Independent Contractor v. Employee

What’s the Difference?

Businesses use a variety of different workers for varying purposes. Employees may be hired for indefinite or fixed term employment and consultants or independent contractors can be retained to provide services on a project basis without ever becoming employees. There are differences between the two categories and each poses their own legal implications in the event of a wrongful dismissal.

Employees

Employees are entitled to statutory protections under the Ontario Employment Standards Act such as minimum wage, personal emergency leave, overtime pay, parental leave and notice of termination. Employees are paid wages or a salary with source deductions such as CPP, EI and income tax paid by the employer. Employees are given all the tools and equipment to do their job and must devote their full time to the employment. Employees also cannot sub-contract their work. They must fulfill their duties themselves.

Courts have relied on the common law for defining an employee and distinguishing whether the employment relationship is one of independent contractor or an employee-employer arrangement. McKee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916 clarified the legal test in the below characterizations:

1. Control Test: Does the business control the workers tasks such as when, where and how the work is performed? Can they hire others and work for others? If the worker does not have independence and control over the above factors it is likely that they are an employee.

2. Risk Test: Is there an assumption of risk, an opportunity for profit or potential financial loss for the worker? If not, they will likely be seen to be an employee.

3. Organization Test: Are services given by the worker essential to business operations? If they are essential to business operations, then there is likely an employee-employer relationship.

4. Durability and Exclusivity Test: Where there are no other clients that the individual works for, or where the worker is working almost exclusively for one organization, there is likely an employee-employer relationship.

5. Tools Test: Does the worker provide his or her own tools? If the employer is providing the tools required to perform tasks, there is likely an employee-employer relationship.

Ultimately it is the substance and not the form of the relationship that determines the status of the worker.

Independent Contractors

Independent contractors on the other hand have no statutory entitlements or protections. They are self-employed workers hired to perform a specific task. They invoice the organization for work completed and make their own tax payments to the government such as HST and income tax and can deduct business expenses. Independent contractors can also provide services to multiple clients at a time whereas an employee cannot. They provide their own tools and equipment, arrange their own work, and can hire other sub-contractors to perform work.

Consequences of Misclassification for Businesses

In Ontario currently, if an independent contractor claims to be an employee, it will be on the business to disprove the circumstances that make the independent contractor fit into an employee classification. If an employee is found to be an independent contractor there will be significant monetary liability for the employer in which they may have to make retroactive payments for vacation pay, wages, holiday pay, overtime as well as severance and termination pay.

Stacey Reginald Ball is your source for expert legal advocacy and advice on independent contractor/employee classifications. Stacey Reginald Ball is also versed in constructive dismissal, wrongful dismissal and other employment related issues. We serve the Toronto and Greater Toronto Area, as well as other national and international clients.

Keenan v. Canac

The ONCA dismissed the appeal of the Appellant (Defendant) in the case of Keenan v. Canac Kitchens, 2016 ONCA 79.

The case surrounded the dismissal of two long-term and senior employees who had been dismissed after approximately 32 years of service for Lawrence Keenan and after 25 years of service for Marilyn Keenan. On termination, no pay, notice or statutory entitlements were given to either of the Plaintiffs given that the Defendant characterized the Plaintiffs as independent contractors halfway into the employment relationship by altering their job title from “Foreman” to “Delivery and Installation Leader”, paying them on a piece work basis and making the Plaintiffs obtain their own trucks for transport.

Part way into the relationship the Defendant requires the Plaintiffs to sign an agreement in 1987 indicating that the Keenans were to devote “full-time and attention” to Canac as sub-contractors. The Plaintiffs received ROE’s, which showed they had quit their jobs with Canac, in spite of the fact that the nature of employment and their duties with Canac remained unchanged. They worked almost exclusively for Canac until worked slowed and the Plaintiffs took up part-time work with a competitor to which Canac showed no disagreement towards.

Trial Court

The main issue at trial was whether the Keenans were dependent or independent contractors. The trial judge found that the factors in McKee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916 applied and held the Keenans to be dependent contractors from 1987 until their termination in 2009 given their economic dependence on Canac and given the high level of exclusivity existing in the employment relationship between Canac and the Keenans. The trial judge awarded damages of $125,000 in lieu of 26 months’ notice to which Canac appealed.

