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CCCA_V2No2_Col-LabrEmpl-FIN.qxd:CCCA_V1No2_Col-LabrEmpl-V1.qxd 5/1/08 11:14 AM Page 51 Labour & Employment Law The war of independents There are pitfalls to classifying workers as independent contractors. anadian companies often seek to shed the tions that should have been deducted from dent contractor” is appropriate, it does not Clabel“employee”and simply hire individ- the employee’s wages, including income necessarily insulate from the obligation to uals on contract, classifying them as “inde- tax, CPP and EI, along with interest give notice on termination of the contract. pendent contractors.” Often, the “indepen- charges and penalties. Since the “contrac- Courts have ruled that where the indicia of dent contractors” pressures employers to tor” was likely paid an amount to compen- an independent contractor are present,there bestow this status for tax reasons. sate for these deductions,and perhaps GST may still be an “intermediate” status of Employers must withhold and remit as well, the additional costs are consider- dependency that requires notice prior to payments for “employees” on account of able. Under employment standards legisla- termination of the contract. government agencies such as CRA, CPP tion, a tribunal may order payment of and EI. By contrast, companies that hire overtime, statutory holiday pay, vacation Vicarious liability and insurance individuals as independent contractors do pay and severance pay, and perhaps interest Employers are normally vicariously liable for not make these deductions or remit- and penalties. the tortious acts of their employees, but not tances, nor do they provide workers’ for those of independent contractors. Some compensation or other health, insurance Workers’ compensation courts have found employers liable for the or pension-related benefits. Under workers’ compensation legislation, acts of independent contractors because of There are, however, potential pitfalls hir- assessments are paid for compensation cover- the agency relationship between them.If the ing independent contractors. The label age of a “worker.” If a “worker” is misclassi- company is vicariously liable for the acts of “independent contractor” does not make it fied as an independent contractor and sustains independent contractors,insurance coverage so, and misclassification frequently occurs. a workplace injury, the employer may face may be inadequate to cover the damage Problems can also occur when an individual liability for unpaid premiums, occupational award. Coverage may be an issue if employ- is considered an employee for one purpose health and safety penalties, and more impor- ment status is not properly declared. but an independent contractor for another. tantly, may be required to pay the full amount The traditional tests applied to deter- of the compensation paid to the worker. Conclusion mine independent contractor status are Incorrectly classifying employees as “inde- based on the following four factors: Privacy legislation pendent contractors” may have unpleasant • degree of control over the work per- Privacy statutes may have special rules for financial and legal consequences. A com- formed; the management of employee personal pany should not engage individuals as • ownership or provision of tools or equip- information.These require the safeguard of “independent contractors” lightly. All of ment used in the provision of services; employee personal information, and stipu- the relevant factors must be carefully • chance of profit and risk of loss; and late the time an employer must retain such examined to determine the true nature of • degree of integration into the business. information.The breach of a provincial pri- the relationship. The assessment of these factors is con- vacy statute can constitute an offence under ducted on a case-by-case basis. Often, the Offence Act, and exposes an employer Paul A. Devine is a partner in theVancouver individuals possess characteristics of both to suits for damages for actual harm. office of Miller Thomson LLP. He is a prac- employees and independent contractors, ticing labour arbitrator and mediator, and making classification difficult. Notice of termination advises clients on labour and employment Termination or non-renewal of a contract law matters. Linda Nguyen is an associate Source deductions with an independent contractor may result in the Vancouver office of Miller Thomson. When an employee is wrongfully classified in a wrongful dismissal suit and damages if She practices labour and employment law, as an independent contractor, the employ- the individual is later determined to be an and also advises on human rights issues and er may be ordered to pay all source deduc- employee. Even when the label “indepen- privacy concerns. ÉtÉ 2008 CCCA Canadian Corporate Counsel Association 51