In a significant decision rendered on January 5, 2018, the honorable justice Stephen W. Hamilton of the Quebec Superior Court decided that an independent worker governed by a service contract and not an employment contract was entitled to reasonable notice of termination.

Facts

In this case, Ginette Lamontagne (the “Plaintiff”) instituted proceedings against Distribution Financière Sun Life (the “Defendant”) alleging the abusive termination of her contract as a financial advisor.

Specifically, the Plaintiff acted as financial advisor to the Defendant from 2004 to 2009. Under the terms of her contract, she was to sell the Defendant’s insurance policies and investment funds in exchange for a commission. In 2009, the Defendant terminated her contract, and provided her with two weeks’ notice in accordance with the terms of the contract.

Decision

The Court first analyzed whether the Plaintiff was in fact properly qualified as an independent contractor, or whether the Plaintiff was actually an employee of the Defendant. A thorough analysis by the Court of the facts surrounding the contractual relationship between the parties revealed no relationship of subordination (essential to a contract of employment). Consequently, the Court concluded that the Plaintiff is not an employee of the Defendant, but rather governed by a service contract.

However, the Court nonetheless concluded that given the specific characteristics of the relationship between the parties, articles 2125 and 2129 of the C.C.Q, which govern service contracts and provide that the customer has the right to unilaterally terminate a service contract without notice, do not apply. In fact, the Court considered the following circumstances in rendering its decision: (i) the existence of a service contract; (ii) where one of the parties is an individual; (iii) which is an exclusive relationship for the individual, and therefore generates all of the individual’s income; (iv) the contract is for an indefinite duration; (v) the contract has lasted more than five years; and (vi) the contract includes non-solicitation clauses which continue after termination that limit the individual’s ability to earn a living.

In addition, the Court argues that the Plaintiff’s situation is very similar to a third class of contracts created by the Ontario Court of Appeal in the decision McKee v. Reid’s Heritages Homes Ltd.1, namely the class of “dependent contractors”. The Court of Appeal made the following comments on this category of contract:

“I conclude that an intermediate category exists, which consists, at least, of those non-employment work relationships that exhibit a certain minimum economic dependency, which may be demonstrated by complete or near complete exclusivity. Workers in this category are known as “dependent contractors” and they are owed reasonable notice upon termination.”2

As a result, the Court concluded that the contractual provision authorizing the termination of the contract without cause on 14 days’ notice is invalid, considering that it was an unfair term of a contract of adhesion. Finally, the Court determined that the Plaintiff is entitled to reasonable notice of termination of six months, despite the absence of an employment relationship.

Impact of this judgment

While at first glance this judgment may seem unnerving for companies hiring independent workers, there is no need to panic just yet. Leave to appeal this decision was granted on February 15, 2018, so it remains to be seen whether or not this judgment will be confirmed by the Court of Appeal.  If the Court of Appeal confirms this decision, companies may wish to consider whether it is even worth hiring self-employed workers under service contracts. We will keep you posted on the outcome of the appeal.

Footnotes

1 2009 ONCA 916, par. 30.

2 Id.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2018