Ontario Court of Appeal

The issues on appeal were whether the trial judge erred in finding the Keenans to be dependent contractors as opposed to independent and whether the trial judge erred in awarding 26 months’ notice.

Canac took issue with the timing of the determination of exclusivity. It argued that while the Keenans worked exclusively for Canac until 2006, it had worked for a competitor afterwards and thus at termination, the Keenans were not dependent contractors. The Ontario Court of Appeal (“ONCA”) rejected this argument and upheld the lower courts determination of the high degree of exclusivity making the Keenans dependent contractors.

On the second issue of reasonable notice, the ONCA maintained the original award of 26 months given the Keenans’ senior age (63 and 61), length of service (32 and 25 years) and the nature of the positions they held. Furthermore, the ONCA took into consideration the agreed statement of facts which showed that the parties had contemplated a damages calculation of up to 26 months’ notice.

For employment lawyers in Toronto dealing with issues of wrongful dismissal and independent/dependent contractor status, this decision presents a step in the right direction towards ensuring that it is substance rather than the form of the employment relationship that dictates a workers status in an organization.

An experienced employment lawyer can help you craft contracts and advise on whether the status of an independent contract may have changed to a dependent contractor. If you are seeking a consultation with a Toronto employment lawyer specialized in all matters of employment law, please call our office at 416-921-7997.

Can An Employee Be Incorporated?

What is a Personal Services Business?

A person services business (PSB) is a business operating as a corporation that provides services to other entities in which an employee or officer of that entity may traditionally perform. In lay-mans terms, it is an incorporated employee and for some employees, incorporation may prove beneficial.

The CRA has clearly set out what type of income is classified as “PSB income”. Income earned by the incorporated employee i.e. the corporation will be PSB income in the following situations:

(a) Where the corporation is performing the services or any person related to the corporation/incorporated employee, is a designated shareholder (i.e. a taxpayer who is owning, directly or indirectly during the year, a minimum of 10% of issued shares of any class of the corporation or related corporation) of the corporation

(b) Were it not for the corporation, the incorporated employee will reasonably be considered to be an officer or employee of the entity purchasing and receiving services from the corporation.

Two exceptions exist where a corporation will be refused PSB status by the CRA. The first is if the employees of the corporation are greater than five full-time employees or if the corporate entity is providing services to an “associated” corporation. If any of these circumstances are present, income will not be from a personal services business and will therefore, be eligible for the small business deduction.

Consequences of a PSB

The CRA put in place PSB rules to discourage the incorporation of employees and to prevent tax advantages to employees who formed a corporation.

Some of the greatest issues with operating a PSB are that the small business deduction is not allowed. Deductions for computing PSB income is restricted to salaries and wages, costs of other benefits/allowances given to the incorporated employee and some expenses of the corporation related to selling property and contract negotiation. If you are a PSB, the first $500,000 of corporate income will be taxed at the higher personal rate instead of the lower corporate tax rate. If your corporation is classified as a PSB, tax penalties may be instituted against your corporation because of incorrect misclassification when filing your corporate taxes.

In deciding whether one is operating as a PSB, it is important to consider the factors used in distinguishing employees versus contractors such as the degree of control exercised by the hirer, who provides the tools used to perform the services, whether there is opportunity for profit for the contractor and the degree to which the contractors work is integrated with the hirers business.

Furthermore, it should be noted that a PSB that pays wages or salaries should be cognizant of withholding and reporting responsibilities. If the corporation is not clearly a PSB, the employer should pay the contractor as an employee and make the requisite CPP contributions and source deductions.

Employment lawyers should be careful to advise on the risks and benefits associated with a PSB especially if the incorporated employee is providing services to one company. Employment lawyers should advise on the income tax implications of these long-term service contracts. Stacey Reginald Ball is a Toronto employment lawyer versed in the legal implications associated with a PSB. For a consultation, please call our office at 416-921-7997.

Dependent Contractor v. Employees

What is a Dependent Contractor?

A workers relationship generally falls into one of three classifications: employee, dependent contractor or independent contractor. Dependent contractors are seen as the in-between category of workers—basically if one is held to be a contractor and not an employee at first instances, the legal test will assess whether the worker is an independent or dependent contractor.

