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 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 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.