Ontario’s ESA minimums.

The Ontario Court’s treatment of the provisions is also alarming in that the termination provisions were separate and meant to be applied to different situations. Because of the holistic interpretive approach, otherwise compliant provisions could be rendered ineffective, even though they are not relevant to the dispute at hand.

For employers, it is vital to note that any employment contract will be read and interpreted as a whole. A severability provision may not save the day where another provision violates any applicable statute. In our view, this may not be an accurate application of the severability principles that govern in British Columbia; nevertheless, this is a binding decision in Ontario at the appeal level, and the application of the principles in British Columbia is yet to be seen.

Particularly in these strange and interesting times, thanks to COVID-19, many employers will have to make many difficult decisions for financial reasons in the coming weeks and months. As such, Employers should consider reviewing their existing employment agreements and if necessary, amending them to avoid any further complications that may arise with terminations to come. This must be done carefully and precisely and we recommend seeking legal advice from one of our Employment & Labour Group lawyers during the process.  

Author: Ryan Greer

For most taxpayers who are shareholders of a private corporation withdrawing money from the company will be accomplished by way of either an ineligible dividend (on active business income below $500,000) or an eligible dividend (on active business income above $500,000). In 2019 the highest marginal tax rate in British Columbia was 44.64% on ineligible dividends and it was 31.44% on eligible dividends. Canada’s Income Tax Act is generally very good at ensuring that taxpayers do not withdraw funds from their corporation other than by declaring an ineligible or eligible dividend.

One exception to this general rule is when a corporation realizes a capital gain it is able to pay 50% of the capital gain to its shareholders as a tax-free capital dividend. This effectively reduces the combined tax rate on a capital gain to approximately 25%. If a corporation owns capital property (i.e. land/building) with an accrued gain there is a planning opportunity to trigger capital gains and distribute its retained earnings at a lower tax rate. With the meteoric rise in real estate prices in the Lower Mainland in the past few years many companies may be sitting on potential tax savings.

The planning outlined above could be implemented with the following transaction steps:

1. Opco transfers land and building to a newly incorporated subsidiary (“Newco”) under subsection 85(1) and elects to trigger a capital gain on the land (Note: the building is transferred at UCC to avoid recapture).
2. After the transfer Opco and Newco amalgamate to form a new company (“Amalco”).
3. Amalco can then distribute retained earnings to its shareholders by way of a capital dividend.

Typically Opco would only transfer the beneficial interest of the land/building to avoid unnecessarily triggering property transfer tax so this transaction must be structured carefully.

This type of capital gains planning was nearly shut down by the federal government in the summer of 2017 and the provincial government keeps threatening the subject transfers of beneficial interests to property transfer tax so this type of planning may not be around for much longer. Accordingly, taxpayers would be wise to trigger any capital gains within their companies sooner rather than later.

Need assistance or help in understanding if you are eligible for a reduced tax rate? Please contact Ryan for more information.

Chris and I are often asked by clients to advise on independent contractor agreements they wish to use for their senior salespeople or sales managers.  Our advice is usually that such arrangements are fraught with danger as courts and tribunals will find in many cases that the person is both in fact and in law an employee and not an independent contractor notwithstanding what the written agreement says.  A recent Ontario court decision highlights the potential dangers in misclassifying salespersons and sales managers as independent contractors.

In Rallis v Approval Team Inc., 2020 ONSC 4197 (CanLII) the Ontario Superior Court of Justice certified a class action law suit against a car dealer.  The Plaintiff worked for Approval as a salesperson and then a sales manager until 2019 when he converted to an employee position.  While an independent contractor, Approval did not pay the Plaintiff vacation pay, statutory holiday pay or overtime and did not make contributions for CPP or EI.  The claim in the class action lawsuit is for all vacation pay, statutory holiday pay, overtime and CPP and EI contributions for all such persons engaged by Approval since 2018. [NOTE that in BC such a court claim for entitlements under the E S Act cannot be pursued in court:  Macaraeg v. E Care Contact Centers Ltd., 2008 BCCA 182 (leave to appeal to SCC dismissed) but of course those claims can be pursued under the E S Act]

Dependent Contractors

True independent contractors can be terminated at will without notice.  But such true independent contractor relationships are going the way of the dodo bird.  For example the courts will often find that persons or entities that are independent contractors and not employees can still be entitled to much the same benefits as an employee.  Courts regularly find that reasonable notice of termination or pay in lieu will apply if the independent contractor is a “dependent contractor”, which is a judicial fiction of a hybrid position between a true employee and a true independent contractor:  Marbry Distributors Ltd. v AvrecanInt. Inc, 1999 BCCA 172.  Not every dependent relationship will constitute a “dependent contractor”.  For example the Ontario Court of Appeal recently found that a lawyer who provided legal services to the Office of the Children’s Lawyer  (“OCL”) was not a dependent contractor notwithstanding that she earned approximately 40% of her income from the OCL: Thurston v Ontario (Children’s’ Lawyer), 2019 ONCA 640.Under the B.C. Labour Relations Code “dependent contactors” are treated as employees with all the rights and protections of employees including the right to organize a work place.Courts had traditionally awarded less notice of termination to a dependent contractor than an employee.  However that trend is changing in favour of the dependent contractors.  In a recent decision the B C Supreme Court held that a dependent contractor was entitled to the same notice that an employee in similar circumstances would be awarded.  So a Senior Manager who was found to be a dependent contractor, aged 49 with 14 years of service received damages based on 15 months’ notice: Liebreich v Farmers N.A. et al, 2019 BCSC 1074.[/et_pb_text][et_pb_text _builder_version="4.6.5" _module_preset="default" text_font="Nunito Sans||||||||" text_font_size="16px" header_2_font="Montserrat|700|||||||" hover_enabled="0" sticky_enabled="0"]

