classified as contractor, employment law

What Happens If An Employee Is Classified As a Contractor?

What happens when a worker is classified as a contractor, when really they are an employee?

When it comes to creating a work relationship, parties will typically enter into an employment relationship by way of an employment agreement. This agreement will come with certain terms such as a schedule, fixed hours, fixed compensation, and other standard employment terms. In addition, employees working for provincially regulated employers will receive protection under the Employment Standards Act, 2000, while employees working for federally regulated employers will be covered under the Canada Labour Code.

On other occasions, parties may enter into an independent contractor relationship, which will often allow the contractor to work without a fixed schedule, without supervision, and without any stake in the company’s business. The contractor will be presumed to have full control over his or her duties and work output, and payment will be provided based only on work performed.

Worker Being Classified As a Contractor?

However, there is a fine line that exists between an employment and independent contractor relationship, and sometimes that line gets crossed. In some instances, the parties may agree to an independent contractor relationship on paper, but in reality the contractor is treated as an employee.

In a case where an independent contractor is treated as an employee, the contractor may be entitled to the benefits he or she would otherwise receive if treated as an employee, such as termination pay, and other benefits under both statute and common law.

The Misclassification Issue

This is often referred to as a “misclassification” issue in employment law, and it can be costly for employers. In circumstances where an employer terminates an employee they believe to be an independent contractor, they can be liable to the employee for termination pay and other entitlements without knowing or expecting it. Depending on the facts, the independent contractor might be found to be an employee or, in the alternative, a dependent contractor. In either case,  the employer will be liable for termination pay.

The ideal way to prevent misclassification issues is to have clear employment contracts in place which treat employees as employees and contractors as contractors. Employer conduct is also important, so it is wise to avoid treating an employee as a contractor and vice-versa.

Contact Us

If you are a an employer dealing with a misclassification claim, or an employee who believes you’ve been misclassified – or vice versa, our team of experienced legal professionals 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, visit our CLO program page for our strategic solutions. If you are looking for legal support for HR, visit our HR Legal Support page.