Employment relationship: employee v. independent contractor v dependent contractor Part 1

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Employees sometimes make incorrect assumptions about the nature of their employment relationship with their employer/company, which could result in loss of significant rights. This lecture explains why it is important to understand the difference between employment categories such as employee, independent contractor, and dependent contractor.

This lecture is taught by Amer Mushtaq, LL.B., M. Engineering , B.Sc. (Hons.), who is the Principal and Founder of Formative LLP.   Through his YouTube channel, YouCounsel, Amer shares practical advice from his years of legal experience to help anyone access justice and achieve their goals.  Subscribe today to learn more.


Show Notes:


Lecture Slides:

Machine Transcription:

Welcome everyone this is Amer Mushtaq from YouCounsel.

Oftentimes people make assumptions about the nature of their employment relationship. Sometimes that assumption is correct.  Sometimes it’s not.  When that assumption is not correct, a lot of people potentially lose certain rights that they would have been entitled to otherwise.

This lecture we will elaborate on the difference—why the difference between these three categories employee, independent contractor and dependent contractor matters.   In the next lecture we’ll talk about how you determine which category you belong to, then who has the ultimate say, who has the power to decide what is the specific category of your employment relationship.   Before we begin, a disclaimer that this course is not legal advice.  If you have any specific questions about your issues you must contact your lawyer or paralegal and if you don’t know anyone directly you can contact the Law Society of Canada and Ontario and they can direct you to a lawyer or a paralegal.

The difference between these categories matters.  Why? Because under each category you will have different rights and under each category you will have different obligations.  Let’s start with employee rights.  The most important, well not the most important but one of the important rights falls under legislative rights—which means if there is a specific legislation that applies to your circumstances you may have rights under that.  A common example in Ontario is Employment Standards Act which applies to every employee—every non-unionized employee.  You have rights under the Employment Standards Act, then you have rights under common law—which is “judge-made” law and you may have rights under that.  A common example is termination notice which we’ll talk about in more detail but that could be your right under employment, under the employee rights category.  Let’s talk a little bit more about the legislative right and we’ll give you some examples.  Some rights are termination pay, overtime pay, public holiday, vacation, parental leave and employment insurance benefits—if you look at the Employment Standards Act.

Employment Standards Act is the legislation in Ontario for non unionized employees.  You scroll through and you will see there are a number of parts here that provide details of the kind of rights that you as an employee are entitled to.  For instance, hours of work and eating period in part 7, part 8 is about overtime pay, part 10 is about public holiday pay and vacation pay.  Look at part 14—leave of absence.  You will notice the kinds of leaves that an employee could be entitled to—pregnancy, parental, family, medical organ donor, family caregiver leave—all of these categories are leaves that are available to an employee.  If you are considered an employee, similarly, employment insurance benefits.  You may already be familiar with some of these benefits.  You could be entitled to illness benefits if you are ill and I believe they run up to 15 weeks or so, you have employment insurance benefits in the category of pregnancy and maternity and parental leave.  Then, of course, you have employment insurance benefits when you are terminated without cause and I believe they run up to about 10 months—depending upon where you live.  All of these rights are available.  These are legislated.

Another example could be workers compensation rights.  Workplace Safety and Insurance Act in Ontario covers rights for the employees who are injured at work.  You may be entitled to those rights if you are considered an employee.  Similarly, you have rights under common law.   I’ve given you the example of termination notice which is the most important one because if you are entitled to termination notice—depending upon the application of certain factors—you may be entitled to as high as 24 months or sometimes a little bit even more than that determination or severance pay.  Common law rights are important.  Employee obligations are the opposite or the other side of the coin (legislative obligations).  As we talked about it in the Employment Standards Act, hours of work is an example where you are required to work certain hours.  Production environment is a common example where, as you may know, factory workers are working on production lines.  They have to be on that line for a specific time.  Then there is a break after a certain time period which must be provided to them.  They are required to work those hours and then if required to work overtime hours, you are supposed to do that.  Those are some of the obligations under legislation similarly you have common law obligations—duty of loyalty towards your employer is one obligation, duty of confidentiality is another and there are many more other obligations that you have if you are considered an employee.

