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Things to know

  • Employers should only enter into independent contractor relationships if the facts of the working relationship support this designation
  • Misclassifying someone as an independent contractor can result in significant liability for the company
  • A mere statement in a written contract that an individual is an independent contractor is not sufficient
  • The determination of whether an individual is an employee or an independent contractor depends on common law principles and the particular facts of each situation – there is no bright line test
  • Among the factors that may be considered when determining whether an employer/employee relationships exists are:
    • Whether or not the individual exclusively provided services to the company;
    • The degree of control the company had over the individual’s work (including where, when and how to perform the work under the contract);
    • Whether the individual was required to supply their own tools and equipment;
    • The degree of risk taken by the individual (e.g. their chances for profit and risk of loss); and
    • The degree of integration between the individual’s activities and the company’s business.
  • Potential exposure for misclassifying someone as independent contractor includes:
    1. liability for unpaid wages and payroll taxes along with interest and penalties for failing to deduct and remit income tax and premiums pursuant to employment standards legislation; Income Tax Act, Employment Insurance Act, and Canada Pension Plan;
    2. if the company terminates the engagement, a claim for reasonable notice or pay in lieu thereof at common law (which generally ranges from 3-24 months’ pay depending on the circumstances); and
    3. other penalties in respect of the company’s failure to comply with employment standards legislation

Things to do

  • When considering retaining someone as an independent contractor ask yourself: is the worker going to be in business for themselves (i.e. “independent”), or are they going to be under the company’s control (i.e. dependent and similar to an employee)?
  • If you hire someone as an independent contractor, ensure that the facts of the working relationship support this designation
  • Carefully draft independent contractor agreements with legal counsel to reduce misclassification risk
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