Independent Contractor vs. Employee

by J. Christa Thomas, Lawyer


A recent trend has been for employers to try to classify employees as independent contractors. I am aware of many instances where employers have tried unsuccessfully to categorize an employee as an independent contractor. When the employee failed to remit Canada Pension Plan, income tax or Employment Insurance Premiums, the Minister looked to the employer for the unremitted payments. More importantly many of these employers have found themselves being audited by the Minister of National Revenue.

The mere existence of a formal Independent Contractor Agreement is not determinative of the issue. Regard must be had to all aspects of the relationship. In determining whether an individual is an employee, courts look at the following factors:


(i) whether the employer had the power of selecting, controlling and/or dismissing the individual;
(ii) whether the employer had the right to exercise power of control over the individual;
(iii) ownership of the tools;
(iv) chance of profit; and/or
(v) risk of loss.


If the person would likely be classified as an "employee" one must have regard to the employer's liabilities. An employer is entirely liable for source deductions relating to an employee, such as income tax, Canada Pension Plan, Employment Insurance Premiums and Employer Health Tax.

If an individual is an independent contractor, he/she will be responsible for his/her own remittances of Canada Pension Plan, Employment Insurance Premiums and income tax. The Minister of National Revenue may at any time reassess the individual on the basis that the individual was not an independent contractor but was an employee. This often occurs where the individual has not or can not make the required payments. The Minister could then, in the absence of payment by the individual, require the employer to remit contributions on behalf of the individual.

Notwithstanding the fact that an Independent Contractor Agreement has been executed between an individual and an employer, if the individual's employment is terminated the individual may still claim damages for wrongful dismissal and the relationship between the individual and the employer will be subject to the scrutiny of the court to determine whether the individual was an independent contractor or an employee. If found to be an employee, the individual may also look to the employer for unpaid vacation time.