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Whether you are classified as an employee or not can have a significant impact on your benefits and entitlements. Therefore, it is essential to have a sound understanding of the types of employment relationships and the differences between them. Misclassification of an employee is a common issue that often arises in the termination of an employee’s employment and can lead to claims against an employer for wrongful dismissal, unpaid wages, overtime or vacation pay, or otherwise.

Below we review the different types of employment relationships, discuss how an employment relationship is determined, and which relationship provides for the greatest entitlements.

Different Types of Employment Relationships

Most employment relationships fall under one of three main categories:

  1. Employer/employee relationship
  2. Independent contractor/principal relationship
  3. Dependent contractor/principal relationship

These three employment relationships exist on a continuum, with employees and the independent contractors on opposite ends, and the dependent contractor existing between those two points.

Which Relationship Provides the most Entitlements?

Regarding entitlements, being classified as an employee grants you the most benefits and entitlements. These can include, but, are not limited to the following:

  • The provision of statutory benefits;
  • The payment of workplace health and safety premiums;
  • Right to reasonable notice of termination or pay in lieu;
  • Remittance of appropriate health and income taxes, and contributing to and remitting Canada Pension Plan (CPP) and Employment Insurance (EI); and
  • Assuming liability for an employee’s deliberate or negligent acts during employment.

Independent contractors, on the other hand, are not entitled to any of the benefits listed above. In fact, they are only entitled to notice of the termination of their employment if their contract so provides.

Dependent contractors function similarly to independent contractors in terms of benefits, vacation pay, and other entitlements. They are not considered independent contractors, however, because of their exclusivity and financial reliance on a single organization. As a result of this exclusive relationship, they are entitled to reasonable notice or pay in lieu of notice upon termination of their employment.

Am I an Employee or a Contractor?

You may find it surprising that an employer-employee relationship does not exist simply because of the contract or the initial intention.

Rather, the courts have made it clear that the determination of an employment relationship will depend on the circumstances of each case. Further, in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., at para. 47, the Supreme Court of Canada stated that there is no one conclusive test that can be universally applied to determine whether a person is an employee or independent contractor.

To assist, the Supreme Court of Canada set out several factors that may be persuasive towards categorizing an employment relationship. These factors include:

  1. Whether the person who has been engaged to perform the services is performing them as a person in business on his own account;
  2. The level of control the employer has over the worker’s activities;
  3. Whether the worker provides his or her own equipment;
  4. Whether the worker hires his or her own helpers;
  5. The financial risk taken by the worker;
  6. The degree of responsibility for investment and management held by the worker; and
  7. The worker’s opportunity for profit in the performance of his or her tasks.

What Is the Impact on Employees and Employers?

Employers cannot rely solely on a mutually agreed contractual agreement to limit the entitlements of an employee to that of an independent contractor. They must instead accurately measure the role of the contractor against the above factors and look at the totality of the employment relationship to determine if the contractor is truly independent of the employer.

Employees may have valid claims for wrongful dismissal against their employer if they were terminated without notice or pay in lieu of notice and have been incorrectly categorized as an independent contractor by their employers.

If you believe you have been wrongfully dismissed and/or are seeking advice in relation to the nature of your employment relationship, please contact Toronto employment lawyers, Sultan Lawyers, at 416-214-5111 or via email at khayward@sultanlawyers.com.


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