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The Dependent Versus Independent Contractor Dichotomy: Knowing the Difference Can Have Cost Implications for Both Employers and Employees

Glen Stratton

Associate
March 13, 2024

Distinguishing Between an Employee, a Dependent Contractor, and an Independent Contractor

Since as early as the 1930s, Canadian courts have recognized that there sits an intermediate category of employment where the traditional employer-employee relationship ceases to apply but significant severance obligations can still attach to the parties’ contractual arrangement. Workers existing in this category are called dependent contractors, who receive similar rights upon termination as employees. The relevant case law describes an “employment continuum,” with the employee on one side, the independent contractor on the other, and the dependent contractor sitting in between.

Most importantly from the cost perspective, reasonable notice at common law upon termination in lieu of notice can be implied into the parties’ contract if the worker is a dependent contractor. A worker can be a dependent contractor even absent an express contractual term, or even where an express term classifies the worker as an independent contractor.

Guidance from the Supreme Court of Canada

The Supreme Court of Canada’s decision in the case 671122 Ontario Ltd. v Sagaz Industries Canada Inc., 2001 2 SCR 983, provides the core focus for determining whether a worker is a dependent contractor at para 47:

The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks. It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case.

The Multitude of Factors Considered When Assessing Whether a Worker is an Employee, Dependent Contractor, or Employee

While there is no definitive test, the courts apply a contextual analysis which considers an array of factors. In the decision Liebreich v. Farmers of North America, 2019 BCSC 1074 (“Liebreich”), the Supreme Court of British Columbia describes the factors that could be relevant to determining whether a worker is an employee or dependent contractor versus an independent contractor at para 59. We will set out these factors and provide annotated comments based on how the courts apply these principles in the recent case law. The factors are as follows:

1.  The employer’s level of control over the worker’s activities, including:

a) The employer’s power to select or not select the worker. If there is significant employer power to select or not select the worker, this is indicative the worker is an employee or dependent contractor;

b) The payment of wages. If the employer compensates the worker directly, this is indicative the worker is an employee or dependent contractor;

c) Control over the method of work. If the employer has more control over the work, this is indicative the worker is an employee or dependent contractor; and

d) The employer’s right of suspension or dismissal. The more rights of suspension or dismissal possessed by the employer, the more indicative the worker is an employee or dependent contractor.

2. The exclusive nature of the relationship. The more exclusively the worker works for the employer, the more indicative the worker is an employee or dependent contractor.

3. The worker’s economic dependence on the employer. If the worker is economically dependent on the compensation of the employer, it is indicative the worker is an employee or dependent contractor.

4. Whether the worker could hire their own helpers. If the worker can hire their own helpers, it is indicative the worker is an independent contractor.

5. Whether the worker provides their own tools and equipment. If the worker provides their own tools and equipment, it is indicative the worker is an independent contractor.

6. The worker’s opportunity for profit in the performance of their tasks. If the worker has opportunities independent of the employer for profit in the performance of their tasks, it is indicative that the worker is an independent contractor.

7. The degree of financial risk taken by the worker. If the worker has little financial risk in performing services for the employer, and the employer assumes all the risk, it is indicative of an employment or dependent contractor relationship.

8. The worker’s responsibility for investment and management. If the worker invests in the employer’s business, and plays a direct role in managing that business, it is indicative of an employment or dependent contractor relationship.

9. Whether the worker is a crucial element of the employer’s business. If the worker is a crucial element of the employer’s business, it is indicative of an employer or dependent contractor relationship.

10. Whether the activity of the worker represents the employer’s business. If this is the case, it is indicative of an employment or dependent contractor relationship.

11. The permanency and length of the relationship. The lengthier and more permanent the role, the more indicative the worker is an employee or dependent contractor; and

12. Whether the parties rely on each other or closely co-ordinate conduct. The more mutual reliance between worker and employer, the more indicative the worker is an employer or dependent contractor relationship.

The Overarching Four Considerations

In Liebreich, the Supreme Court summarizes these factors (upon review of previous common law decisions) by fitting them into four categories:

  1. Level of Worker Control; the more worker control, the more indicative the worker is an independent contractor.
  2. Ownership of Equipment and Tools; if the worker owns their own equipment and tools, it is indicative the worker is an independent contractor.
  3. Profit/Loss Opportunity; the greater the direct profit/less opportunity the worker faces as a result of the employer’s business, the more indicative the worker is an independent contractor; and
  4. Business Integration; the more the worker’s business is integrated into the employer’s business model, the more indicative the worker is an independent contractor.

As previously set out, while these factors assist the courts in determining whether a worker is an employee, dependent contractor, or an independent contractor, there is no fixed test and the courts assess each case based on the particular factual circumstances.

Threshold for Dependent Contractor: Minimum Percentage of Financial Dependence or Exclusivity Required

Recent case law arguably stands for the fact that to establish a worker is a dependent contractor, a worker at minimum must meet a certain threshold of financial dependence on the employer. For example, in Gee (Re), 2023 CIRB 1090, the Canadian Industrial Relations Board (the “Board”) explicitly stated at paragraph 22 that to establish a worker is a dependent contractor before the Board, the worker must derive at least 50 percent of their income from services provided through the employer.

In Ontario, in the recent decision 1159273 Ontario Inc. v. the Westport Telephone Company, 2022 ONSC 1375, the Superior Court of Justice found that given the worker receipted over 80 percent of their billings from the employer, the exclusivity argument ruled the day in determining that the worker was a dependent contactor. It is expected that future cases will argue that where a worker receives 80 percent or more of their compensation from the employer, this alone establishes that the worker is a dependent contractor.

For more information on employees, dependent contractors, and independent contractors, contact us at Ascent Employment Law. We are here to help.