Mediators and lawyers go to great lengths to protect themselves from parties who agree to settlements at mediation and later have a change of heart. The courts are just as vigilant in preserving the settlement agreements themselves and requiring parties to abide by them. Under what circumstances would a court agree to set aside a mediated settlement agreement? The recent case of Rawlins v. Rawlins provides us with some guidance.

In this case, two brothers were the estate trustees for the estate of their late mother. Disputes arose between them with respect to the administration of the estate. Their lawyers attended a mediation to try to settle those disputes.

Before the mediation, and in accordance with usual practice, the parties and their lawyers signed a mediation agreement that outlined such terms of the role of the parties and the mediator, the ability of the parties to terminate the mediation, and the fees and indemnity issues relating to the mediation.

The mediation was successful. It concluded with the parties and their lawyers signing a settlement agreement. The settlement agreement was clearly intended to resolve all of the disputes between the brothers regarding the estate.

The minutes of settlement involved the appointment of an appraiser to value certain assets. The appraiser was specifically named in the agreement.

Several months after the mediation, one of the parties expressed a concern about the appraiser named in the agreement. Subsequently, and a total of 9 months after the mediation, the same party announced that he had been coerced into signing the agreement by the lawyer who had acted for him at the mediation and by the mediator. As a result of this alleged coercion, he refused to abide by it. He took no action to move to set the agreement aside but the other party brought an application to enforce the agreement.

The applicant’s position was that the agreement had been signed with all parties represented by experienced counsel and with no fraud, mistake, bad faith or coercion. The language in the settlement agreement was clear, concise and unambiguous and it was obvious that the parties intended to create a legally binding agreement resolving their disputes.

The party trying to get out of the deal insisted that he had not understood that he could terminate the mediation at any time. He stated that he felt obliged to remain at the mediation because if he left, a decision could be made in his absence. He complained that the mediator was biased against his interests and aggressive towards him and that he was not given a fair “hearing”. As a result, he signed the settlement agreement under duress because he believed that he had no choice.

As the court observed, a settlement agreement is a contract. The contract will be enforceable if the parties mutually intended to enter into a contract and had agreed on all of the essential terms of the settlement.

The question of agreement on essential terms is not dependent on an inquiry into the actual state of mind of either of the parties or their subsequent evidence as to what they intended on a subjective basis. It is to be measured by an objective reading of the language used in the contract. The law will then impute to each party an intention that corresponds to the reasonable meaning of that language.

The court found that this particular agreement was very detailed and used language that was specific and indicated that there had been extensive negotiations and discussions. Based on that language and the lack of any evidence to support any claim of coercion, the court found that a binding contract had been reached.

There is a basis to say that where a contract is signed under duress, it will not be enforceable. However, not all pressure is recognized as constituting duress. According to the case law, it “must be a pressure which the law does not regard as legitimate and it must be applied to such a degree as to amount to a coercion of the will”. In other words, it “must place the party to whom the pressure is directed in a position where he has no realistic alternative but to submit to it”.

In the result, the court granted judgment enforcing the settlement agreement. The court made it clear that it will set aside settlement agreements only in the clearest of cases and in exceptional circumstances, such as where there was clear evidence of fraud, bad faith or mistaken instructions.

It did not help, of course, that the issue of duress was only raised many months after the agreement was signed and probably as a consequence of the fact that the party raising the issue had changed his mind about the identity of the appraiser agreed upon at the mediation. When his preference for a different appraiser was unacknowledged, that party may have simply come up with a more significant complaint in the hope of avoiding the agreement entirely. Perhaps his ultimate objective was simply to proceed under the terms of the settlement agreement but with a different appraiser. That is only my own speculation, and we will never know for sure, but that may well have been a factor in the judge’s thinking.

There may be the oddball case of a settlement agreement entered into under duress. In that type of case, however, one would expect the complaint to be raised almost immediately after the conclusion of the mediation. A delay of the type seen in this case will almost always extinguish the miniscule possibility of success of such an argument.

As the sidebar panel to my blog indicates, I now have my Master of Laws in Alternative Dispute Resolution and I have begun to work as a mediator as part of my practice. It occurs to me, however, that there may be some readers of this blog who aren’t clear on the meaning of the phrase.

Alternative dispute resolution, or ADR, refers to methods of resolving disputes without litigating them through to a trial. The most common methods of ADR are arbitration and mediation.

Arbitration is a process which has a number of similarities to litigation. In arbitration, however, the parties choose an individual to act in the role of a judge. The parties will usually make up their own procedural rules, which may or may not reflect the types of procedural rules that govern litigation proceedings, and the arbitrator chosen by the parties will conduct a hearing and render a decision in a way that is similar to what a judge would do.

