Friday, August 15, 2014

The Intermediate Category: Dependent Contractors

There's a recent case out of the Superior Court of Justice in Wyman v. Kadlec, dealing with the termination of a contract for services.

The Facts

The parties met in 2001 - Mr. Wyman lived in Thunder Bay, and Mr. Kadlec operated the Raven Lake Resort.  Mr. Wyman was permitted to stay at the resort in exchange for his assistance, helping at the resort.  Shortly thereafter, they entered into an agreement by which Mr. Wyman would manage the resort, in exchange for a share of revenues.  Kadlec lived in the United States, and expected Wyman to be running the resort from May until the end of hunting season.

Both of them were new to the business - Mr. Wyman had never managed a resort before, and was 'semi-retired', having worked in a small machine shop with his son.  In 2004, he transitioned over to a different resort operated by Kadlec at Bush Lake.  Then, in September 2008, Kadlec terminated the relationship.

The termination was not exactly amicable - the mode of dismissal was a heavy-handed lawyer's letter, complete with a Notice of Trespass, emailed to Mr. Wyman.  The letter cited 'business reasons' as the reason (though apparently a 'just cause' pitch was made at trial), and demanded the return of various equipment and items "at your own expense"; as well, a second letter, alleging that he was 'illegally withholding revenue', and demanding the return of all records, etc., no later than 1pm the next business day.  The email was sent after 5pm on Friday afternoon, and proposed that, in order to recover his personal property still at the resort, he could send a friend in a one-hour window the next day.

There were a couple of motors the corporation had purchased, which Wyman took the position belonged to him...but aside from that Mr. Wyman gave the corporation everything it asked for, including depositing the cheques in his possession - assuming, wrongly, that he would be paid the commissions he was owed out of those cheques.  The OPP subsequently seized the motors and - upon being pressured by the corporation- charged Wyman, though the charges were dropped for having no reasonable prospect of conviction.

Wyman was not an employee.  They characterized the relationship as a 'contractor' relationship, which characterization Wyman did not challenge in this litigation.  However, one of the core questions was whether he was an independent contractor, or a dependent contractor entitled to reasonable notice of dismissal.

The Decision

On the issue of whether or not Wyman was a 'dependent' contractor, the analysis is fairly brief.  Wyman testified that he could have managed other resorts, but didn't.  However, he was semi-retired, with his income supplemented by WSIB benefits.  The judge determined that this independent source of income, and the fact that Wyman was not "in a position of economic vulnerability", had the result that Wyman was an independent contractor, not a dependent one.

The motors were awarded to the corporation, but conversely Wyman also won an unjust enrichment argument for compensation for work he did outside the scope of his resort management duties.

As well, Wyman was awarded damages for 'conversion', for furnishings Wyman was never able to retrieve from his cabin at the resort.


There are a few interesting observations to make about this case.  The most important analysis, I think, is that of the dependent contractor issue, yet it has some irregularities in it.

Dependent Contractors

What's relatively unusual about this case is that the only distinction to be made is between independent and dependent contractors - that the 'employee' option was not on the table.  That's not really an analytical problem at all, though, because as the Court of Appeal held in McKee:
the proper initial step is to determine whether a worker is a contractor or an employee, for which the Sagaz/Belton analysis, described in the next section, controls.  Under that analysis, the exclusivity of the worker is listed as a factor weighing in favour of the employee category (Belton’s first principle).  The next step, required only if the first step results in a contractor conclusion, determines whether the contractor is independent or dependent, for which a worker’s exclusivity is determinative, as it demonstrates economic dependence.
The court in Wyman rightly referred to McKee's discussion of the importance of exclusivity, but went on to strangely cite Charbonneau v. A.O. Shingler & Co for the test analyzing "whether an employer-employee relationship exists", which included "the intentions of the parties".  This factor appears to have strongly influenced the trial judge:
For the reasons that follow, I conclude that the plaintiff functioned as an independent contractor, and that the parties regarded their relationship as being characterized by its independence.
If the argument were whether an employer-employee relationship exists, then that would indeed be a factor...but to import the intention of the parties that the relationship be 'characterized by its independence' conflates the two tests, and would amount to an error of law.

