Relevant Factors In Employee Or Independent Contractor Determination

• Published date: 05 August 2021
• Subject Matter: Finance and Banking, Employment and HR, Tax, Financial Services, Employee Rights/ Labour Relations, Sales Taxes: VAT, GST
• Law Firm: Moodys Private Client Law LLP
• Author: Carolyn Wong JD

A determination of whether an employee or independent contractor relationship applies between parties will significantly impact tax obligation and liability. The determination will inform an employer's or worker's withholding and remittance obligations with respect to payroll and GST/HST and in some circumstances, cause the "personal services business" rules to apply to a corporation.

Whether an employee or independent contractor relationship exists is a question of fact. There is no single factor that determines the distinction in and of itself, nor a set formula. The factors vary with the circumstances. The central question in evaluating the relationship is whether the worker is performing services for their own business or as an employee.

Justice Mainville in 1392644 Ontario Inc. [Connor Homes] v. Canada (National Revenue), 2013 FCA 85 provided for a two-step method to address this central question. Under the first step of the inquiry, the subjective intention of the parties is ascertained by examining the written contractual relationship between the parties, and or the actual behaviour of the parties. The second step of the method requires a consideration of the traditional factors outlined by the Federal Court of Appeal in Wiebe Door Services Ltd. v. Minister of National Revenue, [1986] 3 FC 553 [Wiebe Door] and confirmed by the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries, 2001 SCC 59 [Sagaz], in considering whether an objective reality sustains the subjective intent of the parties. Factors considered in Sagaz and Wiebe Door include the level of control the employer has over the worker's activities, whether the worker provides his or her own tools or equipment, whether the worker can subcontract work, the chance of profit and risk of loss taken by the worker, the degree of responsibility for investment and management held by the worker, and the integration of the worker in the employer's business in determining the central question of whether the person who has been engaged to perform the services is performing them as a person in business on his own account.¹

The two-step method determines whether the parties' subjective intent, evidenced by their written agreement and actions are grounded in a verifiable objective reality provided by the Sagaz and Wiebe Door factors.²

In some cases, where factors showed an employment relationship despite independent-contractor intent, or where there was a lack of specific intent one way or...