Business woman signing papers

Contractor or Employee?

November 11, 2020

Often small businesses try to save money by hiring contractors instead of employees. Employees cost their employer CPP and EI contributions in addition to wages and employees must be given adequate notice or pay in lieu if the employer wants to terminate an employee without cause. In contrast, generally a Contractor only has the rights provided in the Contract. However, for years the view of CRA has been that it is the actual conduct of the parties not the words of the contract which determines if a person is an employee or a true Independent Contractor.

Our Supreme Court of Canada provided a recent decision in Modern Cleaning Concept Inc v. COMITE paritaire, 2019 SCC 28, which says, if I may summarize succinctly, that it is the actual conduct not the contract that determines if a person is an employee with all related rights, and expenses for the employer. The main factors which determine whether a person is an employee include whether the person could take business risks and profit from those risks.

Generally, an independent contractor is a business with both liability and opportunity for its independent decisions. In contrast, an employee has little power and risk nor profit from the decisions made by its employer. Now this decision also says that different facts and different legislation can determine that a person is not an employee.

If you are considering expanding your business by using contractors then be careful.