Independent Contractors

Many people in Canada work in “independent contractor” arrangements.  These situations can create quite a number of legal issues, many of which are quite complex.

Who is an “Independent Contractor?”

People who work in Independent Contractor relationships are not always true independent contractors.  A real independent contractor, at the easy end of the spectrum, is a person running their own business.  In other words, a person who owns their own equipment and tools, sets their own hours, pays for their own supplies, has a number of different clients and gets paid on the basis of work performed, as it is performed.   Independent Contractors who are working in this fashion generally have limited remedies if the independent contractor arrangement is terminated.

At the other end of the spectrum are employees, even those who are called “Independent Contractors.”  If a person works for one employer, at the employer’s workplace, has no real expenses or risk of loss and gets paid at a fixed rate of pay, it is likely that the person is really an employee rather than an independent contractor, even if all parties agree to treat the person as an independent contractor.  To complicate matters, a person might be considered an “employee” for employment law purposes even if they are treated and considered as an independent contractor for income tax purposes.  Employers and employees in this situation must be very careful.  There may be significant tax liabilities where an employer treats an employee as an “independent contractor” if that is not really the case, legally.  These issues may become complicated when the employee is dismissed or resigns and has claims for outstanding pay and/or severance.

There are other categories including “dependent contractors.”  These are people who are working as independent contractors and are considered as such for tax and other purposes, but are exclusively or almost exclusively reliant on one source of business.  Often they are integrated into the business.  An example might be a sales agent, who is working for one company exclusively for many years.  “Dependent Contractors” may be entitled to significant severance arrangements.  The greater the degree of dependence and connection, the more they may be seen as being in a position analogous to an employee.

Written Contractor Agreements

As in the case of employment relationships, written contracts can be very important for both sides in an independent contractor relationship.  Generally, an agreement cannot prevent tax authorities, the Ontario Labour Relations Board, or a court from determining that a person was really an employee even if they have an agreement that specifies “independent contractor.”  However, these agreements can set out responsibilities, obligations and can cover off important contingencies including the way in which the relationship can be terminated.

Importance of Proper Advice

Anyone involved in an independent contractor relationship should be sure to obtain proper advice on a range of relevant issues.  Is the person really going to be an independent contractor?  If not, what changes are needed to fix that?  What happens if the relationship ends?  Does the contractor have any restrictions on what work he or she can do after the contract ends?  In other words, are there any post-contract work restrictions and are they enforceable?  These are some of the key issues to consider when dealing with this type of relationship.

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