Am I An Independent Contractor or An Employee?: Freelancing, Contract Work and The Law

Freelancing, contract positions and independent contractor work are part of the millennial employment experience. Actually, it’s part of the employment experience for folks of all ages in 2018. Apps like Uber or Hyr promise to disrupt traditional employment or service models, but they have a lot of workers and workers’ rights advocates worried. How do you know if you’re an employee or an independent contractor? What are your rights if you’re an independent contractor?

For Uber and other sharing economy apps, this has meant multiple lawsuits and legal actions worldwide. Unfortunately, this litigation hasn’t given us a clear answer since both the decisions and the applicable laws vary widely across jurisdictions.

WHAT IS AN INDEPENDENT CONTRACTOR?

In a traditional employment relationship, you work for your employer for a wage or salary. Generally, an employer tells you where, when and how to do your job. And, generally, you get paid whether your employer’s business is going well or not – at least until slow business leads to layoffs. Your employer will provide all or most of the tools or equipment you need to do your job. You might have a business card or uniform or spot on the company website that identifies you as part of the team.

Traditional jobs still exist, of course. But new types of work are changing our ideas about what an employee looks like. Often, employees work from home at least some of the time, using their own space and computers. Maybe their schedules are flexible or don’t require ‘face time’ at the office. They might have more than one job. Their position could be a short-term 3- or 6-month contract, instead of indefinite or permanent employment.

Unlike an employee, even though an independent contractor may be providing a service for pay, they are self-employed. These are your true freelancers. This kind of work isn’t new, but it is increasingly common.

Another thing that is increasingly common is employers misclassifying their employees as independent contractors or trying to push the legal boundaries that define employment status. Employers are motivated to do this because they believe it will cut their costs and reduce their liability. But, just because your employment contract or job title calls you a contractor or freelancer doesn’t make it true.

In Ontario and across Canada, courts or labour boards will look at several factors to decide whether you are an employee or an independent contractor. Relevant considerations include things like:

• How much control the worker has over their work. For example, do you control your hours of work or how you do your job? Does a manager oversee your work?
• Does the worker provide their own equipment or tools?
• Can the worker subcontractor or hire help to do their work?
• Does the worker work for other companies?
• How much financial risk does the worker take on? Or, how much chance of profit does the worker have?
• Is the worker paid a wage, salary or fixed rate?
• How did the company characterize the relationship in reaching an agreement with the worker? How does the company characterize the employee in its dealings with the public?

No one factor determines your employment status. You aren’t automatically an employee if you’re paid by the hour. And you aren’t automatically a contractor if you provide your own tools. Your true employment status is determined by looking at all of the facts together.

WHAT IF I’VE BEEN MISCLASSIFIED AS AN INDEPENDENT CONTRACTOR

As the Uber cases show, it isn’t always easy to prove that you’re an employee – but you do have options if you believe that you’ve been misclassified.

For example, independent contractors aren’t entitled to termination pay or severance pay. However, if a worker isn’t a true independent contractor, they can still sue for wrongful dismissal or file a Ministry of Labour Complaint seeking compensation.  Recent amendments to the Employment Standards Act expressly banning employee misclassification make it a little easier. These new provisions mean that if an Ontario worker claims to have been misclassified in their Ministry of Labour complaint, it will be the employer’s job to disprove the worker’s employment status.

Likewise, freelancers who think they are employees and want to unionize can apply for certification. But, if their employer objects on the basis of their contractor status, the Labour Board has to determine whether they are actually employees (or “dependent contractors”). If they are, they have the right to organize just like any other employee regardless of what the written contract says.

TO FREELANCE OR NOT TO FREELANCE

Many workers don’t care about the paperwork when they’re offered a new job. On top of this, freelance positions may offer more flexibility or the opportunity to work from home (or a coffee shop). And, since independent contract work often means you get a pay cheque without any deductions for tax or employment insurance, for a lot of workers it seems like a better arrangement.

In reality, self-employment as a freelancer is risky. Employees have protections that independent contractors do not. This includes:

• Minimum wage and overtime protections and other basic employment standards
• The right to unionize
• Contributions to employment insurance
• Access to the WSIB system
• Reasonable notice or a ‘severance package’ if you’re laid off

Employees also don’t have to worry about setting money aside for tax season. An employer should do this for you and make remittances throughout the year. Independent contractors or freelancers need to track their own income and pay their own taxes, or risk interest charges and tax problems down the road.

Companies offer independent contractor positions to people who should be employees because it’s to their advantage. Employees can protect themselves from misclassification by knowing their rights, understanding the law and speaking with an employment lawyer about their concerns.