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Employee vs. Independent Contractor 

30 Oct 2014

Contrary to popular belief, the presence of an agreement stipulating that a person is an independent contractor rather than an employee is not determinative of one's status in the eyes of the law. This is because the courts will look to the substance of the parties' relationship, regardless of how they choose to classify it.

Typically, courts ask the following questions to determine in what capacity services are provided:

  • Whether or not work is done only for the purported employer / principal.

  • Who decides how, when and where services are provided?

  • Who has ownership of the "tools" with which services are provided?

  • Are payment arrangements under a fixed commission rate or is there fluctuation?

  • What is a person's position in the business?

  • Who makes business decisions and how?

  • Who has the right to hire and fire other employees?

Although none of the above inquiries is determinative on their own, ultimately, the central question will revolve around whose business it truly is and to what extent control is exercised over the independent contractor / employee.

Why does any of this matter? Because, whether or not you are classified as an employee or independent contractor may have a serious impact on what rights you have upon termination of your work relationship with the principal / employer.

The first advantage that you would have as an employee is that you would get protections under various legislation that an independent contractor would not have access to. Arguably the most important are the rights set out in the Employment Standards Act that allow employees to get, amongst many other things, vacation time and pay as well as minimum statutory termination pay and severance.

The second advantage is that you would be allowed to collect employment insurance ("EI") if your employment is terminated. This is because employers are forced to collect and pay EI and CPP contributions on behalf of their employees. Expectations under these statutory regimes with respect to independent contractors are more nuanced.

Depending on whether or not you have properly agreed to a fixed notice period, the third advantage is that in addition to the statutory rights discussed above, as an employee, you may be entitled to a reasonable period of notice at common law if faced with a termination of employment.

Understanding your status is an art and each case always has a unique set of facts and circumstances that would warrant the opinion of a trained legal professional. What is sure, however, is that a determination of what you "really are" may have a significant impact on your entitlements.

The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.