Independent Contractors Could Be Employees Under New Law

Independent Contractors Could Be Employees Under New Law
By Lance Soskin, Lawyer

As you are likely aware, Ontario has passed new legislation (Bill 148) into law which modifies the Employment Standards Act, 2000 (the ESA), the Labour Relations Act, 1995 (the LRA) and the Occupational Health and Safety Act (the OHSA). Some of the changes are effective immediately, while others will be phased in. One significant modification with serious repercussions for employers, ranging from onerous fines to criminal prosecution, deals with the misclassification of a worker as an independent contractor rather than an employee. This modification was effective as of the end of 2017.

“An employer shall not treat, for the purposes of this Act, a person who is an employee of the employer as if the person were not an employee under this Act.”

Many companies classify workers as independent contractors (aka “freelancers”) rather than employees to avoid the additional cost and paperwork involved in classifying them as employees. Employees have the protections provided by the Employment Standards Act; independent contractors do not. The government has decided to crack down on employers; the Ministry of Labour is hiring 175 more employment standards officers to audit companies each year to ensure that they are not ‘mistakenly’ classifying an employee as an independent contractor. The ESA is enforced by the Ministry of Labour, although the Canada Revenue Agency also will be ratcheting up the screws.

The modified law now places the onus on the employer to prove that the worker is in fact an independent contractor and not an employee as it is defined by law. It is almost irrelevant that both parties want the relationship to be one of independent contractor-client, rather than employer-employee, or that their contract states as much. Nor does such a characterization prevent the “independent contractor” after he is terminated from claiming he was actually an employee and is therefore owed money for termination notice and possibly severance. The worker could be owed minimum wages, overtime pay, unpaid employee benefits, and other compensation. In addition, the company could be liable for various source deductions that should have been taken, such as unemployment and CPP, as well as additional associated penalties and interest.

The legal characterization of the relationship is determined by actual conduct and the true character of the relationship. Although there is a definition for an “employee” in the ESA, it is not particularly helpful. The courts have ‘interpreted’ the ESA and have through various decisions established a non-exhaustive list of factors which should be considered when making such a determination. The relative weight of each depends on the particular circumstances and the relationship as a whole must be considered. There is no one conclusive test.

The overarching question is whether the worker who has been engaged to perform the services is performing them as a person in business on her own account, i.e. as an independent contractor under a ‘contract for services’, or as a an employee under a ‘contract of service’. The following are some of the factors that are indicative of an employment relationship:

  • The lack of authority to assign the contract between the parties to another party, or to delegate the services to be performed to another person hired by the person engaged by the company;
  • Substantial control by the company over how the worker conducts themselves and carries out the services (or the right to control). A worker is more likely to be considered an independent contractor if the company has the right to control or direct the result of the work and not what will be done and how it will be done;
  • The worker is required to obtain approval for vacation time;
  • The necessity to obtain authorization to work for other companies during the typical work day;
  • The worker is carrying on business for a superior rather than for herself;
  • The absence of a chance of profit or risk of financial loss (apart from commissions and bonuses);
  • The company pays for the tools and equipment to complete the services;
  • The work being done is an integral part of the company’s business, so much so that the worker is integrated into the company’s operations and could be considered part of the organization, evaluated from the perspective of the worker, i.e. whether the business supported by the work is that of the worker or the payer;

Employers may want to speak with their lawyer, or one of our lawyers, to determine whether an independent contractor would be classified as an employee under the law, and to explore what changes can be made so that a worker can legally be classified as an independent contractor.


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If you have any questions, please reach out to me via the contact page on our website.

Lance Soskin
Principal Attorney
Contracts, Law & More
Understand What You're Signing!

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