Courts Will Look Beyond the Employee’s Title to Determine Reasonable Notice

Cho v Stonebridge Solutions Inc., 2020 BCSC 1560

Facts

The plaintiff was terminated by the defendant, Stonebridge Solutions Inc. (“Stonebridge”), after five months of employment at age 49. Stonebridge argued that the plaintiff was an independent contractor, and therefore no notice of termination was required.

The plaintiff had previously worked as Vice President national Sales for JP Morgan Chase Bank. While working there he met Ms. Cafik. Ms. Cafik was looking for someone to assist with her start-up company involving the development of an anti-fraud product named XUMI. Ms. Cafik was currently managing XUMI through her company, Stonebridge. It was planned that a new company would eventually be incorporated for the XUMI product once it was ready to launch.

Over the summer of 2018, the plaintiff and Ms. Cafik discussed the plaintiff’s potential involvement with the start-up company. Along with her description of the role, Ms. Cafik described the nature of the role as being “open to a contract position with the option to migrate to a salaried position if that is desirable”. The plaintiff responded saying that he preferred a “commitment of salary plus compensation bonuses”. Ms. Cafik subsequently indicated she was ready to “take on” the plaintiff. The plaintiff’s salary was to be $224,900 annually.

The plaintiff frequently asked for a letter of employment confirming his terms and benefits, both before he started and while he was working. He was told that this would have to wait until the new company was formed as the employment contract would be signed with that company.

As part of his compensation, the plaintiff was provided with payment for cell phone costs, other expense reimbursement, a laptop, various software licenses necessary to perform his work, and an email account where his signature line indicated he was vice president of Stonebridge. The plaintiff never invoiced Stonebridge in order to receive payment. Despite his title, he did not have managerial responsibilities and did not have anyone reporting to him.

During his time with Stonebridge, the plaintiff’s work obligations were based upon direction from Ms. Cafik and he was paid semi-monthly regardless of his performance. The plaintiff was not separately incorporated at any point.

The plaintiff was terminated by Ms. Cafik and invited to propose his own departure terms. The plaintiff’s proposal was not accepted and he was not paid for work he performed prior to his termination.

Following termination, Stonebridge raised after-acquired cause based upon an alleged failure by the plaintiff to require the signing of non-disclosure agreements with other potential service providers prior to entering into discussions with them on behalf of Stonebridge.

Issues

Is the plaintiff entitled to pay in lieu of notice and, if so, how much?

If the plaintiff would otherwise be entitled to pay in lieu of notice, is there after-acquired cause to eliminate this entitlement?

Legal Test/Analysis

Both employees and dependent contractors are entitled to reasonable notice on termination. Only independent contractors are not entitled to notice upon termination. The central question to determine whether notice is required is whether an individual has been engaged to perform services as a person in the business or on their own account. The four main factors to consider in performing this analysis are:

• the level of worker control/independence;
• exposure to financial risks and rewards (profit/loss opportunity);
• business integration; and
• ownership of equipment and tools.

Considering the above factors, it was held that the plaintiff was an employee at law and as such, Stonebridge had an implied duty to provide reasonable notice on termination without cause.

In its response to civil claim, Stonebridge raised performance deficiencies as the basis for a termination of the independent contractor agreement. There was no argument raised that the deficiencies were sufficient to form the grounds for a with cause termination of an employee. Cause for the termination of the alleged contractor agreement was not made out. It was also held that there were insufficient grounds for after-acquired cause.

Considering the factors of age, tenure, responsibility, and availability of alternate employment, the plaintiff was awarded two months’ pay in lieu of notice. Because the plaintiff did not have a managerial role, and required a fair amount of direction, it was found that his salary and job title were not an accurate reflection of his level of responsibility. Furthermore, it was found that neither his responsibilities or specialized knowledge matched his high salary. There was no evidence that the plaintiff’s age was an obstacle to finding suitable alternate employment.

The plaintiff was awarded $5,000 in punitive damages for the defendant’s failure to provide him with pay for work completed prior to his termination.

Takeaway

Courts will look at the entire working relationship to determine whether or not an employee is an independent contractor or an employee. The court will not simply look to an employee’s title to determine the nature of the position when considering the applicable reasonable notice period – the court will look at their actual role. Employers should also be careful to provide all payment owing up to termination to avoid a punitive costs award.

This update was authored by Deanna Froese. Questions? Comments? Concerns? Contact Deanna at [email protected] or anyone else listed on the authors page.