Brad Hallowell November 23 2022 Ontario Court reminds employers that wrongful dismissal claims cannot be ignored KPMG Law | Employment & Immigration - Canada Brad Hallowell Employment & Immigration FactsDecisionCommentOn 26 October 2022, the Ontario Superior Court released Baker v Fusion Nutrition Inc,(1) a decision which reminds employers that wrongful dismissal claims cannot be ignored.FactsThe defendant, a distributor and wholesaler of bodybuilding products, hired the plaintiff as an independent contractor pursuant to a fixed-term contract for the period of 1 July 2021 to 15 March 2022. On 18 August 2021, just over one month into the contract, the plaintiff was locked out of the office, which he interpreted as a termination. On 1 September 2021, the plaintiff received a final payment from the defendant, notwithstanding that there were still six months remaining in the contract.On 27 January 2022, the plaintiff issued the statement of claim for wrongful dismissal. The defendant refused to respond to the statement of claim and was ultimately noted in default. The plaintiff then proceeded to move for default judgment and served the defendant with a motion record on 26 August 2022. The defendant did not respond to the motion.DecisionIn the default judgment motion, the plaintiff argued, among other things, that:he was misclassified as an independent contractor and he was, in fact, an employee;the termination clause in his contract was unenforceable; andhe was entitled to be paid for the duration of the fixed-term contract.Classification of employmentOn the classification issue, the Court re-iterated that:whether an individual is an employee or an independent contractor is a factual question to be determined on the evidence; anda written agreement describing the nature of the relationship, such as the independent contractor agreement, is not determinative of the classification of a worker.(2)In fact, the plaintiff put forth several characteristics of his relationship with the defendant which indicated that he was an employee, including that:he was paid regular wages at a fixed rate, payable monthly;his pay did not fluctuate or change, no matter the quantity or quality of work;he worked five days a week (Monday to Friday), as directed by the defendant;he consistently reported to work at around 9:00am to 9:30am each workday, and was required to continue working until all assigned work was completed, as directed by the defendant;he was expected to be available to the defendant within the parameters it set for him;he reported directly to the chief executive officer;he had his own office at the defendant's premises;he could not contract out of work;he could not refuse work;he had no opportunity for profit or loss in the performance of his tasks;all work he was required to conduct was directed by the defendant;he did not hire any of his own helpers to assist him in completing his duties;he was required to hold himself out to customers as a representative of the defendant; andhe was financially dependent on the defendant.On this evidence, and given the deemed admissions of the defendant, the Court held that the plaintiff met the criteria to be classified as an employee.Enforceability of termination clauseThe plaintiff argued that the termination clause in the fixed-term contract was unenforceable on the basis that it violated Ontario's Employment Standards Act 2000 (ESA). Pursuant to section 2(1) of Ordinance Regulation 288/01, under the ESA, an employer can only terminate an employee without any notice or payment if the employee is guilty of willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the employer. In Rahman v Cannon Design Architecture Inc,(3) the Ontario Court of Appeal recently affirmed that if a termination provision in an employment contract violates the ESA – such as a "no notice if just cause" provision – all termination provisions in the contract are invalid.(4)The termination clause in the present case included the following language:4.1 Termination for Cause [sic]: Both parties may terminate this Agreement at any time without notice of further payment/provisions of services if either is in breach of any of the terms of this Agreement.The Court held that this clause 4.1 would result in the defendant being able to terminate the plaintiff for "cause" without complying with the minimum notice or payment obligations under the ESA. Accordingly, the Court cited Rahman and held that the entire termination clause was therefore unenforceable.Damages for breach of fixed-term contractIt is established law in Ontario that absent an enforceable contractual provision stipulating a term of notice, an employer must pay a terminated fixed-term employee to the end of the contract term.(5)Since the termination clause was unenforceable, the Court held that the plaintiff was entitled to damages for wages for the balance of the fixed-term contract term, which in this case was equal to $54,283.CommentWrongful dismissal claims do not simply disappear if an employer fails to respond. As the Baker decision demonstrates, an employer's inaction results in deemed admissions, uncontested evidence and findings that are likely adverse to the interests of the employer. In addition, the Baker decision reminds employers of timely employment issues, including the proper classification of workers and updating termination provisions in employment contracts based on recent case law developments.For further information on this topic please contact Brad Hallowell at KPMG Law by telephone (+1 416 549 7794) or email ([email protected]). The KPMG Law website can be accessed at www.kpmg.com. Endnotes (1) 2022 ONSC 5814 (Baker).(2) Baker at paras. 15-16.(3) 2022 ONCA 451 (Rahman).(4) Rahman at para. 30.(5) See Howard v Benson Group Inc. (The Benson Group Inc), 2016 ONCA 256 at paragraph 44.