Employee or Contractor?

Your employment has recently been terminated, and you are unsure what to do. Can you sue for wrongful dismissal? Are you entitled to reasonable notice? Are you eligible for Employment Insurance? The bottom line is, your status as an “employee”, “dependent contractor”, or “independent contractor” affects your legal entitlements while you are employed and when your employment ends. Although your employment contract might state your worker status, this written status is not determinative.

Why Does It Matter If I Am an Employee or a Contractor?

Your entitlements will depend on what kind of worker you are. Employees are entitled to employment benefits under the Employment Standards Act, 2000, and may also be entitled to severance pay upon termination of employment. More importantly, employees and dependent contractors are owed reasonable notice when their employment ends. By contrast, independent contractors are no reasonable notice.

Employers also have obligations when the worker is an employee, such as contributing to Employment Insurance and the Canada Pension Plan. Employers must also deduct and remit payroll taxes for their employees.

Am I an Employee or Contractor?

To determine whether a worker is an employee or a contractor, the courts look at the nature of the worker-employer relationship based on several factors.

The Supreme Court of Canada created a test to distinguish between employees and contractors in 671122 Ontario Ltd v Sagaz Industries Canada, 2001 SCC 59 (Sagaz). In Sagaz, the key question was: for whom/whose business is the worker performing services? In other words, was the employee carrying on business for themselves, or for the employer?

To answer this question, courts will consider the following non-exhaustive factors:

  • The level of control the employer has over the worker’s activities;
  • Whether the worker provides their own equipment;
  • Whether the worker hires their own helpers;
  • The worker’s degree of financial risk;
  • The worker’s opportunity for profit;
  • The worker’s degree of responsibility for investment and management; and
  • Whether the worker was limited exclusively to the principal’s service.

The most important question here relates to control. The higher the level of control an employer has over a worker, the more likely the worker will be considered an employee.

Conversely, an employee may be regarded as a contractor where the worker maintains more control of their own work. For example, a worker is likely a contractor if they supply their own equipment, hire their own helpers, manage the majority of the project, and profit/loss after the project’s completion.

Am I a Dependent or an Independent Contractor?

The courts and statutes further distinguish between “dependent” and “independent” contractors.  A dependent contractor is a worker who is not an employee but is still dependent on their employer. Out of fairness to the worker, given this dependency, a dependent contractor may be treated as an employee for certain purposes.

The Ontario Court of Appeal dealt with this distinction in McKee v Reid’s Heritage Homes, 2009 ONCA 916. The key factor to this determination is exclusivity. Thus, the main question a court will consider is whether the work was exclusively supplied to that one employer. This will determine whether the contractor exercised economic dependence on their principal.

If you work but are unsure if you are an employee or a contractor, contact us today. We can help examine the characteristics of your working relationship to determine your rights.

If you are an employer and want to hire someone, contact us to determine the best employment relationship for you to have with your worker. Employees and contractors have different characteristics and are entitled to different rights. Before you hire anyone, contact us to be ready when you are expanding your business.

Contact Us

If you are an employer and need assistance classifying your employees or respond to a claim, or an employee or contractor who needs legal assistance, our team of experienced employment lawyers at Achkar Law can help. Contact us by phone toll-free at +1 (866) 508-2548 or email us at [email protected] and we would be happy to assist.

If you are a small or medium-sized company looking for full-service support with same day response, visit our CLO Program page for our strategic solutions.