What’s the difference between an independent contractor and an employee?

Business owners often hire independent contractors in an effort to reduce the costs and legal responsibilities associated with hiring employees. It’s assumed that if a worker isn’t on payroll, he or she is an independent contractor and not an employee – and therefore can’t be wrongfully dismissed. In the event of a wrongful dismissal, employees are entitled to reasonable notice, while independent contractors aren’t. Yet more and more wrongful dismissal claims are being filed by so-called independent contractors who aren’t on payroll, yet are providing a service comparable to that of an employee.

This trend has forced the courts to create a new category for self-employed individuals who have long-standing agreements with an employer. This new category is the dependent contractor. Like an employee, the dependent contractor depends on regular pay cheques and the consistent availability of work as promised by the employer. If that promise or agreement is broken without sufficient warning, the dependent contractor may be wrongfully dismissed.

Loyal dedicated service results in a wrongful dismissal

One employer, a private business owner, paid the price after severing a long-standing arrangement he had with a local locksmith company. The locksmiths were a father and son team, who successfully worked with the employer for over 10 years. Eventually, the father sold the company to his son, who continued to provide the same quality service as before. Despite having other clients, the majority of the locksmith’s work, an average of 30 hours per week, was provided by this employer. After a number of years, the employer terminated the agreement without notice or cause. The locksmith then filed a claim for wrongful termination.

Dependency and reliance

The court examined the employment relationship to determine the validity of the locksmith’s claim. Although the locksmith described himself as an independent contractor, the court found that he was a dependent contractor for several reasons:

  • He depended on the employer for roughly 2/3 of his yearly income;
  • As the employer was his main source of work, the majority of his efforts focused exclusively on fulfilling the needs and wants of that employer;
  • The employer depended on the availability and specialized skill of the locksmith for years;
  • The employer had over seven different telephone numbers for the locksmith so he could reach him anywhere, at any time;
  • The locksmith was the only provider of the high security materials the employer required for his business. No other locksmith could supply the brand of product he needed.

Employer is responsible for wrongful dismissal damages

It was only natural for the locksmith to assume that this mutually beneficial arrangement would continue. The employer seemed happy with his quality of work and never made a complaint. When the agreement was terminated, the locksmith suffered substantial financial losses, and was forced to sell his company.

The employer believed that because the contractor wasn’t his employee, and their arrangement was merely a verbal understanding, he didn’t owe the locksmith any notice or consideration. Big mistake. The locksmith was awarded six months’ notice and the employer was made to pay $18,900 in damages.

The moral of the story is this: even a worker who is not on payroll may still be protected by the Employment Standards Act and the common law in regards to notice and wrongful dismissal.