Employment standards for contractors

Question: In a contract with an independent contractor, are there any employment standards considerations regarding hours of work? Is it acceptable for the employment contract to simply state what amount of work is required to be completed, regardless of how many hours it takes the contractor to do it — such as 70 hours a week, for example — without overtime pay?

Answer: Employment standards legislation applies to individuals who are in an employment relationship with the entity to whom they provide services, although even certain categories of employees are typically exempted in whole or in part from its operation. The purpose of such legislation is to set minimum standards that employees, because of their presumed unequal bargaining position vis-à-vis their employers, would be unable to negotiate for themselves.

In a contract with a true independent contractor, the individual being hired to perform the contract is considered to be in business on her own behalf. One of the hallmarks of independent contractor status is that the contractor determines how and when the work is to be done. The contractor may choose to work 70 hours per week if she wishes or, theoretically, may hire others to assist in performance of the work. Employment standards statutes do not purport to limit the way in which an independent contractor performs the services required by the contract.

The distinction between an employee who is governed by employment standards and an independent contractor who is not is not always clear.

Relationships involving the provision of services by one party to another have been described as existing on a continuum, with employees at one end and independent contractors at the other. Along that continuum, the courts have recognized a status of “dependent contractor” in cases where a principal-contractor relationship bears some of the characteristics of an employment relationship. Thus, where a contractor is economically dependent on and provides her services exclusively to the principal, does so over an extended period and is subject to a high degree of control, the relationship may be regarded as more closely resembling employment.

Where “dependent contractor” status has been recognized, courts have inferred an obligation to give notice of termination of the contract, akin to the reasonable notice required for termination of an employment contract, in the absence of a contrary provision in the contract. However, dependent contractor status has not been regarded as “employment” for the purposes of employment standards legislation and has not been considered to entitle the dependent contractor to the protection accorded to employees in that legislation.

The question of what “employment” is for the purposes of the legislation is obviously a crucial one for employers. Despite this, employment standards statutes often provide little practical guidance. Most define “employee” quite broadly, leaving the matter to be decided according to the various common law tests that have developed over the years.

In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., the Supreme Court of Canada indicated it was impossible to identify one conclusive test of universal application. In every case, it was the parties’ total relationship that was to be examined to discern whether the worker was performing the services in business on her own account. Relevant factors in making that determination included the important one of the degree of control exercised over the worker but also encompassed considerations of who provided the “tools,” who took the financial risk and who had the opportunity for profit and responsibility for investment and management.

Given the significant obligations that are imposed upon employers in relation to their employees under employment standards legislation, it is wise to insure a relationship intended to be one of principal-independent contractor is not one in name alone. It has been repeatedly pointed out in the case law that the mere fact a contract states that the relationship is one of principal and independent contractor is not sufficient if the substance of the relationship indicates otherwise.

It should also be considered that independent contractor status for employment standards purposes does not necessarily transfer to other statutory schemes. Human rights legislation and tax statutes are often cited as operating on different principles. In a recent case, Ontario (Labour) v. United Independent Operators Limited, the Ontario Court of Appeal held that independent contractors were to be counted as workers “regularly employed” when determining whether an employer was obliged to establish and maintain a joint health and safety committee pursuant to Ontario Occupational Health and Safety Act.

For more information see:

• 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 CarswellOnt 3357 (S.C.C.).
• Ontario (Ministry of Labour) v. United Independent Operators Ltd., 2011 CarswellOnt 287 (Ont. C.A.).

Tim Mitchell is a partner with Norton Rose in Calgary. He can be reached at (403) 233-0050 or [email protected].