In these times of economic unpredictability, some business owners are seeking greater workforce flexibility by turning to different kinds of work arrangements. These might include using contractors instead of hiring someone as an employee.
But if you’re not careful in how you structure these contracts, you could be setting yourself up for significant complications and additional costs down the line, according to Emond Harnden LLP.
“If you misclassify a worker as an independent contractor when they are actually an employee, you could be liable for certain statutory entitlements they would have been owed as an employee, such as overtime pay, vacation entitlements, or termination entitlements, even if those amounts were not provided during the working relationship,” said Zoriana Priadka, an employment lawyer with the firm.
Contractor or employee? It comes down to several factors
Determining whether someone should be considered a contractor or an employee can be tricky. It comes down to a combination of factors such as:
- The degree of control the individual has over their own work
- Whose tools they use
- Whether there’s any financial risk to the worker related to their work or opportunity for profit
- Whether the individual works for multiple businesses (an “independent contractor”), or just one (a “dependent contractor”)
- How integrated the individual is into your company’s business
While these terms can be spelled out at the beginning of the contract, the situation can become muddier if work arrangements change over time.
“A great question came up during a recent webinar: can I have my contractors wear company T-shirts at the company barbecue?” added Priadka. “One of the factors decision-makers consider when assessing worker status is the degree of integration in the workplace – do they have a business card with your logo? Do they have a company email signature? Are they listed on your website or internal directories? Do they attend staff meetings or social events?
“As nice as the sentiment is to want to include them at the company barbecue in the summer or whatever the case may be, these gestures can make it look like the individual is integrated into your company as an employee rather than operating independently. It’s important to maintain a clear distinction between employees and independent contractors. Otherwise, you risk inadvertently suggesting that the individual is an employee, which may undermine your intended classification.”
‘It usually isn’t a problem, until the worker disagrees’
Employers often enter these situations with the best of intentions: Hiring someone for specific work and thinking there’s a well-understood agreement in place between the worker and the business. Priadka says issues tend to emerge at the dissolution of the arrangement.
“It usually isn’t a problem, until the worker disagrees at the end of the relationship, seeks legal advice, which may suggest they should be classified as an employee with all the associated entitlements,” she added. “That’s when you might get a demand letter, a claim, or even a Ministry of Labour investigation.”
The best way to avoid these kinds of classification issues is to involve qualified employment lawyers in the establishment of these contracts and – especially if you’re taking over an existing business that makes use of contractors – review existing contracts and work arrangements to make sure both parties have abided by the terms of the agreement.
If in doubt, contact your employment lawyer
If you’re concerned about the relationship with a contractor in your organization, Priadka recommends getting in touch. That’s because making more informed decisions by clearly defining these relationships at the contracting stage helps employers minimize risk.
“Apart from getting the proper contract signed, a lot of the advice we give our clients tends to be practical, such as relinquishing control over the contractor’s day-to-day,” she said. ““It’s about considering how a court would view the entire working relationship, not just the intentions at the time of signing the contract. Simple changes can make the difference, because it is very much an analysis based on where the scale is tipping.”
To learn more, listen to Emond Harnden’s recent webinar with the Ottawa Business Journal on the dangers of misclassifying a worker as a contractor – and the potential legal and financial liabilities that could result from that.
This article is intended to provide readers with general information only. It should not be regarded or relied upon as legal advice or opinion. Accessing, reading, relying on or otherwise using this article does not, under any circumstances, create a lawyer-client relationship between you and Emond Harnden.
