INTRODUCTION

When it comes time for a small business owner to hire help, they have a few different options to select from: 1) hire an employee, 2) hire an independent contractor, and 3) outsource temporary help from a staffing agency. In this article, we are going to discuss the first two options. We will explain the difference between an employee and an independent contractor, the pros and cons of hiring each option, and the potential consequences of blurring the lines between the two. ​

While this may sound fantastic, hiring an independent contractor instead of an employee also has its drawbacks. To maintain a principal-independent contractor relationship, the independent contractor must be provided with much more autonomy than an employee when it comes to determining how to perform their work. This becomes troublesome when an employers wants to have control over when, where and how work is performed. 

Next, we will discuss the courts perspective on how to distinguish between an independent contractor and an employees, and what can happen if the relationship is miscategorized. ​

THE COURTS PERSPECTIVE: How to determine the difference.

We have established that telling the difference between an employee and an independent contractor isn't always easy. So, the courts have established some rules for making this determination. No single factor is used to determine how the relationship is categorized; a four-part test is used to make this determination: ​

NOTE: It is important to note that the courts do not make their determination based on what is written in a contract, they make it on what happens in practice. If the courts look at the above factors and determine the individual is an employee, it will not matter if you have a written contract that explicitly states an individual is independent contractor. ​

POTENTIAL CONSEQUENCES: What is the worst that can happen?

Now that we have defined what an employee and an independent contractor is, the pros and cons of hiring each option, and the tests a court would use to classify the relationship, we will discuss the potential consequences of treating an individual as an independent contractor when in reality they should be classified as an employee.

There are a few potential legal issues that can arise from this situation. First, if a government agency questions the arrangement for any reason and determines that the individual should have been classified as an employee, the hiring organization (the “employer”) may be forced to pay thousands of dollars in outstanding statutory premiums (such as EI and CPP), penalties and interest.   

Aside from government intervention, the individual (the “independent contractor”) may want to change their status to “employee” at some point down the road. For example, if the individual is involved in a workplace accident and wants to claim EI, they may argue that they were in fact an employee of the company so that they would be entitled to employee benefits that they would otherwise not be entitled to. If they are successful in their claim, the hiring organization (the “employer”) may, again, be on the hook for a hefty payment.

A similar issue may arise if the hiring organization wishes to terminate the independent contractor’s services. If the individual (the “independent contractor”) becomes disgruntled, they may claim that they were in fact an employee of the organization. This would entitle the individual to bring a wrongful dismissal claim. If they are successful in their claim, the hiring organization (the “employer”) may be ordered to pay the individual wrongful dismissal damages in addition to having to pay government agencies for outstanding statutory premiums, penalties and interest.