The concept of dependent contractor is not new. In the Ontario Court of Appeal (“ONCA”) decision of Carter v. Bell and Sons (1936), the court endorsed the notion of an “intermediate” position between employee and independent contractor for work relationships of a “more permanent character” where an agreement to terminate upon reasonable notice could be implied. Unlike independent contractors, dependent contractors are required to receive reasonable notice or pay in lieu of notice following termination given the degree of exclusivity and the extended length of time they may have worked for one business.

What Makes a Worker a Dependent Contractor?

Exclusivity or the degree of exclusivity is a major factor in determining whether one is a dependent contractor or not. Exclusivity is seen where the employer prohibits the worker from working for others. A high degree of exclusivity weighs in favour of a dependent contractor finding by the courts. The precedent setting case of Keenan v. Canac Kitchens Ltd., 2016 ONCA 79 examined the concept of exclusivity and its importance when assessing a workers status. Both the trial and ONCA decision held that the plaintiffs, Marilyn Keenan and Lawrence Keenan were dependent contractors given the high degree of exclusivity.

The Court of Appeal Stated:

Exclusivity cannot be determined on a “snapshot” approach because it is integrally tied to the question of economic dependency. Therefore, a determination of exclusivity must involve, as was done in the present case, a consideration of the full history of the relationship. It is for the trial judge to determine whether, after examining that history, the worker was economically dependent on the company, due to exclusivity or a high level of exclusivity”

Legal Obligations to Consider when Terminating Dependent Contractors

It is important to keep in mind that employers are obligated to given reasonable notice or pay in lieu of notice when terminating dependent contractors. If they do not, there will be significant legal consequences.

Evidently, it is easy for the divide between independent and dependent contractors to be blurred. To protect your company, ensure a clear written contract is in place for every contractor that is hired. Ensure if responsibilities change over time, that the necessary measures are in place so your organization is not faced with an unintended classification by the courts and keep in mind that courts will always look at the substance of the relationship rather than the job title ascribed to a worker.

An experienced employment lawyer can help you craft contracts, and advise on whether the status of an independent contract may have changed.

Stacey Reginald Ball is your source for expert legal advocacy and advice on dependent contractor/employee classifications. Stacey Reginald Ball is also versed in constructive dismissal, wrongful dismissal and other employment related issues. We serve the Toronto and Greater Toronto Area, as well as other national and international clients. For a Toronto wrongful dismissal lawyer, contact our office at 416-921-7997.

How to Contest a Wrongful Dismissal

Employers in Canada are bound under both federal and provincial legislation to provide reasonable notice or pay in lieu of notice to their employees for termination where there is no just cause for dismissal. From the time you sign your employment agreement until the time you are terminated, it is important that employees be aware of their rights under Canadian employment law. A wrongful dismissal lawyer should be consulted to analyze the nuances within your particular case, however, for now, the below will provide useful answers to common concerns.

Prior to Joining a New Employer

Every employment contract has to adhere to employment standards legislation which provides minimum entitlements. Employment standards legislation covers minimum wage, hours of work, leaves of absence and other basic matters. Before signing make sure to analyze the termination provision. Is it contracting you out of the common law? This usually occurs with high-level employees and executive contracts. Visit a Toronto employment lawyer to ensure the contract works in your favour. Other provisions to look at are notice periods and the compensation scheme. Some high-level contracts that have incentive plans as part of the compensation structure include termination provisions embedded within them. These provisions may work against an employee who obtains a significant portion of their income from the incentive plan or bonus.

Performance-Based Dismissal

If there are performance related issues, it is important that your employer have substantial grounds for dismissing you. They must warn you prior to dismissal and provide you an opportunity to improve performance.

Discrimination

Employees cannot be terminated on human rights grounds such as caste, gender, race, creed or religion. If you feel you have been discriminated against and your dismissal included a human rights ground under the Ontario Human Rights Code, reach out to an employment lawyer to determine how your wrongful dismissal will be impacted by a human rights violation.

Reprisal

If an employee contests unsafe activity at work, an employer cannot terminate the employee. Both federal and provincial laws contain provisions prohibiting retaliation by the employer against the employee for seeking assistance and protesting unsafe working conditions.

