Repairs, Maintenance and Renovations
Beware: Your “Independent Contractor” May be an Employee
From the Volume 17, Fall 2023 issue of the CCI GHC Condo News Magazine
Often in our practice we receive questions from clients about issues with contractors. In some cases, we discover that the person the client had been treating as an “independent contractor” is in fact an employee.
Mislabeling someone as an independent contractor can have significant legal implications and employers should understand the differences between an employee and an independent contractor.
The most important point to understand is that the label (what the parties call their relationship) does not matter. The fact the person is called an independent contractor, or even has a contract to that effect, is not relevant. What matters is the substance of the relationship between the parties. The courts, Ministry of Labour, Canada Revenue Agency and other relevant regulatory bodies all use the following four-part test to determine whether someone is an employee:
- Degree of control: a hallmark of an employment relationship is the party paying the remuneration has direct control over how the person does their work, the hours of work and the place of work.
- Number of clients: A person who works full-time in your premises is more likely to be an employee than an independent contractor.
- Degree of risk: a true independent contractor would have a chance to earn a profit from the enterprise and a risk of loss. A person who is paid at a set hourly rate regardless of the output, for example, is likely not an independent contractor.
- Supply of tools of the trade: another hallmark of an independent contractor is whether the person is required to supply tools or other equipment. A person who shows up for work and uses capital equipment supplied by the payer is more likely to be an employee.
Implications for Misclassifying an Employee as an Independent Contractor
There are a number of potential negative consequences for employers who misclassify someone as an independent contractor:
- Statutory deductions: employers are required to deduct from an employee’s salary and remit to the relevant department income tax and payroll taxes such as Employment Insurance and Canada Pension Plan premiums. In an independent contractor scenario that does not happen, and no source deductions/remittances are made. If the Canada Revenue Agency later determines that the person was an employee all along, it may impose a penalty against the employer for failing to withhold and remit those payments. The impact of this can be substantial if an employee has been mischaracterized as an independent contractor for a long period of time.
- Workplace Safety and Insurance (workers compensation): most employers who employ one or more employees must pay workers’ compensation insurance premiums for the employee (known in Ontario as “WSIB”- Workplace Safety and Insurance Board- premiums). The employer may face penalties if the person is not enrolled and is later found to be an employee.
As well, if the person was not enrolled and becomes injured, WSIB may require the employer to pay all of the workers’ compensation benefits owed to the injured worker (for lost income and medical expenses). This may result in significant liability in the case of a serious injury. As well, most liability insurance policies will not cover liability for injuries for someone who is determined to be an employee.
In essence, if the person is improperly not enrolled with workers’ compensation (WSIB), the employer essentially becomes the person’s insurer and may be liable to the person in the case of a workplace injury.
- Severance Pay: an “independent contractor” who is found to be an employee may be owed pay in lieu of notice for wrongful dismissal even if the parties had an “independent contractor” contract allowing the payer to terminate on, say, 60 days’ notice. The reason is there are specific requirements for employment contracts to be enforceable. While a properly worded employment contract can limit an employee’s entitlement to severance pay on termination, the parties would not have such a contract if the worker had been improperly treated as an independent contractor.
Often the distinction between an employee and independent contractor is not clear, and many relationships may fall into a grey area. However, because of the potentially significant legal implications of misclassifying someone, it is best to get legal advice in respect of any staff member who regularly does work for your condominium corporation.
John De Vellis’ multi-faceted practice includes condominium law, commercial litigation, and employment law. As a member of Shibley Righton LLP’s condominium law group, John acts for condominium corporations throughout south and southwestern Ontario on all aspects of condominium law including compliance and governance issues, general litigation including oppression applications, employment and human rights disputes, construction deficiency issues, arbitration of shared facilities disputes, and commercial matters such as contract review and drafting and general governance issues. John also holds a Q. Arb. (Qualified Arbitrator) designation.
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