legal considerations of hiring employees and retaining contractors in ontario

Legal Considerations of Hiring Employees and Retaining Contractors

Sean P. BawdenEmployment Lawyer

T. 613.238.6321

www.kellysantini.com | www.ottawaemploymentlaw.com


Sean Bawden is a labour and employer lawyer at Kelly Santini LLP.

He acts for both businesses and individuals focusing on wrongful dismissal cases.

He teaches part-time at Algonquin College in the School of Business and is the author and publisher of Kelly Santini LLP’s employment law blog “Labour Pains.”


The key to growing any business is adding reliable staff.

Many companies look to retaining independent contractors as a way to grow their business while limiting their overhead expenses. However, retaining a truly independent “independent contractor” can be more challenging than most may think. For that reason potential employers should be aware of what the law expects and what the repercussions could be if they get it wrong.


Questions to consider:

• What do I need this individual to do?

• For how long will I need this individual?

• How much can I afford to pay?

• EI / CPP / WSIB


Options:

• Employee

• Independent Contractor

• Unpaid intern


General Highlights

• “Interns” are generally illegal; pay your employees.

• It’s (a lot) harder than you think to retain a truly independent contractor; if in doubt, make them staff.

• Use written employment agreements.

• But not a template you find on the internet or at an office supply store.

• Lawyers are often worth the up-front expense.


Interns

• “Intern” is not defined nor used in Ontario ESA, 2000.

• Definition by exclusion. A worker is not an “employee” if:

• The training is similar to that which is given in a vocational school.

• The person providing the training derives little, if any, benefit from the activity of the individual while he or she is being trained.


Employee versus Independent Contractor

• Vexing!

• Substance prevails over form.

• Different ‘tests’ can apply.

• Workers can apply for a determination after they finish working.

• Employers can be found liable (and directors personally liable) to CRA / Ontario Employment Standards if they get it wrong.


Why Bother?

• “Employers” responsible for deducting, (matching) and remitting EI, CPP, and income tax.

• Employers subject to ESA, 2000; OHSA; AODA; Pay Equity; Human Rights Code; WSIA, 1997; LRA, 1995.

• Employers may be covered by WSIB. (Double edged sword)

• “Employees” can only be terminated on the provision of reasonable notice. “Independent contractors:” in accordance with the terms of the contract. (But wait, there’s a twist!)


Employee versus Independent Contractor

• Sagaz factors. (CRA publication RC4110)

• The key question CRA will ask is whether the person is engaged to perform services as a person in business on his or her own account, or as an employee.

• CRA two step approach:

• Step one: they ask what you intended the relationship to be.

• Step two: they ignore step one.


Factors CRA and the courts will look at:• the level of control the payer has over the worker’s activities;

• whether the worker provides the tools and equipment;

• whether the worker can subcontract the work or hire assistants;

• the degree of financial risk the worker takes;

• the degree of responsibility for investment and management the worker holds;

• the worker's opportunity for profit; and

• any other relevant factors, such as written contracts.


What if the Employer Gets it Wrong? (Part 1 of 2)• CRA has the power order the employer to pay EI and CPP

premiums that ought to have been paid.

• For both the employer and the employee’s share.

• Plus interest (5%/a - compounded daily.)

• Plus a penalty (up to 20% of the original amount owing.)


What if the Employer Gets it Wrong? (Part 2 of 2)• The employee can be entitled to reasonable notice of

dismissal.

• Without a contractual provision can be upwards of two and a half years of salary, plus benefits if any.


The Twist: “Dependent Contractors”

• Common-law concept.

“The law provides for an intermediate position of “dependent contractor” between employee status and independent contractor status. The caselaw’s evolution demonstrates the existence of an intermediate category, defined by economic dependency in the work relationship, requiring, inter alia, some reasonable notice for termination.”~ McKee v. Reid's Heritage Homes Ltd., 2009 ONCA 916 at para. 22.


What Should Businesses Considering Adding People Do?

• Assume bad things can happen, and happen to you.

• Consider consulting a professional, experienced employment lawyer.

• Use written agreements and have them professionally drafted. Get a provision wrong, the agreement is not binding.

• Never act like a pirate!


Thank You!

Sean Bawden

Employment Lawyer - Kelly Santini LLP

www.ottawaemploymentlaw.com

@SeanBawden

613.238.6321 x260