The last few years have proven to be tumultuous for Ontario’s employers. The province has made many changes to the Employment Standards Act, 2000 (ESA) through Bill 148 and Bill 47 and all the changes brought about by the COVID-19 pandemic. We’ve also seen changes coming out of court decisions, including the pivotal court case from the Ontario Court of Appeal that rendered almost all written employment contracts ineffective in protecting employers from tougher common law notice provisions. We could go on and on, but you get the point: Employment law in Ontario changes fast and hard.
With such a fast pace of updates and changes, knowing where you stand as an employer can be tricky. So today, we want to bring you back to basics by reviewing what constitutes an employee. As a dentist employer, knowing the nuances that apply to employees vs. contractors could save you a lot of time and money. So, let’s look at the difference between employees and independent contractors and Ontario’s third class of workers – dependent contractors.
Employees vs. Independent Contractors
Ontario Courts have aptly said that employment relationships fall along a continuum, from ’employee’ on one extreme to ‘independent contractor’ on the other. One of the main differences between these two worker categories is that employees are entitled to legislated benefits and protections from their employer, while an independent contractor is not.
For example, employees benefit from the minimum standards of the ESA, including things like maximum working hours, termination notice and leaves of absence. And as an employer, you are also responsible for deducting, withholding, and remitting payments for taxes, CPP, and EI for all employees.
On the other hand, independent contractors are not protected under the ESA legislation. Independent contractors are in business for themselves even while working in your practice. They can make a profit but also stand to suffer losses, in contrast to an employee’s steady wages or salary. This also means that they file and remit their own income taxes, relieving you of the task of managing source deductions and paying CPP and EI premiums.
To determine whether a worker is an employee or a contractor, the courts and judges look at five main factors. Let’s examine each in the context of a dental office with the example of employing a dental associate.
- Is the associate dentist limited to only treating patients for the hiring dentist, or are they free to work elsewhere?
- To what extent do you dictate the associate dentist’s hours/schedule, dress code, policies and procedures, etc.?
- Tools of the Trade
- Is the associate dentist bringing all or most of their own tools (dental equipment, handpieces, loupes and lights, implant kits, etc.) with them?
- Or is most (or all) of the equipment provided by you/your practice?
- Expectation of Profit/Risk of Loss
- Rather than take a commission or salary, is the associate dentist’s remuneration tied solely to their own provision of services to their own patients?
- Considering the integration of the associate dentist’s patients and activity into your overall practice, is it still crystal clear whose business it is?
Dentist employers often make the mistake of thinking that all associate dentists are simply employees who provide their services through a different legal structure. However, when you look at the five factors outlined above, it becomes apparent that there’s a big difference between an employee and an independent contractor. And this difference can significantly impact the outcome of any legal action and the types of benefits, if any, you are required to offer your associate.
The Middle ‘Dependent Contractor’ Category
Now that we have covered the two extremes of the continuum let’s look at the middle. In Ontario, somewhere between ’employee’ and ‘independent contractor’, there is a third category called the ‘dependent contractor’. This legal concept has evolved slowly throughout the years. And it has now been officially recognized in Ontario’s labour relations laws for unionized workplaces while also gaining traction in case lawaka judge-made law concerning employment standards for non-unionized employees.
Unlike independent contractors, dependent contractors are workers who perform services primarily (or exclusively) for only one other person or business under an agreement (verbal or written) that has much more control over what work will be done by these individuals. As such, these contractors have been deemed more vulnerable and closer to the ’employee’ end of the spectrum due to their level of dependence on that one principal. This vulnerability means that, like employees, dependent contractors are entitled to reasonable notice in the case of termination (or pay in lieu of notice).
So, how do you determine whether your team member is a ‘dependent’ or ‘independent’ contractor? The same 5-factor test we set out above is the starting point. Once you’ve determined that someone is not an employee through that 5-part test, the next step is to decide whether the contractor is actually ‘independent’ or ‘dependent’. Using an associate dentist again as our example, start by looking at the exclusivity of their employment relationship with you. If your associate provides services only for you and they rely wholly on you for their business, this most likely spells out a ‘dependent’ relationship. If, as is more commonly the case, your dental associate also works at other practices, then there are other factors to consider, including
- the duration/permanency of the working relationship; and
- the degree of reliance/closeness of the relationship.
The ‘dependent contractor’ designation may capture a lot of existing principal-associate dentist arrangements. If you know your worker is a contractor, you’ll want to double-check if that relationship falls closer to the middle of the employee-contractor spectrum.
As you can see, where your worker falls along the employment spectrum determines how you manage their time, pay, termination, and more. As a result, you both need to be crystal clear on the nature of your employment relationship and act accordingly. A great starting point for setting clear boundaries and expectations is through a valid, written contract. However, no matter what you decide to call the relationship in that written agreement, it will come down to your actions in case of any disputes. The bottom line is that whether someone is a contractor or an employee is a contextual question that depends on both parties conduct. Remember: Even if you call the employment relationship one thing, the courts may decide later that the relationship was actually something else all along, resulting in financial and legal penalties.
DMC is dedicated to helping dentists understand and minimize the risks associated with being an employer. Send DMC an email or give us a call at 416-443-9280 to discuss the specifics of your current situation.