Mitigating Damages

It is important to remember that when advancing your wrongful dismissal claim, all employees have an obligation to mitigate damages by seeking other employment.

A dismissal based on any of the above alleged grounds is unjust. Ensure that you visit a Toronto employment lawyer versed in wrongful dismissals to advance your case. At Ball Professional Corporation, our preference and strategy is to negotiate a settlement without litigation. Where litigation is necessary, and with over thirty years of employment law experience, our office can effectively advance your case. For a consultation, please call our office at 416-921-7997.

Review of most recent updates to Labour and Employment Law under BILL 66 in Ontario

Bill 66 is a new bill that was introduced in Ontario on December 6, 2018. Its official name is the “Restoring Ontario’s Competitiveness Act, 2018.” The bill, introduced by the Ford government, involved changes to the Employment Standards Act and the Labour Relations Act that would have a real impact on Ontario employers and employees.

As the name suggests, the government intended for these changes to make Ontario more competitive and attractive to businesses. The purpose was to cut red tape and reduce regulation in various industries, including the construction industry.

However, while less regulation may sound appealing to employers, it could end up hurting vulnerable workers by reducing their protections. Time will tell how these changes will be applied by employers and how they will impact workers.

Bill 66 recently received Royal Assent, on April 3, 2019 and the changes are now in effect. Several of these changes are explained below.

48+ hour workweek under the ESA

Before Bill 66, employers and employees could agree that the employee would work more than the 48 hour work week, if the arrangement was approved by the Ministry of Labour’s Director of Employment Standards.

After Bill 66, employers and employees do not need approval from the Ministry of Labour if they reach an agreement. On the one hand, it’s a positive that an employee has to agree to the arrangement for more than 48 hours/week. However, there may still be imbalances in bargaining power which make it challenging for an employee to decline.

It is important to note that employees are still protected from reprisal. Reprisal, in this context, is an act of retaliation for asserting your rights under the Employment Standards Act. An employer could not punish an employee for refusing to sign an agreement for a 48+ hour week.

Averaging overtime under the ESA

Similarly to above, before Bill 66, if an employer and employee wanted to enter an agreement to average an employee’s hours over x number of weeks in order to calculate entitlement to overtime, they needed approval from the Director of Employment Standards.

Bill 66 has removed that requirement. This means that an employer and employee can enter into a valid agreement to average hours for overtime purposes if they so choose.

Posting Employment Standards information in the workplace

Before Bill 66, employers were required to display a poster in the workplace with Employment Standards information. After the passing of Bill 66, employers must only provide a copy to employees. The potential downside of this is that workers may not realize or remember their rights if they are not exposed to them on a regular basis.

“Non-construction employers” in the Labour Relations Act

Bill 66 amends the definition of “non-construction employers” to include several large public sector organizations. This includes hospitals, universities and municipalities. What this means is that they would no longer be bound to the current construction industry collective bargaining agreements. Current agreements would be terminated.

Before Bill 66, these employers were restricted to accepting bids from workers affiliated with certain unions, with which they had collective agreements. After Bill 66, the process is opened up to allow for bids from more contractors, not just those who may affiliated with a particular trade union. Please note that employers did have a three month window from April 4, 2019 to opt-out of the application of this amendment.

The motivation for this change may be to allow employers (who are not typical construction employers) to find the most cost-effective contractor for the job. It could also help contractors who are not affiliated with a trade union, as they were previously prevented from bidding on these large public sector projects.

It will be important to monitor the reaction of trade unions and contractors in the upcoming months.

Bill 66 could have an impact on businesses of any size as it loosens the restrictions for excess hours and overtime averaging agreements. It will also impact trade unions, construction projects and the bottom line of those projects as they look for cost-effective services.

As an employer or employee, you may have questions about how this new legislation impacts your rights and obligations. Please reach out to the professionals at Ball Professional Corporation for help understanding this new Bill.

Employment status: difference between EMPLOYEE and CONTRACTOR

If you have recently been terminated from your job, there is no doubt you will have questions. For example, you may want to know about reasonable notice or what other rights you are entitled to.

