Contractor or employee: more than just a matter of convenience
Although on first appearance these two forms of work arrangement may look similar, in law there is as large a gap between an employee and an independent contractor as there is between the north and south poles.
The distinction made by the law is based in the type of contract each has with the “employer.” An “independent contractor” has what is known as a contract for service. In a contract for service, the contractor has significant control over all aspects of the work. As a simple example, imagine trying to tell the fellow who renovated your house, or who repairs your computer exactly how he should be doing his job.
On the other hand, an employee has what is known as a contract of service, and the law considers a contract of service to be a relationship of master (employer) and servant (employee). Under the contract of service, the master has the right to control the servant’s method of performing the work.
The difference between an independent contractor and an employee is most apparent when the person in question is dismissed. An employee, depending on the circumstances of the dismissal, may have a claim for wrongful dismissal under the common law principles of reasonable notice.
A true independent contractor cannot claim a wrongful dismissal, and thus has no rights to reasonable notice. This is because the ending of the work arrangement or contract of a true independent contractor will follow the terms of the contract itself, which no doubt has a very short, defined termination period.
But because the law implies into every contract of employment that a basic term of such contract is that reasonable notice of dismissal will be required, ending the work arrangement or contract of an employee will attract the requirement for reasonable notice, unless there is an enforceable written agreement in place that says otherwise.
The difference at dismissal between an independent contractor and an employee can be very significant. The following hypothetical example will help clarify the difference.
John, the independent contractor, age 50, has had a contract and performed services under it as a golf professional for the same golf course, for 10 years. For the sake of this example, let’s say the law actually considers he truly is an independent contractor. His contract says termination can occur on 30 days’ written notice. The golf course writes him and says that his services are being terminated.
Now change the facts to John, the employee, age 50, with no written contract of employment and10 years as golf professional for the same golf course. One day John gets a letter from the golf course indicating his employment is terminated.
In the first scenario, since John is truly an independent contractor his dismissal will follow the terms of the written contract, and he will be entitled to 30 days’ notice, and no more.
In the second scenario, John is an employee with no written contract, and he will definitely be entitled to reasonable notice of dismissal and other common law and statutory rights. The range of reasonable notice for John the employee, assessed at common law, is much more than 30 days, and is likely somewhere between 8 and 15 months, depending on a number of factors and variables.
It is readily seen that at the point of dismissal, given the much greater bundle of rights available to the employee, one would rather be an employee than an independent contractor.
Here is the intriguing part. Many people in today’s workplace provide services that are very similar to what an employee would provide to an employer, yet these people have signed a form saying they are “independent contractors” or they have otherwise been led to believe that their working arrangement is that they are “independent contractors.” They might even be required to invoice the “employer,” in many cases including an amount for GST, in order to obtain their paycheque. They may be paid in gross dollars without deduction, and remit their own income tax and other deductions. This is a very common arrangement.
So, are people functioning in these circumstances what the law would consider “independent contractors?”
That’s the $64,000 question. Often people are constituted as “independent contractors” because the “employer” finds it advantageous to do so. The “independent contractor” might also find it advantageous, as long as the situation lasts.
Chances are that the “employer” itself will not have a clue whether any given person is truly at law an “independent contractor.” This is not to condemn employers, but rather to say that these issues are very fact-specific and usually require the judicial mind to sort them out.
The law is clear that the wording “independent contractor” contained in a contract does not determine whether a person is an employee or an independent contractor. Even if the person invoices the employer for services or provides the services through that person’s personal corporation, that isn’t determinative. There may be an employment relationship, regardless of these facts.