Stealth employees

In-house counsel need to exercise extra scrutiny for stealth staff, says Gary Goodwin

Gary Goodwin

Does anyone really know if their corporation contains stealth employees? These employees work for your company and everything appears fine until suddenly it is not.

The Ontario Court of Appeal in Cormier and St. Joseph Communications managed to find such an employee for the company. Ms. Cormier worked for St. Joseph as a wardrobe stylist starting in 1994 and later as fashion studio manager. St. Joseph dismissed her without cause in 2017. The motion judge found that she worked as a dependent contractor between 1994 to 2004, after which she became St. Joseph’s employee.

St. Joseph hired Ms. Cormier as an employee in 2004 and cleverly attempted to state that any calculation for employment would only start in 2004. Apparently, this was not clever enough since the motions court found that the termination clause in the employment agreement was void since it attempted to contract out of the minimum standards of the Employment Standards Act. The act stipulates that all benefits must be continued during the notice period. The employment agreement stipulated that short term and long-term disability would not be continued during this time. That pennywise and pound-foolish exclusion was apparently enough to void the entire employment agreement.

Accordingly, the termination clause was not enforceable and the motion judge was correct to apply the common law to determine the appropriate period of notice.

You can almost see an employer’s thinking here. When attempting to transition an employee out the door, the employer would not want that employee to go on short and long-term disability. Since a loss of employment can be one of the more stressful transitions faced by any individual, the odds are higher that an employee might have health issues during the notice period.

Upon dispensing with the employment contract, the summary judgment then gave her 21 months pay in lieu of notice for about 23 years of working for St. Joseph. This falls within the rule of thumb of almost a month for each year of service. Although the courts say there is no rule of thumb, this still manages to fall within this non-existent heuristic.

St. Joseph then attempted to avoid Ms. Cormier’s dependent contractor designation. They attempted to argue that the motion judge erred by focusing upon the exclusivity of the parties working relationship and failed to focus on whether Ms. Cormier was economically dependent upon St. Joseph. The court of appeal shut this down in short order and said that the motion court judge appropriately referred to McKee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916, 315 D.L.R. (4th) 129, and Keenan v. Canac Kitchens Ltd., 2016 ONCA 79, 29 C.C.E.L. (4th) 33.

In Keenan for example, the court of appeal found that it is for the trial judge to determine whether the worker was economically dependent on the company, due to exclusivity or a high level of exclusivity.

In the present case, the court of appeal deferred to the motion judge’s ultimate conclusion that what stood out was that Ms. Cormier had a 23-year solid workplace relationship with St. Joseph.

St. Joseph then pointed to the employment contract, which stated: “Your original hire date of June 7, 2004 will be recognized as your start date for the calculation of your years of service, vacation entitlement and heath care benefits under this agreement.” They attempted to claim that the reasonable notice period should not include any time before 2004. Since the court of appeal gets the last point so to speak, the court of appeal pointed out if St. Joseph wanted to contract out of the common law reasonable notice period, the contract should have specified another notice period.

St. Joseph’s vigorous attempts to oppose each aspect encouraged the court of appeal to award $15,000 in costs to Ms. Cormier.

Generally, in-house counsel are not aware of how each individual works within the company. The exclusivity or economic dependence can be difficult to ascertain. However, this relationship should be closely examined when someone that has been around for a long time suddenly comes on as an employee. Counsel need to exercise extra scrutiny for stealth staff.

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