Written on behalf of Peter McSherry

When a person agrees to accept a contract to provide services on behalf of another party, there are a number of ways in which the relationship may be categorized, including as one of employment, one of independent contractorship, or one of dependent contractorship.

In an employment relationship, the parties are considered to be employee and employer and the employer typically pays the employee a salary and is responsible for submitting withholding taxes such as CPP and EI remittances on behalf of the employee. Furthermore, the treatment of employees is governed by provincial employment standards legislation which dictates the entitlements and responsibilities of both employers and employees.

Independent contractors, on the other hand, are not considered to be in an employment relationship but rather a relationship of service whereby one party has contracted the other to provide services in accordance with the contract. As such, the contractor is not considered an employee and therefore does not enjoy the protections afforded by provincial employment standards legislation. Employers in such circumstances are not considered employers but rather simply parties to a service contract and as such, are not required to withhold CPP or EI nor to pay overtime or vacation pay to independent contractors.

Dependent contractors represent the third category of employment, and such relationships are considered to constitute quasi-employment such that the contractor in question is something more than a mere contractor, but is also less than a full employee. Dependent contractors are entitled to some, but not all, of the protections offered to employees in accordance with provincial legislation.

In this blog, we explore the dependent contractor relationship, including what constitutes such a relationship, how it can be differentiated from employment and independent contractor status, and the implications of such a designation.

Two Parties Enter Into an Undefined Working Relationship

The case of Halfin v Ararat Trading (2002) Corp. involved parties who had been involved in some kind of working relationship from May of 2018 until December 2019 (approximately 19 months). The defendant trading company engaged the plaintiff to work as a delivery truck driver in April of 2018. The plaintiff was offered the option, at the outset of the relationship, to decide whether he wished to be considered a regular salaried employee or to incorporate his own company through which he would charge for his services as an independent contractor. The plaintiff elected to incorporate a business and to accept payment pursuant to an independent contractor relationship.

The plaintiff did indeed incorporate a numbered company through which he was paid for his services to the defendant shipping company. The plaintiff invoiced the company for his services at a rate of $18 per hour (raised to $19 per hour in December of 2018) and charged HST on top of his wages, in accordance with provincial tax law. The company itself provided the plaintiff with a truck to drive, in relation to which the company paid for any necessary repairs, maintenance and operational expenses such as gasoline. Although the plaintiff’s work hours were flexible, he generally worked for 13 or 14 hours per day of work, pursuant to a work schedule set by the trading company.

In September of 2019, the plaintiff was involved in a minor accident when he was operating the trading company’s delivery truck. Specifically, the plaintiff caused damage to the truck when his attempt to deliver to an area of low clearance caused him to direct the vehicle into a low-hanging pipe, which caused nearly $30,000 in damages to the refrigeration unit contained on the top of the truck. Although the parties discussed the incident, it was unclear whether they had achieved resolution with respect to who was responsible for paying for the damages to the truck.

Approximately three months later, on December 12, 2019, the plaintiff terminated his contract with the shipping company by providing them notice of his intention to sever the contractual relationship effective December 20, 2019. When he later attended at the trading company’s premises to collect his final paycheque, it had been reduced by $2,000 in an effort by the trading company to recover some of the damages to the truck engendered by the plaintiff’s actions in the accident in which he had been involved in the truck. The plaintiff refused to accept this reduction in his pay and therefore refused to accept the cheque altogether. He then commenced this action in which he asserted that he had in fact been an employee of the trading company and as such, had been wrongfully terminated from his employment and was therefore entitled to the entitlements dictated by the provincial employment legislation.

How to Know if You’re an Employee

In assessing whether a given person is properly categorized as an employee or a contractor, the courts consider exclusivity and dependency to be the key defining criteria. In evaluating whether a given person is dependent upon or in an exclusive relationship with a particular entity, the courts will evaluate the following factors:

1. Ownership of tools, i.e. who owns the tools required to undertake the job properly?
2. Hiring of helpers, i.e. is the worker permitted to hire people to them with their work?
3. Degree of financial risk, i.e. how much financial risk redounds to the worker as a result of this relationship?
4. Responsibility for investment and management, i.e. to what degree is the worker responsible for the investment and management of the company for which they work?
5. Opportunity for profit, i.e. how much opportunity for profit does the worker enjoy?