There are a number advantages and disadvantages to arbitration compared to litigation. I have commented on this in a video I prepared some time ago which you can find at http://www.youtube.com/watch?v=Y_mZnOUmnhs.

I have been trained as an arbitrator and I am on the roster of the Canadian Commercial Arbitration Centre. So if you are involved in an arbitration, either because you are a party to a contract containing an arbitration clause and a dispute has arisen, or because you are involved in a dispute with someone who has agreed with you to refer the matter to arbitration as opposed to litigation, I would be happy to assist.

Mediation is completely different. A mediator is a non-party neutral who is hired by parties to a dispute, to try to help them settle their dispute without going through a lengthy and expensive trial. Unlike an arbitrator, a mediator does not conduct a hearing and has no power whatsoever to make decisions or require anyone to do anything.

In Toronto, where I practice, and in a few other cities in Ontario, mediation is a mandatory part of the litigation process. Cases commenced in this jurisdiction must go through mediaion before they can be called for trial. In other jurisdictions, mediation during the course of a lawsuit is voluntary.

Naturally, there is no rule that prohibits parties from mediating a dispute even before a lawsuit has started.

Most of the training that I received in my LLM course related to mediation. One of the papers that I authored during the course, which I entitled “The Role of Anger in Mediation”, was published in September 2013 in a publication called the Advocate’s Quarterly (Vol. 41, No. 4). If anyone is interested in reading the article and cannot locate it online, please feel free to e-mail me.

As the sidebar notes, I am open for business as a mediator. My available dates for mediation can be found at http://www.mediatordates.com/mediators.php?m=836.

The recent Superior Court decision in McNutt v. Draycott illustrates what can happen when an elderly person nominates a number of his adult children as his attorneys for personal care, and a disagreement arises among them as to what is in their father’s best interests.

In this case, Peter Draycott was a 94 year old man living in his own home with two of his children, Geoffrey and Yolis.  His other two children, Daphne and Anthea, did not live with him.   They were unhappy with the quality of care that he was receiving from Geoffrey and Yolis.  They wanted Peter to be placed in a long term care facility.  Geoffrey and Yolis disagreed.

All four adult children were named as attorneys in Peter’s power of attorney for personal care.

Daphne applied to the court for an order appointing her as Peter’s guardian, thereby terminating the power of attorney and giving her the right to move her father to a care home.

In her application, Daphne alleged that Peter was suffering from neglect and abuse while under the care of Geoffrey and Yolis. Daphne alleged that Geoffrey had no assets and was not working, and was taking advantage of Peter by living in his house rent-free.  She and Anthea insisted that he would be better off in a long-term care facility.

In response, Geoffrey swore that he and Yolis had adequately cared for Peter in his own home and that Peter preferred to be in his own home rather than in an institution.  The allegations of neglect and abuse were denied.

The material before the court included a capacity assessment of Peter which indicated that he was incapable of his personal care.

A report prepared by the Mississauga Halton Community Care Access Centre was filed indicating that while there was obvious family discord, the evidence as to Peter’s condition was inconclusive.  He appeared to be fit and agile for his age, usually well dressed and clean.  However, occasionally he appeared unkempt and the clothing and other items in his room were found to be in disarray.

At one point Daphne called the police to attend at the house, which they did.  The policeman’s notes indicated that while Peter was obviously not mentally capable, he appeared to be happy with the arrangements.  The policeman indicated that he had no concerns.

As a result, the court was faced with conflicting evidence.

As she was the applicant, the onus was on Daphne to satisfy the court not only that Peter was incapable of making his own decisions, but also that there was no appropriate alternative course of action other than a guardianship.  A power of attorney for personal care is considered to be an appropriate alternative course of action provided, of course, that there was no reason for the court to prefer a guardianship arrangement.  A court would do so, for example, if the court was satisfied that the named attorney or attorneys were not doing their job properly.

In this case, the court had little problem finding that Peter was incapable of personal care.  However, the court was not satisfied that the existing power of attorney was not adequate to provide for that care.  As far as the court was concerned, based on the conflicting evidence, Daphne had not met the onus upon her to satisfy the court that Peter’s needs were not being addressed adequately under the current arrangements.  The court felt that while he was not being cared for to a standard of perfection, such a standard was not required.  What was required was that Peter be reasonably cared for and the court felt that this was taking place.

The court pointed out that it was Peter’s wish that his children be responsible for his care.  His wishes should be observed unless it was clear that his interests were being harmed.  Since there is evidence that he was doing reasonably well in his own home, it was not shown to the court’s satisfaction that his interests were being harmed. Furthermore, the court observed that there were advantages to Peter being able to live in his own home and in comfortable surroundings with his children.

The court did make reference to the existence of a conflict between the children.  The court felt that the conflict by itself was not adversely affecting his interests because on a practical level, day to day decisions were made by Geoffrey and Yolis and there was no satisfactory evidence that those decisions were causing harm to Peter.

