Corporations May Be Eligible for Reasonable Notice or Damages for Wrongful Dismissal

Like Independent Contractors, some Corporations may be able to claim employee status; which, if successful, could furnish them with reasonable notice and / or wrongful dismissal damages. Regardless of what the Canada Revenue Agency or the Employment Insurance Commission has to say, the courts follow their own protocol and don’t necessarily care how other governing bodies classify the status of a corporation.  If a company can prove the existence of an employment-like relationship, it may be recognized by the courts to be an employee.

Wrongful Dismissal Case - Bird vs. Warnock, Hershey Professional Services Ltd., 1980

The plaintiff / employee provided services to his employer for a number of years as an individual.  Over a period of time, he incorporated, yet the services he continued to provide and the relationship with his employer remained the same.  The plaintiff was dismissed without reasonable notice and sued for wrongful dismissal. The employer mistakenly believed that when the plaintiff incorporated, he assumed the status of an independent contractor and wasn’t entitled to reasonable notice.  The employer also stated that the service provider was a company, not a person and therefore couldn’t be classified as an employee. The Supreme Court of BC decided that the incorporation was irrelevant.  The employer-employee relationship was well established before and continued on in the same manner after the incorporation.  The plaintiff was awarded damages in lieu of reasonable notice.

Wrongful Dismissal Case -  Western Equipment Ltd. vs. A.W Chesterton Co., 1982

Employment arrangements between corporations are also considered in claims for reasonable notice. This case between a distributor and a manufacturer yielded a win for the plaintiff, despite the fact that they didn’t have a typical employer-employee relationship. Instead, they had an long-term arrangement where the distributor (plaintiff) had an exclusive contract with the manufacturer.  Due to this exclusivity, the plaintiff relied heavily on the sale of the manufacturer’s products and therefore couldn’t be considered an independent contractor.

Due to the duration of the arrangement and the plaintiff’s reliance on the manufacturer, the court decided that the manufacturer didn’t have the right to terminate the contract without just cause or reasonable notice.  The relationship between the parties wasn’t a purely commercial arrangement as their ongoing conduct was decidedly employment based. The manufacturer also didn’t have any documentation or termination clause to discredit the claim and so they were found liable for wrongful dismissal.

This case laid the foundation for future wrongful termination actions between corporations.

Wrongful Dismissal Case - Marbry vs. Avrecan International Inc. (1997)

The decision of this case went into appeal and was upheld by the Court of Appeal for BC. It established guidelines for courts to follow in determining whether or not reasonable notice of termination was owed from one corporation to another. Think about your own situation.  Do any of the following points apply?  If so, you may be entitled to reasonable notice.

  • Duration - the more permanent the relationship is between the parties, the better.
  • Degree of Reliance - like the case with the manufacturer and distributor, the courts decided in favor of the distributor because it relied on the manufacturer for a significant portion of its revenues.
  • Degree of Exclusivity - an exclusive agreement presumably supports the claim to reliance and could increase the chances of a reasonable notice requirement.

Wrongful Dismissal and Reasonable Notice - The Spectrum

The previous article, How Contractors Can Remain Contractors, mentioned a spectrum the courts use to determine the status of a worker.  They follow guidelines, similar to the bullet points above in deciding whether a worker is an employee or a contractor.  This spectrum is also used in determining the relationships between corporations. One end represents a strictly commercial or contractor-based relationship, while an employment or employee-based relationship resides on the other.

Which side of the spectrum do you fall on? If you believe you veer closer to the employment side of the spectrum, you may have a solid claim for wrongful termination and reasonable notice.  If you would like to learn more, contact Wrongful Dismissal Lawyer, Bob Yeager.

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