Independent Contractors vs Employees

The distinction remains important as businesses can and do engage independent contractors.The test was applied recently in a case involving someone who worked for a company that provided cleaning services to Starbucks stores in BC.  In Farren v Elite Services Group Inc. 2020 BCSC 23 the issue was defined by the court as follows:

If Mr. Farren was an employee of Elite, the law of wrongful dismissal would govern the termination of his employment. In that case, he would be entitled to reasonable notice of termination or damages in lieu of such notice. The appropriate remedy would have to be determined in a subsequent proceeding. However, if Mr. Farren is an independent contractor, he is not entitled to the remedies he seeks. In that case, his claim should be dismissed: see Jacks v. Victoria Amateur Swimming Club, 2005 BCSC 778.

The court then set out the test for determining whether someone is an employee or an independent contractor:

Recently, in Lightstream Telecommunications Inc. v. Telecon Inc., 2018 BCSC 1940, this court set out a useful list of factors to determine whether a worker is an independent contractor, based on a review of relevant case law. Justice Russell grouped the factors as follows (at paras. 124-159) :

a)    Level of worker control, including:

(1)            Defendant’s control over plaintiff’s activities, including:

(a)            Defendant’s power to select or not select the worker,

(b)            Payment of wages,

(c)            Defendant’s control over method of work, and

(d)            Defendant’s right to suspend or dismiss plaintiff;

(2)            Exclusive nature of the relationship;

(3)            Plaintiff’s economic dependence on defendant; and

(4)            Whether plaintiff could hire their own helpers.

b)    Ownership of equipment or tools;

c)     Opportunity for profit/loss;

d)    Business integration, including:

(1)            whether the plaintiff was a crucial element of the defendant’s business,

(2)            whether the activity of the worker represents the defendant’s business,

(3)            permanency and length of the relationship; and

(4)            whether the parties rely on each other or closely co-ordinate conduct

Mr. Farren operated through his company, “101” which the court basically treated as one entity. The court applied these tests and found that Mr. Farren/101  was an independent contractor in relation to Elite.  Mr. Farren’s action for wrongful dismissal was dismissed with costs to Elite.Contrast this decision with a recent decision of the Ontario Superior Court of Justice in Marschall v Marel Contractors 2019 ONSC 4692 (CanII).  Mr. Marschall worked as a drywaller for a large company and was terminated and sued for damages for wrongful dismissal.  The Defendant argued that he was an independent contractor who was paid a fixed amount and collected GST.  He could also work for others as long as it did not interfere with their employment.In finding that Mr. Marschall was in fact and in law an employee the court noted:

Where an individual is providing services pursuant to an agreement, the fact that the individual is paid through his or her corporation is not determinative of whether an employment relationship exists with the individual (citations omitted).

[17]           In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59 (CanLII), [2001] 2 S.C.R. 983 at para. 47, the Supreme Court of Canada stated that there is no one conclusive test that can be universally applied to determine whether a person is an employee or independent contractor.  However, it went on to set out what it considered to be a persuasive approach to the issue:

The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account.  In making this determination, the level of control the employer has over the worker’s activities will always be a factor.  However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.

Tax Considerations

It is one thing to find that the person you thought was an independent contractor was in fact and in law an employee or even a “dependent contractor” and that you are therefore liable to pay benefits, vacation pay, etc.  But it is quite another thing to learn there are also serious risks that an error in properly characterizing the relationship might draw the attention of CRA and other taxing authorities.  I have asked my colleague Kevin Scott, tax partner at Kane Shannon Weiler, to provide a brief summary of the potential tax liabilities.  Kevin comments as follows:

As stated above, a business hiring a contractor who is later determined to be an employee can have significant tax implications for both parties.  The employer will have to remit all unpaid payroll taxes, and might even be subject to penalties and interest.  This re-characterization may also trigger a full-scale payroll audit by the CRA.  Employees who have improperly claimed business expense deductions as contractors may also be liable.  As such, it is vital to ensure that you minimize the risk of your contractors being reclassified by the CRA as employees.”

