A worker may be described as self-employed, receive T4A slips, and operate other businesses without necessarily being an independent contractor for all legal purposes.
In a recent decision of the Ontario Superior Court of Justice, Faragher v. ProRich Seeds, the Court considered a nearly 19-year relationship between a seed company and a commissioned salesperson. Although the salesperson was not an employee, the Court found that he was a dependent contractor entitled to reasonable notice.
The decision also addressed constructive dismissal, commission advances, mitigation, and an employer’s counterclaim for alleged overpayments.
A Long-Running Commission Arrangement
The salesperson began selling seed products for the company in approximately 2002. He travelled to farms across several provinces, developed customer relationships, took orders, and sometimes accompanied delivery drivers.
He also participated in other commercial activities, including buying and selling cattle and selling animal-related products. The Court found that these were genuine business activities rather than hobbies.
In 2007, the parties signed an agreement establishing a commission-based compensation structure. The salesperson would receive commissions based on his sales, along with a percentage of certain sales generated through contacts he introduced.
Monthly Payments Were Advances, Not Salary
Under the agreement, the salesperson received a monthly commission advance. The amount began at $4,000 and was later increased to $5,000. The agreement contemplated annual reconciliation. If earned commissions exceeded the advances, the company would owe the salesperson money. If the advances exceeded the commissions, the salesperson could owe money to the company.
The Court rejected the salesperson’s position that the payments represented a $60,000 annual salary plus commissions. It found that he was paid through advances against commission, intended to provide regular cash flow.
However, the reconciliation process was not consistently enforced. The salesperson continued receiving $60,000 annually even when his commissions no longer supported that amount.
The Salesperson Was Not an Employee
A working relationship is not classified solely by the terminology used in a contract, the type of tax slip issued, or how a worker reports income.
The Court considered the company’s degree of control, the equipment provided, the salesperson’s financial risk, his opportunity for profit, and whether he operated a business on his own account. The company did not set his working hours, closely monitor his daily activities, assign him a territory, or dictate which customers he had to visit. He developed many of his own customer relationships and created some promotional materials.
Although the company provided a vehicle, cellphone, product information, and reimbursement for expenses, his earnings depended on his ability to generate sales. The Court therefore found that he was not an employee.
Why He Was a Dependent Contractor
Once the Court found that the salesperson was not an employee, it considered whether he was an independent or dependent contractor.
Dependent contractor status generally turns on economic dependency and exclusivity. Relevant factors may include the duration of the relationship, the proportion of income generated through one company, and how closely the parties’ businesses are connected.
Exclusive Use of Salesperson’s Time and Income Pointed to Dependent Contractor Status
The salesperson had worked with the company for approximately 19 years. Although he earned some income from other ventures, the Court found that a significant majority of his income during much of the relationship came from selling the company’s products.
He also invested substantial time in the seed business and did not sell seed for a competitor during the relationship. His livelihood had become closely intertwined with the company and its affiliated farming operations.
The Court found sufficient exclusivity of time and income to characterize him as a dependent contractor. He was therefore entitled to reasonable notice if his contract was terminated.
Withholding the Monthly Advance Was Constructive Dismissal
By 2021, the salesperson’s commissions had fallen below the advances he received. The company became concerned about the growing deficit and requested information about his sales and pending orders.
The dispute escalated when the company withheld his September 2021 advance. The company maintained that he had resigned by failing to attend a meeting and provide order information.
The Court found no clear and unequivocal resignation. The salesperson continued demanding payment and stated that he had been constructively dismissed.
Court Denounced Withholding Payment as Serious Breach of Contract
For approximately 13 years, the company had regularly issued monthly advances without withholding payment or demanding immediate reconciliation. The Court found that withholding the September payment without specific advance warning was a serious breach of the established arrangement.
The salesperson was constructively dismissed as of September 1, 2021. Although the company faced a difficult situation because of the growing deficit, simply withholding the established monthly payment was not permissible in the circumstances.
The Court Awarded 21 Months’ Notice
The salesperson was 61 when the relationship ended and had worked with the company for approximately 19 years. The Court found that his sales role did not, by itself, justify an unusually lengthy notice period. He was not a manager or highly specialized worker, remained capable of participating in the cattle business, and later began selling seed for another company.
After considering his age, service, responsibilities, and the availability of comparable work, the Court fixed the reasonable notice period at 21 months.
Calculation Based on Actual Commission Earnings, Not Annual Advances
Damages were not based on the $60,000 in annual advances because those payments were not salary. Instead, the Court reviewed the salesperson’s actual commission earnings over several years and calculated average monthly earnings of approximately $2,356.70.
The salesperson received $49,490.70 in commission damages, $2,100 for the lost use of the company cellphone, and $4,410 for the company vehicle. Total damages were assessed at $56,000.70. The Court declined to award statutory vacation pay because the salesperson was not an employee. It also found no basis for punitive or aggravated damages.
Mitigation Did Not Reduce the Damages
A terminated worker receiving reasonable notice damages generally has an obligation to take reasonable steps to mitigate their losses.
The company argued that the salesperson failed to mitigate by not finding replacement work and by earning income from other activities. The Court found that the company had not proven a failure to mitigate.
Income from cattle-related activities was not deducted because the salesperson likely would have earned it even if the seed-sales relationship had continued. His work for another seed company began after the 21-month notice period.
The Employer’s Counterclaim Changed the Outcome
The company counterclaimed for approximately $168,000 in advances that allegedly exceeded the salesperson’s earned commissions. Although the agreement permitted annual reconciliation, the company knew significant deficits had been accumulating since 2016 and did not directly demand repayment or clearly explain that it intended to recover them.
The Court concluded that the company’s conduct and silence led the salesperson to arrange his finances on the assumption that he would continue receiving $60,000 per year. Promissory estoppel prevented the company from recovering overpayments arising before the 2020-2021 sales season.
The company was permitted to recover $59,334.19 in more recent overpayments. After that amount was set off against the $56,000.70 wrongful dismissal (constructive dismissal) award, the salesperson was ordered to pay the company $3,333.49.
Labels Do Not Determine Contractor Status
The decision illustrates that contractor classification depends on the practical reality of a working relationship rather than one label, document, payment method, or tax form.
A worker may have considerable independence and operate other businesses, but still become economically dependent on one contracting party over time. Similarly, regular monthly payments do not necessarily amount to salary when the agreement identifies them as advances against commission.
The case also demonstrates the risks of allowing payment discrepancies and contractual rights to remain unaddressed. A business that does not enforce a reconciliation process may face limits when attempting to recover accumulated amounts years later.
Contact Haynes Law Firm for Advice on Contractor Classification in the GTA
Worker classifications can affect reasonable notice, termination rights, commissions, benefits, statutory entitlements, and wrongful dismissal claims. Paulette Haynes of Haynes Law Firm in Toronto provides comprehensive advice to employees and employers on independent and dependent contractor issues, including thorough assessments of contractor agreements, payment records, degree of control, economic dependency, exclusivity, and parties’ conduct. Our team also assists with constructive dismissal disputes and contractor termination.
To schedule a confidential consultation, please contact us online or call (416) 593-2731 today.
