Court Finds Employer/Employee Relationship notwithstanding Contract between Two Corporations

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  • December 15, 2016

Court Finds Employer/Employee Relationship notwithstanding Contract between Two Corporations

The BC Supreme Court recently held that a contract between two corporations was essentially a contract of employment and awarded severance on termination of the contract. The court held that Tim Fernback, working through his incorporated entity TCV Ventures Corp. (“TCV”), was essentially an employee of Cambie Malone’s Corporation (“CMC”) and entitled to reasonable notice of dismissal.

Mr. Fernback was the 100% owner of TCV and provided a range of financial and commercial services through this corporation. In March 2009, Mr. Fernback was offered and accepted the position of Chief Financial Officer for CMC, a hospitality and development company. It was apparent at the time that both parties understood that the position would require Mr. Fernback to work approximately three days per week, and that it was acceptable for Mr. Fernback to have other clients during his engagement with CMC.

Mr. Fernback worked for CMC until November 2012 when relations between the parties broke down. At the time of termination, Mr. Fernback was earning an annual salary of $75,000, and had also entered into a written contract with respect to additional fundraising duties for which he was to be paid a 4% commission.

TCF sued for wrongful dismissal, claiming that Mr. Fernback was an employee of CMC and that he was entitled to damages in lieu of reasonable notice of dismissal.

The court reviewed the law with respect to the distinction between an independent contractor and an employee, citing factors such as the duration of the relationship, the degree of reliance and the degree of exclusivity. The court held that, despite the lack of complete exclusivity, and the fact that the provision of services was through a corporation, the relationship had a permanency that persisted for 3.5 years and was akin to an employer-employee situation.

TCV was awarded damages in lieu of nine months’ reasonable notice, including an estimation of commissions that would have been paid during the nine month notice period.

This case serves as a lesson to companies that individuals who provide contract work may be considered “employees” as opposed to independent contractors, despite the fact that they operate through their corporations and may not provide exclusive service. To avoid potential litigation, companies should ensure that they use written, enforceable contracts that clearly set out the amount of notice required to terminate that relationship.