Many businesses want to categorize their workers as contractors, instead of employees, to save costs and avoid severance obligations. Some workers prefer to be treated as contractors for tax reasons.
Even where both parties think they are in an independent contractor relationship, an employment relationship may exist. And where an employment relationship exists, reasonable notice is probably owed upon the termination of the relationship. This is because an independent contractor agreement likely doesn't contain the kind of wording needed to limit the worker's entitlement to reasonable notice, and whatever termination clause is there typically provides less than the Employment Standards Act requires, rendering the clause void. In this situation, the notice entitlement defaults to reasonable notice. (It is necessary to review the contract, and the termination clause, to give a correct analysis on this point.)
Courts will look at the circumstances of each relationship to determine whether it is an independent contractor relationship or an employment relationship. The factors were recently described by the BC Supreme Court in Farren v. Elite Service Group Inc., 2020 BCSC 23, and are described below. None of the factors is determinative by itself, but they are all reviewed as an entire picture of the relationship. Find out whether you're an employee or a contractor.
Level of worker control
A classic feature of employment is the employer’s control over the worker. An employment relationship is more likely to exist where the employer controls the worker’s activities. Less control indicates a contractor relationship. The assessment of “control” includes:
- The employer’s power to select or not select the worker. For example, when you contact your internet service provider to send a technician to your home, you do not control who they send. You do not have the power to select the worker, the service provider does. The worker has no employment relationship with you.
- Payment of wages, as opposed to a scheme where the worker invoices the employer. It would be unusual for a contractor to be on the payroll. However, there are many cases where a worker invoices the employer and pays GST, and is still very much an employee.
- The employer’s control over the work. For example, if you are an employee you may have a manager, set hours of work, a job description, and quotas, and you may be subject to a Performance Improvement Plan where the employer thinks you need to do a better job. These are the ways the employer controls your work. In a contractor relationship, the employer doesn’t exercise this level of control over the way the worker does their job.
- The employer’s right to discipline or dismiss the worker indicates greater employer control and an employment relationship.
- The exclusivity of the relationship can indicate employer control. This relates to the economic dependence of the worker on the employer. In some cases, a "contractor" has only one client or one client that makes up the vast majority of their work and income. Contractors in this situation are likely to be employees, or at least dependent contractors (who are given the same protections as employees). This can even be the case where the contractor provides services through their corporation: the corporation can be an employee. On the other hand, a contractor with multiple clients, and less economic dependence on any one client, is less likely to be an employee.
- The worker’s ability to hire their helpers indicates less control from the employer. In an employment relationship, you must show up to do your job – you could not send your friend to do it for you. If you can bring a friend to help you do your job, or send them on your behalf, this suggests you are in a contractor relationship.
Ownership of equipment or tools
In typical employment, the employer provides your workstation or office, computer, office supplies, and possibly phone and car. In the classic contractor relationship, the contractor provides their tools, for example, a van with the contractor’s branding and contact information on it. In some industries, like construction, the workers commonly have the tools that they use, but this does not make them contractors. The ownership of tools is just one factor in the equation.
Opportunity for profit/loss
If you have the opportunity to profit from your work or stand a risk of loss, you are more likely to be a contractor. For example, in Lightstream Telecommunications Inc. v. Telecon Inc., 2018 BCSC 1940, the worker invoiced for each job he performed. If he was very efficient, he could invoice for multiple jobs in a day. On the other hand, if something stopped him from getting to the jobs, he would not be able to invoice or get paid. The Court found this was an indication of an opportunity for profit and risk of loss. Among other factors, this supported the Court’s finding that the worker was a contractor, not an employee. In the classic employee situation, you are paid your wage and would receive a paycheque regardless of whether you finish two jobs or 20 in a day.
A more integrated worker is likely to be an employee. For example:
- If you perform a crucial function in the employer’s business, you are more likely to be an employee. We have represented Vice Presidents of Sales, Chief Executive Officers, and General Managers who were treated as independent contractors. However, their function within the employer’s business is so essential that they are employees.
- If you work in a capacity that represents the employer’s business, you are likely an employee. For example, sales representatives will usually be employees, especially where they are held out as a representative of the company. In Braiden v. La-Z-Boy Canada Limited, 2008 ONCA 464, the employer tried to contract with its sales rep as an independent contractor. The sales rep invoiced for his services and had a home office. He even had a written agreement specifying that he was not an employee. However, La-Z-Boy held him out to customers as its sales representative. He was found to be an employee and awarded reasonable notice when La-Z-Boy terminated his contract.
- Where the relationship is permanent or long-term, it is likely employment. In the La-Z-Boy case, the employee had worked for La-Z-Boy for 23 years. A fixed-term or project-based arrangement is more likely to be a contractor relationship.
- Where the parties rely on each other or closely co-ordinate conduct, there is more likely to be an employment relationship.
Why this is important
True independent contractors have few legal protections. They can be dismissed without notice, or on whatever minimal notice the contract might provide. They are not entitled to the minimum standards given in the Employment Standards Act, such as minimum wage, overtime pay, or parental leave. This is why treating employees as contractors is so popular with some employers.
Even if you've signed a professionally-drafted agreement stipulating you are never to be treated as an employee, this language does not bind the courts. When the relationship ends, you need to know your legal status to determine whether you’re entitled to more compensation than the employer may have offered. If this has happened to you, contact us for a consultation to determine whether you’re a contractor or an employee, and what your rights are.