Contractor terminated

Court reluctant to recharacterize relationship to which the parties have agreed

Ron Aqwa worked for Centennial Home Renovations Ltd. not in the capacity as an employee, but as an independent contractor. There was a written agreement between Mr. Aqwa and Centennial dated May 10, 1995, wherein Centennial agreed to take on Mr. Aqwa as an “independent sales agent.”

This relationship ended abruptly when Centennial terminated Mr. Aqwa on Dec. 11, 1996. The agreement contained a provision dealing with termination of the contract. It provided that either party could terminate the agreement at any time without notice or penalty. The agreement did not contain provisions for dealing with such issues as earned but unpaid commissions or bonuses and compensation for sales made but not yet booked.

Mr. Aqwa commenced an action against Centennial, claiming damages for wrongful dismissal or, alternatively, damages for breach of contract.

Centennial defended the claim on the basis that Mr. Aqwa was an independent contractor and this relationship was evidenced by the written agreement. Centennial further argued that, if there was an employment relationship, Mr. Aqwa was terminated for cause.

Mr. Aqwa argued that the facts must be looked at to determine the true relationship between the parties and that the relationship was, in fact, an employment relationship.

Evidence was presented in support of both parties’ positions as to the nature of the relationship. Based on that evidence, the Court held that Mr. Aqwa had failed to prove that he was in an employment relationship with Centennial. However, in consideration of previous case law, the Court held that although Mr. Aqwa was an independent contractor, as a matter of law on the facts of the case, he was entitled to an award of damages to reflect the special nature of the contractual relationship between the parties and the breach of that relationship.

The Court focused much of its attention on the nature of employment relationships and the prevalence of the use of the independent contractors. The traditional employee-employer relationship did not exist in the present case. What did exist is a modern-age emerging relationship more closely allied to the employment relationship than it is to the traditional independent contractor relationship.

Centennial did train Mr. Aqwa and provide him with written material describing Centennial’s products. Although not clearly defined in the agreement, it was clear through the working relationship that Mr. Aqwa’s sales area was limited to the area of Barrie, Ont. Any sales were subject to the approval of Centennial. Mr. Aqwa did not operate through a corporation, nor did he have any of his own employees. He was strongly encouraged to attend regular sales meetings. On the other hand, Mr. Aqwa did conduct himself as an independent contractor. He declared himself for tax purposes as deriving his income from a business. His income was totally dependent on his efforts and he received no advance to be applied against commissions earned.

The Court recognized that it should accept what parties to an agreement have agreed to, and should be reluctant except in the most exceptional circumstances to recharacterize that which the parties have agreed to because such a recharacterization could have serious and harmful consequences to both the employer and employee. Based on the termination provision in the agreement, Mr. Aqwa was not entitled to any notice of termination or damages in lieu of notice as an independent contractor.

However fair dealing ought to require the employer to pay Mr. Aqwa a reasonable amount of money to reflect the circumstances and principles identified in the case law. The Court’s view was that payment should reflect the degree of disruption and loss caused to and suffered by Mr. Aqwa as a result of the termination. The amount of payment should reflect the fact that the parties agreed to an independent contractor relationship from the outset and not an employer-employee relationship.

Based on this reasoning the Court awarded damages equal to five times the average monthly commissions and bonuses earned by Mr. Aqwa before any deduction for charge-backs and expenses charged by Centennial.

For more information:

Aqwa v. Centennial Home Renovations Ltd., Ontario Superior Court of Justice, Docket No. G23623-99, Sept. 12/01.

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