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Are your contractors independent enough?

Posted: May 8, 2018 by Carole McAfee Wallace

Independent contractor relationships are common in the trucking industry. They are particularly attractive in the case of owner-operators who supply a truck and driver to a carrier, or for sales agents who want to set their own schedule and be paid based on the sales they bring in.

Recent amendments to the Ontario Employment Standards Act, 2000 (ESA) serve as a good reminder of the importance of ensuring that the workers you identify as independent contractors are truly independent, because the consequences of misclassification can be significant.

Federally and provincially regulated employers have always been at risk if they misclassify an employee as an independent contractor, with potential liability for unpaid overtime, statutory holiday pay, vacation pay, termination/severance pay, and the provision of job-protected leaves of absence.  In addition, the employer may face penalties and interest on unpaid income tax, employment insurance and Canada Pension Plan premiums, as well as workers compensation premiums, fines and interest.

Ontario’s Employment Standards Act now includes a statutory prohibition against misclassifying an employee as an independent contractor, and places the burden on the employer to prove that the contractor is not an employee, which may be difficult to do, since the employer will not have access to the contractor’s financial or operational records. If an independent contractor is misclassified, the act allows penalties of $350, $700, and $1,500 for first, second, or subsequent infractions. This is in addition to prosecutions for violating the act, where fines range between $50,000 and $500,000, depending on whether a company or individual is charged, and depending on whether it is a first or subsequent conviction.

While federally regulated carriers are not subject to the ESA, the Canada Labour Code creates its own unique consequences for misclassification.  Unjust dismissal provisions may apply if an independent contractor is determined to be a federally regulated carrier’s employee, and a non-managerial employee who has worked for 12 months or more cannot be terminated unless there is just cause or a lack of work/discontinuance of function.  In other words, the independent contractor may actually be an employee who is then very difficult to fire.

It’s important to understand how courts and tribunals analyze workplace relationships. It is not enough to have a written contract in which the parties agree that the relationship is one of independent contractor, or to have the independent contractor incorporate as a business.

When determining if someone is performing services as a person in business on their own account, an adjudicator will examine:

  • the degree of control that the company has over the performance of the contractor’s work;
  • whether the contractor provides his or her own equipment;
  • whether the contractor hires or can hire his or her own helpers;
  • the degree of financial risk taken by the contractor;
  • the contractor’s opportunity for profit in the performance of the services.

There is also an emerging category of worker that falls somewhere between an independent contractor and employee — the dependent contractor. Canadian courts have found that a worker may be a dependent contractor if the individual is economically dependent on a company because of complete or nearly complete exclusivity, usually over a significant period of time.

To date the only consequence of such a finding is that the dependent contractor is entitled to termination pay, equal to what an employee would be paid.

It’s clearly important to regularly review the language used in independent contractor agreements, to ensure that they comply with current law.  So too should you evaluate how an independent contractor carries out duties and performs services. Courts consider these facts when analyzing these relationships and deciding if a contractor is truly independent or misclassified.

  • Carole McAfee Wallace is counsel at Fernandes Hearn LLP, and can be reached at 416-203-9551. This column is intended for information purposes only and does not constitute legal advice.

 


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