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Independent Contractor Misclassification: Is Canada Less Strict Than the U.S.?

Some Canadian employers believe the risks of independent contractor misclassification are more severe for companies in the U.S. than in their home country. However, history proves that Canadian labor authorities are not afraid to crack down on companies that misclassify their talent—and levy serious consequences toward offenders. 

Read on to discover three examples that illustrate the importance of independent contractor compliance for Canadian employers. 

Dependent Contractor Wins Grievance Over Employer

Companies must pay particularly close attention when classifying talent whose roles shift over time. Take, for example, the case of a long-time independent contractor who eventually became an employee for his company—then took legal action after being fired. 

In British Colombia, an unnamed employer engaged an independent contractor for over two decades. Over time, that independent contractor began taking on more responsibility for the employer. The worker also began accepting stocks rather than a regular monthly payment of $5,000. 

After 21 years of classifying the worker as an independent contractor, the employer decided to offer him a job as a full-time employee. Two years later, the company terminated him without cause—and prompted him to take legal action. The worker alleged that he had been working as a dependent contractor rather than an independent contractor before being an employee. This distinction is important: as a dependent contractor, the company would owe him more in severance pay than if he were an independent contractor. 

Courts ruled that because the worker was an integral part of the company’s operation for ten years before being hired as a full-time employee, he was indeed a dependent contractor during that time. As a result, the company was forced to pay him damages equivalent to 12 months of backpay—more than they would have if he were an independent contractor over the decade before he was hired. 

Uber Faces a $400 Million Class-Action Lawsuit in Ontario

Smaller companies are not the only ones that must be careful when classifying independent contractors. The world’s largest rideshare company, Uber, is under fire for actions related to independent contractor classification in Ontario. 

In summer 2020, Canada’s highest court handed down a ruling allowing Uber drivers to resolve labor issues through Ontario courts rather than through an expensive arbitration process. Essentially, the ruling leaves the door open for Uber drivers to gain the rights of full-time employees rather than being classified as independent contractors, per Ontario’s Employment Standards Act. 

Following the ruling, Uber drivers and their lawyers are moving forward with a $400 million class-action lawsuit against their employer. They are fighting for protections afforded to full-time employees under Ontario’s labor laws, such as vacation pay and a minimum wage. 

Lior Samifru, a lawyer fighting on behalf of the Uber drivers, says the ruling and accompanying lawsuit could bring enormous changes for independent contractors seeking treatment as full employees. Companies must monitor the situation to understand how it will affect the legality of classifying talent as independent contractors.

Workers Fight Utilities Giant Over Misclassification 

Like Uber, Canadian multimillion-dollar utility provider Just Energy recently faced a class-action lawsuit from workers alleging contractor misclassification. 

In 2016, lawyers filed a class-action lawsuit on behalf of 7,000 Just Energy sales agents who say they were improperly classified as independent contractors. The lawsuit claims that Just Energy forced the plaintiffs to take actions required of employees, such as adhering to specific instructions about when and where to work, what to say and wear to customers, and more

The case was slated to go to trial in November of 2021, but Just Energy filed for insolvency in April. Regardless, the lawsuit illustrates the severe potential consequences that await companies that misclassify their talent in Canada.

Correctly Classify Talent in Canada and Beyond

Fortunately, Canadian employers looking to mitigate misclassification risks don’t have to bear the heavy burden of ensuring compliance alone. Resourceful companies partner with independent contractor classification experts to properly pay and manage their talent. 

Velocity Global’s Independent Contractor Classification solution gives companies peace of mind they are properly classifying their workforce—in Canada and over 185 countries internationally, not to mention all 50 U.S. states. Reach out today to learn how we can help your company correctly classify your talent, no matter where you engage talent. 

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