Employer Takeaways

There are many businesses that engage true independent contractors. But more and more the courts and tribunals are finding that an individual, even if operating through her corporate entity, may not be a true independent contractor.  If she is found to be an employee then serious negative consequences may follow.  In many cases employers think they are doing themselves and the employee a favour by creating such a relationship and not making the appropriate deductions or contributions or otherwise failing to comply with employment standards laws and WCB requirements.  The employee herself may benefit by taking certain deductions and reducing her income tax. The fact that the employee operates through a corporation is not definitive nor is the fact that there is a detailed contract that says the person is not an employee.  The courts and tribunals will look at the substance of the relationship.  If they find the person is an employee then liabilities will follow including the potential of being noticed by CRA.So if you are thinking of hiring your sales manager who works only for you under your control as an independent contractor you may be asking for a huge financial headache including being on the CRA radar.  At a minimum you should seek professional advice from your lawyer regarding the nature of the agreement that should be in place to offer the best protection against an adverse finding.

No Fault Insurance BC

BY: PETER UNRUH

Intro

On February 6, 2020, the NDP government in British Columbia announced its intention to impose a “No fault” automobile insurance scheme onto British Columbians effective May 2021.  These changes are arguably the largest social policy shift in British Columbia in recent memory.  The announcement was made with virtually no public consultation and in fact, that was largely the point.

Why the Changes?

The Attorney General, David Eby, offered a highly controlled narrative suggesting that such changes were necessary because lawyers and (by inference) their clients were taking too much money out of the system.  According to Minister Eby, a “No Fault” system is necessary to stabilize insurance rates with a promise to lower them, at least in the short term.   In making the announcement, the NDP government had offered no advance notice which might otherwise have countered its narrative.  The NDP neither sought nor wanted any public input presumably because it had internally resolved itself to this ideological change.  By inference, the NDP claimed exclusive knowledge as to what is best for the motoring public in British Columbia.  On July 15, 2020, the NDP passed the No Fault legislation as part of Bill 11.  Much of the detailed application of Bill 11 will be determined through the passage of a series of regulations which have yet to be announced by the NDP.

What Does This Mean?

The net effect of that wisdom includes the exclusion of various rights that individuals now have to access our court system in the event they should disagree with the way that ICBC has managed or otherwise considered their claim.  A “No Fault” scheme as it is considered by the NDP, would essentially deny accident victims access to our courts.  It will eliminate “pain and suffering” awards to victims of car accidents who will have to endure potentially a lifetime of chronic pain without any form of compensation or recognition.

More troubling is that upon closer examination, the No Fault scheme envisioned by the NDP government offers far less to the motoring public in terms of protecting them against losses they may suffer as a consequence of an accident which is not their fault.  They have removed access to a number of forms of compensation for victims of car accidents.  These changes could have a considerably detrimental effect on the lives of accident victims and their livelihood.

The No Fault scheme introduced by the NDP is not about road safety and the NDP government has done nothing to make the roads safer through this announcement.  The No Fault scheme to be implemented by the NDP offers no long-term economic modelling and if the experience of other No Fault jurisdictions is considered, their general experience has been a rise in insurance rates to what they would have been in about three to five years following implementation of the scheme.  The No Fault scheme envisioned by the NDP will do nothing to make our road travel safer in British Columbia and based upon the experiences in other No Fault jurisdictions, it could in fact make our roads less safe.

Recent surveys indicate that British Columbians have been kept largely uninformed on the issues surrounding the NDP’s intended changes and their narrative has largely been directed at obtaining cost savings by removing those involved in accidents from access to our courts (and to lawyers by implication).  The NDP narrative is that through the exclusion of the legal processes currently in place, somehow greater fairness for all shall prevail.  Consequently, because claimants no longer need lawyers and can no longer access the courts except in the most limited of circumstances, there will be cost savings for all in British Columbia. That narrative and the assumptions associated with it remain largely unchallenged by the media.

No Fault Insurance Schemes

The term “No Fault” insurance is actually something of a misnomer.  It was originally adopted by various insurers in North America to describe a type of insurance contract which indemnifies (or compensates) the insured party for their losses by their own insurance company regardless of the source of the cause of the loss.  This meant that even if the other party had insufficient insurance coverage, a motorist would still be covered by his own insurance company for losses stemming from an accident.   Since approximately 1974, motorists in British Columbia have been required to purchase basic liability insurance through ICBC, although secondary insurance coverage is available.  Nevertheless every motorist licensed in British Columbia must purchase automobile insurance though ICBC.   In this regard, ICBC has operated in a system where fault for an accident is a primary determining feature in premium increases when assessing individual insurance rates in the province.   Automobile insurance in British Columbia has always borne some similarities to other jurisdictions where pure no fault insurance schemes exist. Accordingly, ICBC paid some limited benefits out to motorists regardless of fault, yet “at fault” drivers in British Columbia could well face insurance higher premiums through their own negligent driving.  

What Rights Will Be Lost?

Alternatively, motorists in British Columbia who were not principally at fault have, through our courts, access to compensation which include damages for past and future income losses, past and future care costs, and compensation for pain and suffering.  Court awards in British Columbia are designed to compensate victims of car accidents in such a way as to put them in approximately the same position they would have been in had the accident not occurred, as much as can be done.  This remains a basic principle of justice, of fairness and equity.  Our Canadian justice system is based upon such principles.

