Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to becoming an independent contractor, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Ontario business lawyers in this regard. You can contact me directly at michael@carabashlaw.com.
In this blog, I’ll be discussing: who are independent contractors and when are independent contractor agreements used?
Who is an Independent Contractor?
An independent contractor is a person who carries on business as a separate business entity. That business entity could be an individual, a sole proprietorship, a corporation, a partnership, a franchise, joint venture, etc. It doesn’t really matter what legal structure the independent contractor takes. What matters is the relationship between the independent contractor and his, her, or its client (i.e. the person paying the independent contractor for products or services).
Unlike an employee, an independent contractor performs the work if it wants to, how it wants to, when it wants to (you get the point). That said, the independent contractor may agree to provide the services in accordance with the client’s rules, policies, procedures, etc. or in consultation with the client or another person. There may also be other minimal standards imposed on how the services are to be performed. An independent contractor generally has multiple clients and its relationship with those clients is (or at least should be) governed by a written agreement. The independent contractor may itself hire other independent contractors or employees to perform the work (unless the agreement says otherwise). Another big difference between an independent contractor and an employee is the lack of legislative protection the former has: no minimum wage, maximum hours, or minimum notice or severance requirements upon termination. Indeed, an independent contractor is generally disengaged or terminated pursuant to the terms of the agreement.
When are Independent Contractor Agreements used?
Independent Contractor Agreements are used when the parties want to remain separate and specifically want to avoid creating an employment (or other) type of relationship. There are various reasons for this. For example, the independent contractor may want to remain independent because they:
- Run their own business.
- Have multiple clients.
- Decide when and how to do work.
- Want to deduct business expenses from their taxable income.
- Own their own tools and equipment.
- Want to be able to make more money.
For its part, the client will be able to avoid the hassle of withholding and remitting income taxes, employment insurance premiums, and Canada Pension Plan contributions on behalf of the independent contractor. These things should be reflected in the independent contractor agreement (as will liability in case the opposite holds true).
If the Independent Contractor is in reality an employee in Ontario, then the employer is required (among other things) to withhold and remit income tax payable by the employee, Employment Insurance premiums on the employee’s insurable earnings, and Canada Pension Plan contributions in respect of the employee’s pensionable employment earnings. The employer would also need to comply with the termination (minimum notice periods or pay in lieu of notice) and severance provisions in the Ontario Employment Standards Act. Finally, the employee will only be able to make certain limited deductions against their taxable income (e.g. travel, home office, etc.).
Overall, IT IS VERY IMPORTANT that the client and the independent contractor STRUCTURE THE REALITIES of their relationship to be that of client and independent contractor and NOT employer and employee. Simply making the contract look more like an independent contractor agreement instead of an employment agreement won’t do it. If there is ever a dispute about the nature of the relationship, tribunals, courts, and other triers of fact will look at the realities of the relationship – not just what’s written on paper.
Remember, if you need a lawyer to review, draft, revise, negotiate or resolve a dispute concerning an independent contractor | consulting agreement, make a post on Dynamic Lawyers or contact me directly at michael@carabashlaw.com.
In case you’re a Client and looking to engage the services of an Independent Contractor in Ontario, look no further:
Independent Contractor Agreement (Client) – No Satement of Work
This Agreement can be used by a Client who wants to engage the services of an Independent Contractor (e.g. a consultant, a professional, a general worker, etc.) without creating an employment relationship. The “Client” means that this Independent Contractor Agreement favours the Client – for example, through notice, termination, standards of care, and restrictive covenants, etc. The “No Statement of Work” means that the services to be performed by the Independent Contractor are dealt with in the actual agreement and not in a Schedule (attached and incorporated into the agreement as a “Statement of Work”). There will be different versions of this agreement which favour both the Client and the Independent Contractor and which may include Schedules. Schedules aren’t absolutely necessary. They’re just one way of having an agreement instead of writing things out in the actual agreement, you simply modify the Schedule. Here’s the sample Video Guide that comes with this Independent Contractor Agreement (Client) – No Statement of Work:
Now, if you happen to be looking for an Independent Contractor | Consulting Agreement with a Statement of Work, then you’re in luck. Just go here and scroll down and, voila! The “Statement of Work” means that there is a schedule in this particular Independent Contractor Agreement to describe the services (instead of writing everything out in the actual agreement, it’s included in a Schedule). Here’s the sample Video Guide that comes with this Independent Contractor Agreement (Client) – With Statement of Work:
All of Dynamic Lawyers‘ legal forms are lawyer-prepared, simple to read, easy to customize, and only a fraction of the price a lawyer would charge. Also, each legal form comes with a FREE VIDEO GUIDE (watch a useful example of how this legal form can be customized), a FREE DL GUIDE (read helpful information about this legal form), and another FREE DL GUIDE that sheds valuable insight into how legal forms can be challenged. What are you waiting for? Best of all, if you DO need a lawyer and need some legal advice, simply make a post and get FREE quotes from Ontario lawyers focusing on the area of law you require!
Note: this information and these sample video guides are NOT legal advice and are provided for informational purposes only. If you need an Ontario lawyer, go to Dynamic Lawyers and make a post.
