There are key differences between a permanent employee and an independent contractor. Generally, employees are covered by a wider range of rights and entitlements than a worker classified as an independent contractor. It can be difficult to determine if one is an employee or an independent contractor, as these terms are sometimes used without consideration over how an employment relationship may be legally defined, despite the terminology used. In particular, even if a worker is classified as an independent contractor, they may still be considered an employee, and an employer can be liable for any unpaid wages, outstanding vacation pay, etc.

This post will discuss the differences between employees and independent contractors and considerations for tech workers. We will also discuss a case, Loggie v. Classic POS Inc., [2017] O.J. No. 7098, in which the court found that a worker was an employee rather than an independent contractor despite the employment agreement and the employer’s policies. Both employees and employers seeking to understand the legal consequences of contractor work will benefit from this post.

Employee vs. Independent Contractor 

How a worker is classified has significant legal consequences. Workers may be considered employees or independent contractors, which affects their legal entitlements, such as rights to certain wages, vacation pay, or reasonable notice upon termination. 

The Ontario Employment Standards Act and related regulations cover employees’ minimum standards. They are, therefore, entitled to the minimum standards regarding hours worked, vacation pay, severance, parental leave, and more. On top of these minimum standards, common law requirements are set out in the case law. For instance, a terminated employee may also be entitled to a longer reasonable notice period or pay in lieu of notice than as set out in the Employment Standards Act, depending on how long they worked for the employer, their age, their responsibilities, and other factors. 

In contrast, independent contractors are generally not covered by the minimum standards set out in the Employment Standards Act. Their rights are often limited, and any entitlements would be set out in the contract. 

The court will assess the following factors to determine if a worker is an independent contractor: 

• Independent contractors have more control over how they work, including the working conditions, hours worked, etc.
• Independent contractors generally have ownership and responsibility over their work equipment, supplies, facilities, etc.
• Independent contractors are not exclusively working for the employer, meaning that they can seek out work with other clients. 

• Independent contractors will need to make their own arrangements to pay their taxes and pension contributions.
• Independent contractors are responsible for the profit and costs, including liabilities. 

Even if the contract states that a worker is a contractor, they may still be considered an employee based on the circumstances of the work relationship. Suppose an employer misclassifies an employee as a contractor. In that case, penalties and fines can be involved, and they will need to compensate the employee if the case involves a wrongful or constructive dismissal. It is, therefore, very important for employers to carefully consider how they interact with and construct their contracts with workers. 

Court finds employee is not a contractor 

The Loggie case provides a helpful example to illustrate the consequences of misclassifying an employee as a contractor.

In Loggie, the worker claimed that she had worked for Classic POS Inc. since 2011 and was constructively dismissed when the company did not pay her promised wages. She also claimed that the company requested that she create a new business to be paid and that the company required employees to work without being paid. 

The employer claimed that the worker was an independent contractor. The employer claimed that the parties had agreed for the worker to be an independent contractor. However, the contract should have included specific terms outlining the contractor’s status. The employer relied on communications outside the contract to assert that the worker was an independent contractor and not an employee, such as the application, which specified that it would be a contract role. 

The court accepted the worker’s evidence that her employer directed her work. The role also involved set and regular hours and a set place of work. The worker was also required to record her time in great detail, demonstrating that her hours were largely under the company’s control. The company also provided all tools, equipment, and manuals used by the employee. Also, her employer supervised her work, and she was not allowed to make a profit independently, as she worked hourly rather than on a project basis where she could have hired others to profit.  

On these facts, the court determined that the worker was an employee who had a right to receive her unpaid wages and vacation pay. 

Employer liable for unpaid wages, which amounted to a constructive dismissal 

In addition to finding that the worker was an employee, the court also found that they were constructively dismissed, as the employer had not paid the employee for the hours worked or her vacation pay. 

The employer argued that the employee had not adequately performed her work and was not entitled to payment. However, the employer did not provide evidence that the employee’s work performance was at issue. 

The court found that the employee was justified in leaving the company as the unpaid wages amounted to a constructive dismissal. As the worker was also considered an employee, she was entitled to pay in lieu of reasonable notice for the termination. If she were considered an independent contractor, she would not be entitled to compensation in the form of pay in lieu of reasonable notice.

Key takeaways 

It is important for both the worker and employer to be clear on the employment relationship, as it has significant legal consequences. The court will look at the factual circumstances of the case to determine if a worker is an employee or an independent contractor. The court does not approve of employers who may be misclassifying employees as contractors, whether that is done purposefully or inadvertently. 

Contact Toronto Employment Lawyers At Haynes Law Firm 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, it is possible for a court to find, based on the facts, 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.