Tips for ensuring a contractor remains a contractor

A relationship that starts as employer/contractor can easily migrate to employer/employee

In my last column in the October 5 issue of Legal Matters, I identified a $64,000 question within employment law: How many people function in the workplace under the title “independent contractor,” when the legal reality is that they are employees?

I indicated that being treated as an independent contractor is a common working arrangement in today’s workplace, and that most likely both the employer and “independent contractor” were unaware of the real legal status of this arrangement. Therefore, this is a relatively explosive question within the modern workplace, given the commonness of the arrangement.

Most of the time, the true arrangement is never tested, for one reason or another. Only at a point where the relationship comes to an unhappy and premature end for one of the parties (typically the “employee”), such as at dismissal, is the status of the worker as employee likely to become an issue. Typically at dismissal the “independent contractor” would feel the way the arrangement ended was unfair, and the longer the arrangement had lasted, the greater the likelihood this person would have notions that notice or severance of some type was owed for the dismissal. This gut feeling of unfairness will drive the person to seek employment law advice.

So precisely who is an independent contractor?

As with many things in life, there is no precision. Each case is decided on its own facts and merits. Even though there may be a written contract that describes the worker as an independent contractor, the courts will look at the entire relationship between the parties as expressed by conduct over time. The courts use a number of factors to assess the relationship. Some of the more common factors are: who controls the work, workplace and the worker; the level of integration or economic dependence between the parties; and chance of profit or risk of loss.

Based on its analysis of these and other factors, the courts will place the relationship somewhere on a spectrum from pure independent contractor to pure employee.

The profile of the employee will be quite distinct from that of the independent contractor. For instance, the employee typically is in a subservient position, bound to comply with the employer’s behaviour requirements, and subject to discipline for noncompliance. Independent contractors, by contrast, typically have control over the way they deliver the work product and are not subject to oversight by the hirer.

Independent contractors also typically bring some of their own tools to the work, while an employer typically provides employees with all the tools they need.

Normally, an employee is virtually totally economically dependent on the employer for his or her employment income, usually receiving a set wage or other form of remuneration, but not taking a substantial chance on the overall profit or loss of the business. Conversely, as is the case with for instance the person who comes occasionally to fix your office computer, the independent contractor will work for a number of parties at the same time, and is probably not economically dependent on any one of them. It really is the independent contractor’s business, and so is the benefit of profit and the risk of loss.

The problems begin in situations where the independent contractor migrates too far away from the “contractor” end of the spectrum. Courts are relatively quick to find employment, or employment-like reliance, where such migration occurs. Explained simply, this is because courts tend to view the tests for “independent contractor” more narrowly than those for “employee.”

The key problem areas where migration crosses the line from independent contractor to employee usually involve issues related to control and integration of the person in question. If it’s important for an employer to maintain a worker’s status as an independent contractor, then the employer must take steps to minimize migration.

An employer can’t assume that every worker working under this label is in fact an independent contractor. As well, there is no absolute way of knowing in advance how a court will rule on this question, especially where a worker may have started out as an independent contractor but migrated toward the status of an employee. However, the employer can minimize migration and tip the scales toward a conclusion of contractor by making sure that:

the person either has worked for, or clearly has the right to work for others,
the workload assigned to the person does not allow them to become solely reliant on you for their income
the person is not performing identical tasks to others who are your employees,
the person is not under the supervision of your staff, and
the person is not integrated into your operation to any degree similar to an employee.

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