Many employers use a variety of types of arrangements for their workforce. One of the arrangements we see quite frequently is that of independent contractor. An independent contractor relationship has a variety of benefits both for the contractor and for the employer. One of the key benefits for the employer is the ability to limit liability for termination of the relationship. In an independent contractor relationship, generally there are specific terms governing how the relationship can be terminated. This is different than the requirements that arise in an employment relationship to comply with regulatory standards in the Employment Standards Act and of the requirement to provide reasonable notice of the termination of the employment relationship. That requirement can result in significant liability for an employer. Some employers will rely on the use of independent contractor relationships to limit that potential liability for provision of reasonable notice. There are risks however of doing so.
A recent Ontario decision has confirmed the way that the court approaches relationships categorized by the parties as being “independent contractor” and serves as a reminder for employers of the factors that will be taken into consideration in determining whether a worker is an independent contractor or whether in reality they are a dependent contractor. If the worker is a dependent contractor, this triggers the requirement to provide reasonable notice and the period of time that the individual is a dependent contractor will be taken into consideration in assessing reasonable notice. There are five factors the courts take into consideration in determining whether a worker is a dependent contractor. Those factors are:
- Exclusivity of service – this really is a question of whether the worker is economically dependent on the working relationship and the level of exclusivity of the worker’s relationship with the company;
- Control – the level of control that the worker has over such things as hours of work and the manner in which they are performing their work;
- Ownership of tools – whether the worker owns the tools necessary to complete the work or whether the employer owns them;
- Participation in risk and opportunity for profit; and
- An assessment of the question – whose business is it?
The more permanent and exclusive the contractor relationship is, the less it looks like an independent contractor relationship and the more it resembles an employee relationship. If it more closely resembles an employee relationship, despite what the parties have called it, it is likely to be deemed by the courts to be a dependent contractor relationship which attracts liability for notice. It is important to understand that the courts will look past what the parties have called the relationship to how the parties actually conduct themselves in the relationship. Employers bear the risk of incurring liability for treating an employee or dependent contractor as an independent contractor when the worker is actually an employee.
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