Court File and Parties

COURT FILE NO.: CV-22-00675886-0000

DATE: 2022-10-26

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: BRADLEY BAKER, Plaintiff

AND:

FUSION NUTRITION INC., Defendant

BEFORE: Justice A.P. Ramsay

COUNSEL: Jonathan Margolin, for the Plaintiff

HEARD: In Writing Motion

ENDORSEMENT

A. Overview

[1] The plaintiff moves for default judgment pursuant to rr. 18.01 and 19.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”), in an action commenced under the r. 76 Simplified Procedure. The plaintiff was hired by the defendant as an independent contractor under a fixed term contract. The contract contained a termination clause. The plaintiff takes the position that he was an employee, not an independent contractor. The plaintiff also submits that the termination clause is unenforceable as it purports to contract out of the minimum standards of the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”), or alternatively, because it purports to restrict his rights, but the language was unclear and ambiguous.

[2] The statement of claim was issued on January 27, 2022 and served on the defendant on February 8, 2022. Counsel for the plaintiff sent a number of emails to the defendant’s Chief Executive Officer, Brad Pyatt, requesting a statement of defence, and ultimately notifying him that the defendant would be noted in default if no defence was received. On the evidence, there was no response. The defendant was ultimately noted in default on April 27, 2022.

[3] Despite subr. 19.02 (3), which indicates that a defendant noted in default is not entitled to notice of any step in the proceeding or to be served with any document, unless the court orders otherwise, the plaintiff has followed the “far better practice” approach embraced by this court in preemptively serving the motion materials on the defaulting defendant: see Western Steel and Tube Ltd. v. Technoflange Inc., 2017 ONSC 2697 at para. 24, per Myers J; and Casa Manila Inc. v. Iannuccilli, 2018 ONSC 7083, at paras. 13-16, per Sanfilippo J. The defendant was served with the Motion Record on August 26, 2022, as appears from the affidavit of service filed, but did not respond to the motion.

[4] The plaintiff seeks judgment for:

i. damages for breach of contract in the amount of $54,282.90 for the balance of the term of the contract;

ii. damages for accrued but unpaid wages as of the date of termination in the amount of $3,194.23;

iii. damages for accrued but unpaid vacation pay in the amount of $3,536.19 pursuant to the ESA as of the date of termination, and loss of vacation pay from the date of termination to the end of the term of the contract, in the cumulative amount of $5,697.19;

iv. damages for accrued but unpaid holiday pay pursuant to the ESA as of the date of termination, and loss of holiday pay from the date of termination to the end of the term of the contract, in the cumulative amount of $5,277.12; and

v. punitive, aggravated, bad faith and/or moral damages in the amount of $50,000.00.

B. Issues to be Determined on this motion

[5] The following issues are to be decided on this motion:

i. Was the plaintiff an independent contractor or an employee?

ii. Is the termination provision in the Agreement enforceable?

iii. What is the appropriate quantum of damages?

C. Background

[6] The plaintiff contends that he was an employee with the defendant, Fusion Nutrition Inc. (the “defendant”), though misclassified as an independent contractor. The defendant is a national distributor and wholesaler of bodybuilding supplements.

[7] On September 11, 2020, the plaintiff started working with the defendant’s Head of Global Sales. On March 15, 2021, the parties reduced their relationship and agreement to writing. The plaintiff’s remuneration was based on a monthly amount of $6,250.00 plus HST, and a car allowance of $800 a month, and expenses incurred.

[8] Under the terms of the contract, the plaintiff was described as an “independent contractor”. Clause 1.2 of the Agreement defined the parties’ relationship as follows:

[9] The plaintiff was hired to generate certain sale revenues as reflected in an Appendix to the Agreement.

[10] The plaintiff contends that the defendant regularly failed to pay him on time, and locked him out of the office on August 18, 2021, which the plaintiff interpreted as a termination. The plaintiff indicates that the defendant has not contacted him.

