Why Many Employers Love Independent Contractors

There are some benefits for workers in being independent contractors, and some people do prefer having the flexibility to turn down work when it suits them.

However, surveys find that a significant percentage of Canadians who work part-time or as independent contractors do so because they have no alternative. They would rather have steady, full-time paid employment, but cannot get it. And many feel that they cannot decline work even when it doesn’t suit them.

The downside for workers, especially lower-paid ones, are more obvious. Workers who are not classified as employees lose the protections provided by employment standards legislation. They are not entitled to the minimum wage, vacation or statutory holiday pay or overtime. Many workers in the informal or gig economy are making hourly rates that are below Ontario’s statutory minimum wage rate of $14 per hour.

When they are not considered employees, Canada pension plan, employment insurance and other similar payroll taxes are not paid by the employer.

These are cost savings for the employer. That is one of the competitive advantages of these online platforms that enable them to take market share from traditional employers.

Designating workers as independent contractors also means that the company can attempt to legally argue (even if untrue) they can be dismissed at will with no notice or severance when there is no longer a demand for their services.

Are independent contractors really independent?

In Ontario, the Employment Standards Act, 2000 (ESA) is intended to protect workers who are employees, and independent contractors have no protection under it.

Parliament was aware that some employers might be tempted to undermine these rights. There are anti-evasion provisions in the ESA. First, it states that no employer or employee is allowed to “contract out of or waive an employment standard.” Second, it prohibits an employer from treating “a person who is an employee of the employer as if the person were not an employee.”

The courts have laid down the principle that a written contract stating that a person is an independent contractor and not an employee is not determinative. Courts will go behind the contract to see if the facts back up the claim that the worker is independent. There have to be facts establishing that the contractors are not closely controlled in the way they do their work and that they are effectively in business for themselves.

There is good reason for this approach that overrides the private “freedom to contract” in a situation where bargaining power is uneven. Employers often have more bargaining power than employees. An apparently voluntary contracting-out could really be the result of coercion, direct or otherwise.

This post was originally published in the Lawyer’s Daily on November 22, 2019 and can be found here. This is part two of a three-part series. Part one: Rights of workers in gig economy.

Authors: Alexandra Monkhouse is a partner at Monkhouse Law who specializes in employment law, human rights law and disability insurance law. With a background in economics, the gig economy and the underground economy, Peter Spiro is counsel to Monkhouse Law in employee class actions.

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