Employers can run into trouble with independent contractors if they're not careful to maintain a contractual relationship
By Jeffrey R. Smith
Hiring independent contractors instead of employees is one way organizations try to save on costs, as with contractors they don’t have to worry about benefits and some obligations under employment standards legislation.
They can also limit the contractor’s service to a set time and when the contract is up, wave goodbye without worrying about reasonable notice or severance pay.
However, many organizations can run into trouble if they’re not careful to maintain a contractual relationship. There have been many cases across Canada where an organization was proceeding as if it had no obligations to a contractor, but it turned out the relationship was more like that of an employer and employee. And when that’s the case, the full gamut of employer responsibilities can be in effect.
Regardless of the intentions of the parties when a contract is signed, an organization could face employer responsibilities if the reality of the situation more closely resembles an employment relationship instead of a contractual relationship. There is a test courts use to determine whether someone is an employee or a contractor. Even if someone signs a contract as an independent contractor, she can be ruled an employee if:
•the company sets the hours of work
•the contractor works exclusively for the company
•the company provides the tools and equipment
•the company provides a place for the contractor to work on its property
•there is no fixed term to the contract and the contractor has a lengthy term of service
•the contractor identifies herself as working for the company.
There are other factors to be considered as well, and if these are the case, it doesn’t really matter whether the intention was for the individual to be an independent contractor.
It can start out as an independent contract relationship that evolves into an employment relationship, or it can be an employment relationship from the start. In the last few years, there’s even been an evolution of a middle ground, where someone doesn’t quite fit the description of either an independent contractor or an employee.
These people are considered “dependent contractors” that, while not entitled to full employee rights, can still be entitled to certain ones. Either way, employers should scrutinize their contracts, or they may be in for a surprise if they suddenly find themselves on the hook for reasonable notice of termination or other employer obligations.
Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective. He can be reached at email@example.com. For more information, visit www.employmentlawtoday.com.