[11] On September 1, 2021, the defendant deposited $9,375.00 into the plaintiff’s bank account. This was the final pay he received from the defendant. The plaintiff’s evidence on this motion is of course unchallenged as the defendant did not respond.

Issue 1: Was the plaintiff an independent contractor or an employee?

[12] For the reasons below, I find that the plaintiff was an employee at the time of his termination.

[13] Paragraph 1.2 of the Agreement provides in part, as follows:

The Contractor agrees that as an independent contractor, the Contractor will not be qualified to participate in or to receive any employee benefits that the Company may extend to its employee.

[14] The plaintiff was free to provide services to other clients as long as those clients were not direct competitors with the defendant “and so long as there [was] no interference with the Contractor’s contractual obligation to the Company.” The defendant was not responsible for the withholding, collection and any payment of taxes, employment insurance or Canada Pension Plan contribution.

[15] Any agreement that purports to describe the nature of the relationship is not determinative: 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, at para. 49. The absence of any statutory deductions, issued T4 slips Moseley-Williams v. Hansler Industries Ltd., 2008 57457 (ON SC), at para. 13; or, the fact that an individual uses their own vehicle for the purpose of carrying on business is also not determinative: Braiden v. La-Z-Boy Canada Limited, 2008 ONCA 464, 294 D.L.R. (4th) 172, at paras. 35–36.

[16] Whether an individual was an employee or an independent contractor is a factual question to be determined on the evidence: Belton v. Liberty Insurance Co. of Canada (2004), 2004 6668 (ON CA), 72 O.R. (3d) 81, at para. 14 (C.A.); Jaremko v. A.E. LePage Real Estate Services Ltd., 1989 4163 (ON CA), 69 O.R. (2d) 323 (C.A.); Sagaz; Braiden at para. 31. The fact that the Agreement in this case indicated that the plaintiff was a contractor is not determinative of the nature of his status.

[17] The court must look beyond the words in the contract to determine whether an employer-employee relationship existed. In Sagaz at para. 47, the Supreme Court of Canada stated that: “The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account.” The Supreme Court set out several factors which the court ought to consider in determining whether an individual is an independent contractor or employee. The Court stated at para. 47:

Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks. [Emphasis added.]

[18] The Ontario Court of Appeal has endorsed a reformulation of the principles set out in Sagaz: see Braiden and Belton. In Belton, at para. 11, citing Doyle v. London Life Insurance Co., upheld on appeal, Juriansz J.A. commented that the following principles distinguish independent contractors from employees:

1. Whether or not the agent was limited exclusively to the service of the principal;

2. Whether or not the agent is subject to the control of the principal, not only as to the product sold, but also as to when, where and how it is sold;

3. Whether or not the agent has an investment or interest in what are characterized as the “tools” relating to his service;

4. Whether or not the agent has undertaken any risk in the business sense or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission;

5. Whether or not the activity of the agent is part of the business organization of the principal for which he works. In other words, whose business is it? [Emphasis added.]

[19] At paragraph 2 of the statement of claim, the plaintiff pleads that he is a former employee of the defendant. At paragraph 12 of the statement of claim, the plaintiff identifies various characteristics of his relationship with the defendant. He states that “although he was working under the label of a[n] ‘independent contractor’, he was in fact an employee of the Defendant at all material times”. At paragraph 3 of his affidavit, the plaintiff sets out the same characteristics of his employment relationship with the defendant, which remain unchallenged on this motion for default judgment. Some of those factors are:

a) He was paid regular wages at a fixed rate, payable monthly;

b) His pay did not fluctuate or change, no matter the quantity or quality of work;

c) He worked 5 days a week (Monday to Friday), as directed by the defendant;

d) 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;

e) He was expected to be available to the defendant within the parameters it set for him;

f) He reported directly to the Chief Executive Officer;

g) He had his own office at the defendant’s premises;

h) He could not contract out of work;

i) He could not refuse work;

j) He had no opportunity for profit or loss in the performance of his tasks;

k) All work he was required to conduct was directed by the defendant;

l) He did not hire any of his own helpers to assist him in completing his duties;

m) He was required to hold himself out to customers as a representative of the defendant; and

n) He was financially dependent on the defendant.

