Employee or Independent Contractor? How Do I Know?

Employee vs Independent Contractor

In Ontario, both workers and businesses commonly confront a thorny question of whether their arrangement can be characterized as an independent contractor or employment relationship. Typically, this issue arises once the business relationship ends and the worker seeks to be treated as employees after the work relationship has ended. Under the law, this distinction is significant, as it results in different legal rights and obligations for both parties alike. One of the most important consequences involves the company’s legal obligations tot he worker upon termination: will the company have to provide notice of termination (or a pay in lieu of notice, called a financial severance package)?

What is an Independent Contractor?

An independent contractor is basically someone who is in business for themselves and provide goods or services based on the terms of a contract negotiated with another company. In other words, he or she is “their own boss.” As a result, the company is also not responsible for an independent contractor’s employment insurance (EI) or worker’s compensation benefits (WSIB); is not required to provide an independent contractor with a pension or other employment benefits; and does not have to pay employment taxes for an independent contractor. Moreover, independent contractors are not employees and do not benefit from the protections of employment law under Ontario provincial law (Employment Standards Act, 2000) or federal law (Canada Labour Code). As a result, independent contractors do not enjoy even minimum labour standards:

notice of termination (or termination pay)
vacation time and vacation pay
minimum wage
overtime pay
public holiday pay
leaves of absence (e.g., medical leave, maternity leave, etc.)

Most importantly, employers cannot simply call a worker an independent contractor, especially to avoid legal obligations they would otherwise have to an employee, such as employment law. In simple terms, an independent contractor’s job is characterized by independence. If the characteristics of the job resemble those of an employee, then the employer must treat the worker as an employee.

Test for Independent Contractor or Employee Relationship

In 671122 Ontario Ltd v Sagaz Industries Canada Inc., the Supreme Court set out the leading rule on how to resolve an employee-employer relationship between parties as opposed to an independent contractor arrangement. The key question is whether the worker is performing services as a person in business on his or her own account. A non-exhaustive list of factors to be considered in determining the nature of the relationship between parties includes:

the level of control the company has over the worker’s activities;
whether the worker provides his or her own equipment;
whether the worker hires his or her own helpers;
the degree of financial risk taken by the worker;
the degree of responsibility for investment and management held by the worker; and
the worker’s opportunity for profit in the performance of tasks.

In practical terms, while no two cases are the same, and each case can only be determined based on its own specific circumstances, a worker might be an independent contractor if:

they are paid a specific amount per project completed, as opposed to an hourly wage or annual base salary;
they provide their own tools, equipment or materials to complete their work;
they are free to perform services or work for other clients or customers;
they are free to work off-site and are not required to work according a scheduled set by the company;
they are free to subcontract out some of the work to others; and
they are free to complete the project at their own discretion and are not given specific instructions by the company.

Case in Point

Gerling v. Camrose Regional Exhibition & Agricultural Society

In this case, Thomas Gerling worked for the company, Camrose Regional Exhibition & Agricultural Society (“Camrose”), for nearly 25 years. He began as a volunteer and later transitioned into the role of Chief Executive Officer in 2012. He provided his services through his own incorporated company, Papa-T Productions Ltd., pursuant to a management services contract (“Contract”).

In January 2018, Camrose terminated the working arrangement, alleging he had materially breached the Contract. Mr. Gerling disputed the termination, and argued that he had been an employee of Camrose (not an independent contractor).Therefore, he claimed that he was entitled to the same legal protections as an employee whose job was terminated without cause. At trial, the court found in his favour, specifically that he was in fact an employee as opposed to an independent contractor, awarding him 11 months of income and benefits required under the employment contract.

However, on appeal, the higher court overturned the trial judge’s finding that Mr. Gerling was an employee. In making its decision, the court emphasized the fact that the Contract specifically stated that the parties were in an independent contractor relationship. In the court’s view:

“The parties’ clear understanding of their legal relationship at the time the agreement is signed should be accorded significant weight particularly when the agreement is in plain language, contains no fine print and is not, on its face, oppressive, unfair or difficult to understand”.

The court found further support for its decision by looking at the substance of the working relationship, which suggest an independent contractor relationship:

Camrose was not involved in Mr. Gerling’s day-to-day activities;
the fees for services (or salary) were paid to Mr. Gerling’s corporation, not to him directly;
office space, administrative support and computer equipment were contractually provided to Mr. Gerling’s corporation, not to him directly;
Mr. Gerling was provided a vehicle allowance, liability insurance and health and dental benefits, but that was part of of the Contract between Camrose and his corporation, not with him directly;
Mr Gerling received his annual salary from his own company regardless of the number of hours he worked; and
Mr. Gerling did not work solely for Camrose.

As a result, while the court found the worker to have been an independent contractor all along, it awarded him general damages for Camrose’s breach of the Contract (i.e., the allocated salary for the remainder of the term of the Contract).

Lessons Learned

This case is particularly helpful in demonstrating the distinction courts will make when determining whether a worker is an independent contractor or employee. Most importantly, they will always focus on “the facts on the ground,” that is, the true nature of the working relationship and the parties’ own understandings and intentions.

Employment Lawyer in Toronto

If you are an employee who believes you have been wrongfully dismissed, please speak with our experienced employment lawyer in Toronto regarding your options, including negotiating your severance package to obtain the severance compensation you deserve, as well as wrongful dismissal claim.

Contact us by phone 647-822-5492 or fill out the contact form to the side. Our employment lawyer in Toronto would be happy to assist in your employment law matter as quickly as possible.

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