Learn the Difference between an Employee or Independent Contractor

I am often asked by my clients the following question: “am I an employee or independent contractor?” This is an issue that both employees and employers often struggle with in Ontario, but understanding the difference is important in any work arrangement.

In our experience, workers are sometimes incorrectly classified as independent contractors when, in fact, they are more likely employees of the company. Determining whether a worker is an employee or independent contractor can often be complicated, but at its core, it requires looking at the circumstances of the entire relationship. In other words, whether a worker is an employee or independent contractor is largely a matter of “substance” over “form.”

It should be noted that a contract describing the worker as an “employee” will not always decide the issue. In many cases, the courts and government agencies, such as the Ministry of Labour, will give less weight to what an agreement says, and will instead focus on the elements of the relationship between the two parties. The determination typically focuses on the degree of control the company has over the worker, and the economic realities of the relationship between the worker and company.

Generally, the more control the company has over the worker or the economic relationship, the more likely it is that the worker will be deemed an employee. The following is a list of some of the factors that are weighed collectively in making this determination in determining whether a worker is an independent contractor or employee:

Factors used to determine employee vs. independent contractor status

nature of the company’s business operations
company’s right to control the details of the work performed (e.g., work schedule)
the extent of training given by company to the worker
company’s right to supervise employee
method of compensation (salary vs. project-based)
length of arrangement (fixed-term/project vs. permanency)
whether the worker provides his/her services to this company exclusively, or for several other companies
whether worker’s work is part of the employer’s normal business operations
the extent of the worker’s investment in the tools and equipment use
whether the worker owns and is responsible for some or all of the tools or equipment they use to do their job
they worker is business for themselves, with an opportunity to make profit and a risk of losing money from the work (e.g., self-employed)
whether worker determines how and/or where their work is complete
whether worker can subcontract some of their work to other people
the company can end the services contract, but cannot discipline the worker
the intention of the parties
any written agreements between the parties
whether employer provides worker any employment-related health benefits

Implications

From a worker’s perspective, it is important to be clear on whether you are, in fact, an employee or an independent contractor. Among other things, having the status of an “employee” provides certain legal protections, including basic rights under the Employment Standards Act (e.g., overtime pay, vacation pay, leaves of absence from work, minimum wage); the ability to apply for employment insurance benefits (EI); and in most cases, the right to receive prior notice from your employer before you are let go from work (or termination pay and severance pay).

From a company’s perspective, wrongly classifying an employee as an “independent contractor” can lead to significant financial consequences and liability under the law and with government agencies, including Provincial Offences charges, fines and penalties, employee claims of unpaid termination pay, vacation pay, statutory holiday pay, overtime pay, and possibly wrongful dismissal claims, as well as unremitted taxes, workers’ insurance, CPP and EI premiums.

Determining whether someone is an employee or independent contractor can be difficult, and will depend on the specific facts of each case. Given the complexity of the law in this area, it is important to consult an experienced employment lawyer in Toronto to provide guidance in this area. We are experienced in matters of analyzing employment status and can assist you in this regard.

If you would like more information to help clarify whether you (or one of your workers) is an employee or independent contractor, contact Bune Law today.

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