Definition of a Contractor – Contractual “label” not always dispositive

Date: 2008
Author: Daniel A. Lublin
Publication: Metro

When real estate broker Vess Ivanov provided three annual contracts referring to agent Ilona Slepenkova as his contractor, she signed each one on the dotted line.  But their relationship eventually soured and when they next met in court, Ivanov faced a wrongful dismissal claim.

At trial, the judge had to first decide if an employment relationship had been created.  If not, Slepenkova’s lawsuit for wrongful dismissal couldn’t succeed as generally, only employees can make such a claim.

Multiple legal tests are used to assess if an individual is a contractor or employee.  Courts look to whether the individual carries on his or her own business or is clearly part of the business of the employer; who directs how the job is performed; who provides the business infrastructure and tools and who bears the chance of profit or the risk of loss.

Although Slepenkova had signed three agreements that labelled her as a contractor and she had declared herself in that manner for income tax purposes, these factors were not dispositive, the court found.  Rather, it was Ivanov’s level of control over how Slepenkova performed the job that led to its conclusion that she was actually an employee.

Employers do not gain the luxury of insulating themselves from employment standards legislation, wrongful dismissal claims, statutory tax withholdings or other employee-based obligations by inserting the label of “independent contractor” into its employment agreements.  Generally, how the parties have actually behaved will sway the court’s favour.

If an independent relationship is actually desired, I suggest taking the following steps:

  • Create an airtight independent contractor agreement and stick to what it says.  Deviance from the agreement permits a court to look past its express language.
  • If the contract is completed or expires, create another one – do not simply continue to work under an undocumented arrangement.
  • Permit the individual to perform services for others.
  • Ensure the contractor maintains genuine discretion over how to perform the job.