Misclassifying employees as independent contractors

Recent reports show that labelling workers as "independent contractors" rather than employees has become widespread in many sectors of the labour market. This leaves many workers with little job security, no benefits, and working conditions that don't meet minimum standards.

This month's On the Radar describes what it means for workers if they've been misclassified as independent contractors.

What is an independent contractor?

An independent contractor is someone who runs their own business. Independent contractors are self-employed and don't have the same rights as employees.

Some employers insist that workers agree to say that they're running their own business and selling their services to the employer. But these workers may actually be employees.

What rights do employees have?

Most employees in Ontario are covered by all or parts of the Employment Standards Act (ESA). The ESA has minimum standards like:
  • minimum wage
  • limits on the number of hours they have to work
  • overtime pay
  • vacation pay
  • paid time off or extra pay on public holidays
  • pregnancy or parental leave and other types of job-protected leaves
  • the right to notice or termination pay when fired or laid off
But the ESA doesn't apply to independent contractors.

And employers have to make payments for their employees for things like Employment Insurance, the Canada Pension Plan, and income tax.

They don't have to do this for independent contractors. Workers who actually are independent contractors will have to follow rules that apply to self-employed people. For example, they will have to make their own payments for Canada Pension Plan and income tax.

How workers can enforce their rights

Sometimes employers don't pay workers what they're owed. An employee may be able to make a claim with the Ministry of Labour if this happens. But an independent contractor can't file a claim with the Ministry.

An independent contractor who isn't paid can sue the employer in court. But they have to pay fees to do this and risk having to pay some of the employer's costs.

Filing a claim with the Ministry is easier, there are no filing fees, and the Ministry looks into what happened.

Figuring out if someone could be an employee

The law says that whether someone is an independent contractor or employee depends on many different factors.

If a worker answers "yes" to some of the questions below, they might be an employee no matter what their employer says:
  • Does their employer supervise their work?
  • Does their employer decide what hours they work?
  • Does their employer decide where they work?
  • Does their employer provide the tools and equipment that they use at work?
  • Do they work for only one employer?
  • Do they get paid the same whether the business makes or loses money?
But it's not always easy for a worker to tell if they're an independent contractor. This is especially true if they answer "yes" to some questions and "no" to others.

A worker might be an employee no matter what they agreed

Even if a worker signs something that says they're an independent contractor, they might be an employee. So, for example, they might be able to make a claim with the Ministry of Labour if the employer has:
  • fired them without any notice or termination pay
  • paid less than minimum wage
  • not paid for overtime
Workers who aren't sure if they're independent contractors or employees should get legal advice so they know what their options are.

Many community legal clinics help workers and people can also contact the Workers' Action Centre in Toronto.

There's also information about what someone's options might be and places to go for help in the Workers' Action Centre's publication called Are you an independent contractor or employee?

Highlights of recent research

Worker advocates and researchers are identifying the negative effects on workers and on society of employers misclassifying employees as independent contractors.

To read more about this, check out:
This email alert gives general legal information. It is not a substitute for getting legal advice about a particular situation.
January 2016
On the Radar is a monthly email alert from CLEO that highlights timely legal information.
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