In the recent decision of Cormier v. St. Joseph Communications, the Court of Appeal upheld a motion judge’s finding that when calculating reasonable notice periods, an employee is entitled to include the duration of time they were an dependent contractor. This case highlights the risks posed by evolving employment relationships and the importance of drafting legally defensible termination clauses.
The facts in Cormier are not overly complex. The plaintiff began working for St. Joseph Communications in 1994. St. Joseph Communications was a marketing and advertising company. The plaintiff stated her career via an oral contract of employment. She was a “Freelance Wardrobe Stylist.” She worked on a project or hourly basis. Her job was to select clothing and accessories for models used in her employer’s advertisements and promotions. Between 1996 and 2004, she invoiced the company on a weekly basis as if she was a sole proprietorship. There were no source deductions or withholdings. In 2004, the plaintiff was hired as a Wardrobe Stylist pursuant to a written contract of employment. In 2008, she was promoted to Fashion Studio Producer, with a new written contract.
In 2012, she was promoted again to “Fashion Studio Manager”. She signed a new contract, with a termination clause that stated:
The contract of employment had a termination clause that stated:
- The Company may terminate your employment at its sole discretion, at any time for any reason, without cause, upon providing you the minimum notice, pay in lieu of notice and/or severance pay required by the Ontario Employment Standards Act, 2000, as amended from time to time. You will have no other entitlement to notice of termination, pay in lieu of such notice, and or severance pay.
- In addition to the forgoing and subject the consent of the Company’s insurers, you will be entitled to continue to receive Company benefits (excluding STD and LTD benefits) during the notice period specified above.
The clause also included a line stating “Your receipt of any payments is conditional upon your signing the Company’s form of Release.”
Ultimately the plaintiff was dismissed from her position due to economic difficulties. At the time of her dismissal she had worked for St. Joseph Communications for 23 years. The plaintiff brought an action for wrongful dismissal, claiming entitlement to reasonable notice and other entitlements that would have accrued during the notice period.
The case was initially dealt with by a summary judgment motion. Although there were multiple issues in dispute, the primary issues we care about for this post were: (1) whether the plaintiff was an independent/dependent contractor or an employee between 1994 and 2004 and (2) whether the termination clause was void, entitling her to reasonable notice.
On the first point, the employer argued that the plaintiff was an independent contractor from 1994 to 2004 and her service should not be considered in assessing her notice period. Independent contractors are not “employees” and are generally not entitled to reasonable notice upon termination. The plaintiff argued that she was an employee from 1994-2004, or if she was a contractor, she was a dependent contractor. Unlike an independent contractor, dependent contractors have been found to be entitled to reasonable notice upon termination. Ultimately the motion judge found that the plaintiff was a dependent contractor due to her near exclusive work relationship with St. Joseph Communications. Ultimately, the judge found that despite there being some indicia of independent contractor relationship, within two years the plaintiff had become a dependent contractor. Notably, there was very little, aside from the form of her payment, that distinguished her years as an employee from her years as a contractor. Interestingly, the judge went on to comment that regardless of whether the plaintiff was an independent or dependent contractor, it would have been wrong in principle to ignore those years of their relationship in determining the reasonable notice period.
The motion judge went on to find that the termination clause in the 2012 contract was unenforceable. In particular, the clause’s exclusion of STD and LTD benefits, and the requirement for insurer consent, provided a benefit below what was required by the Employment Standards Act. The Act, required the continuation of benefits for the duration of the statutory notice period. In specifically excluding STD and LTD, and making continuation contingent on an insurer’s consent, the judge found it provided a lesser benefit than the Act required.
Ultimately, the plaintiff was awarded 21 months of notice, among other entitlements.
St. Joseph Communications appealed the decision. On appeal, the Ontario Court of Appeal upheld the underlying decision. They found that the motion judge’s finding on the contractor issue to be sound. Although the employer attempted to argue that the judge failed to address the issue of “economic dependence” in the initial analysis, the Court determined that this analysis was included in the finding of near “exclusivity” during that time period.
Regarding the termination clause, the Court found not palpable and overriding error in the judge’s decision. It was clear that STD and LTD benefits were excluded during the notice period, and this was an apparent contracting out of the ESA.
This decision is noteworthy for two main reasons. The first is the Court of Appeal’s general support for the motion judge’s decision that time spent as a dependent contractor will be counted towards an employees notice entitlements. It is also important that they made no comment regarding the judge’s finding that this would have been true if the plaintiff had been an independent contractor. This finding raises the second important take away. Termination clauses in contracts must be regularly reviewed to ensure compliance with the relevant legislation. If the clause had been enforceable, the employer’s obligations upon termination, while still substantial, would have been a fraction of the 21 months ultimately awarded.
In an age where it is increasingly common for employers to handle their personnel needs by way of independent contractors, these relationships run the risk of developing into dependent arrangements which invite additional exposure. By not having termination clauses that can withstand judicial scrutiny, employers may find themselves exposed to larger notice awards, especially in the context of long term workers.
A final comment should be made about the requirement in the termination clause that a Release was required for any payments to be made. Although neither the motion judge or the Court of Appeal addressed the issue, it is likely that this requirement could have rendered the clause unenforceable due to ambiguity. Although an employer can require a Release for additional notice periods, statutory notice payments are mandatory and cannot be subject to a Release. Given the requirement of a release before “any” payment was made, could also have been considered a contracting out of the Act. Accordingly, employers should be careful to distinguish between which payments are subject to a Release, and which payments are not.
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