Those not at fault, or only partially at fault, have in British Columbia, historically have had access to compensation for their losses including past and future income losses, care costs, both past and prospective and, as previously mentioned, compensation for their pain and suffering.   At least that was both the law and legal tradition of the province until the NDP completely eradicated the idea of putting the non-negligent victim of a car accident back into the place he or she would have been in had the accident not occurred.  Instead they have put in place a rigid but confusing insurance scheme starting in May 2021, which will pay limited wage replacement benefits to accident victims and no compensation for pain and suffering.  Care needs, such as housekeeping assistance, therapy costs, and counselling, will be dispensed on a “pay as you go” basis by ICBC adjusters.  If an injured person disagrees with the way ICBC is determining the benefits which are payable, there is no access to our courts for any sort of final resolution.  In this regard, a chronically injured person who struggles in the years following an accident will have no finality and will be required to continue to rely on ICBC to maintain their limited benefits.  That system of indefinite request will be the course for injured victims of car accidents until they are cut off from their benefits from ICBC.    

Perspective of an Experienced PI Lawyer

In my experience as a lawyer for over thirty years, this is likely to have serious consequences for victims of car accidents.  The NDP are creating a system whereby victims will be entirely reliant on the whims of the adjuster and the payment of benefits as determined by the adjuster.  This sense of dependence, particularly experienced by chronically injured victims, could have a highly detrimental effect on the accident victim.  If ICBC, for whatever reason, determines that benefits should no longer be forthcoming, the accident victim will be left with relatively few options.  ICBC has enormous financial power at their disposal to investigate claims and is prepared to use the methods it has at its disposal.  They also have the power to access considerable personal information about claimants and to involve themselves in the daily lives of injured victims through surveillance, online investigations and other investigative methods in order to reach conclusions helpful to limiting payouts to accident victims.  It is in my experience, difficult enough for a healthy person to fight a powerful government Crown Corporation, but to require an injured victim of a car accident to fight against ICBC largely on their own, as Bill 11 requires, would be beyond the capabilities of most of us.  The fact that many people in British Columbia cannot find a family doctor is even more troubling because a victims’ eligibility for benefits require input from a family physician.  

What Can We Do?

At this point I urge you to become more informed on the No Fault changes set to take place as of May 2021 and to contact your MLA with your concerns.  I also urge you to strongly consider this issue when voting for the next government.  I recommend going to the websites such as www.notonofault.com and when considering the issues, please ask yourself whether this is the type of insurance scheme you want whereby you surrender control of your health and recovery from a car accident over to ICBC, which will make decisions based on its best interests and not yours.  I’ll be writing more on this important issue over the course of the next weeks and months.   

Say no to no fault!

Peter Unruh

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact Peter Unruh.

BY: MIKE WEILER

Chris and I are often asked by clients to advise on independent contractor agreements they wish to use for their senior salespeople or sales managers.  Our advice is usually that such arrangements are fraught with danger as courts and tribunals will find in many cases that the person is both in fact and in law an employee and not an independent contractor notwithstanding what the written agreement says.  A recent Ontario court decision highlights the potential dangers in misclassifying salespersons and sales managers as independent contractors.

In Rallis v Approval Team Inc., 2020 ONSC 4197 (CanLII) the Ontario Superior Court of Justice certified a class action law suit against a car dealer.  The Plaintiff worked for Approval as a salesperson and then a sales manager until 2019 when he converted to an employee position.  While an independent contractor, Approval did not pay the Plaintiff vacation pay, statutory holiday pay or overtime and did not make contributions for CPP or EI.  The claim in the class action lawsuit is for all vacation pay, statutory holiday pay, overtime and CPP and EI contributions for all such persons engaged by Approval since 2018. [NOTE that in BC such a court claim for entitlements under the E S Act cannot be pursued in court:  Macaraeg v. E Care Contact Centers Ltd., 2008 BCCA 182 (leave to appeal to SCC dismissed) but of course those claims can be pursued under the E S Act]

Dependent Contractors

True independent contractors can be terminated at will without notice.  But such true independent contractor relationships are going the way of the dodo bird.  For example the courts will often find that persons or entities that are independent contractors and not employees can still be entitled to much the same benefits as an employee.  Courts regularly find that reasonable notice of termination or pay in lieu will apply if the independent contractor is a “dependent contractor”, which is a judicial fiction of a hybrid position between a true employee and a true independent contractor:  Marbry Distributors Ltd. v Avrecan Int. Inc, 1999 BCCA 172.

Not every dependent relationship will constitute a “dependent contractor”.  For example the Ontario Court of Appeal recently found that a lawyer who provided legal services to the Office of the Children’s Lawyer  (“OCL”) was not a dependent contractor notwithstanding that she earned approximately 40% of her income from the OCL: Thurston v Ontario (Children’s’ Lawyer), 2019 ONCA 640.

Under the B.C. Labour Relations Code “dependent contactors” are treated as employees with all the rights and protections of employees including the right to organize a work place.

