Various forms of employment relationships exist, depending on the work to be done. In some cases, it may be a more meaningful arrangement to have a party acting as a contractor rather than a permanent employee. This is an important distinction to consider, as contractors do not have the same rights to reasonable notice as permanent employees. In fact, a contractor can be considered either independent or dependent, making the situation more complex regarding what rights the contractor is entitled to upon termination or the end of the employment relationship. 

This post will discuss the differences between contractors’ and employees’ rights. We will also go through the differences between independent and dependent contractors. This post will provide information on the rights available to an employee, independent contractor, and dependent contractor. Also, we will discuss a case example, 1159273 Ontario Inc. v. The Westport Telephone Company Limited, 2022 ONSC 1375, to illustrate how the court will apply the factors for determining if a party is an employee, dependent contractor, or independent contractor, as well as the rights that flow from each. This post will provide key takeaways for parties seeking to understand their rights if a contractor may be involved.

Contractors vs. Employees 

Contractors and employees are different categories of workers that have different rights and entitlements. Employees can be seen as permanent workers who receive regular wages. As an employee, one would receive protections under the Employment Standards Act for basic minimum standards regarding overtime pay, sick days, vacation, the ability to take leaves (i.e. for illness, parental leave, etc.), minimum wage, and reasonable notice for termination.

Contractors, on the other hand, are not entitled to the same rights as employees. They can be considered independent or dependent, which affects their protection and rights. 

Independent vs. Dependent Contractors 

The court can consider several factors to determine whether the worker is an independent or dependent contractor, which is highly contextual. 

The factors include:

  1. Whether the worker was limited exclusively (or almost exclusively) to the employer’s service; 
  2. Whether the worker was subject to the employer’s control concerning the product or service being sold, including when, where, and how it is sold; 
  3. Whether the worker had an investment or interest in the tools needed to provide their service; 
  4. Whether the worker had undertaken any business risks or had expectations of profit beyond their fixed commission as a result of providing their services; 
  5. Whether the worker’s services are part of the business organization of the employer (ie. whose business is it?)

Generally, independent contractors control how they work, including the hours and choice to hire additional staff for assistance. They also have more flexibility in choosing who they work with and owning their tools and equipment. They take responsibility for their profits and losses due to the services or products they provide. 

In contrast, a dependent contractor primarily works for one employer and generally earns a majority of their income from one employer. Also, there is often a degree of permanence in the employment relationship for dependent contractors, and the court can consider the length of service provided before termination of the contract. They can also consider any restrictions placed on the contractor when working with other competitors. 

No single factor will determine whether the contractor is independent or dependent. The court will consider the factors taken into context as a whole. 

How Does Reasonable Notice Apply To Dependent Contractors?

Whether a worker is an independent contractor or a dependent contractor, the minimum standards set out in the Employment Standards Act do not apply. However, if a contractor is found to be a dependent contractor, the employer may need to provide reasonable notice upon termination. This is because dependent contractors rely primarily on the employer for work. 

Independent Contractor Status Results In No Reasonable Notice Requirements By Employer 

In the Westport case, the court found that the worker was an independent contractor and was not entitled to reasonable notice upon termination. The employer was a telecommunications company in Westport. The worker claimed that they were a dependent contractor. Initially, the worker personally provided services to the employer. Later, he incorporated another company, a numbered company, through which he provided services. He was also a shareholder, officer, and director of the company, and the court found that, as a result, his permanent employment with Westport was terminated, and he continued to provide services as a contractor. 

The court found that the numbered company did not work exclusively for Westport because it also worked with another company for a period of 14 years. A complete or high level of exclusivity was not reached, which suggested that the numbered company was closer to being an independent contractor. The court did recognize, however, that for several years after the 14-year period, there was a high level of exclusivity, as 88% of the work came from Westport.

In terms of control, the court recognized Westport had some control over the numbered company’s time. Also, the fact that the numbered company was incorporated was not due to Westport’s control. Instead, it was based on the worker’s tax advice from his own accountant. 

Overall, the court determined that the numbered company was an independent contractor and was not entitled to reasonable notice upon termination of the contract.

Key Takeaways 

When a contractor is involved in an employment relationship, it is important to consider whether they are independent or dependent, as this can impact their entitlement to reasonable notice upon contract termination. Independent contractors do not work exclusively for the employer and have more control over their affairs and work. Unlike independent contractors, dependent contractors financially rely on the employer and are entitled to reasonable notice upon termination. The Employment Standards Act does not cover both independent and dependent contractors. 

Contact Haynes Law Firm in Toronto for Advice on Employment Contracts Involving Contractors

Different rights apply to independent and dependent contractors. 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 contractors. Our goal is to ensure that employees 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.