Mislabelled Employee Awarded Damages of $65,000 Following Termination

Written on behalf of Peter McSherry

A common issue that arises in employment law matters is the classification of a worker as an independent contractor or an employee. Under Ontario’s Employment Standards Act (the “Act”), employees have certain legal rights, for example, the right to vacation pay and reasonable notice of termination. On the other hand, independent contractors are not covered by the Act and therefore are not entitled to the same rights. 

The distinction between employee and independent contractor has important consequences for employers and workers alike. From the employer’s perspective, hiring an employee can come with increased costs, extensive training and various rights under employment legislation. As a result, it is not uncommon for an employer to mislabel a worker as an independent contractor, whether done intentionally or not. However, the label applied by the employer is not determinative, as was affirmed in the recent case of Baker v. Fusion Nutrition Inc.

Worker labelled as an “independent contractor” under fixed-term contract

The defendant employer, a bodybuilding supplement company, hired the plaintiff employee under a fixed-term contract. The contract term was for July 1, 2021, to March 15, 2022. The contract contained a term stating that the employee agreed to provide services to the employer as an independent contractor, rather than as an employee.

Worker terminated before the end of the fixed-term contract

On August 18, 2021, just over one month into the contract, the employee was locked out of the office. He interpreted this as termination by his employer. The employee received a final payment from the employer on September 1, 2021, even though there were still six months remaining under his contract. 

Worker brings a claim for wrongful dismissal

On January 27, 2022, the employee commenced a claim against the employer for wrongful dismissal. The employer did not respond to the statement of claim and was noted in default. The employee then moved for a default judgment motion, arguing that:

• he was misclassified as an independent contractor when he was in fact an employee;
• the termination clause in his contract wasn’t enforceable; and
• he was entitled to be paid for the remainder of his fixed-term contract.

Court deems worker to be employee, not an independent contractor

The Ontario Superior Court of Justice emphasized the fact that whether a worker is an employee or an independent contractor is a question of law to be decided based on the evidence. Just because a contract labelled a worker as an independent contractor was not solely determinative as to the worker’s status. Rather, the Court must look beyond the contract’s words to determine whether an employer-employee relationship existed.

 Following the principles endorsed by the Ontario Court of Appeal in Belton v. Liberty Insurance Co. of Canada, the Court found that the worker was in fact an employee of the employer. Some of the factors that led the Court to this conclusion were:

• the employee was paid a regular wage at a fixed rate;
• his pay did not change depending on the quality or quantity of work;
• he worked five days a week (Monday to Friday) as directed by the employer;
• he consistently reported to work around 9:00 AM each workday and was required to continue working until all his assigned work was complete;
• he was expected to be available to the employer within the parameters set for him;
• he reported directly to the CEO; and
• he could not refuse work.

Was the termination clause in the worker’s contract enforceable?

The employee’s 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.”

The Court noted that under Ontario’s Employment Standards Act, an employer can only terminate an employee without notice or pay if the employee is guilty of willful misconduct, disobedience, or willful neglect of duty that isn’t trivial and hadn’t been condoned by the employer. 

The Court held that clause 4.1 would allow the employer to terminate the employee for “cause” without meeting the Act’s rules around minimum notice or pay. Accordingly, the Court found the termination clause to be unenforceable. 

The Court awarded damages to the employee for the remainder of the fixed-term contract

Under Ontario law, an employer must pay a terminated fixed-term employee to the end of the contract term, unless the contract has an enforceable notice clause. In this case, the Court found the notice of termination clause in the employee’s contract unenforceable. As a result, the Court held that the employee was entitled to damages for wages for the balance of the contract, amounting to $54,283.56.

The employee also sought damages for accrued but unpaid vacation. Under the Act, Ontario employees are entitled to annual vacation pay of 4% of their wages. Since the Court found him to be an employee, the employee was awarded $3,536.19 in unpaid vacation from when he was hired to the termination date. 

The employee’s claims for punitive and aggravated damages were dismissed

The employee sought $50,000 in punitive, bad faith, and/or moral damages. The Court acknowledged that punitive damages may be awarded in wrongful dismissal cases, however, such awards are not often made. The Court reiterated that punitive damages should be restricted to wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own. 

The employee claimed that the employer didn’t treat him fairly, act in good faith, or treat him with respect and civility. However, the Court decided that the employer’s conduct didn’t warrant an award for punitive damages. 

The employee claimed he suffered psychological injury

The employee further claimed that he suffered psychological injury because of the employer’s conduct. He said that being locked out “was incredibly upsetting, demoralizing, and frankly traumatizing.” He asked for $25,000 for aggravated or moral damages. 

The Court found that there was insufficient evidence to support an award for aggravated damages and dismissed this part of the employee’s claim.

Contact Employment Lawyer Peter A. McSherry if you’ve been wrongfully dismissed or mislabelled as an independent contractor

Being terminated can be a profoundly upsetting experience. This is especially true if you feel your termination was unfair, or that your employer did not respect your legal rights. The experienced employment law team at Peter A. McSherry can help you take charge of the situation. We help clients protect their rights and represent them through all steps of the negotiation and settlement process, including litigation. We help with employee classification issues and provide clients with the resources to ensure that they are positioned to obtain the best possible outcome. If you have questions about wrongful dismissal or employee classification, contact us online or by phone at 519-821-5465 to learn how we can help you.