If you are not considered an employee and you are considered an independent contractor, what kind of rights do you have?  You have no legislative rights—that means the Employment Standards Act that we just talked about would not apply to you if you are an independent contractor.  You cannot go to the employer and say, “hey I’m entitled to 2 weeks of pay because the (ESA) Employment Standards Act says so.  Because you’re an independent contractor, similarly, you’re not entitled to paternity or you’re not entitled to overtime pay.  All of those things you are not entitled to.  What is it that you are entitled to if you’re an independent contractor? Your contract, your specific contract, that you have entered into with the employer, i.e., with the company that’s what prevails.  If the contract defines what your termination rights are or your resignation obligations are then those are your rights and those are your obligations.  If you are entitled to overtime, it will be specified in that contract.  It is very unlikely that you may be entitled to overtime in independent contractor arrangement because independent contractor as the name implies—you are quite independent of the employer or the company and usually they have no control over the kind of hours that you will work and when you will work those are usually left to the independent contractor.  Similarly, your wages will be defined in that contract and your vacation.  Anything and everything that is put in that contract is your right.  You don’t have the legislative right that we went through in detail or which applies to an employee.  Similarly you have no employment insurance benefits.  I mean, there are some exceptions but please understand that by default if you are considered an independent contractor you will not be entitled to any employment insurance benefits.  There are some exceptions and you can look them up in the Employment Insurance Act.   There are some cases where the independent contractor can remit certain payments for the E.I. and could be entitled to it but those are exceptions—those are not the norm.

Jumping on to dependent contractor.  Dependent contractor is sort of a category between the employee and the independent contractor.  What kind of rights and obligations do dependent contractors have?  Well, again, the dependent contractor has no legislative rights.  No rights under Employment Standards Act, no WSIB.  With respect to common law rights, here’s where it gets interesting.  A dependent contractor may be entitled to certain common law rights and in the case of termination notice for severance.  A dependent contractor may be entitled to that.  It’s an important thing to note that this is a category which looks much like an independent contractor but it’s not.  Again, with respect to employment insurance benefits, dependent contractor is not entitled to it but there are some exceptions which are similar to what an independent contractor category entails.   


 Just talking about you know these categories, it is important to know which category you fall under because then you would know what kind of rights and obligations you have.  I’ll give you an example of one of my clients who contacted me some time ago.  He was in the movie production business.  He had his own company and he worked for one specific company and provided this production unit services.  He will go to the location and do all the setup and everything that he needed to do.  There was no supervisor looking after his work.  He will just go and do his work, invoice the company and then get paid. He knew from the outset and the company knew that he was not entitled to any benefits under Employment Standards Act.  He will have to negotiate his own vacation and time off.  The very key was in his understanding.  He had the impression that he was an independent contractor. He approached me for some other employment matter.  As I was interviewing him and I explored more about the nature of his employment relationship, I understood that it was not really an independent contractor but a dependent contractor relationship.  On the basis of that determination we were able to get him a significant amount of severance because he was a long service contractor—a dependent contractor for that company.  Understanding the difference between these categories is essential.  It’s important especially if you are terminated and you may not understand the kind of rights you may be entitled to or you make the assumption that you are an independent contractor and therefore not entitled to any of the rights—termination notice for instance.  So it is very important to make that distinction. 

In the next lecture you will learn how do you know whether you are an employee, whether you are an independent contractor or a dependent contractor we’ll talk about it and who decides?  Is it the employer that decides whether the nature of relationship is an employer/employee relationship?  Is it you the employee or the contractor who decides the nature of that relationship?  Is it Canada Revenue Agency?  Canada Revenue Agency has quite significant stake in the definition of how the nature of relationship is defined because on that basis they will get their taxes.  And finally whether it’s the courts that decide upon the nature of your relationship.  The answer is really it’s one and all.  Each one of them has a role, has some stake, has some rights in deciding the kind of relationship you are in.  But ultimately it’s the courts that will decide what is the nature of that relationship and to understand that please stay tuned for the next lecture we’ll talk about it and hopefully this basic concept was useful, understandable. 

If it’s not clear or if any if you have any questions or comments, please contact us.  If you require any specific consultation about your issues you can contact us through Clarity or directly through our firm, Formative Law.  Look forward to talking to you in the next lecture.  Thank-you.

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