HRM3103: Module 2 Notes
Module 2: The Employer-Employee
Relationship
MODULE 2 OBJECTIVES
Upon completion of this module, you will be able to:
1. Apply appropriate laws and statutes to relatinoships with independent and dependent
contractors.
2. Define employer rights and duties.
3. Define employee rights and duties.
To do in Module 2
1. Read the Module 2 notes (below).
2. Read the textbook, Chapter 3.
3. Complete Unit 1: What is Law? in the workbook.
4. Participate in the Graded Discussion (5%).
Employee vs. independent contractor
An independent contractor is a self-employed worker engaged by a principal (employer) to
perform specific work. It is important to note that independent contractors are NOT employees;
as a result, common law and legislation that applies to employees does NOT apply to an
individual who is an independent contractor. For example, minimum terms of employment in
the Employment Standards Act regarding vacations or overtime that apply to employees do not
apply to independent contractors.
Tests have been developed through Common Law decisions to distinguish between an employer-
employee relationship and an independent contractor-principal relationship. Judges use these
tests to determine the true nature of the relationship:
1. Control Test: How much control is exercised by the employer?
2. Risk Test: Can the person earn a profit or risk a loss?
3. Organization Test: Is the person free to elect his/her own way of doing job?
4. Durability and Exclusivity of Relationship Test: Can the person work for someone else?
5. Tools Test: Are the tools supplied by the employer?
In all cases, judges will apply a substance over form principle to these cases. In other words, how
the relationship works is more important than how it's described in a contract.
Reasons an independent contractor-
principal designation can be challenged
You will note that there are several reasons why a someone would challenge an independent
contractor-principal designation in court. For example, government agencies may question the
parties' characterization in order to demand remittance of statutory premiums; or, an individual
who was originally designated as an independent contractor may wish to have the status
changed to that of employee in order to claim statutory benefits or protections or may want to
press for wrongful dismissal benefits. Finally, a union may want to represent individuals
classified as independent contractors and challenge their status so that they can attempt to
represent them as employees.
WHY IS THIS AN ISSUE?
Currently, there is a trend for employers to hire independent contractors rather than employees.
The obligations that employers have to employees are far greater than those to independent
contracts. For example:
1. Statutory benefits
2. Premiums for workplace health and safety insurance
3. Reasonable notice of termination or pay in lieu
4. Remittance of health and income taxes and contributions to CPP and EI
5. Liability for an employee’s deliberate or negligent acts during the course of employment
Employers may try to avoid these obligations by contracting the work to independent individuals.
But if the relationship too closely resembles that of an employee, then the courts will rule that
the worker is an employee.
Ramifications of an employee-employer
relationship determination by a tribunal
When a tribunal finds a employee-employer relationship where there was supposed to be an
independent contractor relationship, this can significantly impact both the employer/principal and
the worker. The employer will likely have to remit large sums of money to government agencies
for outstanding statutory premiums, as well as paying the employee for employment standards
benefits. The employee may also face ramifications by having to pay outstanding statutory
premiums and income tax not deducted at source.
Strategies to ensure an employer-
employee relationship is not determined
In order to maintain the independent contractor-principal relationship, use the following
strategies:
1. Have a clearly written contract with the independent contractor. It must describe a fixed
term and include an indemnity provision. It must also state that the independent
contractor has no authority to create obligations on behalf of the employer.
2. Do not provide any of the following to the contractor: vacation, holiday or overtime pay,
health care benefits, performance evaluations, or disciplinary measures.
3. Do not take any statutory deductions or remittances. Do not reimburse the contractor for
expenses.
4. Do not set the hours of work for the independent contractor or otherwise control his/her
working conditions.
5. Ensure that the contractor works off-site, can accept or decline work, and can work for
other clients. Require the contractor to purchase his/her own liability insurance.
Following these key strategies will help ensure that you've set up a truly independent contractor
relationship that will withstand a court challenge.
Rights and duties
Both employers and employees have rights and duties to each other under the [Link] rights and
duties oflow from three sources: statute law, common law, and employment contracts.
COMMON LAW:
EMPLOYEE DUTIES TO THEIR EMPLOYERS
o Not to disclose confidential information
o Not to solicit or compete with a former employer (This applies to all fiduciary employees
and general employees if stated in an employment contract.)
o The duty of good faith
EMPLOYER DUTIES TO THEIR EMPLOYEES
o Reimburse the employee for legitimate work expenses
o Exercise a duty of care (Employers must not act in a manner, or fail to act, so that
employees are harmed.)
PRACTICE
PRACTICE QUIZ FOR MODULE 2
After you have completed the assigned readings answer questions in Practice Quiz 2.
DISCUSSION QUESTION FOR MODULE 2
The discussion question for Module 2 is graded (5%). Locate the graded discussion assignment,
read the scenario carefully, and compare it to your readings. Then prepare a detailed response
for the discussion board. Be sure to respond to the postings of your classmates so that you
further develop your answers and your knowledge.
REVIEW
In this two-minute video, a lawyer explains how employers should handle contract workers.
Compare his advice to the advice in your textbook.
Charles Purchase, Lambton College.
