Saskatchewan employer unilaterally drafted contracts, had full control over worker
“Where the employer purports to limit the ability of the employee to perform certain types of work, this runs completely counter to the argument that this person is an independent contractor.”
So says Kit McGuinness, a labour and employment lawyer at McKercher LLP in Saskatoon, after the Saskatchewan Court of King’s Bench awarded 22 months’ notice to a worker who was terminated after 16 years of short-term contracts.
“The whole idea behind an independent contractor is they're not an employee, they essentially come in and do the work to a large extent on their own schedule and they're allowed to hold other contracts,” says McGuinness.
The worker joined the Saskatoon Minor Basketball Association (SMBA) in late 2004 or early 2005 as an administrative assistant. She entered into a two-year fixed-term contract that stated it would be renewed 30 days prior to July 1 each year on an annual basis.
Each year, the SMBA prepared a contract that it sent to the worker. The first contract outlined the responsibilities of the administrative assistant position and included a non-competition agreement and a termination clause.
In 2012, the SMBA updated the worker’s contract to change her title to executive assistant and expand her duties. The non-competition and termination clauses remained the same.
New contract language
In 2014, the worker was promoted to programs and communications co-ordinator with a new one-year contract. When the contract was renewed, the clause stipulating the period was changed. Instead of saying it would be renewed 30 days prior to the expiration date, it stated that “if the contract is up for renewal at the end of the contract period, it shall be renewed within 30 days prior to July 31, 2016.”
The worker was promoted to the role of executive director on Sept. 1, 2017. In addition to a non-competition clause, the contract included a nondisclosure of confidential information clause.
However, the termination clause was changed, allowing the board of directors to terminate the worker’s contract “at any time, with or without cause.” If terminated without cause, the worker “shall be given notice of termination or paid one one-and-a-half month’s lump sum severance payment ($5,550) in lieu of any other compensation otherwise payable under this agreement.”
The worker started invoicing the SMBA every month, claiming GST and filing income tax herself, as the previous executive director told her this was how she would be paid.
The worker received a new contract running from Jan. 1 to Dec. 31, 2019. A new termination clause stated that the SMBA could terminate the contract “at its sole discretion for any reason without cause, upon providing the executive director one and one-half months’ notice or upon payment of an equivalent amount for one and one-half months’ of the monthly payments.”
Termination in 2021
In March 2021, the SMBA informed the worker on a public call that it had to reorganize due to COVID-19 restrictions and her position was being eliminated. She was given two options – she could accept a three-month position or apply for a new restructured position that had double the responsibilities, including bookkeeping, for the same pay. The worker felt blindsided on the public call.
The worker had no bookkeeping skills, so she couldn’t accept the second option. The next day, the SMBA told her that, if she wished, it would provide six weeks’ severance pay but no more. The worker decided to accept the three-month temporary position.
In June, the worker’s legal counsel wrote to the SMBA stating that the worker was entitled to reasonable notice of termination of 24 months. The SMBA countered that the worker wasn’t an employee but was an independent contractor. However, it offered to extend the worker’s contract for nine months, conditional upon the worker signing a “full and final release” in relation to “any and all claims” the worker had against it.
The worker declined and sued for wrongful dismissal, claiming 24 months’ pay in lieu of notice and $50,000 in aggravated damages for the manner of her dismissal. The SMBA maintained that the worker was an independent contractor whose contract had expired.
The court considered the entire relationship and noted that none of the “numerous unsigned contracts” used the term “independent contractor.” It found that the SMBA unilaterally drafted the contracts, which prevented the worker from engaging with any other employer through non-compete clauses. The SMBA also extended full control by outlining the workers’ duties and requiring her services during regular weekly working hours, said the court.
“[SMBA] kept making unilateral changes to some of these employment agreements and the judge found that these were imposed on the worker by the employer - this is inequality of bargaining power stuff,” says McGuinness. “If you want to change the terms of someone's employment, there has to be consideration that flows the other way or else you're looking at constructive dismissal.”
Non-compete clause increased employer’s control
The court determined that the SMBA had “absolute discretionary control” over the worker’s professional activities and the worker was “subordinate and vulnerable” to the organization, which suggested “a traditional managerial form of employment.”
The court found that the worker was an employee of the SMBA. In the alternative, if she wasn’t an employee, then she was a dependent contractor entitled to reasonable notice of termination, the court said.
“It used to be a classic binary analysis of, is someone an employee or an independent contractor, but maybe over the last 20 or 30 years, there's been a rise of a new third class called a dependent contractor,” says McGuinness. “The hallmark, in my view, is more than 50 per cent of someone's economic work in contracts being done is with one single provider - the case law says that person is owed reasonable notice when you terminate their contract.”
“It's been a phenomenon that has existed in other jurisdictions for many years, but it's the first case in Saskatchewan where there has been a mention of dependent contractor status,” he adds.
Reasonable notice
Given that the worker was an employee, the court found that her consecutive contracts should be viewed as continuous service. The court determined that the worker was entitled to 22 months’ notice.
Courts aren’t fooled by a series of consecutive short-term contracts, says McGuinness.
“The court will look at whether there was actually a competition for the position if someone is on a series of one-year contracts but each year they have to reapply,” he says. “But if this is a one-year contract, ‘wink wink, nudge nudge,’ we give you another one at month 11 - courts see that as circumventing permanent employment status, so they will often ascribe that status where that has happened.”
The court also found that the termination clause was unenforceable, as it limited her reasonable notice to one-and-a-half months. The Saskatchewan Employment Act entitles workers with more than 10 years of service to at least eight weeks’ notice of termination, so the clause breached the act and must be struck in its entirety, said the court.
The SMBA argued that the worker failed to mitigate her losses when she rejected its offer for the restructured position and the nine-month extension, but the court disagreed. The restructured position wasn’t a reasonable offer as it involved twice the duties and responsibilities of the worker’s old position for the same compensation and she didn’t have bookkeeping training. The worker also didn’t have to accept the nine-month extension, as she wasn’t required to accept a “belated offer of employment” after she claimed wrongful dismissal, the court said.
No bad faith
However, the court found that the SMBA didn’t act in bad faith. It was a not-for-profit organization with a volunteer board of directors that suffered in the pandemic. While the termination of the worker’s contract could have been handled better, there was no evidence of any animus or breach of its duty of good faith and fair dealing, the court said in dismissing the claim for aggravated damages.
The SMBA was ordered to pay the worker 19 months’ pay in lieu of notice – the 22-month notice entitlement minus the three months already provided – totalling $76,760.
A lot of the SMBA’s problems flow back to the fact that the contracts were handled clumsily in their drafting and implementation, according to McGuinness.
“These weren't clear employment contracts with legally reviewed and enforceable termination provisions and they were being implemented a little bit willy-nilly,” he says. “You can tell that this was someone who didn’t have legal training, dealing with technical legal matters, and putting themselves in a position to have something like this happen.”
“This particular case cries out that DIY options can blow up in your face,” adds McGuinness. “And I get it, lawyers are expensive, people want to do it themselves, they think it's not that hard. But if [the SMBA] would have had the benefit of legal counsel, things may have turned out differently.”
