Your Business Law Strategist
May 2010 - Newsletter No. 23
In this Issue . . .
- INDEPENDENT CONTRACTORS ENTITLED TO SEVERANCE - When does an Independent Contractor become a "Dependent Contractor?
- CIVIL LIABILITY OF DIRECTORS - LEAVE GRANTED - Directors Liablity for Secondary Market Disclosure
- LENDER ENTITLED TO PREPAYMENT PENALTY AFTER DUE DATE - What happens when a borrower is late paying off a mortgage afer its maturity date?
INDEPENDENT CONTRACTORS ENTITLED TO SEVERANCE
When does an Independent Contractor become a "Dependent Contractor"?
The Ontario Court of Appeal found in the recent case McKee v. Reid’s Heritage Homes Ltd., that a former sales agent for a home builder was in fact an “employee” and as such was entitled to notice and severance upon termination of her “independent contractor” contract.
The plaintiff had been acting as sales agent for the same builder for a period of eighteen years, and was awarded eighteen months of pay ($400,000.00), plus interest and costs.
The Court found that in fact, the sales agent was not an independent contractor at all, but rather an employee. The Court reaffirmed that what makes a worker an “employee”, even in the face of a signed independent contractor agreement with an intermediate corporation, is the following:
- The exclusivity of the agreement;
- The degree of control of the principal;
- The ownership of the tools of the trade;
- The extent of risk or expectation of profit associated with the service provided; and
- How the business of the principal is organized i.e. “whose business is it?”
In this case, the Court found that Elizabeth McKee was truly an employee, as a result of the control exercised by the employer. Although the Court found that Ms. McKee was an employee, the Court also affirmed there may be some “independent contractors” whose job is not sufficiently controlled by the principal to make them an employee, but whose exclusivity is such as to make them fully dependant upon their employer, and who as such are “dependent contractors”. They would also be entitled to a severance payment, but not necessarily as much as an employee.
This is good news for “independent contractors” whose contract and terms of employment have not been sufficiently well defined and described in their “independent contractor” agreement. They may be able to be considered as either employees or dependent contractors, and as such they may be entitled to severance on termination.
CIVIL LIABILITY OF DIRECTORS – LEAVE GRANTED
Directors Liability for Secondary Market Disclosure
In 2007, IMAX Corp. restated its 2005 financial statements, acknowledging that it had erred in recognizing as revenue, income with respect to theatre systems not yet completely installed, contrary to Generally Accepted Accounting Principles. Subsequently, two shareholders of IMAX, Marvin Silver and Cliff Cohen, instituted legal action against IMAX and its directors for damages for misrepresentation, pursuant to the newly enacted civil liability provisions of the Securities Act of Ontario (similar provisions exist under the Alberta Securities Act.)
The claim was framed as a class action. Under applicable law, class action proceedings must be certified by a Court before proceeding and leave of a Court must be obtained for a civil liability action based on secondary market disclosure. The Ontario Superior Court of Justice granted to the plaintiffs leave to pursue their claim, having found that they were acting in good faith and that there existed “a reasonable possibility” that they would be successful at trial.
Under the legislation there is no requirement that successful claimants show that they relied upon the misrepresentation; all that needs to be shown is that they are acting in good faith and that there is “a reasonable possibility” of success.
In making her determination, the judge stated that “reasonable possibility” implied that there were not only grounds for the claim, but also that the claim had more than minimal merit, giving the claim a reasonable possibility of success. While the judge found that the test set out in the legislation had been met, IMAX is currently appealing the decision.
This is the first reported case of a request for leave under the new provisions of the Securities Act. It serves as a good reminder that there is now, under this new legislation, a heavier onus on directors and officers of corporations to make sure that their secondary disclosure documentation does not contain any errors or information which may be considered a misrepresentation. Any erroneous information may lead to liability, whether or not any reliance is made on the misrepresentation or erroneous statement by the claimants.
Consideration should be given to having such public disclosure vetted by legal counsel competent in this area of law, prior to release.
LENDER ENTITLED TO PREPAYMENT PENALTY AFTER DUE DATE
What happens when a borrower is late paying off a mortgage after its maturity date?
In a recent Ontario case (Irwin Mintz, in trust v. The Mademont Yonge Inc.) the court ordered that three months interest by way of penalty be paid to the lender, as the loan was not paid in full on maturity.
Shortly after the maturity date of the mortgage, a lawyer for the registered owner wrote a letter to the mortgage lender requesting a payout statement, as the registered owner had now found a buyer for the property. The mortgage lender included in its payout statement three months interest on the balance due, pursuant to section 17 of Mortgages Act (Ontario), which entitles the lender to three months notice or three months interest on default payments. The Court ruled that the payout amount was a default payment as the said amount had become fully due and payable on the maturity date.
While there is no similar provision under the Law of Property Act of Alberta, in a proper case, where the mortgage itself provides for additional interest on default payments, such provision may have the effect of entitling the lender to additional interest on an overdue mortgage. Lenders may wish to include such a clause in their mortgage documentation.