Employee, Independent Contractor or Dependent Contractor?

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Understanding Worker Classification in BC

In determining whether a worker is considered an employee or independent contractor under the common law, the Supreme Court of Canada in 671122 Ont. Ltd. v. Sagaz Industries Can. Inc. (“Sagaz”) held that there is no universal test to determine such a relationship. The Court held that the central question is whether the person who has been engaged to perform the services is performing them as a person in business on their own account.

Key Factors for Classification

The level of control the employer has over the worker’s activities will always be a factor. Other factors the court will consider include:

Factors Considered by the Court

Whether the worker provides their own equipment
Whether the worker hires their own helpers
The degree of financial risk taken by the worker
The degree of responsibility for investment and management held by the worker
The worker’s opportunity for profit in the performance of their tasks

Why Accurate Classification Matters

Independent contractors are not provided with the same protections as employees under relevant legislation and common law provisions.

Potential Liabilities for Employers

The accurate characterization of a worker is relevant to:

Canada Revenue Agency filings
Worksafe BC liability
Common law and employment standards liability
Vicarious liability

The Dependent Contractor Category

In terms of determining whether a worker falls into the intermediate category of dependent contractor, the test commonly applied is found in Marbry Distributors Ltd. v. Avrecan International Inc. (“Marbry”).

Factors for Dependent Contractor Status

The BC Court of Appeal stated that it is helpful in determining where on the continuum the relationship between the parties exists to consider:

The duration/permanency of the relationship
The degree of reliance/closeness of the relationship
The degree of exclusivity

The formal agreement between the parties is also taken into account in arriving at the proper characterization of the relationship.

Risks of Mischaracterization in BC

In BC, the risks in mischaracterizing a worker can be significant.

Consequences of Misclassification

Wrongful Dismissal Liability: In a wrongful dismissal context, a finding at common law that a terminated contractor more closely resembles an employee could result in liability for reasonable notice and aggravated damages.
Canada Revenue Agency Penalties: Employers face risks related to Canada Revenue Agency filings.
Worksafe BC Liability: This includes liability for injuries sustained and retroactive payments for premiums, interest, and fines.
Unpaid Benefits and Penalties: Liability for unpaid vacation, parental leave, overtime pay, severance pay, and other penalties.
Vicarious Liability: Employers may be held responsible for tortious conduct by workers.
Human Rights Claims: Misclassification may also lead to human rights-related claims.