Control is key in contractor vs. employee debate

Control is key in contractor vs. employee debate

December 31, 2007

There are several differences between employees and contractors, but the key indicator is the control that a worker has over their workplace, says Toronto labour and employment lawyer Stefan Rosenbaum.

“When the courts look at whether somebody is an employee or a contractor, they’re looking at the control aspect: How much control do you have over how you do the job and the remuneration that comes from that,” says Rosenbaum, an associate with Shibley Righton LLP.

The courts usually end up examining the issue when a contractor brings a lawsuit arguing that they’re in fact an employee, and that’s most likely to happen when the employment relationship breaks down, he tells AdvocateDaily.com.

“Both categorizations have different responsibilities and risks for the worker and the employer. That being said, in order to determine whether somebody is an employee or a contractor, the employment contract isn’t self-determinative,” Rosenbaum explains.

“Just because you’ve entered into a contract and it says that you’re an independent contractor, it doesn’t necessarily mean that the law would come to the same conclusion.”

Independent contractors have control over such things as their hours and how they do their work, he says.

“You could, for instance, have your own tools and equipment, use your own van and have your own uniform. You do the jobs as you see fit and you can take work from an employer as you want. There’s nothing to say that you have to come in on any specific days.”

Also important is whether the contractor has a chance of profit or risk of loss, meaning “are you a worker who could either profit from the job or run the risk of loss from the job?” Rosenbaum says.

“For example, if you’re not getting paid by the hour, you could do the job in four hours and conceivably make a larger profit than if the job takes you 15 hours. You have control over the amount of time it takes.”

Another factor to consider is whether income tax, Canada Pension Plan and Employment Insurance deductions are made at source, or whether a worker makes payments on their own, he says.

While contractors can deduct all kinds of expenses that then allow them to decrease their income and, in many cases, pay less income tax than employees, they lose out on the protections that come with Ontario’s Employment Standards Act (ESA) and Workplace Safety and Insurance Act, for example, Rosenbaum says.

The ESA covers such things as minimum wage, vacation pay, overtime, hours of work, maternity and parental leave, and “the big one, which would be notice of termination,” he says. The legislation provides that employees receive one week’s pay for every year worked, up to eight weeks.

“An independent contractor is governed by the contract itself. It’s possible and conceivable that the contract wouldn’t say anything about what happens when the relationship is terminated,” Rosenbaum says.

“If the contract said you were entitled to only five days’ notice, for instance, there would be nothing to stop the employer from just giving you five days’ notice and sending you on your way.”

In addition to independent contractors, the courts, in the last 15 years or so, have carved out the dependent contractor category, he says. While the two share many of the same characteristics — such as having their own tools, deciding when to work, and the chance of profit or risk of loss — a dependent contractor relies almost exclusively on one employer for work, Rosenbaum notes.

“Whereas an independent contractor could conceivably work for four or five employers at one time, the dependent contractor may have 100 per cent of their work from one employer.”

The courts, when dealing with the termination of a dependent contractor, “were trying to find a way to protect these people who worked for one or two employers,” Rosenbaum says.

“So, what the courts did is they implied into the contract that they’re entitled to a notice period. It would likely be less than what an employee would be entitled to, but they’re using the same type of analysis when you terminate an employee.”

In particular, the courts would look at how long someone had been a dependent contractor, their level of seniority and how long it would take to find a new job, he says.

The notion of a dependent contractor has evolved through common law, but the courts have indicated that the categorization “is going to be rare. Usually, the courts will find that they’re employees,” Rosenbaum says.

“The courts want to gravitate toward a finding of employee when they’re looking at the ESA because they want to give the full protection of the law,” he says. “Although dependent contractors do exist, the courts usually determine that workers are either employees or independent contractors.”