This is one of those sad cases of a dysfunctional family going to war over a parent who probably would have been appalled by these events, if he had been capable of appreciating them.  To parents, this is a valuable lesson as to the care that has to be taken in deciding to whom to grant a power of attorney.  To lawyers, this is an important lesson in the quality of evidence that needs to be brought forward in order to displace a parent’s wishes as expressed in a power of attorney.

As I indicated in my last blog post, generally it is not difficult to identify an employment relationship.  Whether or not a worker is an independent contractor rather than an employee is often more difficult to determine.

Generally speaking, this is not a distinction that would be apparent to members of the public.  If I walk into a car dealership to buy a car, and I am met by a smiling salesman wearing a golf shirt with the dealership’s logo on it, and the salesman hands me a business card with the dealership’s name as well his own name, possibly with words like “sales associate” on it as well, I will assume that I am dealing with someone who is there to sell me a car on behalf of the dealership.  More than likely, I would not have the first clue as to whether or not the relationship between the salesman and the company is that of employee or independent contractor. And chances are, I won’t care.

But while the distinction may not be readily apparent to the public, and it is probably not particularly important to the public either, it is important both to the parties to the relationship and to Canada Revenue Agency for a variety of reasons.

As I indicated in my last blog post, the first reason that the distinction is important is that employees and independent contractors may have different termination rights. 

Secondly, there are very different benefits that the worker can expect during the course of the relationship.  Employees will receive benefits according to company policy together with statutory benefits contained in provincial legislation.  For an independent contractor, the extent to which the company provides benefits will depend on the bargain struck between the parties but there is no applicable legislation that would apply.

Finally, there are profound and serious tax considerations at play and Canada Revenue Agency will be extremely interested, in many cases, in the question as to whether a worker is an employee or an independent contractor.  In fact, the vast majority of the jurisprudence that has been generated on the point involves prosecutions in the Tax Court of Canada initiated by CRA.  Most often, these are prosecutions under the Employment Insurance Act and the Canada Pension Plan legislation.

Simply put, under the Employment Insurance Act, employers are responsible for remitting to the government particular amounts in respect of every worker engaged in “insurable employment”.  Similarly, remittances have to be made by employers for workers engaged in “pensionable employment” under the Canada Pension Plan, subject to a number of exceptions.  If a worker is engaged by a company as an independent contractor, no such payments have to be made.  Similarly, income tax withholdings are to be made where a worker is an employee.  None of these is required where the worker is an independent contractor.

The potential problem is obvious.  Suppose a company engages a worker on the understanding that the worker is an independent contractor.  No statutory withholdings take place and the worker is paid in full for his services on an ongoing basis.  At some point years down the road, CRA shows up and takes the position that the worker is actually an employee.  If that position is ultimately sustained by a judge, the employer is in for what might be a very substantial payment, with interest and penalties.  The company may or may not be in a position to recoup that amount from the worker, who may not even be around any longer.

From the prospective of the worker, someone who considers himself to be an independent contractor may well be filing income tax returns claiming all kinds of deductions for expenses that an independent contractor is entitled to claim, but an employee is not entitled to claim.  If a court determines that the worker is actually an employee, all of those deductions will be disallowed. 

The courts have developed a series of tests to determine whether or not a worker is an employee or an independent contractor and these tests have evolved over time.  It does appear clear that the court will reach its conclusion on the basis of a series of factors none of which is conclusive by itself.  All of them will be considered as the court tries to determine the nature of the relationship between the parties in its totality.  At the end of the day, the court will try to get at the answer to one basic question:  Can it be said fairly that the worker is at least to some reasonable extent in business for himself?

One interesting point to note is that the intention of the parties is not determinative of the answer.  In other words, the parties may enter into a contract that specifies either that the parties are in an employment relationship, or that the worker is an independent contractor, but that is not going to be final.  At best, it will serve as a “tiebreaker” if the court’s assessment of the other relevant factors shows an equal number of factors on each side of the equation. 

For example in the important Federal Court of Appeal case of Royal Winnipeg Ballet v. Minister of National Revenue, both sides testified that they intended the relationship to be that of an independent contractor.  This case involved dancers hired by the ballet company and the court noted that the dancers: 

• were engaged for a particular season
• were assigned roles and received instruction and coaching
• needed the ballet company’s consent to accept any other engagements
• were supplied by the company with shoes, belts and costumes
• were told by the company what works would be performed, the time and location of performances, and the time and location of rehearsals
• received direction with respect to the performances
• had no management or investment responsibilities
• bore little financial risk for their work

On the other hand: 

• The parties had a common understanding that the dancers were independent contractors
• Each dancer’s artistic expression was unique
• Each dancer personally paid the costs of fitness rehearsal wear, make-up and health-related items
• The dancers were registered for GST purposes and charged GST for their services
• The company did not withhold any tax 

On balance, the Federal Court of Appeal ruled (overturning the lower court decision) that the dancers were independent contractors just as the parties said they intended. 

