By: Ari Derohanesian
Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All scenarios are specific to their facts and will differ from the situations in the articles. If you have specific legal questions, you should consult a lawyer.
Canada’s gig economy has expanded rapidly over the last decade. With more and more Canadians turning to unconventional jobs, such as ridesharing, many Canadians are wondering whether they are employees or independent contractors?
Employee vs Contractor – What’s the Difference?
A worker can be classified as either an employee, an independent contractor, or a dependent contract depending on their relationship with their payer. An employee-employer relationship is the typical relationship in a traditional employment setting. An independent contractor is a person who is in business for themselves. Dependent contractors are classified in an intermediate category in-between employees and independent contracts and heavily depend on their payer.
How to Determine Whether I Am an Employee or Independent Contractor? – The Sagaz Test
671122 Ontario Ltd. v. Sagaz Industries Canada Inc., decided by the Supreme Court of Canada in 2001, is the leading case used to determine whether a person is an employee or independent contractor. In the Sagaz case, the Supreme Court laid out a test that considers a number of factors about the relationship between a worker and their payer.
The first question to ask is whether the intent of the worker and their payer was to form a contract of services, which is a business relationship, or a contract of service, which is an employer-employee relationship. The factors expressed by the Supreme Court and laid out on the Government of Canada website that can be used to help determine whether a worker is an employee or independent contractor are:
- “The level of control the payer has over the worker’s activities
- Whether the worker or payer provides the tools and equipment
- Whether the worker can subcontract the work or hire assistants
- The degree of financial risk the worker takes
- The degree of responsibility for investment and management the worker holds
- The worker’s opportunity for profit
- Any other relevant factors, such as written contracts”
How to Apply the Sagaz Test?
Applying the Sagaz test can be quite complicated in practice because many unconventional jobs express these factors to different degrees. The higher a payer’s control over the activities of a worker, the more this factor suggests the worker is an employee. If the majority of the tools and equipment used by the worker are provided by the payer, this factor suggests the worker is an employee. This can become less clear if the worker and payer both provide nearly an equal share of the tools.
If the worker is not allowed to subcontract work or hire assistants, this factor suggests the worker is an employee. The degree of financial risk a worker takes on, responsibility for investment, and opportunity for profit can often be hard to quantify. These factors can be quite complex because many workers whose pay is linked to commission or the success of a business may have a considerable opportunity for profit, the degree of which may impact their employment status. The higher the degree of financial risk, responsibility for investment, and opportunity for profit, the more these factors suggest a worker is an independent contractor.
How to Get a Ruling from the CRA?
The Canada Revenue Agency (CRA) provides rulings about a worker’s employment status to workers and payers upon request. A worker or payer can request a ruling from the CRA on the Government of Canada’s “Employee or Self-employed” webpage. To request a ruling a worker or payer can log into their CRA MyAccount and select “Request a CPP/EI Ruling.”
Alternatively, a payer or worker can fill out the form titled “Form CPT1, Request for a CPP/EI Ruling” and mail it to their tax services office. It is highly advisable that anyone unsure about their employment status request a ruling from the CRA, since it is extremely difficult to determine one’s employment status with the Sagaz test alone, and it may not reflect the ruling of the CRA.
MyOpenCourt: Employee or Contractor Tool
The MyOpenCourt website includes a variety of useful tools that use artificial intelligence to help individuals learn about legal issues. The “Employee or Contractor” tool takes users through a series of questions, many of which are based on the Sagaz test, which can help to predict whether a worker would be classified as an employee or independent contractor. The “Employee or Contractor” tool can be helpful for anyone who wants to learn more about employment status issues.