Independent Contractors vs Employees in Ontario
Independent Contractor vs Employee in Ontario, Whether a person qualifies as an employee or independent contractor is a question of law and is determined on the basis of facts of a given case. There are few bright lines here.
By virtue of Ontario’s Employment Standards Act (“ESA”), employees in Ontario enjoy certain basic protections and rights which workers classified as independent contractors do not.
Among other things, the ESA provides for:
- guarantee of minimum wage
- paid overtime
- paid vacation and/or holidays
- protected absences
- minimum reasonable notice of termination
While similar protections (whether broader or narrower) may be provided for in an employment contract between employer and employee, it is important to note that the ESA guarantees minimum entitlements.
By contrast, independent contractors are guaranteed no similar entitlements. In layman’s terms, an independent contractor is an individual who is in business for their own account, as opposed to an individual who works for another person as their employer. Fortunately, however, an “independent contractor” may in fact be considered an employee, and thereby enjoy the rights afforded under the ESA.
A case of mistaken identity? No, but of misclassification – certainly! An “independent contractor” who is – at law – an employee cannot be treated as an independent contractor, regardless of what was agreed to by contract. Until recently, workers have been classified as either employees or independent contractors, but not both.
How Can We Distinguish Employees from Independent Contractors?
Canada’s leading case on the difference between employees and independent contractors is McCormick v. Fasken Martineau DuMoulin LLP, 2014 SCC 39. In this case, the Supreme Court of Canada considered two (2) defining factors:
- the extent to which an employer controls a worker’s working conditions; and
- the extent to which a worker is economically dependent on his/her employer.
The relationship between these two factors has been described as being “synergistic”, in other words, mutually reinforcing.
In 2016, the Ontario Court of Appeal identified five (5) additional considerations that establish an employer-employee relationship in Keenan v Canac Kitchens, 2016 ONCA 79, namely:
- Whether a worker works exclusively for the employer;
- Whether the time, place, and nature of a worker’s work are controlled by the employer;
- Whether a worker owns the tools that he/she uses in the course of his/her work for the employer;
- Whether a worker has taken on risk in relation to the employer’s business, such that the worker has a direct stake in the success or failure of the business; and
- Whether a worker is integrated into the employer’s business (or, alternatively, operates an independent business in service of/to the employer).
These five considerations can be characterized to provide an analysis of employer control as well as economic dependence on the employer. Importantly, no single consideration or factor is definitive, nor is any factor given more weight than another. The totality of the worker-employer relationship is considered and the five factors are analyzed on a spectrum.
For example, an individual who services multiple employers is less likely to be considered economically dependent on a single employer, and therefore more likely to be considered an independent contractor.
Middle Ground: Dependent Contractors
Since 2009, courts have recognized an intermediate category of workers: dependent contractors.
Only recently recognized by courts, dependent contractors are workers who are truly self-employed, yet generate all, almost all or most of their income from a single source, client or company. Similar to independent contractors, dependent contractors run their own business and do not automatically enjoy the staple rights attached to classic employment (e.g. health benefits, wage and vacation entitlements, etc.).
Unlike independent contractors, dependent contractors are so dependent on their source of business that they would lose all, or substantially all, of their business and income if the relationship between parties were to end.
Canada’s leading case on dependent contractors is Reid v. McKee’s Heritage Homes, 2009 ONCA 916. In this case, the Ontario Court of Appeal found the following:
- Similarly to employees, dependant contractors are entitled to a reasonable notice of termination.
- Unlike dependent contractors, independent contractors are limited to the notice period provided for in their work contract, if any.
- Where an “employer” (so to speak) prematurely terminates a fixed term contract, an independent contractor is entitled to remuneration equivalent to whatever amount they would have been paid had the work term been completed.
In 2018, the Ontario Superior Court of Justice provided additional guidance on how to determine whether a worker is considered a dependent contractor. In Thurston v. Ontario (Children’s Lawyer), 2018 ONSC 2137, the court ruled that a lawyer who generated an average of 40% of her income from a single client was, in fact, economically dependent on that client.
In recognition of the income dependency factor that dependent contractors face, courts have sought to minimize the economic impact of terminating a business relationship by providing dependent contractors a longer reasonable notice entitlement where the other party wishes to end the business relationship. Presently, dependent contractors enjoy rights that are limited to:
- the right to reasonable notice of termination; and
- the right to unionize.
Whether they are entitled to additional rights, as employees are, is yet to be determined.
Liability for Misclassifying a Worker
Employers who misclassify workers expose themselves to liability under the ESA and employment law standards, and may be held liable for unpaid wages, overtime pay, vacation pay, termination pay and CPP contributions.
In my practice advising entrepreneurs & small and medium businesses, I often provide advice on how businesses can hire the talent they need without exposing themselves to unwanted or unnecessary employment liabilities. Please contact me should you have any questions about hiring independent contractors or anything else related to business and commercial law.