Generally speaking, in assessing whether a person is an employee of a given entity, the court will employ a four-part test in which it considers control of the relationship, ownership of tools, the chance of profit and the risk of loss, and then determines whether the person is an employee.

Is the Plaintiff an Employee?

The court applied the four-part test described above and noted that the plaintiff, contrary to the trading company’s assertions, did not enjoy significant control of the relationship, as the company provided him with a vehicle for use in his work, required that he accord to company policies, and monitored his hours in the same manner as it did its employees. Although the plaintiff was entitled to decide when he worked, the company established his rate of pay and reimbursed for business-related expenses in the same manner it did for its employees. As such, the control factor weighed in favour of a finding of employment.

The exclusivity criterion favoured a finding of contractorship, as the plaintiff was not limited by the trading company from accepting work with other companies. However, the degree of financial risk taken on by the plaintiff favoured a finding of employment, as the plaintiff’s degree of financial risk was negligible in that he was not personally responsible for insuring the truck he drove; rather, that was the responsibility of the trading company.

The final factor, the employee’s opportunity for profit, was declared by the court to slightly favour a finding of contractorship, given that the plaintiff himself had decided to operate through a corporation rather than as an individual, which allowed him the opportunity for significant tax advantages via paying himself through his personal corporation instead of receiving income as wages.

This resulted in the court concluding that the plaintiff was a contractor rather than an employee of the defendant trading company. However, it still remained to be determined whether he was an independent or dependent contractor.

What is a Dependent Contractor?

In the event that the court determines that someone is not an employee, it then must be determined whether the person in question is an independent or dependent contractor. This distinction is important because there are certain rights and responsibilities afforded to dependent contractors that are not enjoyed by independent contractors.

The court defined dependent contractor status in this case as including “those non-employment work relationships that exhibit a certain minimum economic dependency, which may be demonstrated by complete or near-complete exclusivity.” The court also indicated that “a marked degree of dependency and exclusivity” is needed to establish dependent contractor status, which is described as an intermediate category of contractorship (i.e., intermediate as between employment status and status as an independent contractor).

The court further stated that such dependent contractors are entitled, upon termination of the working relationship, to reasonable notice akin to that payable to employees.

Is the Plaintiff a Dependent Contractor?

The court was convinced in this case that the plaintiff was in fact a dependent contractor of the trading company, in that he was economically dependent upon the trading company for his livelihood and he worked from Monday through Friday providing exclusive services to the trading company. The court noted that this was not a situation in which the plaintiff, through his numbered company, offered to provide driving services to the trading company; rather, the trading company had sought to have the plaintiff drive for them. As such, the relationship was one of dependence and, for five of seven days of the week, one of near exclusivity.

Entitlement of Dependent Contractors to Vacation Pay, Overtime and Termination Pay

As noted by the court, only employees are entitled to the benefits dictated by the provincial employment standards legislation, the Employment Standards Act, 2000 (ESA). The ESA definition of the term ‘employee’, which has remained largely static since the introduction of the ESA in 1968, includes only those people who work for an employer in exchange for wages, which are defined as monetary remuneration exclusive of tips or gratuities. The court also noted that, despite a 2017 report in which it was recommended that the legislature amend the ESA so as to include parties such as dependent contractors, such an amendment has not been undertaken, as a result of which the outdated definition applies.

As dependent contractors are not considered to be employees within the definition of the ESA, therefore they are not entitled to any of the benefits afforded to employees under that Act, including overtime, vacation pay and termination/severance pay. As such, the plaintiff’s claim for vacation pay, overtime and severance/termination pay, was dismissed.

Importantly and as noted above, although dependent contractors are not entitled to seek such payments under employment standards legislation, such persons may seek reasonable notice damages under the common law if their contract is terminated before they received all amounts due and owing under the contract and/or have been wrongfully terminated from their employment.

Contact the Law Office of Peter McSherry for Assistance Determining Your Employment Status

If you find yourself uncertain of whether you are an employee, an independent contractor or a dependent contractor, then you are in need of comprehensive legal assistance to help determine and establish your rights. Fortunately, the Law Office of Peter McSherry is here to help.

From our offices in downtown Guelph, Ontario, the Law Office of Peter McSherry is proud to provide shrewd, knowledgeable legal assistance to employees and employers from all over Southwestern Ontario. Contact us today, either online or by telephone at (519) 824-5465, and one of our friendly, helpful staff will be pleased to schedule a confidential consultation.