It is very important for both employers and employees to have a basic understanding of significant factors that determine the status of the employee. It is very convenient for an employer to hire an independent contractor. We are not going to outline these sound benefits. What we would like to do is to bring your attention to case law that will be considered in the process of determination whether Mr.X is an employee with all the statutory rights and privileges or an independent contractor.
Who is this independent contractor? To name a few examples: independent sales agents, independent construction workers, consultants, etc.
You might have a question: “why does it matter?” Please note that there are different legal consequences for each employment status. For example, regular employees are protected by various statutes like the Employment Standards Act. In accordance with the ESA employees are entitled to vacation, minimum wage, overtime and public holiday pay, pregnancy/parental leave, and most importantly termination notice and severance. If you are an employee you would be happy to have these statutory guarantees. On the other hand, if employers choose to proceed with the formal employment, employers are required to pay Employer Health Tax, CPP and Employment Insurance deductions. These payments and deductions along with the absence of significant obligations enforceable under the ESA force employers to go with independent contractors. Unfortunately, even if there is a signed agreement that puts a perspective employee into the independent contractor shoes, there is a chance that this agreement will be determined as unenforceable. Subsequently, an employer may end up with an employee and a number of obligations to fulfill.
In order to determine whether a worked is an employee under a contract of services or self-employed under a contract for service we would like to bring your attention to relevant common law principles. These following factors will be considered by the Court in the process of determination whether there was a contract of service or a contract for service. There are four factors: 1) control 2) ownership of tools 3) chance of profit 4) risk of loss.
Does the employer have substantial control over the employee? Most of the time in the employer-employee relationship, the employer controls, directly or indirectly, the way the work should be done, when and how the work should be done, and if it was actually done. Please note that it is not necessary that the control actually be exercised, only that it can be exercised.
Ownership of tools
Generally speaking, if there is an employer-employee relationship, the employer supplies the equipment and tools that are necessary for the completion of the work by the employee. Moreover, most of the time, the employer is responsible to for costs related expenses in connection with the use of these equipment and tools. Certain relevant specifications should be considered with respect to the nature of the work that should be performed by the employee.
Chance of profit/risk of loss
In the employer-employee relationship, the employer alone assumes the risk of loss in relation to operating costs, office expenses, out-of-pocket expenses, wages for other employees, employment benefits, insurance premiums, delivery and shipping costs, etc. The employee assumes little or no financial risk and is entitled for full salary or wages regardless of the financial status of the business.
Another important factor that should be considered by both employer and employee is the actual status of “dependent contractor”. In the case, where a worker will be determined to fit within the above-noted category, “dependent contractors” will get employee-style rights such as reasonable notice of termination.
If one of the outlined scenarios applies to you, please do not hesitate to contact us at LegaMax Legal Services in order to discuss the specifics of your case.