Generally, Ontario employees are entitled to standards under employment legislation, such as reasonable notice or pay in lieu of notice upon termination, overtime pay, sick days, and vacation days. However, under Ontario employment law, independent contractors do not have the same protections as long-term employees.
Therefore, it is important to identify whether an individual is an independent contractor or not. As discussed in the case below, even if an individual is classified as an independent contractor in the employment contract, this does not mean that they are automatically independent, as it depends on various factors in the employment relationship.
This post will discuss when individuals would be considered independent contractors. We will also discuss how their rights differ from those of employees. Furthermore, we will examine a case example, Baker v Fusion Nutrition Inc, 2022 ONSC 5814, in which the court found that the employee was not an independent contractor despite being classified as such in the employment contract. Whether it is an employment contract or an independent contract, this post provides critical key takeaways for parties.
How is an independent contractor different from an employee in Ontario legislation?
To determine whether a party is an independent contractor, the court will consider the following factors:
- Whether or not the party is limited to exclusively serving the employer;
- Whether the party is subject to control by the employer with respect to products sold, including when, where, and how products are sold;
- Whether the party has an interest or investment in the tools related to their work;
- Whether the party has undertaken any business risk or expects to profit from his work other than from a fixed commission;
- Whether the party is part of the business organization of the employer.
Helpful evidence of these factors can include whether the party was paid regular wages, whether they could refuse work from the employer, whether they reported to a supervisor of the employer’s business, and whether there was an opportunity to profit based on their performance.
How do the rights of independent contractors differ from employees?
Independent contractors are not covered by the minimum standards set out in the Ontario Employment Standards Act. This means that they do not have basic minimum standards for the following:
- Reasonable notice or pay in lieu if they are terminated
- Minimum wage
- Overtime pay, if applicable
- Sick days
- Vacation days or pay in lieu
- Certain paid or unpaid leaves, such as parental leave
Some dependent contractors fall between an independent contractor and an employee. They are also not entitled to most of the protections under the Employment Standards Act, except for reasonable notice or pay in lieu of notice if they are terminated.
You may be an employee, even if your contract says you are an independent contractor
There may be situations where an employer will specify that a party is an independent contractor rather than an employee. However, this is not determinative. The court will look at the factual circumstances of the case to determine if a party is an independent contractor, dependent contractor, or employee.
In a recent Ontario case, Baker v Fusion Nutrition Inc., the court found that a party was an employee or dependent contractor rather than an independent contractor despite being classified as such in the employment contract.
The plaintiff began working for the defendant in 2020. He worked with the defendant’s Head of Global Sales to increase sales revenue. The parties signed a written agreement in 2021 for their working relationship. The plaintiff was paid $6,250 per month. He was also provided with an $800 allowance for a car and related expenses.
The plaintiff was classified as an independent contractor in the contract unless a further written employment agreement between the parties changed this.
Later, in 2021, the plaintiff claimed that the defendant did not pay him on time and locked him out of the office. The plaintiff considered this a termination and claimed that the termination clause in the contract did not meet the minimum standards of the Employment Standards Act, which applied to him as an employee rather than an independent contractor.
The court found that the plaintiff was an employee based on the evidence. The court considered several factors which suggested that they were an employee rather than independent contractor:
- The plaintiff’s primary income source was from the employer
- The plaintiff worked full-time hours
- The plaintiff worked at the company’s head office
- The plaintiff’s work was largely dictated and controlled by the employer, as he was not able to refuse work
- The plaintiff did not hire any of his own helpers
- The plaintiff did not have opportunities to profit from his performance, and there was no evidence that he assumed any business risk
- While the plaintiff was permitted to have other clients, they could not be competitors of the employer
- The plaintiff’s other work could not interfere with his work with this employer
The court found that the plaintiff’s work was primarily restricted to the defendant’s business.
The court also found that the plaintiff could be considered a dependent contractor and entitled to reasonable notice or pay in lieu upon termination.
In conclusion, the court determined that the termination clause in the contract was not enforceable, as it did not meet the minimum standards of the Employment Standards Act, which applied to the plaintiff, as he was either an employee or a dependent contractor.
It is important to consider the employment contract and employment relationship carefully if an independent contractor is involved. As the case law shows, a party may be considered an employee even if the contract says they are independent contractors. The court will need to look at the factual circumstances to determine if the employee meets the criteria, including how much control they had over their work, their hours, to whom they reported, etc. Therefore, they may be entitled to specific minimum standards under Ontario employment law, which may affect the enforceability of terms in the contract.
Contact Haynes Law Firm in Toronto for Advice on Employment Contracts Involving Independent Contractors
Employment contracts may stipulate that a party works as an independent contractor, meaning the minimum standards under Ontario employment law would not apply. However, based on the facts, a court can find that a party is an employee rather than an independent contractor, which may render some of the employment contract terms unenforceable. As this will depend on the specific circumstances of your case, our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from employment contracts involving independent contractors. For employees, our goal is to ensure that they understand their rights and obligations under the employment contract. Haynes Law Firm also assists employers in avoiding liabilities that may arise from employment contracts that are not in line with legislation or case law. We are dedicated to finding the best resolution for you.
To book a consultation, please contact us online or by phone at 416-593-2731.