The Independent Contractor Trap

Categories: Blog, Employment Law

An all too typical typical Friday afternoon call to an employment (or tax) lawyer goes something like this: "Oh my God… I have just been reassessed for my independent contractors. I’ve been told I must pay the government the CPP and EI deductions I didn’t make over the last three years.”  To make matters worse, one of the contractors injured himself horribly in an accident and WCB says am not covered because I didn’t include him in my payroll. The government must have it wrong because the contract says that they are independent contractors.

More often than not employers fall into the "independent contractor trap".  Where the employer controls the work and provides the method of production an independent contractor is usually treated in law as an employee. While the courts can consider how the parties have categorized the relationship – that is not determinative of the legal nature of the relationship and the obligations of the employer under statute and common law.

It can be very expensive to make an incorrect decision on this point as the employer discovered in TBT Personnel Services Inc.  v. Canada, a recent decision of our Federal Court of Appeal. TBT in the end had to pay the premiums for 96 drivers for EI and CPP which had accrued over three years.  It is not likely that it budgeted for this expenditure.

The court applied the well-known test which is summarized as follows:

  • Degree of control over the worker’s activities.
  • Who provided the equipment?
  • Did the employees hire other employees to do all or part of the work?
  • The degree of financial risk taken by the employees.
  • The degree of responsibility for investment and management held by the employees.
  • The opportunity for profit (as opposed to salary or wages).

The lesson for employers is to seek advice before committing to this type of contract.