What you may not know is that the answers will vary depending on your employment status: are you an employee, a dependent contractor or an independent contractor? These are particular terms with special meaning in employment law, and we can help you understand where you fall in the continuum. As a result, we can help you claim the rights that you are entitled to.

Employee or contractor?

The first major split to understand is between employees and contractors. In order to access the protections and rights of the Employment Standards Act, you typically need to be considered an “employee”. Employees’ rights include vacation pay, statutory holidays, overtime pay, notice upon termination and the right to collect EI (Employment Insurance) benefits.

This dividing line has been developed over many years, and it is still evolving today.

Questions that the courts will ask include the following:

  • Who supplies the equipment?
  • What degree of control does the employer have over the work?
  • How is the worker paid?
  • Can the worker subcontract out their work?
  • Who bears the benefit of profit and the risk of loss?
  • Is the relationship exclusive?
  • What did the parties intend?

If the above factors point towards being an employee, then that person will have the protections and rights of the Employment Standards Act. By contrast, contractors will not.

You can think of contractors as having more control over their operations. The more factors that point toward a worker keeping control over their own work (setting their own hours, setting the scope of work, owning their tools , negotiating fees, incurring expenses, etc.), the more likely that they are considered a contractor.

What about “dependent” contractors?

There is a special subset of contractors called “dependent contractors”, and they are treated a bit differently than both employees and independent contractors.

Although they are treated like independent contractors in many ways, dependent contractors are actually entitled to reasonable notice of termination for their services, just like employees. Dependent contractor status is considered a “carve out” from the contractor category, and it does not affect or reduce the scope and applicability of existing employment tests.

In determining whether an individual is a dependent contractor, and therefore entitled to reasonable notice of termination, the courts will first determine whether they are an employee or a contractor, as stated above. If the worker is a contractor, then the courts consider whether they are an independent or dependent contractor. Exclusivity is determinative is making this decision. This means that if the worker is only allowed to deal with one employer, they are dependent on that employer and therefore are owed reasonable notice. As with a typical employment relationship, if there is cause for dismissal there is no obligation to provide reasonable notice upon termination of the relationship.

See Mckee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916 and Boettcher v. Stremecki (1980), 25 A.R. 372 (Q.B.) for relevant cases.

One important point to remember is that just because you sign a contract that states you are an independent contractor, it isn’t necessarily true. The courts and other agencies will look at the actual nature of your employment relationship, not just the title that you signed.

As you can see, there is no black and white definition of an employee or a contractor, and we recognize that everyone’s situation is different. This is why it’s important to contact a legal professional, and the experts at Ball Professional Corporation are happy to help. They can analyze your situation and assist you based on your employment status.

Watch Mr. Ball making a winning argument before the entire Supreme Court of Canada​

​A Toronto company is inviting legal trouble with an ad specifically seeking female applicants because the job involves receptionist work, says Stacey Ball.

Global News November. 23, 2015

A Toronto company is inviting legal trouble with an ad specifically seeking female applicants because the job involves receptionist work, says Stacey Ball.

Toronto Company’s Sexist Job Posting Seeking Female for ‘Receptionist’ Duties Sparks Ridicule Online

A job ad by web design company Vestra Inet seeking female applicants to fill a receptionist position has sparked heated arguments online. The ad was posted nearly 3 weeks ago and has invited a lot of criticism. According to Toronto employment lawyer Stacey Ball, the company might get into legal trouble.

The Toronto company was looking for a content writer and SEO specialist. It further adds a more detailed list of required qualifications, specifying “The position requires filling in the responsibilities of a receptionist, so female candidates are preferred,” according to the Company’s LinkedIn profile.

A few days after the posting, Vestra Inet’s Linkedin profile was filled with outraged comments and annoyed Twitter users reacted as well. Following online outrage, Vestra Inet pulled down the controversial advertisement from its LinkedIn page on Monday afternoon and posted a statement addressing the controversy.

The statement read in parts, “Several individuals have found the wording of the ad to be offensive, and we want to assure everyone that we did not mean to discriminate against any particular gender or group. Vestra Inet is a company that believes in promoting diversity. Our staff currently consists of employees of various genders and ethnicities. Above all, Vestra Inet values knowledge and talent.”

