Misclassification of Independent Contractors has always been rather a gray area. This uncertainty is caused by the court’s subjective case-by-case analysis of any working relationship under question. Multiple tests and factors have been developed by courts to help draw the line between employee and independent contractor status, which is still hard to do in many cases.
New changes introduced by the Ontario Liberal government in Bill 148, “Fair Workplaces, Better Jobs Act, 2017” are intended to simplify this process, but, in fact, create uncertainty and will have drastically negative consequences.
The Bill suggests that where there is any dispute on the status of the worker who is engaged as an Independent Contractor, this worker will be considered to be misclassified by default and categorized as an employee of the Client Company. Misclassification appeal lawsuits are usually very time-consuming and expensive for all the parties and may result in significant penalties. These enhanced restrictions are the reason why it is more important than ever to reconsider your working engagement as an Independent Contractor and the steps you can take to safeguard your status and to maintain smooth business relationships with your clients.
Here are some factors that will help to secure your status as Independent Contractor.
- Establish a strong business presence.
- Register your business name. If you are Sole Proprietor or have a numbered corporation, it is advisable to show that you are taking your business and promotion to clients seriously by having a distinct business name. Registration can be done online through Service Ontario for a fee. There are some rules and restrictions related to the registration and use of trade names, so be sure to familiarize yourself with the guidelines and requirements before proceeding with registration and engaging with clients.
- Make sure to keep well-maintained financial records and tax returns.
- When entering business agreements, use your registered business name where appropriate and necessary.
- Have a clear understanding and established intention of each engagement with clients.
- Always have a written contract that clearly outlines that you are engaged for services as a business.
- However, remember, it is the substance of the relationship and not the form (contract) that plays a decisive role in the determination of the contractor’s status. Therefore, it is essential that both you and your client maintain the intention outlined in the contract throughout your engagement and that you are not treated as an employee.
- Retain control over your engagement.
- Negotiation is a common business practice that shows equal bargaining powers between parties to the working relationship. It is advisable that you apply this practice when discussing fees for services and other relevant terms of the contract.
- During the project, establish control over the hours of work and work methodology. In a business relationship as an Independent Contractor, it is the deliverable that the client is engaging you for.
- Maintain ownership over the tools used to provide services. Although, this may be complicated for IT consultants due to client security standards. It is best to have such restrictions on external devices documented in writing to avoid confusion. Additionally, in certain situations, it is knowledge, expertise, and skills which are a worker’s primary tools. Thus, “ownership of tools” factor may not be given much weight in court’s analysis of the working relationship.
- If time permits, actively seek new contracting opportunities to demonstrate engagements with multiple clients.
- Act and operate as a business.
- Where possible, have an option to subcontract and hire employees as this helps demonstrate your autonomy as a business.
- Maintain responsibility for all of your business related expenses (training, tools, traveling, home office etc.)
- Keep distance from your client’s business to avoid being mistaken as an employee.
- Restrict attendance to employee functions.
- Avoid using employee corporate benefits, even if offered and suggested.
For any decision on how you, as an Independent Contractor, should structure your affairs, the APCC suggest to familiarize yourself with legislation and learn more about your rights, as well as your responsibilities. Seek additional financial or legal advice when you are uncertain.