Often times, the employer wants the employee to work as an independent contractor because it is a simpler relationship and the employer believes by doing so, it does not have to comply with the Employment Standards Act, 2000 which governs the minimum standards the employers are required to adhere to under the Act. In addition, under such an arrangement, the employer does not have to make employer’s contribution for Canada Pension Plan and Employment Insurance. The employee sometimes agrees to it willingly and sometime not knowing the disadvantages of such an arrangement. Many times, the employer requires the employee to incorporate a company and invoice it for services rendered. The employee may think that it will save on Federal and Provincial taxes by claiming expenses and paying the taxes himself/herself rather than being deducted from the source. Such an arrangement may be voided even if both parties had agreed to it if the facts of the case determine that such an arrangement is a sham and was designed to defeat the purpose of the Act.
Both the Federal and Provincial Legislation require that there is an employer/employee relationship if the following criteria are established:
(a) Who has control on the activities of the employee? If the employer tells the employee where and when to work, it exercises control on the employee,
(b) Who provides tools of the trade? If the employee performs his/her duties using employer’s tools, then it is likely, he/she is an employee. In some cases it may not be this simple, for example, a mechanic may be required to provide its own tools and yet he/she may be considered as an employee of the company.
(c) Chance of Profit? Did the employee invest money in the business? If so, he stands to gain from investment. Or the investment he made simply consisted of his labour. In such a situation, his gain is based on the hours of his labour and he is likely an employee rather than an independent contractor.
(d) Risk of Loss? When an individual does business, he/she invests more than the labour in the business and thus may take a risk of loss. If there is no risk of such a loss, he/she may not be an independent contractor.
(e) Was the employee an integral part of the organization? If so, he/she is probably an employee.
This information is only provided to guide you about your entitlements under the Employment Standards Act, 2000 and should not be considered as a legal advice.
This article is provided by Rajinder K. Batra, who is a retired Employment Standards Officer with the Ministry of Labour with 15 years experience in these matters.