A 2008 decision of the Ontario Court of Appeal came up in my Employment Law class recently that I thought I would comment on. Nothing in it is particularly novel, but there is some nice language by the Court about how inequality of bargaining power nowadays influences the interpretation of the employment contract. It considers two central questions:
1. How do you distinguish an employee from an independent contractor?
2. How can an employer change the notice term in the contract from “reasonable notice” to a fixed (lesser) amount?
The case is called Braiden v. La-Z-Boy, a decision of the Ontario Court of Appeal.
This is a typical situation of a company attempting to avoid the costs and legal responsibilities of employing someone by trying to treat the worker as an “independent contractor” rather than an employee. Courts are suspicious of these attempts, because the judges recognize that the workers usually are given a choice of agreeing they are self-employed, or losing their job. That is problematic for modern judges who perceive the employment contract as one open to exploitation owing to the power imbalance between the parties. If employers could simply write into every contract that a worker “is an independent contractor”, then we could witness the end of the employment relationship.
La-Z-Boy drafted a contract that said Braiden was self-employed and not its employee. In fact, at one point, they actually ordered him to incorporate a company, and then La-Z-Boy entered into a contract with the corporation. All of this was designed to allow LaZBoy to avoid employment responsibilities.
However, La-Z-Boy didn’t actually want Braiden to act like he was in business for himself. So it also insisted in the contract that Braiden subject himself to almost complete control of La-Z-Boy. It wanted to control him. Therefore, it fixed the price he could charge customers for products he sold, and forbade him for working for any other company. La-Z-Boy also assigned the region he was permitted to sell in, ordered him to attend conferences, and maintained control and ownership over customers.
When LaZBoy decided it didn’t need Braiden any longer, it terminated him by giving the 60 days notice required in the contract between it and Braiden’s corporation. Braiden sued for wrongful dismissal, arguing: (1) He was an employee; and (2) the 60 day notice period is unenforceable and he is entitled to “reasonable notice”. He wins on both accounts at trial. La-Z-Boy appeals.
Decision of Court of Appeal
The Court affirms the trial judges’ ruling that Braiden was an employee of La-Z-Boy. After citing Belton v. Liberty Insurance, a similar case, the Court says this:
In many ways, the question posed at the end of the fifth principle – whose business is it? – lies at the heart of the matter. Was the individual carrying on business for him or herself or was the individual carrying on the business of the organization from which he or she was receiving compensation? In my view, given the findings of the trial judge, the answer to that question can only be that Mr. Braiden was carrying on the business of La-Z-Boy.
The Court then considers the notice period issue. The Trial Judge had ruled that the 60 day notice period in the contract (which La-Z-Boy gave) was less than the minimum wage required by the ESA. Since the contract notice period was less than the ESA requires, it was void, and therefore reasonable notice is implied (as per the decision of the Supreme Court in Machtinger v. HOJ) But that is wrong, since Braiden was only entitled to 8 week’s notice under the ESA, which is less than 60 days. So the Trial judge erred here.
However, the Court of Appeal rules that the 60 day notice period is void for another reason: lack of consideration. An employer cannot introduce a change to the notice period in an employment contract without getting the employee’s agreement and giving the employee some new consideration–something new of value. Courts are protective of this requirement, since employees are vulnerable. Look what the Court says about that:
The requirement of consideration to support a change to the terms of an agreement is especially important in the employment context where, generally, there is inequality of bargaining power between employees and employers. Some employees may enjoy a measure of bargaining power when negotiating the terms of prospective employment but once they have been hired and are dependent on the remuneration of the job, they become more vulnerable. Recognition of this vulnerability is now so firmly embedded in the jurisprudence that it need hardly be recited.
That’s interesting, isn’t it? It is an explicit rejection of the neoclassical belief that employment contracts are freely entered into exchanges which benefit both parties. Here, the Court is saying that inequality of bargaining power should shape how employment contracts are interpreted. The Court’s job is not just to interpret the contract language (“you are an independent contractor”), but to look beyond that language and consider if the employer is taking advantage of the employee for its own benefit.
Here, the employer introduced the 60 day notice term many years into the employment contract. Before that, Braiden was entitled to the much longer period of “reasonable notice”. In exchange for this benefit to the employer, Braiden received nothing new of value. La-Z-Boy argued that its agreement not to fire Braiden was new consideration. The Court says no way:
…a change in the notice period is a significant modification of the employment agreement, additional consideration is required to support such a modification and continued employment does not constitute something of value flowing to the employee.
In the result, Braiden is entitled to “reasonable notice”, which the Court assessed at 20 months’. So Braiden wins 20 months’ pay, plus $18,500 for legal costs in the Court of Appeal.
Do you agree with the Court’s reasoning in this case? Should Courts look beyond a contract term specifying that a worker is “an independent contract and not an employee”?
Or should courts just enforce the language put before them?