employee vs contractor

Employee vs Contractor?

Knowing whether you are an employee or a contract worker in Ontario can have a big impact on your legal rights and obligations. Your classification affects everything from your entitlement to Employment Insurance (EI) and reasonable notice, to the benefits and protections you receive at work. While a written employment contract might state your status, the true nature of your working relationship could be different. Determining whether you are an employee or an independent contractor involves looking beyond your contract title and assessing how much control and independence you have in your role.

Are you considered staff or a contractor? Understanding this distinction is key to protecting your rights, whether you are working or dealing with termination.

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

Your legal rights and entitlements hinge on whether you are classified as an employee or an independent contractor. Employees in Ontario are covered under the Employment Standards Act, 2000 (ESA), which provides certain protections, such as overtime pay, vacation time, and severance pay upon termination. Moreover, employees and dependent contractors are owed reasonable notice or pay in lieu of notice when their employment is terminated. On the other hand, independent contractors do not have this right—meaning they are not entitled to reasonable notice when their work ends.

Employers also have distinct obligations depending on the worker’s classification. For employees, employers must contribute to Employment Insurance (EI), the Canada Pension Plan (CPP), and deduct payroll taxes. In contrast, for contract workers, employers are not required to make such contributions, as contractors are responsible for handling their own taxes and benefits.

Am I a Contractor vs. Employee in Ontario?

To determine whether a worker is a contractor or employee, courts look at the nature of the worker-employer relationship. The key factors that courts use to classify a worker are based on the contractor vs. employee test established in the landmark case 671122 Ontario Ltd v Sagaz Industries Canada, 2001 SCC 59 (Sagaz). The fundamental question is: For whom is the worker performing services? Are they working for themselves or for the business?

Courts will assess the following key factors in determining whether you are an employee vs. contractor:

  • The level of control the employer has over the worker’s activities
  • Whether the worker supplies their own equipment
  • Whether the worker hires their own help
  • The degree of financial risk the worker assumes
  • The worker’s opportunity for profit
  • The worker’s responsibility for investment and management
  • Whether the worker is restricted to providing services exclusively for one business or multiple clients

The degree of control is a particularly important factor. If the employer exerts significant control over the work being performed, it is more likely the worker is classified as an employee. However, if the worker operates independently—providing their own equipment, managing the project, and taking on financial risk—they are more likely to be considered an independent contractor.

Dependent vs. Independent Contractor: What’s the Difference?

In addition to determining whether a worker is an employee or contractor, the law also distinguishes between dependent and independent contractors. A dependent contractor works more like an employee because they are economically dependent on a single business, even though they may not be officially classified as staff.

In the case of McKee v Reid’s Heritage Homes, 2009 ONCA 916, the Ontario Court of Appeal highlighted exclusivity as the key factor in determining whether a worker is a dependent contractor. If a contractor provides services exclusively to one company, they may be deemed a dependent contractor and, as a result, be entitled to reasonable notice or pay in lieu of notice upon termination.

Staff vs. Contractor: What Employers and Workers Should Know

Employers need to carefully evaluate whether a worker should be classified as staff or a contractor. Misclassifying a worker can have serious consequences under Ontario law, such as audits, fines, or backpay claims for unpaid benefits, including vacation pay.

On the flip side, workers should be aware of their rights. If you are classified as a contract worker but believe your role closely resembles that of an employee, you may have grounds for a reclassification claim, which could entitle you to benefits such as reasonable notice and Employment Insurance.

Conclusion: Know Your Rights in Ontario

Whether you’re an employee, dependent contractor, or independent contractor, understanding your classification and the legal implications is crucial. Both employers and workers in Ontario should seek legal advice to ensure their working relationships are properly classified.

For Workers: If you are unsure whether you are a contractor vs. employee and need help determining your rights and entitlements, contact us today.

For Employers: If you’re hiring staff or contractors and need help understanding how to classify workers properly, reach out to us for advice to avoid potential legal pitfalls.

Contact Achkar Law

If you are an employer and need assistance classifying your employees or respond to a claim, or an employee vs contractor who needs legal assistance, our team of experience employment lawyers at Achkar Law can help.

Contact us by phone toll-free: 1 (800) 771- 7882.

Unsure About Your Employment Status?

Whether you’re classified as an independent or dependent contractor, or an employee, understanding your status is crucial for your rights and obligations. Contact our team for guidance and clarification.

 

Further Readings

Benefits Of Hiring A Contractor Vs. An Employee In Ontario

Right To Disconnect And Independent Contractors

Independent Contractors And Preventing Legal Disputes

Why Have An Independent Contractor Agreement?