[20] On the evidence, and given the deemed admissions by the defendant, the plaintiff meets the criteria to be classified as an employee. The plaintiff’s primary source of income was from the defendant. He worked full time hours. He worked out of the defendant’s head office. He worked five days a week and reported to the CEO of the company. His work activities were dictated by, and so controlled by, the defendant. The plaintiff was required to hold himself out as a representative of the company. He did not hire his own helpers. He had no opportunity for profit in the performance of his tasks, and I infer from that, that he would not have assumed a financial risk. Although the plaintiff could have other clients, none could be in direct competition with the defendant, nor could other work for other clients interfere with his work for the defendant. The plaintiff’s service was therefore effectively restricted primarily to the defendant’s business.

[21] I also find that given the exclusivity of his relationship with the defendant and his economic dependence on the defendant, the plaintiff also fits the category of a dependent contractor, an alternative position endorsed by the plaintiff. As such, the plaintiff would be entitled to reasonable notice upon termination: see McKee v. Reid’s Heritage Homes Ltd, 2009 ONCA 916, 315 D.L.R. (4th) 129 at para. 30.

Issue 2: Is the Termination Provision in the Agreement Enforceable?

[22] The plaintiff argues that the notice provision in the Agreement is vague and ambiguous and therefore unenforceable and claims entitlement to the balance of the term of the contract. The plaintiff relies on Howard v. Benson Group Inc. (The Benson Group), 2016 ONCA 256, 129 O.R. (3d) 677. In this case, the contract was for a fixed term of one year which was to expire on March 15, 2022. The contract contemplated that the plaintiff could be terminated without notice and, if so, specified the penalty, being four months’ payment. Clause 4.1 of the Agreement between the parties provides that either party may terminate the Agreement at any time for cause without notice. Pursuant to clause 4.2, either party may terminate the Agreement upon providing thirty days’ notice. Clause 4.3 provides that the defendant shall pay the plaintiff four (4) months’ monthly payment upon termination. The relevant provisions of the Agreement read as follows:

ARTICLE 4 TERMINATION

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.

4.2 Termination with Notice: Either party may terminate this agreement upon providing thirty (30) days written notice to the other party.

4.3. Notice Payments: Upon termination of the Contractor’s engagement pursuant to article 4 hereof, the Company shall pay the Contractor all monthly payments for a period of 4 months commencing on the termination date.

(the “Termination Clause”).

[23] A termination clause must comply with the minimum employment standards in the ESA: see Machtinger v. HOJ Industries Ltd., 1992 102 (SCC), [1992] 1 S.C.R. 986.

[24] Generally, if the parties to a fixed term contract do not specify a notice period, the terminated employee is entitled to the wages they would have received to the end of the term: Canadian Ice Machine Co. v. Sinclair, 1955 44 (SCC), [1955] S.C.R. 777, at p. 786; Bowes v. Goss Power Products Ltd., 2012 ONCA 425, 351 D.L.R. (4th) 219, at para. 26; Howard at para. 22. In this case, the parties have an Agreement that specified a different notice period. The question is whether the termination clause is enforceable.

[25] To be enforceable, a termination clause must be clear and unambiguous: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 134 O.R. (3d) 481 at para. 40.

[26] The termination clause includes a provision for termination for cause without any further payments, and a provision for termination with notice, for a fixed notice payment for four months. The termination provision must be read as a whole and is unenforceable if it is in whole or in part illegal: Waksdale v. Swegon North America Inc., 2020 ONCA 391, 446 D.L.R. (4th) 725, at para. 10.

[27] Sections 54 and 55 of the ESA mandate that notice, and termination pay must be given for all terminations, even those for just cause, except for “prescribed employees”: see also Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451, at para. 27. As noted by Gillese J.A. in Rahman, at para. 28, ESA notice and severance have been awarded in circumstances where the employer had cause to terminate the employee.

