Surrey Business News
Classifying an Employee, Independent Contractor, or Dependent Contractor
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.