Are you an employee or an independent contractor? What is the difference, and what rights does an employee have that an independent contractor does not under Ontario employment law?
One of the difficulties workers experience is not knowing how to determine if they are really an “independent contractor” (not entitled to any employment law rights), or an “employee” (who enjoy basic employment law protections).
TEST FOR EMPLOYEE VS. INDEPENDENT CONTRACTOR
The issue of whether a worker is an independent contractor and not an employee is a question of fact in each case, and depends on the individual circumstances. Determining whether someone is actually an employee (not an independent contractor) is important, as it would provide the worker with a legal entitlement to a severance package upon termination of the job.
The legal test determine whether a worker is an employee or an independent contractor is based on considering the total relationship between the worker and company, and asking the central question:
“Is the person engaged to perform the services performing them as a person in business on his own account?”
To determine this, the courts look at many factors, including who owns the tools used to do the work; if the worker has a chance of business risk of loss or profit; and who controls the work being performed.
However, the courts have been clear: no one factor is determinative of the relationship of employer/employee or company/independent contractor. Rather, the courts analyze the entire working relationship to determine which arrangement is likely to be present.
While not exhaustive, the following chart summarizes some of the many issues, and is frequently used by courts as a checklist:
| How Does an Independent Contractor Relationship Work? | How Does an Employment Relationship Work? |
|---|---|
| The independent contractor can work (provide their services) to more than company | The employee generally works exclusively for the company (cannot work for another competitor) |
| The independent contractor may contract out to other contractors (hire someone else) | The employee cannot contract out the work to another person (they must provide the services themselves) |
| The company has no right to control the worker’s activities, meaning that the independent contractor is free to choose how, when and where to work (e.g., their work schedule) | The employer has the right to control the employee’s activities, meaning that the employee is required to comply with the time and place as set out in the employment contract, as well as with the employer’s work instructions |
| The independent contractor is not entitled to receive regular salary, bonus and employee benefits | The employee is paid as agreed in the employment contract, and may be entitled to receive bonus and employee benefits |
| The independent contractor is responsible for paying their own income taxes and expenses | The employer deducts all income taxes, expenses and payroll deductions (e.g., CPP and EI) |
| The independent contractor’s working conditions are subject to agreement with the company (including pay rate, working hours and termination) | The employee is subject to basic working standards under the Ontario Employment Standards Act, 2000. For example, maximum working hours are 44 hours per week (although the employee can work more, but must be paid overtime pay 1.5 x regular wages). Similarly, the employee must receive basic minimum wage, vacation pay, notice of termination and severance pay |
| Due to the nature of their work, the independent contractor has a chance of making a profit and a risk of loss (much like a regular business) | The employee is simply paid their agreed upon income and employee benefits under the employment contract. |
| The independent contractor uses their own tools and equipment | The uses the tools and equipment provided by the company |
| The independent contractor can accept or reject work provided to them | The employee must generally perform the work assigned to them |
| The independent contractor decides how the task is completed | The company controls the employee’s day-to-day details work, and sets the employer’s requirements of how to complete their job |
WHY HIRE AN INDEPENDENT CONTRACTOR?
For employers, hiring independent contractors (sometimes referred to as “consultants”) can seem an attractive option, since it can allow a company to minimizing business expenses (e.g., payroll and other related costs). However, employers should always ensure that the working relationship is actually that of a genuine independent contractor (consultancy) situation. If, as a matter of fact, the relationship is one of employer-employee, the worker will enjoy basic employment law rights that the employer must obey, including severance package and payroll deductions.
ONTARIO EMPLOYMENT LAW
In an employer-employee relationship, the employee’s rights are found in the employment contract, Employment Standards Act, 2000, work-related legislation and common law. Each case is different and it is important for workers (and companies) to seek advice from an experienced employment lawyer.
Whatever the employment contract (or independent contractor agreement) says, it is essential that what happens in practice must be consistent with the requirements of the specific contract. If you would like further advice on this topic, please contact Bune Law today.
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