In recent years, worker status has become one of the hottest issues in Canadian employment law.
The proliferation of the gig economy through technology platforms, along with increasing access to sophisticated tax and financial planning strategies, has led to a flurry of new laws aimed at keeping pace with Canada’s rapidly modernizing workplace.
The most recent response in Ontario is through an amendment to the Employment Standards Act (“ESA”) to create specific exemptions for business and IT consultants.
What do the changes mean?
In a nutshell, effective January 1, 2023, workers who meet the ESA requirements to be classified as business or IT consultants, are not entitled to any of the protections under the ESA, such as notice of termination, overtime, vacation with pay, or parental leave.
On the other hand, “consultants” who do not otherwise meet all of the new requirements, could now be deemed employees.
The first requirement is that the worker must meet the definition of an IT or business consultant.
A “business consultant” is defined as an individual who provides advice or services to a business or organization in respect of its performance, including advice or services in respect of the operations, profitability, management, structure, processes, finances, accounting, procurements, human resources, environmental impacts, marketing, risk management, compliance or strategy of the business or organization.
An “information technology consultant” is defined as an individual who provides advice or services to a business or organization in respect of its information technology systems, including advice about or services in respect of planning, designing, analyzing, documenting, configuring, developing, testing and installing the business’s or organization’s information technology systems
Both definitions are fairly broad and can be easily met. Notably absent from the definitions are the traditional indicia of assessing worker status, such as control of the work, ownership of tools, and opportunity for profit or risk of loss.
The next set of requirements is much more specific.
Firstly, the business or IT consultant must provide their services through:
(a) a corporation of which the consultant is either a director or a shareholder who is a party to a unanimous shareholder agreement, or
(b) a sole proprietorship of which the consultant is the sole proprietor, if the services are provided under a business name of the sole proprietorship that is registered under the Business Names Act.
Secondly, there must be an agreement that sets out when the consultant will be paid and the amount the consultant will be paid. The remuneration must be equal to or greater than $60 per hour, excluding bonuses, commissions, expenses, travelling allowances and benefits.
Thirdly, the consultant must be paid the amount specified in the agreement.
Implications for Businesses and Workers
While the changes add substantial clarity to the types of work excluded from ESA protections, the changes create potential pitfalls for both businesses and workers.
For businesses utilizing independent contractors to provide a wide range of advice and services, those workers may be deemed employees if they do not satisfy the ESA requirements. Currently, it is unclear whether the legislation will apply retrospectively to current agreements entered into prior to January 1, 2023.
For workers who sign an agreement satisfying all of the requirements, they could unwittingly waive all of the protections afforded to employees under the ESA.
For workers and businesses who prefer to maintain an independent contractor relationship, the new changes create additional hurdles which must be satisfied to accord with their intentions. Despite the parties’ intentions to create an independent contractor relationship, those intentions can be rendered moot if they do not comply with the ESA.
The Bottom Line
Businesses and workers must pay special attention to their contracts going forward, particularly any contracts purporting to create an independent contractor relationship. Businesses would also be wise to review their current independent contractor agreements to assess the risk of employee misclassification.
The lawyers at Hyde HR Law routinely prepare and provide expert advice regarding independent contractor agreements. We would be pleased to review your current agreement(s) and/or prepare new agreements on your behalf.