Independent contractor or employee? A moving target

When the employment relationship goes sour, people who were treated as independent contractors, and not employees, often claim they were mislabelled.

Either they will apply for employment insurance, triggering an investigation by Service Canada, or they will make a claim with the Ministry of Labour for the minimum entitlements employees get under the Employment Standards Act. Sometimes they will sue through the courts.

It used to be that one of the first questions I would ask a person who wanted to assert that they were an employee, not an independent contractor, was where they went to work each day. In this post-COVID world, the answer to that question has become almost irrelevant. If you go into an office every day, it is one of the signs that you are actually an employee, but the reverse is not true. Working from home is what a lot of employees are doing these days.

Patrick was looking for work and responded to an add on Indeed to be a business development representative. He took an online sales competency test and scored well. He was invited to a Zoom meeting with about 100 other people and watched a series of presentations. He was told he would be treated as an independent contractor — he could work whatever hours he wanted and work at other jobs.

He would be given a list of financial planners to call and for each one he could convince to join a later sales meeting, he would receive $200. He used his own computer, his own internet and his own cellphone. His calls were monitored by someone at head office on an occasional basis and that person was available for questions and further training. He used the company’s software.

In his third week, the company changed the rules and told him he would only get the $200 if the financial planner he convinced to attend the sales meeting stayed for at least 30 minutes. Patrick was annoyed and told the company he felt like he had been gaslit and belittled. In response they ended the relationship.

He filed a complaint with Employment Standards claiming various damages and minimum statutory holiday pay. When the matter reached the Labour Board, the central question was whether Patrick had been engaged to perform the services as a person in business and on his own account or as an employee.

There are many factors that go into determining the answer, but they include the level of control the employer exhorts over the employee’s activities and hours, whether the worker provides their own equipment, whether they can hire helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management by the worker and the opportunity for profit.

The board found Patrick could set his own hours and take time off when he wanted and work for others. There was not much in the way of supervision or control. He used his own equipment and only used the company’s software. He could lose money if he had no success in the form of his time and effort, or make money if he was successful.

The board decided Patrick was not an employee and his claim failed. The above are just some of the factors that will be considered by the courts or any other decision-maker in determining whether somebody was an employee or not.

Employers who treat people who are actually employees as outside contractors can run into trouble with Service Canada for not making government remittances and deductions if things go sour. The results can be painful.

Employees who submit their income tax return as independent contractors and not employees may discover that some of the business expenses they claimed are disallowed upon reassessment. Who is and is not an employee has been, and will continue to be, a moving target. Unfortunately, there have never been any easy answers.

This article was originally published by The Hamilton Spectator.