Introduction

Organisations' use of independent contractors (also referred to as 'consultants') as opposed to employees has grown significantly over the years. The trend comes as no surprise in a changing economy where particular skill sets are required at specific times and where flexibility is a key driver of success. In some cases, the characterisation of an individual as an independent contractor is driven by requests from workers themselves, often in order to take advantage of certain tax benefits.

There are many advantages to using independent contractors as part of a workforce. However, adjudicators, plaintiff lawyers and legislators are increasingly challenging employers that misclassify workers as independent contractors. Finding that a worker (or group of workers) has been misclassified can result in significant liability for an organisation. Employers should therefore think twice before using independent contractors.

Ontario has announced that it will be cracking down on employers that misclassify workers as independent contractors as part of its Bill 148: Fair Workplaces, Better Jobs Act 2017, which proposes amendments to the Employment Standards Act 2000. Bill 148 will place the burden on employers to prove that workers are not employees for the purposes of the Employment Standards Act.

Independent contractor or employee?

There is no one single factor for determining whether a worker is an employee or independent contractor in Canada. Adjudicators consider the relationship between the parties as a whole to determine whether the workers are in business for themselves. The factors that are most commonly considered include:

  • the company's control over the performance of the contractor's work (eg, whether the individual hires helpers and determines the timing and manner in which services are rendered);
  • the ownership of the equipment required to perform the work;
  • whether the contractor is economically dependent on the company;
  • whether the contractor has a meaningful chance of profit or risk of loss; and
  • the operational integration between the contractor and the company, including whether the individual is incorporated.

The subcategory of dependent contractor has also emerged over the years for purposes such as the common law entitlement to notice of termination and the right to unionise in certain jurisdictions. Dependent contractors may otherwise have all of the characteristics of an independent contractor, except that they are economically dependent on one organisation. However, dependent contractors generally have no rights to the entitlements reserved for employees under provincial employment standards legislation (eg, that of Ontario, British Columbia and Alberta).

Misclassification claims under Employment Standards Act

Among the recommendations adopted by the Ontario government in its Bill 148: Fair Workplaces, Better Jobs Act 2017 was the special advisers' recommendation to increase the proactive enforcement powers of the Ministry of Labour. Ontario announced its intention to hire 175 additional employment standards officers to assist with enforcement efforts, while increasing the penalties payable by non-compliant employers in forthcoming amendments to the Employment Standards Act Regulations.

Bill 148 reverses the onus in misclassification cases under the Employment Standards Act. This means that if an Ontario contractor claims to be an employee for the purposes of the act and is therefore entitled to overtime, vacation pay or other relevant statutory entitlements, the employer will have the burden of proving that the contractor is not an employee.

Proving that a worker is not an employee can be particularly challenging for employers that have no access to information about the contractor's business (eg, whether the contractor has other sources of income or what tools the contractor uses to perform the work).

Implications for employers

Misclassification of contractors can lead to significant liability for employers, as the individual can lay claim to vacation pay, statutory holiday pay, overtime pay, termination and severance pay, among other entitlements. These are all considered to be inalienable rights of employees under employment standards legislation.

Beyond employment standards legislation claims, there can also be consequences for unremitted taxes, Canada Pension Plan payments, employment insurance, health taxes or government health insurance, and workers' insurance premiums. Employees and dependent contractors may both have common law entitlements on termination.

The changes to Ontario's Employment Standards Act reflect a growing concern among legislators across Canada that workers and employers are operating outside of the traditional employer-employee framework. With these changes, the number of misclassification cases brought against employers under employment standards legislation is expected to increase and these cases should progress more quickly with the dramatic increase in enforcement officers. The number of copycat claims from plaintiff lawyers, including class actions, is also expected to increase as similar cases play out in the Canadian and US news media.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

For further information on this topic please contact Jackie VanDerMeulen at Fasken Martineau DuMoulin LLP by telephone (+1 416 366 8381) or by email (jvandermeulen@fasken.com). The Fasken Martineau website can be accessed at www.fasken.com.

This update was reprinted with permission from Northern Exposure, a blog written by lawyers in the labour, employment and human rights group at Fasken Martineau, and produced in conjunction with HRHero.com.