Are you a federally regulated employer in Canada? If so, you may be wondering about the key differences between employees and contractors for your industry. In this blog post, we will explain some of the factors that distinguish these two types of workers and why it matters for your business, with a focus on the trucking industry.
Examples of federally regulated workplaces include:
- air transportation
- banks, including authorized foreign banks
- first Nations Band Councils (including certain community services on reserve)
- port services, marine shipping, ferries, tunnels, canals, bridges and pipelines (oil and gas) that cross international or provincial borders
- road transportation services, including trucks and buses, that cross provincial or international borders
- any business that is vital, essential or integral to the operation of a federally regulated industry.
These workplaces (among others) are governed by the Canada Labour Code (the "Code"), which governs employer/employee relationships in these workplaces.
Employees vs Contractors: What's the Difference?
An employee is a person who works directly under your control. A contractor, on the other hand, is generally a person provides a specific service for a fee. The key difference between an employee and a contractor is the degree of independence that they have. In other words, the greater the degree of control over the individual, the more likely it will be that they will be classified as an employee.
Why Does it Matter? Employees
Employees are entitled to minimum employment standards, health and safety legislation, and other legal protections such as:
- minimum wage;
- overtime pay;
- vacation pay;
- statutory holidays;
- severance pay;
- maternity and parental leave;
- sick leave;
- bereavement leave; and
- work-related injury.
Employees also have the right to join a union and engage in collective bargaining with their employer.
Notably for federally regulated workplaces, unlike workplaces governed by the British Columbia Employment Standards Act or other provincial legislation, the Canada Labour Code provides a unique protection to federally regulated employees. Specifically, the Code protects federally regulated employees from "unjust dismissal" which, in short, prevents federally regulated employers from terminating some employees without a valid reason. This is a significant limitation on federally regulated employers as the Code allows for a wrongfully dismissed employee to be forcefully reinstated to their role with back pay, which can often exceed the employee's entitlements at common law. Therefore, it is even more essential for federally regulated industries (e.g. interprovincial transport) to ensure that any contractors they employ are contractors vs. employees.
Why does it Matter? Contractors
Contractors are not employees and thus, do not enjoy the protection of employment standards legislation.
Contractors are responsible for their own taxes, insurance (including WCB), benefits and expenses. This also means that employers must ensure that it is clear that the contractor is responsible for, for example, remitting applicable taxes to the Canada Revenue Agency ("CRA").
Contractors also have more control over how they perform their work and when they work. Contractors have a greater risk of profit or loss depending on their business performance.
Contractors also typically should be submitting regular invoices for their work.
How to Determine the Status of a Worker?
There is no definitive test to determine whether a worker is an employee or a contractor. Rather, the court, tribunal or other adjudicator will take a holistic view of all of the factors, which include:
- Degree of Control: Who controls how the work gets done and when? Employees usually have less control over their work process than contractors. Using the trucking industry example, can the worker decline shifts or choose their route?
- Ownership of equipment: Employees usually use equipment owned by their employer's company, while contractors use their own tools (e.g. truckers who lease or own their own trucks are more likely to be considered contractors).
- Financial risk: Who bears the risk of profit or loss from the work? Employees have regular salaries or commissions to rely on for compensation. Contractors have a greater risk of profit or loss depending on their business performance.
- Integration: How integrated is the worker into the employer's business? Employees are usually more integrated than contractors who may work for multiple clients.
- Independence: Is the "contractor" permitted to service other clients? If not, this will weigh in favour of the contractor being, at minimum, a "dependent" contractor who is entitled to reasonable notice of their termination.
Although a written contract between the parties is not conclusive, a properly drafted agreement may assist in making it more likely that the contractor will be deemed to be a contractor vs. an employee.
What Happens if a Contractor is Found to be an Employee?
If there is a complaint against an employer to the Canada Revenue Agency, the Federal Labour Program (federally) or Employment Standards Branch (provincially regulated employers), either one could launch an entire audit over the business and all contractors/employees, to assess their true status.
If the CRA finds someone to be an employee, both the employee and employer would be assessed and have to pay income tax, CPP, EI that should've been remitted.
If the Employment Standards Branch receives a complaint and does an audit, the employer would have to pay vacation pay, statutory holiday, overtime and potentially reasonable notice or severance pay (see Why does it Matter? Employees list above).
For federal employers, if there is a termination issue, the Labour Program could order the employer to reinstate the employee with back pay under the unjust dismissal remedy (see final paragraph from Why does it Matter? Employees section above).
Conclusion
Employers, and especially federally regulated employers, need to be aware of the key differences between employees and contractors as this will significantly affect the worker's rights and obligations.
To help prevent potential issues, we recommend that:
1. you reach out to one our employment lawyers if you are uncertain regarding whether you are federally or provincially regulated;
2. you have written employment agreements for your employees, and written service agreements with your contractors; and
3. are clear on which of your workers are contractors vs. employees.
Note to Readers: The information in this bulletin is for general guidance only and does not constitute legal advice. It is based on the current laws and regulations in effect at the time of writing, but may be subject to change in the future. The blog post does not take into account the specific circumstances of any employer or employee, and should not be relied upon as a substitute for professional legal counsel.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
