New legal risks of retaining contractors instead of employees

Companies subject to Ontario labour laws could face an additional risk of fines, penalties and orders to pay severance to terminated contractors if labour enforcement staff conclude that independent contractors are actually employees, a lawyer warned Wednesday.

With Bill 148, Ontario’s ruling Liberals are “taking steps to make sure that workers are properly classified and not incorrectly treated as independent contractors,” said Peter Milczyn, the Minister Responsible for the Poverty Reduction Strategy, during earlier debate on the bill.

Bill 148 was subject to debate Wednesday on third reading. If passed into law, Bill 148 would change existing laws, including the Employment Standard Act, Labour Relations Act and Occupational Health and Safety Act.

One change is “intended to address cases where employers improperly treat their employees as if they were self-employed and not entitled to any employment standards protections,” Milczyn said Sept. 12 during debate on second reading.

If passed into law, the Employment Standards Act would give independent contractors who feel they really ought to be considered employees “a different avenue to seek a remedy against an employer,” Caitlin Russell, an associate with Cassels Brock & Blackwell LLP, said Wednesday in an interview.

There are “always legal risks” if companies “mischaracterize someone as an independent contractor instead of as an employee,” Russell said. “So without Bill 148, an employee still has the right to bring a civil remedy to sue the employer in court. Often these situations arise when the relationships terminate. In that case the contractor will sue and seek damages for wrongful dismissal or other amounts that may have been owing to them if they had been characterized as an employee.”

But once Bill 148 comes into force, contractors who contend they should be employees could “now much more easily go to the Ministry of Labour, tell the Ministry of Labour they have been mischaracterized and seek their minimum entitlements through that process which is often cheaper and doesn’t require legal representation,” she said.

Those entitlements could include termination pay, severance, overtime pay, public holidays and vacation pay.

Also with Bill 148, “the onus is now on the employers to prove that they actually have been properly classified, so it reverses the onus that would be the case in a civil claim,” Russell warned. “So now the employer has to be able to basically prove through a written contract, and not only a contract but actually the facts of that relationship, whether that person has been properly characterized.”

The facts of the relationship could include whether the contractor can work for someone else and whether they are required to use their own tools, among others, Russell suggested.