LAW 529 Lecture Notes - Lecture 2: Making Money, W. M. Keck Observatory, Liberty Mutual
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Chapter 3 Common Law Issues – Independent Contractors page 75
Defining the Relationship (chapter 3, pages 75-85)
• The legal rights and responsibilities of the parties depend on the nature of their
relationship. • The employer-employee relationship is the most common relationship
between the individual performing the working and the hiring organization, it is not the
only one.• The parties may and should define the relationship between them at the outset.
• But, the court may decide otherwise. Why?
An independent contractor is a self-employed worker engaged by a principal to perform
specific work.• There is an increasing trend for organizations to hire individuals as
independent contractor rather than as employees.
• The relationship of independent contractor-principal and employer-employee are treated
very differently in law.You can call it a independent contract-agreement however the
court can find otherwise(call it employee relation) based on the nature and the substance
of what you're doing. The court is the final decision maker of what the relationship is.
That's why you should define at the outset
Independent Contractors Cont'd
The protections under the employment standards act don't apply to independent
contractors, they only applies to employees.
Why are Independent Contractor’s Popular?Advantages to the Organization
include:–No statutory remittances (CPP, tax, EI) or WSIB.–No employment standards
protections (e.g. pregnancy leave, vacation, overtime pay), only what’s in the contract.
–No common law wrongful dismissal claims. There is no implied right to reasonable
notice in an independent contractor relationship–Less liability for damages – why?
Independent Contractor or Employee?
• Common Law Tests:– Degree of control over the individual’s work– Risk – who bears
the financial risk of profit or loss– Integration/Organization test– Durability/Exclusivity–
Ownership of tools - considered but less weight• Substance (what actually happens) more
important than form (what the parties’ contract says)Risk- If you're an employee it
doesn't matter weather the company is making money, you have your salary at the end of
the day. Independent Contract Agreement might not get paid if you did not perform
properly.Organization test: how important/integral is the function to the company? is it
a core function Integration: do you work from their office or yours?Exclusivity: do you
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work for multiple organizations?
Belton v. Liberty Insurance (p.79)
• Insurance sales agents signed agreements acknowledging their status as independent
contractors.• The new owner wanted to have them sign a new agreement.• They refused,
were fired and sued for wrongful dismissal.
• The Ontario Court of Appeal found that they were employees, not independent
contractors. Belton , cont’d• Reasoning:– The term “agent” is not significant.
– Unclear whether were limited to exclusive service.– Were subject to control; reported
to the managers.– Were provided with “tools’ required for service, such as office
facilities, telephones, and fax machines.– Did not own their book of business and had no
legal or other entitlement to their customers (no chance of profit or risk of loss).– Their
activities were integral part to the defendant’s business (selling insurance policies).It
wasn't clear whether they were allowed to provide services to other service companies.
The “book of business” are they clients the insurance agents or the business’s client.
Losing a client risk falls as a loss with the company.Organization test: Integral part
How to Improve Odds of Finding an Independent Contractor Relationship
• Written contract• Fixed term and fair mutual termination clause• No statutory
deductions/remittances for income tax, CPP, EI• No ESA standards (e.g. vacation,
overtime pay)• Allow independent contractor to work for others• Avoid setting hoursFair
mutual termination clause. Less likely for person to go to court if they get let go with
termination clause (10 month notice) ( severance)How to Improve Odds of Finding an
Independent Contractor Relationship Cont’d • Independent Contractor should charge
HST, and interest on late payments• Minimize independent contractor’s integration into
organization (no uniform, office, equipment, etc.)• Allow independent contractor to
accept or refuse work• Have independent contractor purchase own insurance• No
performance reviews• Work offsite if possible
Temporary Agency Employees
• A client organization hires an individual through a temporary employment agency.• The
individual is an agency worker, a “temp”, recruited, hired and paid by the agency.•
Organizations use agencies for a temporary need (e.g. peak seasons).• By using agencies,
organizations avoid costs associated with adding a person to the payroll. • They might
take advantage of this arrangement.Temp is employee of Temp agency.Temporary
Agency Employees Cont'd• Who is the real employer? Common Law Tests:– which
party exercises control and direction over the worker,
– who pays the worker, and– who has the authority to discipline or fire the worker.• In
any event, organizations have human rights and occupational health and safety
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