Legal Considerations of Hiring Employees and Retaining Contractors in Ontario
1. Legal Considerations of Hiring Employees
and Retaining Contractors
Sean P. Bawden
Employment Lawyer
T. 613.238.6321
www.kellysantini.com | www.ottawaemploymentlaw.com
2. Legal Considerations of Hiring Employees
and Retaining Contractors
Sean Bawden is a labour and employer lawyer at Kelly Santini
LLP.
He acts for both businesses and individuals focusing on wrongful
dismissal cases.
He teaches part-time at Algonquin College in the School of
Business and is the author and publisher of Kelly Santini LLP‟s
employment law blog “Labour Pains.”
3. Legal Considerations of Hiring Employees
and Retaining Contractors
The key to growing any business is adding reliable staff.
Many companies look to retaining independent contractors as a
way to grow their business while limiting their overhead
expenses. However, retaining a truly independent “independent
contractor” can be more challenging than most may think. For
that reason potential employers should be aware of what the law
expects and what the repercussions could be if they get it wrong.
4. Legal Considerations of Hiring Employees
and Retaining Contractors
Questions to consider:
•What do I need this individual to do?
•For how long will I need this individual?
•How much can I afford to pay?
• EI / CPP / WSIB
5. Legal Considerations of Hiring Employees
and Retaining Contractors
Options:
•Employee
•Independent Contractor
•Unpaid intern
6. Legal Considerations of Hiring Employees
and Retaining Contractors
General Highlights
•“Interns” are generally illegal; pay your employees.
• It‟s (a lot) harder than you think to retain a truly independent
contractor; if in doubt, make them staff.
• Use written employment agreements.
• But not a template you find on the internet or at an
office supply store.
• Lawyers are often worth the up-front expense.
7. Legal Considerations of Hiring Employees
and Retaining Contractors
Interns
• “Intern” is not defined nor used in Ontario ESA, 2000.
• Definition by exclusion. A worker is not an “employee” if:
• The training is similar to that which is given in a
vocational school.
• The person providing the training derives little, if
any, benefit from the activity of the individual while
he or she is being trained.
8. Legal Considerations of Hiring Employees
and Retaining Contractors
Employee versus Independent Contractor
• Vexing!
• Substance prevails over form.
• Different „tests‟ can apply.
• Workers can apply for a determination after they finish
working.
• Employers can be found liable (and directors personally
liable) to CRA / Ontario Employment Standards if they get it
wrong.
9. Legal Considerations of Hiring Employees
and Retaining Contractors
Why Bother?
• “Employers” responsible for deducting, (matching) and
remitting EI, CPP, and income tax.
• Employers subject to ESA, 2000; OHSA; AODA; Pay Equity;
Human Rights Code; WSIA, 1997; LRA, 1995.
• Employers may be covered by WSIB. (Double edged sword)
• “Employees” can only be terminated on the provision of
reasonable notice. “Independent contractors:” in accordance
with the terms of the contract. (But wait, there‟s a twist!)
10. Legal Considerations of Hiring Employees
and Retaining Contractors
Employee versus Independent Contractor
• Sagaz factors. (CRA publication RC4110)
• The key question CRA will ask is whether the person is
engaged to perform services as a person in business on his or
her own account, or as an employee.
• CRA two step approach:
• Step one: they ask what you intended the relationship to be.
• Step two: they ignore step one.
11. Legal Considerations of Hiring Employees
and Retaining Contractors
Factors CRA and the courts will look at:
• the level of control the payer has over the worker‟s activities;
• whether the worker provides the 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.
12. Legal Considerations of Hiring Employees
and Retaining Contractors
What if the Employer Gets it Wrong? (Part 1 of 2)
• CRA has the power order the employer to pay EI and CPP
premiums that ought to have been paid.
• For both the employer and the employee‟s share.
• Plus interest (5%/a - compounded daily.)
• Plus a penalty (up to 20% of the original amount
owing.)
13. Legal Considerations of Hiring Employees
and Retaining Contractors
What if the Employer Gets it Wrong? (Part 2 of 2)
• The employee can be entitled to reasonable notice of
dismissal.
• Without a contractual provision can be upwards of
two and a half years of salary, plus benefits if any.
14. Legal Considerations of Hiring Employees
and Retaining Contractors
The Twist: “Dependent Contractors”
• Common-law concept.
“The law provides for an intermediate position of “dependent
contractor” between employee status and independent
contractor status. The caselaw‟s evolution demonstrates the
existence of an intermediate category, defined by economic
dependency in the work relationship, requiring, inter alia,
some reasonable notice for termination.”
~ McKee v. Reid's Heritage Homes Ltd., 2009 ONCA 916 at para. 22.
15. Legal Considerations of Hiring Employees
and Retaining Contractors
What Should Businesses Considering Adding People Do?
• Assume bad things can happen, and happen to you.
• Consider consulting a professional, experienced employment
lawyer.
• Use written agreements and have them professionally
drafted. Get a provision wrong, the agreement is not binding.
• Never act like a pirate!
16. Legal Considerations of Hiring Employees
and Retaining Contractors
Thank You!
Sean Bawden
Employment Lawyer - Kelly Santini LLP
www.ottawaemploymentlaw.com
@SeanBawden
613.238.6321 x260
