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Employee, Independent Contractor or Dependent Contractor

Employment Lawyer St. CathariHave you been recently terminated and the employer did not provide notice or pay-in-lieu of notice because you are an “independent contractor”? A common concern that arises in employment law is determining whether an individual is an employee, or independent contractor. Simply because an individual has been labelled as an independent contractor, doesn’t necessarily mean they are. Issues as to this classification may arise when an individual applies for employment insurance benefits or workers compensation benefits; the Canada Revenue Agency believes it is owed payroll taxes; or when an individual claims for vacation pay, overtime pay, or termination pay under the Employment Standards Act.

The distinction is important as an employee has more rights than an independent contractor. For example:

  1. An employee has the right to paid vacation, public holidays, and overtime under the Ontario Employment Standards Act;

 

  1. An employee has the right to collect employment insurance benefits; and

 

  1. An employee is entitled to reasonable notice of termination.

Independent contractors may pay fewer taxes than employees, and employers do not deduct and remit payroll taxes for independent contractors. Further, there is no applicable legislation relating to reasonable notice rights for independent contractors. The common law may provide termination rights, but this depends on the extent to which the independent contractor actually looks like an employee. This involves the concept of a “dependent contractor”.

To determine whether a person is an employee or independent contractor, courts and administrative tribunals look at the substance of the relationship. One of the main questions asked, is, “how much control does the employer exercises over the individual?’” The more control, the more likely an employee relationship will be found. Courts have used several tests to answer this question, but the most common one comes from a 1986 decision of the Federal Court of Appeal. Wiebe Door Services Ltd. v. MNR [1986] concluded that there is no universal test to determine whether a person is an employee or an independent contractor, but that the central question is whether the person who has been engaged to perform services is performing them as a person in business on his own account. Other factors to consider include 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 his or her tasks.

To protect individuals who may technically be a contractor and not an employee, but who are totally dependent upon an employer, the courts have established through caselaw the concept of a “dependent contractor.”

In McKee v. Reid’s Heritage Homes Ltd [2009], the Ontario Court of Appeal was clear that “dependent contractor” was not a third category along with employees and independent contractors. However, if a worker is found to be a contractor, the court will go on to decide if that contractor is dependent or independent. The relevance of this question relates back to the aforementioned termination rights. Where a dependent contractor relationship exists, reasonable notice will have to be provided on termination to the extent that it is not specified in a valid written agreement. The length of the notice will be determined on a case by case basis.

To inquire further about the rights and obligations of employment relationships, contact one of our employment law specialists at Daniel & Partners LLP. Our expertise encompasses areas of employment law from the perspectives of the employer, the employee, and the independent/dependent contractor.

 

Blog post written by Matteson DeLuca, Articling Student

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