Many companies use the services of independent contractors to fill operational gaps within their business. However, employers should carefully consider the circumstances surrounding a contemplated contractor arrangement and whether it may be more appropriate to enter into an employment agreement. There is both a legal and practical distinction between independent contractors and employees, and one cannot create and maintain an independent contractor relationship merely by calling it such and having a written agreement to that effect. Rather, there are a number of requirements which contractors and the companies retaining their services must satisfy, in order for contractors to truly be considered as such. An improperly classified contractor relationship may result in Canada Revenue Agency, provincial workplace insurance boards, provincial Labour Ministries and even the courts declaring a misclassification and subjecting companies to various resulting liabilities.
In addition, companies may not be familiar with the fact that even a contractor relationship can lead to liability. For example, dependent contractors operate in the middle ground between employees and independent contractors, and as such have unique termination entitlement rights which companies must be aware of. In addition, recent amendments to the Ontario Employment Standards Act, 2000 (ESA) on January 1, 2023, have added another layer of complexity to navigating the world of contractor relationships. Under the ESA, contractors must meet the definition of “business consultant” or “information technology consultant” under the legislation and must satisfy additional requirements, failing which they will be classified as employees by the Ontario Ministry of Labour.
In order to better understand this complex and ever-changing area, Dentons has created a detailed insight to help our clients. You can read more about the distinctions between employees and contractors and the risks of an improper classification here.