Independent Contractors vs. Employees in Ontario
It is common for businesses to treat workers as independent contractors when, in law, they may actually be employees. That distinction matters. In Ontario, adjudicators can look beyond the label used in a contract and decide that a worker who was called a contractor was misclassified and should be deemed to be an employee.
Consequences of misclassification can be significant.
For employers, misclassification can lead to employment-related liability, including violations of Ontario’s Employment Standards Act, 2000, wrongful dismissal claims, payroll deduction issues, and potential CRA liability, among others. For workers, a finding that they were really an employee may open the door to entitlements they were not paid during the relationship, such as overtime pay and/or severance.
What’s in a name?
Simply calling someone an independent contractor does not make it so. Ontario adjudicators will look at the actual working relationship, not just the wording of an agreement or invoice arrangement.
The recent Ontario Labour Relations Board decision Lowery v DKO (2026 CanLII 31497) is a useful example. In that case, some facts pointed toward contractor status: the worker was never on payroll, was not paid at regular intervals, and did not punch a clock. But other facts pointed toward employment, including the use of company tools.
The adjudicator also placed significant weight on the fact that the worker did not move from job to job and was working entirely for DKO. The decision noted that the worker did not operate an independent business while working for DKO, and that this deprived him of the opportunity for profit, which is a key feature expected of an independent contractor.
What misclassification can mean
When a worker is found to have been misclassified, the consequences can be substantial. Depending on the circumstances, the employer may face:
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claims for unpaid employment-related entitlements;
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ESA liability, including fines and penalties;
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wrongful dismissal litigation;
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fines or penalties for failing to remit payroll deductions and workers’ compensation contributions; and
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CRA-related exposure.
In Lowery v DKO, the worker was found to have been misclassified as a contractor and deemed to be an employee, which in that case entitled him to substantial unpaid overtime.
Why these cases can be difficult
Contractor versus employee status is often not easy to assess. The facts do not always point clearly in one direction. A worker may be paid by invoice, work without set hours, and operate through a corporation set up by the worker, yet still be found to be an employee if the overall relationship looks more like employment than an independent business arrangement.
This can be particularly complicated in modern, remote or hybrid work arrangements. The degree to which the worker’s activities are controlled by the company is a key factor, but remote or hybrid work often involves a flexibility that limits this control for all employees, and can make the analysis particularly challenging.
That is why businesses should be careful when deciding how to classify workers. The risk is not just theoretical. In Ontario, the consequences of getting it wrong can be significant.
What employers and workers should keep in mind
For business owners, the key takeaway is to classify workers correctly from the start and to review working arrangements carefully as they evolve. A relationship that begins one way may not remain that way if the practical reality changes.
For workers, it is important to understand that the label “independent contractor” does not necessarily end the inquiry. If the working relationship looks more like employment, there may be entitlements worth exploring.
If contractor or employee status is an issue in your workplace, it is worth getting advice early. The legal and financial consequences can be significant.
Connect with us if you would like to discuss your situation.