According to the company’s representative, the organization’s staff is predominantly male and they posted the job ad to have more women represented within the web design company. According to Ontario’s Human Rights Commission, job ads targeting a certain gender are a form of discrimination.

Stacey Ball says that an ad specifically seeking female applicants, especially receptionist work, could result in a lawsuit or human rights complaint. According to the Toronto employment lawyer, this kind of ad was popular in the 1950s-1970s, but today, it’s not socially acceptable and can raise a legal issue. Mr. Ball added that you can’t discriminate against someone just because they’re a male – an employee could seek $30,000-$50,000 in general damages.

Doing Our Best – Wrongful Dismissal Lawyer In Toronto – (416) 921 7997 Ext.225 – Employment lawyer Toronto for all your labour needs.

ITWC Talks Published on July 24, 2014

Rafael Ruffolo sits down with Stacey Ball, an employment lawyer with Ball & Associates.

How to Get the Severance Package You Deserve

Rafael Ruffolo interviews Stacey Ball, an employment lawyer with Ball & Associates.

Q: If I’m unhappy with my severance offer, what is the first thing I should do?

A: Well, I think they should be contacting a lawyer because whether again it is a legal offer to make a contract or whether what’s been doing is being asked to contract potential rights that they may have. Some employees may be entitled to up to 24 months’ severance and they might be only offered 8 months or 6 months.

So, they should get a proper legal opinion to determine if the offer being made to them is in the range or in the ballpark.

Q: How many laid-off employees actually contest their packages?

A: Probably, not enough. What you see with some employers is that they will play the odds. They know – that a small percentage of employees will actually go and see a specialized employment lawyer and get a proper legal opinion even though ironically, that’s exactly what the employer has done in advance because the employer will know what its obligations are. So, the employee should have the same amount of knowledge that their employer does or I should say, a former employer.

Q: What is my employer thinking when offering me severance?

A: Well, they’re thinking dollars and cents and they know they have a legal obligation. They have a legal exposure but you’re trying to reduce it and that’s why they make the offers that they do. You know the reality of the situation is that you’re in an adversarial business relationship with your former employer. And the less money they can pay you, the more money for the shareholders and executive bonuses.

So, if you’re the employee, you probably want the money for…to cover debts, cover emergencies, and pay your mortgage.

Q: What if I try and negotiate the severance on my own?

A: Well, it probably is that they do not understand that the employer is not their friend. You know they’re no longer an employee – they’re a former employee – past perfect tense. People pay money because they know bad things can happen to them. And one bad thing that could happen to the employer is that they could have to go to court and pay the employee’s legal fees.

The employee acting for himself does not have the same bargaining power because the employee cannot go to the Superior Court himself – practically speaking – and commenced a wrongful dismissal action against the employer.

So, the employer has to know bad things can happen to it and because they know they could face exposure. They’re more inclined to pay the employee what he or she should be getting.

Q: Will my unemployment eligibility be affected by my severance?

A: What happens is that if you get a severance package, it basically causes the EI system to get frozen and suspended until the end of the severance term. And then if you’re still unemployed, you get EI. So, basically, it throws back the time before you can collect it. So, let’s say you have 12 months’ severance; all the time to collect EI is suspended by 12 months.

Q: How often do clients actually receive a better package?

A: I normally write a letter and they get a better package. If I don’t, I sue, and then they get a better package either initially or after mandatory mediation.

Q: Will challenging my severance affect my future employment?

A: Well, first of all, because the employer has proved cause, because the employer has proved the employee has not mitigated his or her damages, it’s hard for an employer to win. Because of that maybe 5% or less of cases go to trial…and because most cases settle, that means you make a bargain. You negotiate an agreement. You can negotiate all kinds of terms including a good reference. And so that would be normal. I think the employer will not say anything negative about the employee to any prospective third-party employer. So, that’s a good reason to retain counsel. So, you can negotiate these kinds of things.

Q: Final thoughts?

A: Well, I think it’s like I said…I think it’s important to be on a level playing field with your employer. It makes sense to retain counsel. The amount at stake can be quite large. I mean if you’re getting (15, 20, 18) months’ pay, that could be as similar as a small piece of property. So, you want to do it right.

Call us for a phone consultation Employment lawyer Toronto at (416) 921 7997 Ext.225.