The landscape of the modern workplace is constantly evolving from changes in laws to changes in how we work whether remotely or digitally. With these changes, the legal complexities that businesses must navigate are also evolving. One such challenge is the potential misclassification of employees as independent contractors and vice versa. While some view this issue as nothing more than an administrative oversight, the reality is such misclassification can have serious legal implications for businesses, including lawsuits and potentially significant monetary damages.
What Is The Difference Between Employees & Independent Contractors?
To understand the implications of misclassification of an employee as an independent contractor, it is first necessary to look at the differences between them. While there are nuances that come into play, the main thing which distinguishes an employee from an independent contractor is the degree of control an employer has over the individual’s work.
An employee is subject to the employer’s control in terms of how, when, and where their work is performed. The employer often provides any required equipment or tools needed for the job, will pay for any work-related expenses, offers benefits, and deducts taxes from the employee’s paychecks at source.
Conversely, an independent contractor operates as a separate business entity from their employer altogether. Independent contractors will have more control over how they complete their work, they will use their own tools and cover their own expenses. Independent contractors typically receive payment without deductions for taxes, and they are responsible for their own taxes and any benefits they have must be attained and paid for by them.
Legal Implications Of A Misclassification
Misclassifying an employee as an independent contractor can lead to significant legal exposure to an employer. Regardless of how an independent contractor or an employer classify their relationship, or what an employment contract may say about their status as an independent contractor, the Courts will look at the reality of the situation to determine if there is an employee relationship or an independent contractor relationship. One such consequence could be hefty fines and penalties from the Canada Revenue Agency (CRA).
Another significant consequence is that the misclassified employee may also bring a lawsuit against their employer for unpaid wages, overtime pay, benefits, and other damages. While independent contractors are not entitled to severance for wrongful dismissal, employees are. Depending on the length of employment and the salary, this could be a very costly consequence for employers.
Lessons For Employers When Dealing With Independent Contractors
For employers, preventing misclassifications of employees to avoid costly litigation begins with a clear understanding of the laws and regulations that define an employee versus an independent contractor. The Courts will look at a common-law test that takes into account factors such as behavioural control, financial control, and the relationship of the parties to determine the worker’s status.
To ensure employees and independent contractors are properly classified, employers should:
- Review their existing employment contracts and how they classify their workers
- Consult with an employment lawyer to understand their obligations and risks
- Conduct regular checks for potential misclassifications
- Develop clear policies and procedures for hiring and classifying workers
- Provide training to HR and management teams on the correct classification practices
One of the most common ways for employers to end up in litigation is to defer issues like this to HR managers to save money on hiring a lawyer. Nuanced issues like these require an experienced legal review and it is often better to spend a little money on a lawyer upfront than have to face a lawsuit.
Experienced Employment Lawyers
The experienced employment lawyers at Taylor & Blair LLP can assist both employers and employees with their employment law issues. If you have any questions surrounding a misclassification of a worker, contact the lawyers at Taylor & Blair LLP today for a consultation.