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Employee or Independent Contractor?

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In the current market place where employers are striving for a more flexible, specialized, and lower cost work force, there has been a continued growth in hiring independent contractors over employees.

Although there are many advantages to hiring independent contractors over employees, a finding by a court or government tribunal that an independent contractor is, in fact, an employee can expose a company to a variety of liabilities under various employment related statutes and at common law.

There does not exist a precise formula to determine whether the relationship between an individual and company is one of independent contractor or employer-employee. In each case, all of the circumstances in the particular relationship are considered.

The following are some of the tests used by courts and tribunals to determine the essence of the relationship between a company and individual:

Expressed Intentions. Courts will consider whether the parties have expressed their intentions in a written agreement. Although a written contract for services between the parties assists a court or tribunal in determining the relationship, courts and tribunals look beyond the name chosen by the parties. It is the parties' conduct which will govern their relationship.
Control. The level of control exercised by the company over the individual. The more control the company has over what, where, when, and how work is performed, the more likely the individual will be characterized as an employee.
Entrepreneur Test. This test emerged from the Control test, and includes 4 criteria as follows:

control. A substantial amount of control and/or direction over an individual and the way in which work is performed, the more indicative the relationship is an employment relationship.

ownership of tools. Evidence that an individual purchased, owns, and uses his or her own tools and equipment (such as desk, telephone, copier, computer, stationery, business cards) would lead to a characterization of an independent contractor relationship.

risk of loss. An independent contractor bears the risk of any losses associated with the work or services performed. In employment relationships, the employer bears the risk of non-performance.

chance of profit. An independent contractor would enjoy any profits with respect to the work or services performed.

Integration. Where the work performed by the individual is an integral part of the company's business, a court or tribunal would view the individual as an employee over an independent contractor. Courts have held that the work/services of an independent contractor, although done for a business, is not integrated into it, but is merely accessory to it.

In most situations, courts and tribunals consider and apply all of the tests to determine whether an individual is an employee or independent contractor.
Dated: September 2003