Long-time contractor ruled an employee

14 years of service, close employment relationship entitles worker to notice: Court

A British Columbia company can’t get out of paying reasonable notice to a long-time worker just because he contracted his services through his own incorporated company, the British Columbia Supreme Court has ruled.

Sydney Smith, 53, was a part-time home insulation sales representative and had an unincorporated contracting company on the side when he became friends with another insulator installer in the early 1980s. The installer eventually formed his own siding company called Centra Siding and Smith began selling vinyl siding for Centra after hours.

Contacts led to contract

In the early 1990s Smith began selling contracts from his regular job at B.C. Hydro to Centra Siding. In 1992, Smith resigned from B.C. Hydro to become a full-time energy advisor to Centra. As part of his job, he secured contracts for the sale and installation of windows. He signed a contract on Feb. 21, 1992, that offered him a specific territory for one year and 10 per cent commission on his sales, to be paid in regular biweekly instalments. The contract specified Smith must work exclusively for Centra and any additional work had to be approved by Centra. He was also invited to participate in Centra’s medical and dental plan, which was open to “all full-time employees who are actively working at least 20 hours per week.”

Smith hired his own lead generators and continued to be paid by commission through 1995, when Centra invited him to participate in an employee share ownership plan to finance the construction of a window manufacturing plant. An “inner circle” of executives, which included Smith, loaned Centra funds to cover start-up costs for the plant.

In 1996, Smith was appointed vice-president of marketing and development, though his job duties and payment method remained largely unchanged. He became a director of the company in 1998, a position he held until 2003. Also in 1998, Centra terminated payment of Workers’ Compensation Board assessment for sales agents and required them, including Smith, to incorporate their own contracting companies.

Shift in sales focus caused problems

In March 2003, a new general manager was hired who oversaw Smith’s area of sales, which was mostly supply only sales. The new general manager wanted to shift Centra’s focus to supply and install sales, which had higher margins. Smith continued to focus on supply only sales, but lost some of his largest contracts in 2004.

Centra informed Smith his performance in 2004 was significantly below expectations and he needed to spend less time on supply only contracts. Smith was given a letter that said his regular commission payments would be terminated if his performance didn’t improve. Centra then gave him a goal of supply and install sales of $1 million for the year, a mark Smith had never achieved.

Smith received another warning in January 2005 and Smith said he wasn’t getting a fair allocation of booked appointments he needed from Centra to meet his goals. He reiterated this argument in June 2005.

On June 8, 2005, Centra circulated a contractor agreement for sales agents to sign. Smith declined to sign and he was told since he was already incorporated, he didn’t need to sign.

Later in June, Centra asked Smith to resign without offering a reason. Further discussions resulted in a departure plan for Smith to review with his lawyer and terms were agreed upon on June 21. Smith was given an official termination letter dated July 20, 2005, that didn’t give any reason for his termination. He wasn’t offered a severance package as Centra said he was still an independent contractor through his incorporated company.

Smith was surprised at his termination and said he felt “scared, angry and helpless.” He received counselling and medical treatment for moderate depression but eventually found employment as a sales agent for another company in January 2007. Smith filed a claim for reasonable notice and damages for mental stress caused by the way Centra handled his termination.

Employment, not contractor relationship

The court found the original agreement signed in 1992 made no mention of Smith’s status and if he was an independent contractor. There was no termination date and it was clear the term was indefinite. It outlined a health benefits plan and required Smith to work exclusively for Centra, which were more characteristic of an employer-employee relationship than that of an independent contractor.

“It is clear from the outset, Centra sought the personal services of Mr. Smith and not those of a corporate entity,” said the court. “(Centra) considered Mr. Smith to be a key person in the Centra organization and a member of the inner management team of Centra until early 2003.”

The court found Smith was bound to work exclusively for Centra, the company provided office supplies and administrative support, he held important inner positions with the company, participated in activities with Centra’s “inner circle” of executives and all of his income came from his work with Centra. The group benefits plan of which he was a member required status as a full-time Centra employee. In addition, the company paid for his training and required him to wear Centra apparel and report regularly on his progress. All of these factors showed Centra essentially controlled Smith’s work and was an employment relationship, the board said. As a result, Smith was entitled to reasonable notice of termination.

The court found a reasonable notice period of 15 months was appropriate for someone in Smith’s circumstances — 50 years old with 14 years of service with the company. It did not find any bad faith in the manner of his dismissal, as Centra was up front with Smith that he was being terminated and the contractor agreement he was asked to sign shortly before his dismissal was no different than the ones all the other sales agents were asked to sign. The court also found the shock and depression Smith experienced was most likely from the dismissal itself rather than Centra’s conduct. Centra was ordered to pay $102,000, equal to 15 months of Smith’s average earnings.

“It has been well recognized that the involuntary and, for that matter, voluntary, loss of one’s employment can be traumatic events,” said the court. “However, the normal distress and hurt feelings including depression from such dismissal are not compensable.”

For more information see:

Smith v. Centra Windows Ltd., 2009 CarswellBC 1180 (B.C. S.C.).

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