Attention: AMSC Members – Please distribute to all appropriate personnel
Employee or Independent Contractor?: Look Beyond the Contract
By Anthony Purgas
Reynolds Mirth Richards Farmer LLP
AMSC Casual Legal Service Provider
It is becoming more and more common for employers, including municipalities, to rely on contractors to provide services historically performed by employees. There are a number of factors that must be considered when hiring contractors.
First, is the person you are hiring a true contractor or would they be considered an employee at law? The distinction is a crucial one for a number of reasons: tax, liability, and ancillary benefits, such as maternity leave and other benefits through Employment Standards, to name a few. The Courts and government agencies will apply a number of tests to determine whether an individual is an employee or a contractor. There is no single fact that will automatically make an individual one or another. A contract saying someone is an independent contractor and the fact the individual is providing services through a corporation are factors that will be considered, but are not determinative. The Canada Revenue Agency may review the relationship and determine taxes, Employment Insurance and Canada Pension Plan payments should have been deducted, and seek payment of those amounts, with potentially additional penalties.
Second, one legal concept that has developed over the last number of years is the concept of a dependent contractor. In general, a dependent contractor is a contractor who is economically dependent on another entity and under an obligation to perform duties for that entity. It is not yet clear what the threshold is for “economic dependence”. When the individual receives less than 50% of their earnings from one client, they are clearly not economically dependent on that client. However, the Courts have not identified a strict threshold as to when a relationship changes from independence to dependence. The result can be significant because dependent contractors are entitled to reasonable notice of termination of the contract, regardless of what the contract may provide. In addition, dependent contractors are able to form a union as a result of 2018 amendments to the Labour Relations Code.
Finally, the Ontario Court of Appeal recently confirmed that when an individual starts as a dependent contractor with a company and then gets hired on as an employee, the employee gets “credit” in wrongful dismissal damages for their years as a dependent contractor. In Cormier v. 1772887 Ontario Limited (St. Joseph Communications), 2019 ONCA 965, the plaintiff had worked as a dependent contractor from 1994 to 2004. From 2004 to 2017, the plaintiff was an employee until she was terminated without cause. The Court of Appeal confirmed that for the purposes of determining the dismissal damages, the plaintiff should be treated as having 23 years of service rather than only 13. This difference resulted in the plaintiff receiving pay in lieu of an additional 9 to 10 months’ notice.
In summary, municipalities should take caution when hiring contractors for positions or work that is commonly or historically performed by employees. Reviewing the relationship closely and entering into properly drafted contracts may be the difference between a smooth relationship and significant legal and tax liability.
To access AMSC’s Casual Legal Helpline, AUMA members can call toll-free to 1-888-668-9198 or email email@example.com and reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please contact Will Burtenshaw, Director – Risk Management Services, at (780) 409-7450, or toll-free at 310-AUMA (2862) or via email at firstname.lastname@example.org. Any Regular or Associate member of the AUMA can access the Casual Legal Service.
DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.