Courts had traditionally awarded less notice of termination to a dependent contractor than an employee.  However that trend is changing in favour of the dependent contractors.  In a recent decision the B C Supreme Court held that a dependent contractor was entitled to the same notice that an employee in similar circumstances would be awarded.  So a Senior Manager who was found to be a dependent contractor, aged 49 with 14 years of service received damages based on 15 months’ notice: Liebreich v Farmers N.A. et al, 2019 BCSC 1074.

Independent Contractors vs Employees

The distinction remains important as businesses can and do engage independent contractors.

The test was applied recently in a case involving someone who worked for a company that provided cleaning services to Starbucks stores in BC.  In Farren v Elite Services Group Inc. 2020 BCSC 23 the issue was defined by the court as follows:  

If Mr. Farren was an employee of Elite, the law of wrongful dismissal would govern the termination of his employment. In that case, he would be entitled to reasonable notice of termination or damages in lieu of such notice. The appropriate remedy would have to be determined in a subsequent proceeding. However, if Mr. Farren is an independent contractor, he is not entitled to the remedies he seeks. In that case, his claim should be dismissed: see Jacks v. Victoria Amateur Swimming Club, 2005 BCSC 778.

The court then set out the test for determining whether someone is an employee or an independent contractor:

Recently, in Lightstream Telecommunications Inc. v. Telecon Inc., 2018 BCSC 1940, this court set out a useful list of factors to determine whether a worker is an independent contractor, based on a review of relevant case law. Justice Russell grouped the factors as follows (at paras. 124-159) :

a)    Level of worker control, including:

(1)            Defendant’s control over plaintiff’s activities, including:

(a)            Defendant’s power to select or not select the worker,

(b)            Payment of wages,

(c)            Defendant’s control over method of work, and

(d)            Defendant’s right to suspend or dismiss plaintiff;

(2)            Exclusive nature of the relationship;

(3)            Plaintiff’s economic dependence on defendant; and

(4)            Whether plaintiff could hire their own helpers.

b)    Ownership of equipment or tools;

c)     Opportunity for profit/loss;

d)    Business integration, including:

(1)            whether the plaintiff was a crucial element of the defendant’s business,

(2)            whether the activity of the worker represents the defendant’s business,

(3)            permanency and length of the relationship; and

(4)            whether the parties rely on each other or closely co-ordinate conduct

Mr. Farren operated through his company, “101” which the court basically treated as one entity. The court applied these tests and found that Mr. Farren/101  was an independent contractor in relation to Elite.  Mr. Farren’s action for wrongful dismissal was dismissed with costs to Elite.

Contrast this decision with a recent decision of the Ontario Superior Court of Justice in Marschall v Marel Contractors 2019 ONSC 4692 (CanII).  Mr. Marschall worked as a drywaller for a large company and was terminated and sued for damages for wrongful dismissal.  The Defendant argued that he was an independent contractor who was paid a fixed amount and collected GST.  He could also work for others as long as it did not interfere with their employment.

In finding that Mr. Marschall was in fact and in law an employee the court noted:  

Where an individual is providing services pursuant to an agreement, the fact that the individual is paid through his or her corporation is not determinative of whether an employment relationship exists with the individual (citations omitted).

[17]           In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59 (CanLII), [2001] 2 S.C.R. 983 at para. 47, the Supreme Court of Canada stated that there is no one conclusive test that can be universally applied to determine whether a person is an employee or independent contractor.  However, it went on to set out what it considered to be a persuasive approach to the issue:

The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account.  In making this determination, the level of control the employer has over the worker’s activities will always be a factor.  However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.

Tax Considerations

It is one thing to find that the person you thought was an independent contractor was in fact and in law an employee or even a “dependent contractor” and that you are therefore liable to pay benefits, vacation pay, etc.  But it is quite another thing to learn there are also serious risks that an error in properly characterizing the relationship might draw the attention of CRA and other taxing authorities.  I have asked my colleague Kevin Scott, tax partner at Kane Shannon Weiler, to provide a brief summary of the potential tax liabilities.  Kevin comments as follows:

As stated above, a business hiring a contractor who is later determined to be an employee can have significant tax implications for both parties.  The employer will have to remit all unpaid payroll taxes, and might even be subject to penalties and interest.  This re-characterization may also trigger a full-scale payroll audit by the CRA.  Employees who have improperly claimed business expense deductions as contractors may also be liable.  As such, it is vital to ensure that you minimize the risk of your contractors being reclassified by the CRA as employees.”

Employer Takeaways

There are many businesses that engage true independent contractors. But more and more the courts and tribunals are finding that an individual, even if operating through her corporate entity, may not be a true independent contractor.  If she is found to be an employee then serious negative consequences may follow.  In many cases employers think they are doing themselves and the employee a favour by creating such a relationship and not making the appropriate deductions or contributions or otherwise failing to comply with employment standards laws and WCB requirements.  The employee herself may benefit by taking certain deductions and reducing her income tax. The fact that the employee operates through a corporation is not definitive nor is the fact that there is a detailed contract that says the person is not an employee.  The courts and tribunals will look at the substance of the relationship.  If they find the person is an employee then liabilities will follow including the potential of being noticed by CRA.