[28] Pursuant to s. 2(1) of O. Reg. 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 had not been condoned by the employer. And, just as in Rahman, in the current case, the termination provision for cause does not restrict it to willful misconduct. In the result, as the termination provision with respect to cause violates the ESA, the entire termination clause must fail, and I need not consider whether the provision is unclear and ambiguous.

[29] The Ontario Court of Appeal has indicated that, absent an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, an employer must pay a terminated fixed-term employee to the end of the contract term: Howard. The principles are aptly summarized in Howard, at para. 44, as follows:

In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation. Just as parties who contract for a specified period of notice (or pay in lieu) are contracting out of the common law approach in Bardal v. Globe & Mail Ltd., 1960 294 (ON SC), [1960] O.J. No. 149, 24 D.L.R. (2d) 140 (H.C.J.), so, too, are parties who contract for a fixed term without providing in an enforceable manner for any other specified period of notice (or pay in lieu).

[30] In my view, 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 for all forms of termination without cause, without limitation. The termination clause is therefore unenforceable.

[31] While the plaintiff also argued that the termination clause did not use clear and unambiguous language, I need not consider this point given my determination that the clause is unenforceable.

[32] I will now turn to the plaintiff’s claim for damages.

Issue 3: Claim for Damages

i. Damages for the balance of the contract term

[33] Pursuant to subr. 19.02(1), a defendant noted in default “is deemed to admit the truth of all allegations of fact made in the statement of claim.” Despite the consequences which flow from a defendant being noting in default, on motion for default judgment, the plaintiff still bears the onus of proving the claim for damages on a balance of probability: Fuda v. Conn, 2009 1140 (ON SC), [2009] O.J. No. 188 (S.C.J.), para. 16. As noted by D.M. Brown J., as he then was, Rule 19.06 therefore requires that a trial judge should inquire into whether the deemed factual admissions resulting from a default are adequate to support a judgment on liability as well as damages: Elekta Ltd. v. Rodkin, 2012 ONSC 2062, at para. 12.

[34] The plaintiff is seeking $54,283.56 for damages from the date of termination on August 18, 2021, to the end of the term of his employment of March 15, 2022. There is a rebuttable presumption that a terminated employee is entitled to reasonable notice at common law unless a contract provides otherwise. In this case, the termination clause is not enforceable. The plaintiff is therefore entitled to damages for wages for the balance of the contract term, or $54,283.56.

ii. Damages for accrued but unpaid wages

[35] The plaintiff’s unchallenged evidence is that he worked between July 1, 2021 to August 18, 2021 without initially being paid. The defendant owed him $12,666.16 for this time frame, but subsequently paid him $9,375.00 leaving a shortfall of $3,291.16. The plaintiff is therefore entitled to judgment accordingly for the shortfall.

iii. Damages for accrued but unpaid vacation under the ESA

[36] Pursuant to subsection 35.2(a) of the ESA, the plaintiff, as an employee, would be entitled to annual vacation pay calculated at 4% of annual wages, or $3,774.00. Because of the nature of the agreement that the parties entered into, I accept that the plaintiff was not paid any vacation pay. The plaintiff is therefore entitled to $3,536.19 as damages for unpaid vacation from the time he was hired (September 11, 2020) to the date of termination (August 18, 2021).

[37] The plaintiff also seeks damages for loss of vacation pay beyond the date of termination to the end of the term of the contract, but has not provided any authority to support that claim. I therefore make no award for the claim of a future award for loss of vacation.

iv. Termination and loss of holiday pay from the date of the termination to the end of the term of the contract, in the cumulative amount of $5,277.12

[38] Pursuant to s. 35.2(b) of the ESA, the plaintiff would be entitled to holiday pay, calculated at approximately 3.7% of annual wages, or $3,490.95. Again, because of the nature of the agreement that the parties entered into, I accept that the plaintiff did not benefit from any holiday bay. The plaintiff is therefore entitled to $3,270.97, calculated from September 11, 2020, to the date of termination (August 18, 2021).

