Independent Contractor vs Employee: Misclassifying Can Cost Fortunes

Under our BC employment laws, employees and contractors are treated differently. Misclassifying them can cost an employer fortunes as explained below.

And the tricky part is that a contractor can become an employee even if you did not agree to it. In other words, an independent contractor can become a dependent contractor and therefore treated similar to an employee.

And employee then will have numerous rights under both common law and the Employment Standards Act.

Let’s explore the employee vs. independent contractors in an example below:

Is Mike still an Employee or an Independent Contractor?

You own your own company and need help with marketing. You meet someone in the community, Mike, who runs his own business offering marketing services.

You and Mike come to an agreement, and you hire Mike as an independent contractor. You are cautious and draft an independent contractor agreement where you and Mike agree to the true nature of the work relationship, you agree to pay Mike monthly without statutory deductions, vacations, etc.  Mike agrees he will provide his own tools, and it is agreed that Mike can provide his marketing services to whomever he likes in addition to your company.

Now it’s 5 years later. Your company has grown rapidly from the start. Mike has been barely able to keep up with your company’s demands, let alone even consider taking on other clients. Mike needs more specialized equipment and programs to meet your company’s marketing needs, so you provide those to him to keep the ball rolling and because, honestly, he’s doing a really good job and has earned it.

Is Mike an independent contractor?

Maybe not.

Caselaw on Classifying Employment Type

Consider the facts in the recent case Ursic v. Country Lumber Ltd., 2025 BCSC 970, which sheds light on the employment status of contractors:

• Boris Ursic, a 61-year-old experienced truck driver, is the sole shareholder and director of Borly Holdings Ltd., a company he has operated since 1999.
• Country Lumber Ltd. sells construction materials and uses both employee drivers and independent “owner-operators” for deliveries.
• In April 2010, Country Lumber and Borly entered into an oral agreement for Borly to provide delivery services using its own trucks.
• Over the course of the business relationship, Borly operated three trucks and worked exclusively for Country Lumber for 14 years, demonstrating significant economic dependency.
• On February 9, 2024, Country Lumber’s Yard Manager advised Mr. Ursic to “look for work elsewhere” due to slow business.
• On March 15, 2024, Country Lumber terminated the agreement without alleging cause.

Based on these facts, the Plaintiff argued that Borly was a dependent contractor (akin to an employee) and was entitled to reasonable notice of termination. The Defendant claimed the opposite, asserting Borly was an independent contractor and that no notice of termination, or pay in lieu thereof, was required. Alternatively, if notice was owed, it should be limited to one month.

The Legal Test

The Supreme Court of British Columbia, like other Canadian courts, recognizes that the employer-employee relationship is a spectrum. At one end is the independent contractor, and at the other is a true employee. Somewhere in the middle is the dependent contractor, a category created to protect workers who develop economic dependency on a single client.

Determining if a worker is an employee or independent contractor is a factual question. While a written contract reflects the intent of the parties, it’s not always determinative.

The Employment Standards Act in British Columbia provides guidelines for determining employment status, but courts often rely on case law, such as Sagaz Industries Canada Inc. v. 671122 Ontario Ltd., to evaluate the working arrangement.

Judge Says worker is a Dependent Contractor despite Signing on as an Independent Contractor

In Ursic, the Judge considered several factors to assess the level of control and dependency, ultimately determining that Borly was a dependent contractor:

• Borly earned 100% of its revenue from Country Lumber, indicating strong economic dependency.
• Borly worked full time, Monday to Friday, with occasional weekends.
• Country Lumber exerted a significant level of control over Borly’s operations:
  • Assigned delivery tasks and schedules.
  • Required branded decals on trucks.
  • Mandated attendance at safety meetings.
  • Required use of GPS tracking and check-in systems.
• Borly’s services were integral to Country Lumber’s business, highlighting their integration.
• The business relationship lasted 14 years and involved coordination and negotiation over truck acquisitions.
• There was limited opportunity for profit or degree of financial risk, as Borly’s income was tied exclusively to Country Lumber.

The Judge awarded the Plaintiff 10 months’ worth of pay in lieu of notice, $96,594, because of the dependent contractor status. This is in line with the Employment Standards Act, which may also entitle workers to benefits like vacation pay or employment insurance (EI) in some cases.

The Test for Determining Whether Someone is an Employee, Independent Contractor or a Dependent Contractor

Here is an easy visual for determining the status of the person you work with:

Back to Mike’s Scenario

Mike has been working solely for your company for the last 5 years, full time, to meet your demands. His services are integral to your business, and you have provided him with specialized tools and equipment. These factors suggest a high degree of financial risk tied to your company and a high level of control over his working arrangement.

A court would likely classify Mike as a dependent contractor or possibly even an employee rather than an independent contractor as initially intended.

Do What Happens if You Terminate Mike?

If you terminate Mike without cause, you could owe him significant damages, including reasonable notice similar to the Ursic case. Misclassification could also lead to obligations for vacation pay, employment insurance (EI) contributions, or other benefits under the Employment Standards Act.

Why This Matters

Misclassifying independent contractors vs employees can have serious legal and financial consequences.

Businesses must regularly review their work relationships to ensure compliance with employment laws. The distinction between employee or independent contractor affects not only termination obligations but also eligibility for benefits like employment insurance (EI) and vacation pay. The Sagaz Industries Canada case provides a framework for assessing these relationships, looking at factors like opportunity for profit and degree of financial risk.

The Conclusion: Independent Contractor vs Employee

Employers and businesses engaging independent contractors should review their work relationships annually or at least semi-annually to assess the true nature of the employment status. Key factors to consider:

• Control: Who controls the who, what, when, and how of the work?
• Ownership of Tools and Equipment: Who provides them?
• Opportunity for Profit/Degree of Financial Risk: Are employees or independent contractors paid regardless of the employer’s performance, or is there a risk of loss?
• Integration: Is the worker integral to the business?
• Intent of the Parties: What was the intended working arrangement?
• Economic Dependency: Does the worker rely heavily on one client?

Safeguarding Against Future Risk via the Employment Contract

An employment lawyer can help draft an employment or contractor contract which can:

• Address rights and obligations in both scenarios so both sides can expect a specific outcome and avoid risk
• Review current employment contracts as time passes, and revise them to ensure both employer and employee are protected and treated fairly
• Assess risks of any engagement and provide advice on a healthy employer/employee relationship.

If you’re unsure about the employment status of a worker, whether they’re an independent contractor vs an employee, or if you’re planning to hire an independent contractor, contact us to discuss the best way to proceed. Ensuring compliance with the Employment Standards Act and understanding the employer-employee relationship can protect your business from unexpected liabilities.