An agreement to treat an individual as an Independent Contractor for pay purposes is not as straight forward as it may seem. The legal reality is that there are few work relationships that constitute true Independent Contractor arrangements. There are several criteria for determining, at law, whether an individual performing work is an Independent Contractor or whether than individual is an Employee. No single factor is determinative of this issue. The courts, administrative tribunals and government agencies trying to render such a determination generally examine the totality of the circumstances. Among the factors that are regularly reviewed are the following:
- The degree of control exercised by the individual worker over the manner and time in which he/she performs his/her services (i.e. the greater the control the worker has over his/her work, the more he/she resembles an Independent Contractor);
- The existence of a requirement that the worker provide his/her own tools (i.e. a true Independent Contractor supplies his/her own tools and equipment);
- The chance of profit and risk of loss involved with the work arrangement (i.e. the greater the chance of profit and the greater the risk of loss, the more likely the worker is an Independent Contractor); and
- The extent to which the work performed by the worker is an integral part of the employer's business (i.e. the more the work looks like an ancillary part of the employer's business, the more likely that the individual is an Independent Contractor).
If an individual is being treated by his/her ‘employer'(the “Company”) as an Independent Contractor for pay purposes, and if it is later determined that the individual is really an Employee, there are a number of possible legal repercussions for the Company. For instance, should the individual, after being treated as an Independent Contractor, later be dismissed by the Company , he/she may later attempt to file an Employment Insurance claim. At that time, he/she will be informed that he/she is not entitled to receive E.I. benefits, because he/she was not “employed” but was rather providing services as an Independent Contractor. The individual will likely deny the fact that he/she was an Independent Contractor, and claim that he/she was an Employee and that the Company has merely forgotten to deduct and remit E.I. premiums on the individual's behalf. At that time, C.C.R.A. will normally undertake an investigation of the work arrangement in order to determine whether the Company breached its statutory obligation to deduct and remit E.I. and C.P.P. contributions as well as income tax. Should C.C.R.A.'s investigation (into the 4 factors enumerated above) indicate that the individual is legally an Employee, the Company will be ordered to pay all outstanding source deductions.
In addition to the pay repercussions flowing from the improper classification of a worker as an Independent Contractor, Companies may be faced with Workplace Safety and Insurance Act and Employment Standards Act, 2000 problems. Under the former piece of legislation, the Company may be liable for both unpaid amounts which should have been paid out on the Company's behalf from the accident fund and any penalty which may be assessed against the Company. Under the latter piece of legislation, the Company may be liable for any employment standard which the Company did not pay (or provide) to the individual under the false assumption that the worker was not an Employee and thus not covered by employment standards legislation.
Employers who are contemplating entering into an Independent Contractor arrangement with a worker would be well advised to first examine the possibility that the individual could be considered by law to be an Employee. It should be noted that C.C.R.A. has established a procedure whereby the Company may obtain an advance ruling on whether an individual is an Employee or an Independent Contractor for purposes of E.I. and C.P.P. only. As a practical matter, however, such ruling should provide the Company with some comfort level as to the status of the individual under various other pieces of employment legislation
Note: The information contained in this article is issued to provide general information only. It is not intended to provide legal advice and should not be acted upon without consultation with professional advisors.