[39] The plaintiff seeks holiday pay beyond the termination date, to the end of the fixed term contract, but has provided no authority in his factum to support that claim. This claim is dismissed.

v. Punitive, aggravated, bad faith and/or moral damages in the amount of $50,000.00

[40] The plaintiff is seeking punitive damages in the amount of $50,000. For the reasons below, this aspect of the claim is also dismissed. It is well established that punitive damages may be awarded in a case of wrongful dismissal: Honda Canada Inc. v. Keays, 2008 SCC 39, [2008] 2 S.C.R. 362, at para. 68; Vorvis v. Insurance Corp. of British Columbia, 1989 93 (SCC), [1989] 1 S.C.R. 1085.

[41] However, such an award is not often made. The Supreme Court of Canada has indicated that punitive damages ought to be “restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.”: Honda, at para. 62. Courts should only resort to punitive damages in exceptional cases: Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at para. 69.

[42] A claim for punitive damages is concerned with the defendant’s conduct. The conduct of the defendant complained of in the plaintiff’s affidavit does not support a claim for punitive damages. Much of this aspect of the claim is based on mere bald statements. The plaintiff claims that the defendant did not treat him fairly, act in good faith, or treat him with respect and civility. He indicates that the defendant did not discharge its duty to act honestly in the performance of its contractual obligations and instead preyed upon his vulnerability. The plaintiff also pleads that the defendant knew, or ought to have known, that at all material times he was an employee and knew, or ought to have known, that as an employee, he was entitled to vacation and holiday pay, among other things, including compensation to the expiry of the contract.

[43] Based on the evidence, the defendant sought to organize its affairs to minimize exposure to notice payments. Punitive damages ought to be “restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own”: Honda, at para. 62. An award of punitive damages should “receive the most careful consideration and the discretion to award them should be most cautiously exercised”: Vorvis, at pp. 1104-5. The defendant’s payment of $9,375.00 also mitigates against the award of punitive damages.

[44] I would dismiss the claim for punitive, aggravated, bad faith and moral damages.

[45] The plaintiff’s factum indicates that he is seeking $25,000.00 for aggravated or moral damages for psychological injury suffered because of the defendant’s conduct. The prayer for relief does not include a claim for $25,000 for aggravated or moral damages (these classes were grouped with the claim for punitive damages). The pleading does not seek damages specifically for mental distress but does claim moral damages. There is very little evidence before me to support this aspect of the claim. The plaintiff deposes that being locked out “was incredibly upsetting, demoralizing, and frankly traumatizing”, and elsewhere deposes that the defendant’s “complete indifference” to the legal proceedings has “negatively impacted his mental health and he has sought therapy”. In my view, the plaintiff’s evidence does not support an award of $25,000 for aggravated or moral damages.

Disposition

[46] I make the following disposition:

i. The plaintiff was an employee or dependent contractor at the time of his termination.

ii. The notice provision in the Agreement between the parties is unenforceable.

iii. The plaintiff is entitled to damages in the amount of $54,283.56 for the balance of the contract term.

iv. The plaintiff is entitled to damages for accrued but unpaid wages in the amount of $3,194.23.

v. The plaintiff is entitled to damages for accrued but unpaid vacation under the ESA in the amount of $3,536.19.

vi. The plaintiff is entitled to damages for $3,270.97 for accrued but unpaid holiday pay to the date of termination.

vii. The plaintiff is entitled to pre-judgment interest in accordance with s. 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43.

viii. The claims for damages for future vacation under the ESA is dismissed.

ix. The claim for damages for future holiday payment under the ESA is dismissed.

x. The claims for punitive, aggravated, bad faith and/or moral damages are dismissed.

Costs

[47] Based on the Bill of Costs, the plaintiff’s partial indemnity costs of $5,578.58 appear to be reasonable. The defendant shall therefore pay costs to the plaintiff in the amount of $5,578.58, inclusive of HST.

[48] I have disallowed the file administration fee and online research expense being claimed as disbursements and have therefore allowed disbursements in the amount of $1,056.20, plus HST.

A.P. Ramsay J.

Date: October 26, 2022