Courts will often look past the wording in a contract to determine the true nature of an employment relationship.
A sales executive for Fusion Nutrition was ruled to be an employee, despite a clause in his agreement that specifically stated he was a contractor. The court awarded him a total of nearly $65,000 in damages as a result.
Head of global sales
Bradley Baker was hired by Fusion Nutrition on Sept. 11, 2020, as its head of global sales. He signed a fixed-term contract that contained a termination clause.
He was paid a monthly amount of $6,250 plus HST, a car allowance of $800 per month and expenses. Under the terms of the contract, he was described as an “independent contractor.”
Clause 1.2 of the agreement defined the relationship as follows:
The Contractor will provide the Contractor’s services to the Company as an independent contractor and not as an agent or employee unless this agreement is replaced by an employment agreement mutually agreed to by both parties.
Baker claimed that Fusion Nutrition regularly failed to pay him on time.
On Aug. 18, 2021, he said it locked him out of the office. He interpreted that as a termination.
He said the company did not contact him.
On Sept. 1, 2021, the company deposited $9,375 into his bank account. This was the final pay he received. This evidence was not disputed as the company “did not respond,” the court said.
Employee or contractor?
The Ontario Superior Court of Justice found Baker was an employee, not an independent contractor. It spelled out a couple of reasons as to why it reached that conclusion.
- His primary source of income was from Fusion Nutrition
- He worked full-time hours
- He worked out of the companys head office
- He worked five days a week and reported to the CEO
- His work activities were dictated by, and controlled by, Fusion Nutrition
- He was required to hold himself out as a representative of the company
- He did not hire his own “helpers”
- He had no opportunity for profit and did not assume a financial risk
- Although he could have other clients, none could be in direct competition, nor could he take on other work that would interfere with his work for Fusion
In short, his services were essentially restricted to Fusion Nutrition, the court said.
Termination provision in contract
Baker claimed the termination provision in his contract was vague and ambiguous, and therefore unenforceable.
It reads as follows:
4.1 Termination for Cause (sic): 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.
4.2 Termination with Notice: Either party may terminate this agreement upon providing thirty (30) days written notice to the other party.
4.3. Notice Payments: Upon termination of the Contractor’s engagement pursuant to article 4 hereof, the Company shall pay the Contractor all monthly payments for a period of 4 months commencing on the termination date.
The court found clause 4.1 would result in Fusion Nutrition being able to terminate Baker for cause without complying with the minimum notice or payment obligations under Ontario’s Employment Standards Act.
Therefore, it was unenforceable. It did not rule on Baker’s claim about the unambiguous and vague language, nor did it take that into account, it said.
Baker sought a number of damages.
Balance of contract: First, was for the balance of the contract term — from the date of his termination on Aug. 18, 2021, to the end of the contract on March 15, 2022. That amount was $54,283.56. The court awarded that amount.
Accrued but unpaid wages: He also sought $12,666.16 for accrued but unpaid wages from July 1, 2021, to Aug. 18, 2021. The court agreed, but deducted the $9,375 he was paid in September 2021 from that amount, for total damages of $3,291.16.
Vacation time: Baker asked for damages for accrued but unpaid vacation. Under Ontario’s ESA, he was entitled to holiday pay calculated at about 3.7 per cent of annual wages, or $3,490.95. It awarded that amount, based on the period from Sept. 11, 2020, to the date of termination. It dismissed a claim by Baker for holiday pay beyond the termination date to the end of the fixed-term contract.
Baker sought $50,000 in punitive, bad faith and/or moral damages.
The court, pointing to the ruling in Honda Canada Inc. v. Keays, said punitive damages should be restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.
“Such an award is not often made,” it said.
“The plaintiff claims that the defendant did not treat him fairly, act in good faith, or treat him with respect and civility,” the court said.
It dismissed the claim, and cited the $9,375 payment in September (after the termination) as something that mitigated against punitive damages.
Baker then asked for $25,000 for aggravated or moral damages for psychological injury because of Fusion Nutrition’s conduct.
“The plaintiff deposes that being locked out ‘was incredibly upsetting, demoralizing, and frankly traumatizing,’ and elsewhere deposes that the defendant’s ‘complete indifference’ to the legal proceedings has ‘negatively impacted his mental health and he has sought therapy,'” the court said.
But it ruled there was no evidence to support a $25,000 award. It dismissed that claim.
For more information, see Baker v. Fusion Nutrition Inc., 2022 ONSC 5814 (CanLII)