Increased Scrutiny of Worker Misclassification in Ontario

Written By Talia K. Bregman, Carl Cunningham and Sara G. Parchello

In November 2017, Ontario’s Bill 148, the Fair Workplaces, Better Jobs Act, 2017, received Royal Assent. While many changes to Ontario’s employment laws have already come into effect, others are just around the corner.

This is the fourth in a series of posts providing a practical overview of the Bill 148 changes to Ontario’s Employment Standards Act, 2000 (ESA), legislation that establishes the minimum rights and obligations of provincially-regulated employees and employers in Ontario.

Our first post summarizes the changes to Ontario’s statutory leaves of absence under the ESA. Our second post outlines the changes to employee minimum wage, overtime and public holiday pay. Our third post details the expanded scope of “equal pay for equal work”, which comes into effect in a few weeks from now on April 1. This fourth post outlines the changes aimed at preventing the misclassification of employees as independent contractors and unpaid interns.

Snapshot of Changes to Minimize Misclassifications

Unlike employees, true independent contractors and true unpaid interns are not covered by the ESA and therefore are not entitled to minimums under that legislation like minimum wage, vacation, benefits, notice of termination or other benefits and/or entitlements on termination. Accordingly, there have been a number of efforts in Ontario to deter employers from misclassifying employees. For example, from 2013 to 2014, the Ontario Ministry of Labour embarked on an enforcement blitz of unpaid internship programs across the province, which resulted in many unpaid internship programs abruptly coming to an end.

To continue this effort, the following changes to the ESA under Bill 148 are now in effect in Ontario.

Practical Implications for Ontario Employers

Historically, employers needed to be concerned about misclassifying workers because of liabilities that included penalties and interest from the Canada Revenue Agency for failing to remit income taxes, Employment Insurance premiums and Canada Pension Plan contributions, penalties for failing to remit workers’ compensation premiums and unanticipated damages in wrongful dismissal actions. Under the ESA, employers can now also receive hefty fines for misclassifying their workers. We will monitor how the Ontario Ministry of Labour proceeds with the enforcement of these rules, but under the ESA a corporation can be fined up to $500,000. While fines at the upper end of the range are unlikely in the case of a single misclassification, the takeaway for employers is that there is now an additional source of liability for misclassifying employees as independent contractors or unpaid interns.

To be compliant with the new changes to the ESA aimed at minimizing misclassification issues, provincially-regulated employers in Ontario should consider:

1. When it comes to independent contractors:
   • reviewing the guidelines published by Ontario’s Ministry of Labour on the “difference between an employee and independent contractor” prior to on-boarding independent contractors. A copy of the Ministry’s guidelines can be found here;
   • establishing a due diligence process for engaging independent contractors (e.g., ask contractors to complete a questionnaire before providing services), which can then be relied upon to help prove that a worker is truly a contractor;
   • ensuring that such independent contractors are engaged by way of a well-drafted written agreement;
   • reviewing current arrangements with independent contractors, including written agreements, to consider whether the relationship should be terminated, renewed on a contractor basis or converted to an employer-employee relationship; and
   • implementing a practice to reduce the risk of a finding of a misclassification by limiting the term of independent contractor arrangements (e.g., no more than 12 months).
2. When it comes to unpaid interns:
   • reviewing unpaid internship programs to ensure they are not offside of the new rules under the ESA; and
   • implementing risk prevention strategies such as: (a) limiting unpaid internships to co-op placements organized by educational institutions; or (b) eliminating unpaid internship programs altogether.

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