So if you are thinking of hiring your sales manager who works only for you under your control as an independent contractor you may be asking for a huge financial headache including being on the CRA radar.  At a minimum you should seek professional advice from your lawyer regarding the nature of the agreement that should be in place to offer the best protection against an adverse finding.

Check out our Related Articles here.

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Employment & Labour Group.

I have known and worked with Mike Weiler for 35 years.  

I have changed firms at least 5 occasions during that time frame and have always brought Mike’s advice and experience along with me.

We have been successful on literally hundreds of cases. From Favorable Union negotiations, to de-certifying to legally foiling a corrupt collective drive. From defending unjust dismissal claims to a Human Rights case dismissed, Mike has always been a collaborative partner.

The  key to success is a secure relationship between client and practitioner . I have always brought Mike into situations long before they blow up. In other words Most of our cases were thought out in advance rather than being reactive.

Needless to say I highly recommend Mike and his approach.

Bryan Edwards

BY: CHRIS DRINOVZ

On July 17, 2020, the federal tabled Draft legislation for more changes to the Canada Emergency Wage Subsidy (“CEWS”) program. In essence, the changes would make the program more accessible to businesses, introduce a two-part new subsidy system, and extend the program until the end of the year. The amendments are scheduled for debate in Parliament on July 22 and we expect they will be put into effect soon after.

Proposed changes to CEWS include the following:

• Extension of the CEWS program until December 19, 2020;
• Removal of the threshold requirement of a 30% decrease in revenue currently required to receive CEWS benefits – thus making the subsidy available for businesses who have experienced losses less than 30%;
• Creation of a two-part benefit comprised of base subsidies and top-up subsidies;
• Determination of a gradually decreasing base subsidies for eligible businesses according to actual revenue lost;
• A new “top-up” wage subsidy of up to 25% for eligible businesses that have experienced at least a 50% decrease in revenue, and
• Expansion of the definition of “eligible entity” to receive CEWS benefits to include trusts, in addition to corporations and individuals.

Finance Canada has released the following news release and backgrounder which provide detailed information about the changes. The following chart provides guidance on the expected CEWS base subsidies: 

Note that some eligible employers may also be entitled to top-up subsidies in addition to the amounts outlined above. It should be noted that employers that have already made business decisions for July and August based on the previous CEWS rules will not receive a lower subsidy rate and can expect to transition to the new proposed subsidy rates in September.

As the new rules and eligibility criteria follow a complicated technical formula, we recommend that you obtain assistance from your legal and financial advisors. Stay tuned for further updates as the Bill passes through Parliament.

If you would like to discuss these changes or any other matter relating to the CEWS program and your workplace, please contact the Employment & Labour Group at KSW Lawyers.

Under the BC Employment Standards Act, the time period for a temporary layoff related to COVID-19 may be extended to a maximum of 24 weeks, ending on or before August 30, 2020. Employers who plan to recall employees on a date that falls after August 30, 2020 can now submit a joint application to extend a temporary layoff through the Employment Standards Branch (ESB) by August 25, 2020 to receive a decision by August 30, 2020. This is done through a variance to the Employment Standards Act. 

In order to grant a variance extending the time period for a temporary layoff, the ESB Director must be satisfied the variance will facilitate the preservation of the employer's operations. The employer applying needs to confirm and attest that the variance application helps preserve the employer's operations.

Steps for joint applications to extend a temporary layoff

Employers must email/communicate to employee the employer’s intention, anticipated recall date and ask for consent. At least 51% of the affected employees must consent to the joint application. A template email is available here. In your email to employees, include link to form for them to submit confirming their consent.

Prepare list of affected employees

It is recommended to prepare a list of affected employees to submit with application for faster processing. Template available here.

Submit your application online. The application can also be submitted by emailing this form, although this method will take longer.

Once application is decided, the employer will receive a copy of the decision. The conditions in the variance must be followed and a copy of the variance must be posted at the worksite. It is recommended a copy is also sent to employees via email. 

Should you have any questions about preparing and submitting an expedited variance application, contact our Employment & Labour Group today.

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Employment & Labour Group.

BY: CHRIS DRINOVZ

On July 14, 2020, the BC government tabled Bill 23, Workers Compensation Amendment Act, 2020. The proposed amendments are informed by Jeff Parr’s Consultation Report, which examined the recommendations from three earlier reviews completed in the past two years (Helps Report, Petrie Report, and the Bogyo Report).

While the changes are aimed at increasing support for injured workers in various ways, they will inevitably result in increased costs for employers by way of increased premiums. There are also proposed expansions to personal liability for corporate directors and in our view, a possible shift from administrative penalties to more criminal prosecutions for serious health and safety violations that will cause concern for many businesses. A coalition of businesses proposed the following response letter to the proposed changes.

The following is a summary of the key proposed legislative changes.

