Many employers understand the difference between an employee and an independent contractor. But, most need to familiarize themselves with a third, legally recognized category called dependent contractors. This category falls between the employee and independent contractor groupings.

Avoid potential legal pitfalls by taking a look through our guide on what it means to be a dependent contractor for small and medium-sized businesses.

What are Dependent Contractors?

Dependent contractors are contractors economically reliant on one principal. To determine if someone should be labelled as such, a court will consider whether the contractor:

• Works predominantly for one principal.
• Is subject to the principal’s control regarding how the services are provided.
• Uses their own tools in the provision of services.
• Has undertaken any business risks or expects a profit from providing services.

What Does This Mean for Employers?

Unlike with independent contractors, principals must provide dependent contractors with reasonable notice of termination. If they don’t receive adequate notice, the dependent contractor can sue the principal, similar to how an employee can sue their employer.

Regardless of how the parties choose to label their relationship, the courts will look deeper into the title they use to determine the true nature of the relationship.

For Example

In 2014, the Supreme Court of British Columbia ruled Khan v. All-Can Express Ltd. (2014 BCSC 1429), a dependent contractor case.

In this instance, Khan, an owner-operator of his own truck, entered into a contract to service Ace, a courier company. The contract stated that he was an independent contractor and responsible for the maintenance of his truck and related expenses. It also said he had to hire a replacement driver when unavailable and didn’t receive employee benefits or vacation time.

Despite the above, the court found that Khan, who had worked for Ace for five years, was a dependent contractor and awarded him four months’ notice. In deciding that Khan was economically reliant on Ace, the court noted the following:

• Other owner-operators like Khan had long-term relationships with the company.
• Khan worked full-time.
• Ace didn’t want Khan to work for competitors.
• Khan had to wear the Ace uniform and display their logo on his truck.
• Khan had to follow Ace’s policies.

Tips for Employers

To minimize liability in the event that a contractor is found to be a dependent contractor, employers should take the following steps:

• Have clear and concise written agreements.
• The contract should clearly state the start and end date if the contractor is hired for a fixed term. The contract should also provide a mechanism for the parties to end the relationship before the end of the fixed term if they wish to do so.
• If the contractor is hired indefinitely, the agreement should have a termination clause that provides reasonable notice.
• The contract’s termination provisions should reflect, at minimum, the notice periods set out in applicable employment standards legislation.
• Try to ensure the contractor is working at a variety of organizations.

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