Independent Contractor vs. Employee | HTW Law - Employer Lawyer
Am I am Employee or an Independent Contractor?
Misclassification occurs when a worker is assigned to a different category than the one he or she should be in. In many employment law cases, the independent contractors in question are deemed to have been misclassified, and as such are not eligible to all employment law entitlements that are reserved for employees.
What Did I Get Myself Info? What is Misclassification?
The employer – employee relationship is governed by the Labour Relations Act (LRA) for unionized workers and the Employment Standards Act (ESA) for non-unionized workers. Employment law generally refers to the area of law dealing with non-unionized workplaces, while Labour law generally refers to the area of law dealing with unionized workplaces.
There's a saying that you should always know what you are getting into? This is especially so when it comes to employment law/ labour law.
You are protected neither by ESA nor LRA if you are deemed to be an independent contractor rather than an employee. There’s a four-point test that have repeated been used by the court and the CRA to determine whether you are an employee vs independent contractor.
Employee being misclassified as an independent worker, however, remains a key concern. In fact, that was the very question being asked in Heller v. Uber Technologies Inc., 2019 ONCA 1 (CanLII). The Court of Appeal determined that it need not decide whether Uber drivers are employees to determine on a preliminary motion whether the agreement is invalid. The court presumed Mr. Heller’s claim was “capable of proof” for the purpose of the motion and asked: “if the appellant (and those like him) is an employee of Uber, does the Arbitration Clause constitute a prohibited contracting out of the ESA?”. The Court of Appeal answered, “yes”. To reach this conclusion, the Court of Appeal reviewed the ESA, particularly s. 5, which prohibits the waiver of any employment standard under the Act and renders any contracting out void. The Court of Appeal then considered the ESA’s plain language and determined that the arbitration agreement impermissibly restricts the right to file a complaint with the Ministry of Labour alleging contravention of the ESA and the corollary right and employer obligation to participate in the investigative process.
Uber appealed the decision to the Supreme Court of Canada. The Supreme Court of Canada dismissed the appeal and held that Uber’s arbitration clause was unconscionable, and thus invalid. Unfortunately, the Supreme Court did not address the issue of missclassification heads on. But it did set the legal precedent that even if you signed an independent contractor contract or was being hired as an agent or broker, if certain conditions are met, you will be considered an "employee" and entitled to employment law entitlements reserved only for employees.
As of now, the four-point test will still be the guiding principle for a little while. The Four Point Test for Determining Independent contractor vs employee Status:
1. Control
Does the company has the right to determine the monthly amount to be paid, and decide on the time, place, and manner in which the work is to be done? Do you work exclusively for that company? Is there any notice requirement before you can stop doing the work you are contracted to do?
2. Ownership of tools
Ownership of tools is no longer a good indicator. Nowadays even employees under an employment contract need to supply their own tools in some trades such as painters and garage mechanics.
The cost of using the tools is a much better indicator. When workers purchase or rent equipment or large tools that require major investments and costly maintenance, it usually indicates that they are self-employed individuals, because they may incur losses when replacing or repairing their equipment.
3. Chance of profit / risk of loss
Do you have a chance of making a profit? Do you run the risk of incurring losses due to bad debts, damage to equipment or materials, or delays? Do you cover the operating costs?
4. Economic dependency & Integration
Does the worker integrate the company’s activities into his/ her own commercial activities? Does the worker have commercial activities with multiple clients rather than just one client – the company? Does the payment from the company constitutes the worker’s main income?
It's substance over form, and it's very fact specific. If the Court determines that the four point test has been satisfied, the worker will be deemed to be an employee despite the contract stated otherwise. If you are deemed to be an independent contractor instead of an employee, then your rights and obligations are governed by the agreement signed between the company and you.
You should always have the rights and expectations of the parties reduced to writing. Having a carefully crafted business agreement setting out the intentions of the parties is crucial. It is highly recommended that you should always seek legal advice to fully appreciate your rights and responsibilities, and legal ramifications of signing an agreement.
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