(Note: The following discussion is based on the common law and applies to all provinces except Québec, which is governed by the Civil Code of Québec).
Many charities and not-for-profits, due to limited budgets, are unable to hire employees on a full-time or even part-time basis, so when specific projects arise they need to engage an expert on a contract basis. However, the determination of whether or not the worker hired is an employee or self-employed is critical for both the employer and the individual, as a person’s employment status can affect their entitlement to employment insurance benefits, as well as how they are treated under the Canada Pension Plan and the Income Tax Act. So in order to ensure that the contract created has not actually formed an employer-employee relationship, many factors need to be addressed.
In Canada, the common law is quite clear on how a court will determine whether or not an employer-employee relationship exists. In 2001, the Supreme Court of Canada stated in 671122 Ontario Ltd. v Sagaz Industries Canada Inc.:
“In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.
It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case.”
As a result of the above case, a court will now look at an independent contractor agreement in its entirety to determine whether or not the contract should be voided. The case also led the Canada Revenue Agency to develop a list of factors that it uses when examining working arrangements in order to determine a worker’s employment status:
- the intent of the working arrangement – did the individuals intend to enter into a contract of services (employer-employee relationship) or a contract for services (business relationship);
- the level of control the payer has over the worker’s activities;
- whether the worker provides their own tools and equipment;
- whether the worker can subcontract the work or hire assistants;
- the degree of financial risk the worker takes;
- the degree of responsibility for investment and management the worker holds;
- the worker’s opportunity for profit; and
- any other relevant factors (such as written contracts).
As you can see, it is imperative that organizations draft contracts that address all of the above factors so that no questions ever arise over the nature of the working relationship. Organizations should ensure they draft a well written contract for services that includes, at the bare minimum, the following information:
- a full description of the services being performed by the contractor;
- a section on the fees to be paid, including a caveat that the organization will have no responsibility to pay for any work performed by the contractor that would result in payment in excess of the original fees;
- a statement that the contractor is not an employee of the organization and is not entitled to any employee benefits;
- a statement on the independence of the contractor (i.e. able to set own hours and provide services to others during the term of the agreement, ability to hire helpers or assistants to replace the contractor if needed); and
- a section on invoicing for work completed.
In the end however, courts will still look at the original intent of the parties. So organizations need to be clear to potential new contractors that the business relationship they are entering into will be one of employer-contractor and then ensure that this intent is documented in a detailed contract for services. If the documentation cannot back up the organization’s intent, then a court will have to rule that the nature of the relationship is actually that of an employer-employee, which as a result could have severe financial and legal consequences for the organization and perhaps even the worker themselves.
 671122 Ontario Ltd. v Sagaz Industries Canada Inc. (2001 SCC 59, para. 47-48)
 “Employee or Self-Employed”, online at: Canada Revenue Agency, http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-e.html#employee_selfemployed