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No Aggravated Damages for Independent Contractor

June 28, 2022

Author: Dylan Snowdon

On June 15, 2022, the Alberta Court of Appeal released its decision in Gerling v Camrose Regional Exhibition & Agricultural Society, where the Court partially overturned a trial decision addressing whether a worker was an employee or independent contractor and damages arising from the termination of that relationship. The Alberta Court of Appeal disagreed with the trial decision and found the worker was not an employee and not entitled to any additional aggravated damages (apart from regular breach of contract damages).

Thomas Gerling was involved with the Camrose Regional Exhibition & Agricultural Society for about 25 years, starting as a volunteer and later joining the board of the Society, including serving a term as president for three years and then sitting on a subsidiary’s board (Panhandle Productions Limited Partnership) for eight years. In 2008 and 2009, Mr. Gerling became the Chief Financial Officer of Panhandle, Chief Operations Officer, and Chief Executive Officer of the Society in 2012.

As is common in many management/executive services arrangements, the parties, in this case, structured an arrangement whereby the Society contracted with Mr. Gerling through his corporation. In 2012 the Society entered into the first of a series of fixed-term management services agreements with Papa-T Productions Ltd., of which Mr. Gerling was the sole officer, employee, director, and shareholder, to provide business planning, development, operations, and marketing of its business interests and activities. The Society terminated the December 1, 2016 contract with Papa-T claiming just cause on January 4, 2018, eleven months early.

At trial, the Court determined that the working relationship between the parties indicated that Mr. Gerling was an employee of the Society, that the Society breached the contract by terminating it early without cause, and that aggravated damages should be awarded as a result of the grounds for cause set out in the termination letter were untrue.

On appeal, the Court found that the criteria the trial judge relied upon to classify Mr. Gerling as an employee of the Society did not support such a conclusion. Instead, the Court found that the management services agreement was clear in its intention and also noted that the independent contractor role was requested by Mr. Gerling for tax purposes. Mr. Gerling and Papa-T did not provide exclusive services to the Society. Although office space, administrative support, and computer equipment were available to Mr. Gerling, they were contractually provided to Papa-T for the use of Mr. Gerling as Papa-T’s employee. Mr. Gerling received his annual salary from Papa-T regardless of the number of hours he worked. Despite Mr. Gerling receiving a vehicle allowance and being on the Society’s extended health and dental plan, the Court found that was part of the contract between the Society and Papa-T.

While the Court confirmed the Society was required to pay damages with respect to its breach of contract with Papa-T, it overturned the aggravated damages awarded at trial; finding that “While the specific allegations levelled against Mr. Gerling were unproven, they do not rise to the level of an independent breach of honest performance in contractual obligations; otherwise, every action in which grounds for termination of the contract remain unproven, would be subject to such damages.”

Take-aways:

  • Employers must be cautious in agreeing to an Independent Contractor relationship with workers because misclassification can result in significant liability for the employer. 
  • In this case, indicia of both an independent contractor relationship and an employee relationship was present, creating risk to both parties of either a court or the CRA determining the classification was incorrect. 
  • Having a working relationship reclassified can create tax and other liability issues for both parties. Therefore, before entering into an independent contractor arrangement, it is always good to discuss the arrangement with legal counsel in advance.
  • Before asserting a breach of contract, employers should take care to fully inform themselves in an employment or independent contractor situation, rather than finding out in Court that initial presumptions were incorrect.

In this case, the employer was partially saved by having a clear and explicit contract. 

If you have questions about using independent contractor relationships, please contact any of Carbert Waite’s employment lawyers.

Carbert Waite LLP