Surrey Business News

Clas­si­fy­ing an Em­ployee, In­de­pen­dent Con­trac­tor, or De­pen­dent Con­trac­tor

- Business

Busi­nesses are com­monly turn­ing to non-tra­di­tional work re­la­tion­ships. The most reg­u­lar of these ar­range­ments is that of in­de­pen­dent con­trac­tor.

These ar­range­ments can be ben­e­fi­cial to the ser­vice provider and the busi­ness through flex­i­bil­ity and sev­eral eco­nomic ben­e­fits. How­ever, when these types of re­la­tion­ships are mis­char­ac­ter­ized, there are risks for the ser­vice provider and busi­ness - par­tic­u­larly where the ser­vice provider is found to be an em­ployee. Risks for the busi­ness maybe in­clude ad­min­is­tra­tive penal­ties, re­pay­ment of statu­tory re­mit­tances, lit­i­ga­tion ex­penses and other dam­ages.

“...it is im­por­tant for a busi­ness to prop­erly as­sess its re­la­tion­ship with a ser­vice provider and take the ap­pro­pri­ate pro­tec­tions to limit risk.”

While many busi­nesses are fa­mil­iar with the cat­e­gories of em­ploy­ees and in­de­pen­dent con­trac­tors, fewer are aware of a third cat­e­gory: de­pen­dent con­trac­tors. The hall­mark of a de­pen­dent con­trac­tor re­la­tion­ship is that the con­trac­tor pro­vides ser­vices to only one “cus­tomer” and is there­fore eco­nom­i­cally de­pen­dent on that cus­tomer. Other key in­di­ca­tors of a de­pen­dent con­trac­tor re­la­tion­ship are a lengthy re­la­tion­ship and high level of in­te­gra­tion within the com­pany. Like em­ploy­ees, upon ter­mi­na­tion, de­pen­dent con­trac­tors may be en­ti­tled to rea­son­able no­tice of the ter­mi­na­tion. For these rea­sons, it is im­por­tant for a busi­ness to prop­erly as­sess its re­la­tion­ship with a ser­vice provider and take the ap­pro­pri­ate pro­tec­tions to limit risk.

Courts and tri­bunals have made it clear that en­ter­ing into an in­de­pen­dent con­trac­tor agree­ment is not con­clu­sive. When as­sess­ing whether a ser­vice provider is an em­ployee or in­de­pen­dent con­trac­tor, or de­pen­dent con­trac­tor, courts and tri­bunals will go be­yond the word­ing of an agree­ment to as­sess the true na­ture of the re­la­tion­ship. Some ser­vice providers have en­tered into an agree­ment and con­ducted busi­ness as a con­trac­tor, only to later as­sert that they are an em­ployee and claim an en­ti­tle­ment to em­ployee en­ti­tle­ments such as over­time, va­ca­tion pay, or sev­er­ance.

Mis­char­ac­ter­iz­ing a worker as an in­de­pen­dent con­trac­tor may carry sig­nif­i­cant fi­nan­cial con­se­quences. We rec­om­mend speak­ing with a Labour, Em­ploy­ment & Hu­man Rights lawyer to as­sess your em­ploy­ment strate­gies be­fore defin­ing an in­di­vid­ual as an em­ployee, in­de­pen­dent con­trac­tor, or de­pen­dent con­trac­tor.

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