Identifying the Differences Among Employees, Independent Contractors, and Dependent Contractors and Why it Matters.
Are you an Employee or Independent Contractor?
Identifying whether an individual is an employee or independent contractor is fundamental in determining the rights and obligations of both employers and employees.
In particular, an employee is entitled to the minimum statutory benefits under the Employment Standards Act, 2000 including but not limited to minimum wage, overtime pay, vacation pay, notice of termination, and/or severance. By comparison, an independent contractor is not entitled to such protection.
Despite contractual language, courts will examine the actual conduct and relationship between the parties to determine the right classification. In the event of misclassification, the onus is on the employer to prove that the individual is not an employee.
Factors that Courts Consider in Classifying Workers
While there has been no conclusive test, the court in 671122 Ontario Ltd v Sagaz Industries Canada Inc, 2001 SCC 59 (CanLII), held the following:
The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.
Courts have identified various factors based on the above and are highlighted in this chart:
| FACTORS | EMPLOYEE | INDEPENDENT CONTRACTOR |
| Level of Control | The Company decides the kind of work/services to be provided, hours, pay (i.e. salary/wages) and/or discipline. An employee works exclusively for the employer. | The worker can subcontract work and has more flexibility on hours and how work is to be performed. The worker can work for other companies. |
| Equipment | Company provides the space and/or supplies to perform the work. | The worker supplies the equipment or tools. |
| Chance of Profit | Profit is limited to salary/wages set by the employer. | The worker can increase profits based on quality of work or performance. |
| Risk of Loss | Employee has less risk of loss because the employee does not have a direct stake in the success/failure of the business. | The worker has greater risk of not being paid if the work is done incorrectly. |
| Taxes | Employer and employee make contributions to EI and CPP. | The worker remits statutory taxes. |
Dependent Contractor versus Independent Contractor
Similar to employees, dependent contractors are entitled to reasonable notice of termination. Generally, dependent contractors are economically dependent on a specific client and working exclusively for that principal.
In Thurston v. Ontario (Children’s Lawyer), 2019 ONCA 640, the Ontario Court of Appeal looked at the issue of exclusivity more closely, and held that a lawyer who was receiving approximately 40% of her income from a particular client was not a dependent contractor. The Court of Appeal held the following:
[30] Exclusivity is a categorical concept – it poses an either/or question, and “near-complete exclusivity” must be understood with this in mind. “Near-complete exclusivity” cannot be reduced to a specific number that determines dependent contractor status; additional factors may be relevant in determining economic dependency. But “near-exclusivity” necessarily requires substantially more than 50% of billings. If it were otherwise, exclusivity – the “hallmark” of dependent contractor status – would be rendered meaningless.
A misclassification of a worker may prove advantageous to an employee but costly for an employer. We encourage employers to engage our services in order to understand their rights and risks in hiring an independent contractor or an employee. And we encourage workers to call to determine their classification and according rights.