There's also an interesting discussion to be had regarding exclusivity:  It's not clear to me just how viable it would have been for Wyman to concurrently manage multiple resorts.  That might have been relevant to the question of exclusivity - whether or not it was realistically available to him to do so.  However, it's almost certainly relevant that he didn't do so.  His entire business revolved around a singular client, and the client clearly knew from the outset that it was (and was likely going to be) Wyman's sole client.  On the face of that fact alone, exclusivity is likely made out.

But then we come to the yet more-interesting question of the "Workers Compensation pension":  Does income entirely unrelated to the business carried on by the contractor affect the analysis?  If I'm independently wealthy or living off a trust fund, or receiving government pensions, and doing the job for something to do, is that different from a scenario where I'm doing the job to be able to feed my kids?  I have my doubts about that.  If you're looking at exclusivity, it seems to me that the question is the extent to which the business whose services are being retained provides remunerative services to others (or, perhaps, ought reasonably to be expected to provide services to others).

Conversion and Unjust Enrichment

I find the disposition of both the 'motors' issue and the 'unjust enrichment' issue to be a little surprising.  The analysis on the motors turns on the fact that there was no evidence that the corporation intended to 'gift' the motors to Wyman.  That's sound, most likely.  Nonetheless, it's quite normal for there to be informal quid pro quos involving employees and contractors, and particularly where there's essentially an exclusive relationship, it wouldn't be at all surprising for the corporation to say "You've done a good job, and we don't need this equipment, so just take it."  It's not precisely a gift...more of a bonus.  And that's normal, and it seems odd to be litigating over whether or not a conveyance from years ago, in context of an ongoing contractual relationship, conveyed ownership of the chattel.

But, conversely, it's not particularly unusual for contractors to go out of their way and do additional work for a client beyond that which they're retained to do.  It's about client service, about securing the account by showing that you'll go above and beyond.  So it seems equally odd for a contractor to sue his client for those 'extras' after the relationship breaks down.

And therein lies a distinct fairness to the decision:  The judge basically disregarded the informal quid pro quo which frequently marks such relationships, and instead regarded the contractual relationship as being simply 'commissions in exchange for management services', and to the extent that either side did something else for the other, the judge made both sides account for such things.

I would seriously doubt that the same could happen in an employment relationship, though.

Punitive Damages

There's no question that punitive damages is a high threshold, but likewise the corporation did some pretty heavy-handed things.

In particular, pressuring the police to lay charges, especially after they've declined on the basis that it's a civil dispute, was "foolish", to use the judge's term.  Employers will generally be well-advised to act very cautiously when seeking to have criminal charges brought against an employee.

I might use stronger language than 'foolish' to describe it:  Using criminal charges to leverage a civil advantage is highly improper, even when justified.  I'm surprised that there wasn't actually a 'malicious prosecution' tort pursued here.  (Not to say it necessarily would have succeeded, but the elements would probably have been pretty close.)

The judge declined to award punitive damages on the basis that "Wyman has not proven ownership of the motors".  Not an irrelevant consideration - if they'd seized motors which actually belonged to Wyman, it would have been objectively worse.  But the police were right in the first place, and the Crown was right to drop the charges:  It was a civil dispute, and Wyman - even failing to prove ownership - would likely have had a very solid "colour of right" defence in the circumstances.

Ultimately, Wyman's recovery was quite limited.  He obtained judgment for a few things, and barely got beyond the monetary jurisdiction of the Small Claims Court.  There could be serious cost consequences to him for failing to recover more.  Nonetheless, while the judge didn't award punitive damages, it is likely that the defendant's conduct will factor into a costs decision:  The judge figured that a trial would not likely have been necessary had the commissions been paid promptly, and moreover that the pressure to lay criminal charges "exacerbated the case, removing any possibility that the parties might resolve their differences short of trial."


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

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