The issue of whether a person is an employee or an independent contractor is one that arises frequently in my practice. A company that is found to be in an employment relationship with an individual who was treated as an independent contractor can find itself on the hook for unpaid taxes, CPP and EI contributions, and possibly wrongful dismissal damages and vicarious liability for the worker’s wrongful acts. For the individual, a finding that he or she was an independent contractor may mean that he or she was not entitled to notice of termination or pay in lieu. Consequently, it is an issue that can have significant financial consequences for both individuals and companies.
Unfortunately, there is no universal test to determine whether a person is an employee or an independent contractor. The key question is: “whose business is it?” In other words, is the person in business for themselves? Or are they working on behalf of someone else’s business?
To answer this question, the court will consider a number of different factors, including:
- the level of control the employer has over the worker’s activities (e.g. regimented duties and responsibilities, mandatory attendance, fixed hours of work and pay, requirement to follow policies)
- whether the worker provides his or her own equipment
- the degree of financial risk taken by the worker
- whether the worker hires his or her own employees
- the degree of responsibility for investment and management held by the worker
- the worker’s opportunity for profit in the performance of his or her tasks (meaning, does the worker have control over how much profit he or she can make doing the work?)
Each case is fact-specific, and there may be other factors that the court will see as relevant, including the intention of the parties. That said, even where the parties intended to create an independent contractor relationship (through a written contract or actual behaviour), the court will consider the above factors to determine whether the relationship was actually one of employment. What’s more, a finding by the CRA that a worker was an independent contractor will not be determinative in an employment law context – again, the court will look at the actual substance of the relationship to make a finding.
Given the high stakes involved, parties who wish to establish an independent relationship are well-advised to seek the advice of an employment lawyer who will help them carefully consider what the true nature of the work will be, and how it will be performed. Unless a company is prepared to give the worker significant freedom to determine how the work is to be performed, it is likely best for the parties to establish an employment relationship and enter into a well-drafted agreement.