An employee by any other name…

Warren v. 622718 Saskatchewan Ltd., 2004 CarswellSask 554 (Sask. Q.B.).

Doug Warren was an American citizen who entered into an employment contract to be the Global Director of Sales for a computer software developer in Prince Albert, Sask.

The company specializes in mobile route management products and was looking to expand its customer base. Warren suggested he be hired as a “contractor.” That way the company wouldn’t have to register itself in the United States.

The comprehensive offer of employment set out that Warren was “to grow and develop the company’s worldwide sales and sales force” and “produce profitable sales figures.” Warren was to receive:

•a base salary of $8,333 US per month;

•a car allowance of $500 US per month;

•$250 US per month retirement allowance; and

•standard health coverage.

A clause specified the monthly remuneration is payable even if earned commissions fall below the amount required to cover the base salary.

Towards the end of the first month Warren was asked to focus his efforts on directly pursuing sales opportunities. In September he was told that due to low cashflow he would only be receiving half his September salary plus his expenses. In early October there was a disagreement between the parties over the lack of new sales and the company stopped payment on the cheques given him to cover half September’s salary. Warren was unwilling to continue with the company without full payment and he secured a new position effective Nov. 1.

The company claimed Warren was an independent contractor and not an employee. It counterclaimed for the cost of a computer Warren had failed to return and also sought reimbursement of payments made to Warren under the contract.

The Saskatchewan Court of Queen’s Bench ruled there was no one ironclad rule to determine if a worker was an employee or an independent contractor but reiterated that it does not matter what the parties to an agreement call themselves or consider themselves to be. It “certainly has little weight in the eyes of tax authorities or other regulatory government agencies,” noted the court.

The main issue is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. This was clearly not the situation in this case: the detailed job description makes clear that control was vested in the company: Warren reported to its chief executive officer, needed expenses in excess of $500 pre-approved and devoted all his time and effort to the company; a proprietary rights agreement signed along with the employment contract imposed stringent controls pertaining to the use of confidential information, technology and work product; the company supplied Warren with a computer and printer while covering all communication expenses and providing a car allowance; and Warren took no financial risk. All this made it clear he was an employee.

The company had unilaterally and fundamentally changed a term of his employment contract when it hadn’t paid him the guaranteed salary and benefits, the court ruled.

The court added that the company’s impatience with Warren’s sale performance after only two months of work was not justified given that under the contract of employment payment was guaranteed regardless of commissions earned. Sales targets had not been stipulated on a monthly basis. This was an annual target which Warren had not been allowed sufficient time to address, the court ruled.

It awarded Warren $16,387 for services and expenses to September 30; $4,577 for services from Oct. 1 to Oct. 5 and $10,997 for damages in lieu of notice for the period from Oct. 6 to Oct. 31. The court deducted the amount of the computer, leaving Warren with a net judgment of approximately $28,800.

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