Increased Worker Benefits 

• Increasing a worker’s maximum annual insurable earnings from $87,100 to $100,000 – this aims to ensure that 90% of workers have 100% of wages covered in a WorkSafeBC claim;
• Changing the current procedure around whether the loss of function or loss of earnings method should be used in calculating a worker’s pension benefits so that the worker will always receive the higher of the two – at present, there is a complicated test which requires there to be a significant loss of earnings for the loss of earning pension method to be used – again, this will result in higher benefits for disabled workers;
• Permitting WorkSafeBC to set a worker’s retirement date (and therefore the date pension benefits end) when the worker is nearing age 65 rather than at the time of injury – this addresses present difficulties of assessing a retirement date when a worker is young, and will likely result in more claims being extended past the default age 65;
• Allowing WorkSafeBC to fund certain urgent health care treatment even before the claim is accepted (examples given include counselling for mental health issues or preventing infections);
• Removing the current one-year limitation period for reporting mental health claims; presently, workers applying past the one-year mark must show special circumstances existed that prevented them from reporting in time – this will likely result in the acceptance of many historical mental health claims that would otherwise be time-barred.

New Tools Added for Criminal Prosecutions 

The proposed amendments add a number of procedural tools which relate to criminal prosecutions for serious health and safety violations. At this time, WorkSafeBC enforces occupational health and safety regulations primarily through the use of administrative fines and penalties. The amendments will give WorkSafeBC greater powers, such as a process to obtain a warrant for search and seizure under the Act for prosecutions (similar to Ontario), allowing courts to hear victim impact statements during prosecution, and giving courts the power to compel convicted employers to publish facts about their offences in the newspaper or a company-wide newsletter, at the employer’s expense. We note that section 104(1)(e) of the current Act already allows the court to direct WorkSafeBC to publish the facts at the employer's expense.

Additional Changes 

The proposed amendments will make corporate directors personally liable for unpaid premiums or other amounts owed to WorkSafeBC

The legislation also aims to expedite the inclusion of COVID-19 as an occupational disease under Schedule 1 of the Act, which will ensure employees at higher risk of contracting viral diseases can access benefits quickly by way of an automatic presumption.

We will be closely monitoring this Bill as it is debated and will update this blog with any relevant changes made before it is passed into law.

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Employment & Labour Group.

BY: MICHAEL J. WEILER

More and more employers are requiring employees to sign employment agreements that in many cases significantly reduce employees’ rights or impose significant restrictions on their ability to compete after they leave their employer. As readers of this blog will know an employer may be able to reduce an employee’s common law right to reasonable working notice to the minimum standards under the Employment Standards Act (“ESA”): see Machtinger v HOJ Industries Ltd., 1992 CanLII 102 (SCC). So for example an employee who would be entitled to 24 months’ notice might sign an agreement that reduces her rights to 8 weeks’ notice or severance pay. Employee counsel often try to undermine the validity of such restrictive contracts in a variety of ways by arguing:

The law in BC at least is pretty well settled with respect to the first 4 of these defenses. However the law with respect to the 5th ground to attack a contract, unconscionability, has been muddied a great deal by the Supreme Court of Canada’s (“SCC”) decision in Uber Technologies Inc. et al v David Heller 2020 SCC 16 (CanLii). Once again employers are left with uncertainty in organizing their affairs and legal relationships.

UBER

Mr. Heller provided food services in Toronto using Uber’s software applications. He had to accept Uber’s standard contract that provided, inter alia, that any dispute with Uber had to be resolved by mediation and arbitration in the Netherlands. The up-front administrative and filing fees were US $14,500 plus legal fees and costs of participation which represented most of Mr. Heller’s annual income. Mr. Heller brought a class action against Uber for violations of the employment standards legislation. Uber obtained a stay order successfully arguing that the issue had to be decided in arbitration in the Netherlands. That of course would have effectively ended the law suit.

Mr. Heller argued that the arbitration clause was unconscionable and therefore invalid. The majority of the SCC stuck down the arbitration clause and lifted the stay order. Based on both the financial and logistic disadvantages faced by Mr. Heller in his ability to protect his bargaining interests and on the unfair terms that resulted, the arbitration clause was found to be unconscionable and therefore invalid. Brown J issued a concurring decision but did not rely on the doctrine of unconscionability. In fact Brown J pointed out that the expansion by the majority of the doctrine of unconscionability set a dangerous precedent in contract law.

UNCONSCIONABILITY DOCTRINE

A fundamental cornerstone of our common law is the ability of parties to enter into binding contracts. However “equity” tempers the common law. “Unconscionability” is an equitable doctrine that is used to set aside unfair agreements that resulted from inequality of bargaining power. 

The Majority held that unconscionablity requires both an inequality of bargaining power and a resulting improvident bargain. Inequality of bargaining power exists when one party cannot adequately protect its own interests in the contracting process. A bargain will be improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable. While one party knowingly taking advantage of another’s vulnerability may provide strong evidence of inequality of bargaining power, it is not essential for a finding of unconscionability. In fact unconscionability, according to the Majority, does not require that the transaction be grossly unfair, that the imbalance of bargaining power be overwhelming or that the stronger party intend to take advantage of a vulnerable party.

