The differentiation between an independent contractor and an employee is very important at law. Different classifications of workers have different rights and responsibilities, specifically upon without-cause termination of employment. Employees are entitled to reasonable notice of the termination of their employment, whereas independent contractors may not be entitled to receive anything unless a clearly written agreement provides otherwise.
There are several legal “tests” used to determine whether a worker is an employee or an independent contractor. The most commonly used test comes from the Supreme Court of Canada decision in 671122 Ontario Ltd. v Sagaz Industries Canada Inc., 2001 SCC 59 (“Sagaz“). In this case, the Supreme Court held that a determination of whether a worker is an employee or an independent contractor requires a individualized, contextual analysis. The Court can consider a number of key indicators including:
Citing a British case from 1952, the Court noted that it should be considered to what extent the worker is part of the business and whether their work is “integral”. An employee will typically perform work that is related to an integral part of the business, whereas an independent contractor may perform services that are only an “accessory” to the business.
Who will profit or risk losses?
An independent contractor will aim for financial profits but also accept the risks of losses. Material or equipment damage, delays, and bad debts can all be potential losses. The contractor must be the one to cover these operating costs to justify his or her contractor status.
Who owns the tools?
When a worker uses his or her own tools and equipment to perform the required services, it typically indicates that the worker is a contractor and not an employee. One such example is providers of IT services who work from locations of their choice, using their own desktop computers, laptops and other relevant equipment. Contracting builders will also typically own most of the equipment used on a building site.
Who is in control?
This factor will always be considered in determining whether a worker is an employee or an independent contractor. If the employer ultimately has control over the hours of work, the work completed and the location from which the work is completed, then it is likely that the worker will be found to be an employee, rather than an independent contractor. The extent of employer’s control over worker is ultimately what will be assessed by a court.
Where to turn for assistance
There is no single test to determine whether a worker is an employee or an independent contractor. As seen above, there are many complexities and nuances involved in making this determination. In order to clarify this uncertainty, it may be best to enter clearly worded employment contracts, or independent contractor agreements to minimize any risk of confusion between an employer and a worker. We invite you to contact one of our employment lawyers to clarify if you have any questions about your status as a worker, or if you are a business and you have questions about the status or particular workers under your control.