When Is a Worker an Independent Contractor?
In today’s gig-economy, more workers are classified as “independent contractors” than ever. Ride-share apps like Uber and the “convenience industry” are the most well-known industry for using independent contractors to provide their services to the consumer.
Though what does it mean to be an independent contractor? What are the legal consequences for misclassifying workers as independent contractors? How can an employment lawyer help?
The article below will answer the above questions, and explain how an experienced employment lawyer can help you determine your legal entitlements in the event of a dispute.
What is an Independent Contractor?
Independent contractors provide goods or services to another individual or entity under the terms of a contract. They pay their own taxes and are usually not entitled to any employer-sponsored benefits or pensions.
Some people prefer to work as independent contractors when they seek greater control over their work, want more independence over what they can earn and for tax planning purposes.
From an organization’s perspective, the benefits of hiring an independent contractor include, but are not limited to, the following:
- Small businesses and start-ups can fill the talent gaps in their workforce by engaging independent contractors;
- Hiring an independent contractor is usually less expensive and offers reduced risk to the businesses;
- An organization can save some costs associated with employing employees, such as employment insurance, pension contributions, overtime, training and development costs, or severance pay; and
- Independent contractors offer greater flexibility to businesses, especially those with fluctuating workloads.
Independent contractors enjoy a certain level of freedom over their work, making them different from the employees who have more control exerted over them by an employer.
A worker is more likely to be legally classified as an independent contractor if they:
- Control the timing and performance of their work;
- Provide their own equipment;
- Hire their own helpers;
- Have a greater opportunity of profit and risk of loss;
- Have a greater responsibility for investment and management;
- Do not have to work for just one organization;
- Have their own workspace or office; and
- Do not have to report to the organization regarding the work they do for it.
The higher the control of an employer over a contractor, the more likely they are properly classified as independent. A worker is more likely an employee if they work using the employer’s tools, work exclusively for a particular employer, and earn a fixed salary for carrying out the work according to the employer’s instructions.
In addition to independent contractors and employees, there is an intermediate category of workers called “dependent” contractors. Dependent contractors usually depend on a single client for most of their work, but they have more degree of control over their work like independent contractors.
How a worker should properly be classified impacts their legal entitlements. Misclassifying a worker as an independent contractor can have costly consequences for both employees and employers.
What Are the Legal Consequences of Misclassifying a Worker as an Independent Contractor?
It makes sense for a worker to accept work for an organization as an independent contractor in some cases. However, most workers who accept their classification as an independent contractor do not know their legal rights when they sign on the dotted line.
Employees have access to remedies and protections under the law that independent and dependent contractors typically do not. One example is the protections of the Ontario Employment Standards Act, 2000.
More notably, independent contractors usually have no entitlement to severance pay upon termination of the contract. Both dependent contractors and employees could be entitled to common law reasonable notice upon termination.
Just because a contract explicitly states that a worker is an independent contractor and not an employee does not mean that is their proper classification. In all cases, a court will examine the surrounding circumstances of a worker’s service for an organization to determine whether they were misclassified.
If a worker who was misclassified as an independent contractor is held to actually be a dependent contractor or an employee by a court, they may then be granted severance. There could also be tax consequences for the employer which can be severe.
How an Employment Lawyer Can Help
Depending on the nature of the dispute you are having with an organization, you might be confused about what you can do. As a worker, can you demand overtime pay while classified as an independent contractor? What if your service account is terminated without notice after fifteen (15) years of uninterrupted service?
An employment lawyer has the knowledge and expertise to help you determine the correct classification of your relationship with an organization, and your true legal entitlements in the circumstances.
If you can successfully argue you were improperly classified, there could be a lot more you could to against your employer than you think.
A business can avoid issues of misclassification by consulting an employment lawyer for advice on how to draft their contracts and carry on with their workers. Consulting with an employment lawyer as early in the relationship with your workers as possible can help limit legal liabilities and associated risks significantly.
Whether you are a worker or an organization, an employment lawyer can also help you negotiate disputes and advocate on your behalf in a lawsuit. Knowledge of what to argue respecting misclassification of a worker can be the difference between success and failure in a wrongful dismissal case.
A worker’s status as an independent contractor, employee or dependent contractor affects their legal entitlements during the working relationship and upon its termination.
Employees and dependent contractors are entitled to reasonable notice when their employment relationship ends. In contrast, independent contractors are not entitled to reasonable notice upon the termination of a contract. For this reason, it is crucial to classify the worker’s status correctly.
In most cases, parties specify the worker’s status and role in a written contract. However, the terminology used by the parties does not determine the nature of their relationship. Instead, the substance of the relationship determines its exact nature. Control and dependency are critical factors in determining the substance of the relationship between a worker and an organization.
An employment lawyer has the knowledge, expertise, and experience to help both workers and organizations navigate the complicated area of worker classification. Both employees and employers can maximize their chances of success in a wrongful dismissal lawsuit by consulting with an employment lawyer as soon as possible.
Contact Achkar Law
If you are an employee or employer with more questions about worker classification or who needs legal assistance regarding the same, our team of experienced employment lawyers at Achkar Law can help.
Contact us by phone toll-free at 1 (800) 771-7882.