Brown J in a concurring opinion struck down the arbitration clause but did so on different grounds. His opinion strongly disagreed with the Majority’s reliance on the doctrine of unconscionablity. The concurring opinion provides a very detailed analysis of the doctrine of unconscionability a complete review of which is beyond this article. However Brown J’s opinion regarding the Majority’s analysis and expansion of the doctrine is seen in this passage:  -->

" It is therefore important to elaborate on the criteria that form the basis for reaching the conclusion that a contract or contractual provision should be set aside. Attempting to jam multiple grounds for setting aside contracts and contractual terms into one single principle serves only to obfuscate those criteria. To move forward in a coherent and rational way, “it is absolutely imperative, in connection with the doctrine of unconscionability, to resist appeals to unreasoned intuition” ... Courts must not develop contract doctrines that invite “ad hoc judicial moralism or ‘palm tree’ justice” (Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, at para. 70).

[153]                     But unreasoned intuition and ad hoc judicial moralism are precisely what will rule the day, in my respectful view, under the analysis of my colleagues Abella and Rowe JJ. In their view, judges applying unconscionability are to mete out justice as they deem fair and appropriate, thereby returning unconscionability to a time when equity was measured by the length of the Chancellor’s foot (para. 78, quoting L. I. Rotman “The ‘Fusion’ of Law and Equity?: A Canadian Perspective on the Substantive, Jurisdictional, or Non-Fusion of Legal and Equitable Matters” (2016), 2 C.J.C.C.L. 497, at p. 535). As Professor Bigwood writes:

   . . . acceptance of such a “free‑wheeling” approach is also acceptance of the risk that those subject to Canadian law in this area will lose the very virtues of guidance, transparency and accountability that come with forced specificity in application, justification and analysis. To the extent the test bypasses such natural controlling phenomena of the common law method, it certainly risks decline into unprincipled and undisciplined judicial decision‑making, and thus could rightly be viewed as an “enemy” of reason, discipline and the rule of law. [Footnote omitted.]"

UNCONSCIONABILITY DOCTRINE AND EMPLOYMENT CONTRACTS

As noted the SCC has sanctioned the use of what might be considered Draconian employment contracts that can effectively reduce an employee’s entitlement in the extreme case from 24 months’ notice or pay in lieu to 8 weeks.  But in doing courts have noted this caveat:

Similarly, in Brown v. Utopia Spas and Salons Ltd., 2014 BCSC 1400, the court commented specifically on incorporating the ESA into an employment contract:

[17]  Absent unconscionability, an employer can make contracts with employees that “referentially” incorporate the minimum notice periods in the ESA. Such contractual notice provisions are enough to displace the presumption that the contract is terminable without cause only on reasonable notice. Machtinger at 1004-1005. See also: University of British Columbia v. Wong, 2006 BCCA 491 [UBC]. (Emphasis added).

BC courts have considered the doctrine of unconscionability in employment contracts and related documents.

For example in Saliken v Alpine Aerotech Limited Partnership 2016 BCSC 832 the court struck down a release signed by an employee on the grounds that the termination documents and the release were signed by the Plaintiff in circumstances of distress and concern for supporting his family and  “in a situation of substantial unfairness such that it would be unconscionable to hold the plaintiff to the release.”

On the other hand courts in BC have been reluctant to strike down an employment agreement on the basis of unconscionability.  For example in Finlan v Ritchie Bros. Auctioneers (Canada) Ltd. 2006 BCSC 291 the employee signed an employment agreement that limited his rights on termination to severance pay to the minimum requirements under the ESA.  The Plaintiff argued the contract should be set aside as unconscionable and that he be awarded common law damages.  The Court noted that a contract that includes a defined notice period in accordance with the ESA but not the reasonable notice that an employee could expect to receive at common law is not, by itself, grounds for finding a contract unconscionable.  After setting out the legal elements of unconscionability the court rejected the Plaintiff’s argument and upheld the contract.

EMPLOYER TAKEAWAYS

One of the most troubling things a business owner can hear from her lawyer is “Now that is an interesting question”. We have seen over recent years various doctrines incorporated especially in employment law that create uncertainty for employers. Doctrines such as “honesty and good faith performance of contractual obligations” (Bassin v Hrynew) or the duty of good faith at the time of termination (Honda v Keayes) or the requirement that courts take a “contextual approach” to the issue of just cause such that dishonesty will not always be cause for dismissal (McKinley) are fertile lawyer playgrounds that often result in expensive litigation or unsatisfactory settlements of disputes.

The issue of the status of Uber drivers as employees under the ESA or the Labour Relations Code will be a significant battle going forward. But the Uber decision should be viewed as a wake up call for employers generally in dealing with their employees. Coming out of COVID 19 many employers are looking to protect their businesses by requiring employees to enter into written employment agreements that significantly restrict their rights. In my view the expansion of the doctrine of unconscionability by the SCC in Uber makes the task of crafting enforceable agreements that employers can rely even more difficult and uncertain.

Check out Related Articles here.

Note to our Readers: This content is for information only, it is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Employment & Labour Group.

Michael Weiler provides 40 years of experience in employment law with a delicate mix of humour and attention to detail.

Michael was instrumental in assisting our organization on several occasions involving sound pragmatic legal advice, mediation, arbitration, and union negotiations.  Staff enjoy working with Michael for he understands rural local governments and their distinct challenges.

Town Manager, District of Sicamous

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