'One must always look to the level of control the employer has over the worker's activities'
The Ontario Labour Relations Board has rescinded an order to pay wages, vacation pay, and holiday pay to a worker who was an independent contractor and not an employee.
It’s important for employers to carefully consider whether they’re engaging a worker as an independent contractor or an employee from the outset of the relationship, and continue that assessment throughout the relationship in case circumstances change, says Ozlem Yucel, an employment lawyer and partner at Turnpenney Milne in Toronto.
“The employer should only be characterizing the relationship as one of an independent contractor if the facts of the relationship actually support that designation,” says Yucel.
“Otherwise, it will be considered a misclassification of the relationship, which is legally prohibited under [employment standards legislation] and could result in significant fines and other liabilities for the employer.”
No set hours or workplace, no direct supervision
The worker was hired in December 2022 as a consultant for Besma Dental, a dental clinic in Niagara Falls, Ont., operated by Nihad Rashid Dentistry Professional Corporation. Her role was to review Besma’s operations and find ways to improve the clinic’s performance.
The worker had no written employment agreement describing her responsibilities, but she was initially hired to be a receptionist while providing information about the practice so she could eventually replace the office manager. She soon began performing non-receptionist duties, including dental assistant duties, back office duties, inventory, equipment, reviews of crowns and implants, and infection control.
The worker didn’t have any set hours of work and texted the office manager about when she was working, when she was taking her lunch, and when she was going to different Besma locations in the area.
The worker also wasn’t directly supervised and was given latitude to “do what was right” and provide recommendations to be implemented.
Typically, the worker worked about 35 hours per week, except for one week during which she only worked 10 hours. She didn’t ask for any time off or vacation, and she agreed to invoice Besma for the hours that she worked at $30 per hour, thanking Besma for its business on the invoices. Besma paid the worker via e-transfer according to her hours worked, but it didn’t make any statutory deductions. The invoices didn’t include HST.
Before working for Besma, the worker was engaged as an independent contractor and submitted the same invoices for her work. The invoices she submitted to Besma started with number 130 and continued in sequence.
On Dec. 31, Besma terminated the worker’s services in a text message. A few days later, she submitted an invoice for 35 hours she claimed to have worked since a previous invoice on Dec. 29. The worker had only worked two days, but said that she was claiming additional time that she had spent working from home during her tenure with Besma.
Claim for unpaid wages, statutory pay
Besma didn’t pay the invoice and the worker filed a claim for unpaid wages as well as holiday pay and vacation pay that she said was owed during her time as a Besma employee.
An employment standards officer (ESO) found that the worker was an employee of Besma and therefore was entitled to $325 in wages and $853.30 in holiday pay and vacation pay, for a total of $1,178.30.
Besma applied for a review of the ESO’s decision, arguing that the worker was an independent contractor so she shouldn’t get vacation and holiday pay. The worker countered by claiming payment for her final invoice in the amount of $1,050.
The board found that a key factor was that Besma didn’t have significant control over the worker’s work. She didn’t take direction on a day-to-day basis, she decided when to go to the office and when she worked, and she didn’t request any time off. Since the worker decided how many hours she worked, she had control over her profit and loss, said the board.
Level of control for independent contractors
The term independent contractor isn't defined under the Ontario Employment Standards Act, 2000 (ESA) and the case law says there's no single universal test to be applied, but the Supreme Court of Canada set out the test that is commonly followed, says Yucel.
“The Supreme Court of Canada said that to determine whether a worker is truly an employee or independent contractor, one must answer the question, is the person working in business on their own account or are they working for the employer?” she says.
“One must always look to the level of control the employer has over the worker’s activities and the practical realities of the relationship, and you can also look to other factors such as whether the worker provides their own equipment, hires their own helpers, the degree of financial risk taken by the worker, the degree of responsibility for assessment and management held by the worker, and the worker’s opportunity for profit and loss in the performance of their tasks,” says Yucel. “And the Supreme Court said that these factors aren't exhaustive and there may be other factors of relevance but, ultimately, the totality of the evidence must be considered and the relative weight of each factor will depend on the particular circumstances of each case.”
The board also noted that the worker said she sometimes worked at home outside of Besma’s operating hours. She invoiced her hours worked and thanked Besma for its business, indicating that she considered the company to be a client, said the board, adding that Besma never added her to its payroll and paid her via e-transfer.
Another factor the board considered was that the worker’s previous work was as an independent contractor and her invoices for Besma started at number 130, leading to the inference that she was continuing her invoices from her previous jobs.
There was some evidence that the worker was supervised and reported to someone at Besma, but this didn’t move the needle, says Yucel.
“It would be rare that an independent contractor would have free range to do whatever they wished,” she says. “The board found that even independent contractors are going to have to report to someone so that they can provide their work product for review.”
OLRB: Independent contractor
The board determined that the worker was an independent contractor and rescinded the ESO’s order to pay.
Although Besma was successful in its argument that the worker was an independent contractor, the legal action might have been avoided if the relationship was clarified earlier, according to Yucel.
“Employers should undertake a careful assessment of whether the worker is working as an independent contractor or employee from the outset of the relationship, with a continuous assessment throughout the relationship because circumstances can always change,” she says. “And if the facts of the relationship actually support a designation as an independent contractor, then employers should document that characterization in writing by way of an independent contractor agreement, so there's no misunderstanding between the parties - then they can structure that relationship on an ongoing basis.”
While contracts aren't determinative of whether a worker is working as an independent contractor or not, it will be considered in the legal assessment, adds Yucel.
“It's always good to have that sort of document in place, and Besma didn’t have such a contract in this case,” she says. “So it could have helped Besma [clarify the relationship.]”
