WORKER MISCLASSIFICATION (and Independent Contractors)
Contact Neufeld Legal PC at 403-400-4092 or Chris@NeufeldLegal.com
Worker misclassification of an independent contractor arises when a business treats a person as an independent contractor when they should legally be classified as an employee. This is a critical distinction because employees are entitled to numerous rights and protections under applicable employment standards legislation, as well as being subject to different tax rules, while independent contractors are generally not (distinctions independent contractor vs employee).
The legal classification hinges on the true nature of the working relationship, not just what the contract or the parties call it. Courts and regulatory bodies like the Canada Revenue Agency (CRA) look beyond the label to the facts, using various tests to determine the correct status (CRA independent contractor test). These legal tests are particularly important, given the emphasis that is placed on them in making the determination as to the appropriate classification for the worker, such that it is particularly important to understand and implement those factors in creating and maintaining the work relationship needs to be an exceedingly high, and ongoing, priority, especially when one considers the legal consequences that may arise should it be determined that the worker was misclassified.
Misclassifying an employee as an independent contractor allows a business to avoid its legal and financial obligations, leading to serious penalties if discovered through an audit or a legal challenge. The potential legal and financial liabilities for the hiring business, can include:
-
Employment Standards Violations: The business can be liable for retroactive payment of employee entitlements, including:
-
Unpaid overtime pay.
-
Unpaid vacation pay and statutory holiday pay.
-
Termination pay or severance pay upon dismissal.
-
Failure to provide statutory leaves (e.g., sick leave, parental leave).
-
Fines and administrative penalties from provincial or federal labour authorities.
-
-
Tax and Statutory Liabilities (CRA):
-
Liability for the employer's share of Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, plus the amount that should have been deducted from the worker's pay.
-
Interest and penalties from the Canada Revenue Agency (CRA) for failure to withhold income tax.
-
-
Workers' Compensation: Liability for retroactive premiums to the provincial workers' compensation board.
-
Wrongful Dismissal Claims: A misclassified worker may sue for common law reasonable notice of termination, which can be significantly more than the minimum entitlements under employment standards legislation.
Our law firm provides strategic legal advice, review and drafting of independent contractor agreements to both businesses and contractors in Calgary and beyond. Schedule an initial consultation with our law firm to learn more about how our extensive business contract legal experience can benefit your business engagements and contractual arrangements. Call 403-400-4092 or email our law firm at Chris@NeufeldLegal.com today.