As a startup or small business owner, it’s important to understand the complexities of the employment and non-employment work relationships that exist in Ontario. There are three main types of service contracts, each with its own unique characteristics and legal implications.
Independent Contractor Agreement
The first type of contract is the Contract for Service, also known as the Independent Contractor Agreement. In this type of relationship, the service provider is considered to be operating their own business and is not an employee of the company they are providing services for.
Additionally, independent contractors are responsible for their own equipment, employees, and financial risk, and have the opportunity to profit from their work. The company has limited control over the activities of the independent contractor and is not responsible for providing termination compensation or liable for torts committed by the independent contractor.
Employee Agreement
The second type of contract is the Contract of Service or Employee agreement. In this type of relationship, the service provider is considered to be an employee of the company they are providing services for. The company has complete control over the employee’s work hours, tools and equipment, work methods, and has the right to terminate their employment.
In the case of termination without cause, employees are entitled to statutory minimum notice of dismissal, reasonable notice of dismissal under common law, or pay in lieu of notice. The company also has the right to expect employees to act in good faith, avoid conflicts of interest, protect the company’s assets, and maintain the confidentiality of the company’s business information.
Dependent Contractor Agreement
The third type of contract is a hybrid of the first two, known as the Hybrid of Contract for Service and Contract of Service or Dependent Contractor agreement. This type of relationship is most commonly found with commissioned sales agents and professionals such as physiotherapists and chiropractors.
In this type of agreement, the service provider is economically dependent on the principal and may have limited control over their work. Dependent contractors are not considered employees but may be entitled to termination compensation if the contract does not address it.
Differentiating between these types of contracts can be difficult, but it is important for employers to make the distinction as it can have legal implications. For example, if an individual is considered an employee or dependent contractor, the employer may be held responsible for termination compensation and vicarious liability for any torts committed by that person.
Understanding the nature of these relationships is also critical in cases such as union certification applications before the Ontario Labour Relations Board and workers’ compensation claims. Employers must carefully examine the specific facts and circumstances of each case and seek guidance from an employment lawyer to make informed decisions and mitigate potential risks.
In summary, understanding the distinctions between independent contractors, employees, and dependent contractors is vital for employers navigating the complex landscape of work relationships. The implications of these distinctions extend to matters such as termination compensation, liability for civil wrongs, and workers’ compensation claims. By carefully examining the nature of these relationships and seeking guidance from an employment lawyer, employers can make informed decisions and mitigate potential risks.
Submitted by:
Roberts Obradovic Law | admin@robertsobradovic.com | (647) 724-5179 | www.robertsobradovic.com
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