The best one can do is to consider the various factors and try to determine which side appears stronger.  

I have been able to distill from the cases a series of factors that are commonly considered: 

• What is the degree of supervision by the company
• Can the worker turn down assignments
• Does the worker wear a uniform and carry company business cards
• At whose expense are problems remedied
• Are invoices rendered, and how is the worker paid
• Does the worker receive any company benefits
• Is there any job security
• Is there exclusivity, or can the worker also work for others
• Who determines when, where and how the work will be done
• Does the worker have any management or investment responsibility
• Does the worker operate out of the company’s space
• Does the work take place through a business structure established by the company
• Are the worker’s hours and days integrated with the company’s operations
• To what extent does the worker receive training by the company
• Who establishes the worker’s clientele
• Can the worker hire others to complete the work or must the worker perform the services personally
• Must the worker attend company meetings
• Does the worker provide any supplies, materials or equipment necessary to complete the work 

This is not a complete list but almost all of the cases seem to raise at least some of these factors. 

While the unpredictability of the cases is unfortunate, parties interested in establishing one or another particular type of relationship might consider these factors and try to structure their relationship accordingly.

The recent case of Wyman v. Kadlec highlights the distinction between dependent and independent contractors and the significantly different rights of such workers upon termination depending on how they are characterized.

Let’s begin our analysis with a review of the distinction between employees and independent contractors. 

Everyone understands what an employee is.  You hire a worker with either an oral or a written contract of employment, you put the worker on your payroll, you pay the worker a salary subject to statutory withholdings, you may or may not provide company benefits, and everyone understands that they have rights and obligations upon termination.  Generally it is not difficult to identify a relationship that is one of employer and employee.  What is more much difficult sometimes is the identification of a relationship between an employer and an independent contractor.

The distinction is important for a number of reasons, beginning with the difference in termination rights. 

In an employment relationship, a written employment contract will probably spell out the obligations of both sides to give each other notice in the event of a decision to terminate.  If there is no written agreement, that obligation will be imposed by the common law.  At the very least, every province has legislation that prescribes a minimum notice period as well as additional amounts that might be payable as severance in certain circumstances.

In the case of an independent contractor, there is no applicable legislation relating to termination rights.  If there is a written contract for services containing termination provisions, one would expect that those would govern.  If there is no written contract, the common law may provide termination rights but this will depend on the circumstances and the extent of the notice that would be required on the extent to which the independent contractor actually looks like an employee.  This involves the concept of a “dependent contractor”.

In an Ontario Court of Appeal decision called McKee v. Reid’s Heritage Homes Ltd., the Court of Appeal made reference to a category of worker known as a “dependent contractor”.  The court was clear that this is not a third category along with employees and independent contractors.  Workers are either employees or contractors.  If a worker is a contractor, in certain circumstances the court will go on to decide if that contractor is dependent or independent. 

The relevance of this question basically relates to notice upon termination.  Where a dependent contractor relationship exists, reasonable notice will have to be provided on termination to the extent that it is not specified in any written agreement.  Whether or not the notice has to be as lengthy as it would be if the worker was an employee will have to be determined on a case-by-case basis.

The main characteristic of a dependent contractor is exclusivity.  In fact, exclusivity is one of the factors that a court will look at to determine whether a worker is an employee or an independent contractor.  However, it is only one of a number of factors used in that analysis.  If the court determines that the worker is a contractor based on all of the factors, the exclusivity provision will be considered once again to determine whether or not the contractor is independent or dependent.  If there is exclusivity (in the sense that the worker can only work for one company alone), the worker will be seen as entirely dependent on that one company for income.  In that circumstance, where a worker is not an employee but is in a position of economic vulnerability, the court will protect that worker by deeming him to be a dependent contractor and therefore entitled to reasonable notice of termination.

In the Wyman case, the plaintiff was a worker who managed the operation of the defendant’s resort in northwestern Ontario.  The relationship was terminated by the defendant and among other things the plaintiff claimed general damages for wrongful dismissal, on the basis that he was a dependent contractor and as such was entitled to notice of termination.

The court ruled that the plaintiff had functioned as an independent contractor and that either party had the right to terminate the arrangement without recourse or notice.  The plaintiff was not in a position of economic vulnerability, having described himself years before as “semi-retired” and with an independent income in the form of a Workers Compensation pension. 

There are a number of factors that the court will take into account in determining whether or not a worker is an employee or an independent contractor.  I will review these factors in my next blog post. The distinction between an independent and a dependent contractor can also be difficult to determine.  As this case illustrates, however, economic vulnerability is the key element in the analysis.