By: Jordon Bond
There are three classifications of workers in Ontario: employees, independent contractors, and dependent contractors. Whether a worker is classified as an employee or a contractor can have serious cost implications for employers.
Our free, AI-powered tool can help make this assessment for you.
Employees, Independent Contractors & Dependent Contractors
An employee is a worker who enters into an employment contract with an employer that involves an exchange of labour for wages.[1] This contract is subject to laws that govern employment contracts, including the Employment Standards Act (ESA) in Ontario.
Independent contractors are not employees, rather, they are individuals that are in the business of selling their labour in exchange for wages[2]. Employment laws do not apply to these contracts; instead, they are governed by contract law.
Dependent contractors are workers whose status lies between that of an independent contractor and an employee.[3] They are entitled to some protection under employment laws, including reasonable notice of termination, coverage under human rights legislation, workers’ compensation, and health and safety legislation.[4]
Implications for Employers
Employees are entitled to various statutory protections and benefits.[5] For example, under the ESA, employers must provide employees with severance pay, minimum notice of termination, minimum wage, etc. Additionally, employers are responsible for deducting Canada Pension Plan contributions, Employment Insurance, and income tax from employees’ wages. Employers should also note that they can be held vicariously liable for their employee’s conduct but are not likely to be held vicariously liable for independent contractors’ conduct.[6]
In contrast, independent contractors are not eligible for any protections or benefits under the ESA, meaning they are not entitled to minimum wage or reasonable notice of termination.[7] Since independent contractors are business operators, they are responsible for their profits and losses incurred.
Employers’ misclassification of employees can expose them to unwanted liabilities. For example, if an employer is found to have misclassified an employee as an independent contractor, they may be liable for back pay of wages, fines, and be responsible to provide minimum notice of termination.
Classification of Workers’ Status
A. Independent Contractors vs. Employees
In 671122 Ontario Ltd. V Sagaz Industries Canada Inc (Sagaz), the Supreme Court of Canada stated that the central question is whether the person who has been engaged to perform the services is performing them as a person in his business on his own account.[8] The Court in Sagaz provided a list of non-exhaustive factors to consider:
a) Level of control the employer has over the worker’s activities
b) Whether the worker provides their own equipment
c) Whether the worker hires their own helpers
d) Degree of financial risk taken by the worker
e) Degree of responsibility for investment and management held by the worker
f) Worker’s opportunity for profit in the performance of their tasks[9]
Employers should note that how a contract classifies a worker is relevant, but not in itself determinative of a worker’s status.[10]
B. Dependent Contractors
In determining whether a worker is a dependent contractor, courts will begin analyzing whether the worker looks more like an employee or a contractor.[11]
If the court concludes that the worker is a contractor, they will then consider whether the worker is an independent or a dependent contractor.[12] In Keenan v. Canac Kitchens Ltd., the Ontario Court of Appeal provided that a finding that the worker was economically dependent on the company due to complete exclusivity or a high level of exclusivity weights heavily in favour of the conclusion that the worker was a dependent contractor.[13]
Disclaimer: The information provided in this response is for general informational purposes only and is not intended to be legal advice. The content provided does not create a legal client relationship, and nothing in this response should be considered as a substitute for professional legal advice. The information is based on general principles of law and may not reflect the most current legal developments or interpretations in your jurisdiction. Laws and regulations vary by jurisdiction, and the application and impact of laws can vary widely based on the specific facts and circumstances involved. You should consult with a qualified legal professional for advice regarding your specific situation.
[1] Doorey, D. J. (2020). The Law of Work (Second ed.). Toronto, ON: Emond Montgomery Publications, at pg. 54. [Doorey].
[2] Ibid, at pg. 55.
[3] Ibid, at pg. 55.
[4] Ibid, at pg. 55.
[5] Ibid, at pg. 55.
[6] Ibid, at pg. 54.
[7] Ibid, at pg. 55.
[8] 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59 [Sagaz], at para 47.
[9] Ibid, at para 47.
[10] Braiden v. La-Z-Boy Canada Limited., 2008 ONCA 464, at para 33.
[11] Doorey, supra note 1, at pg. 58.
[12] Doorey, supra note 1, at pg. 59.
[13] Keenan v. Canac Kitchens Ltd., 2016 ONCA 79, at para 24.