There are many reasons that a company may choose to hire independent contractors instead of employees. These can range from tax consequences to flexibility in the workforce.
The Employment Standards Code sets out minimum standards for employers to meet when they are hiring employees. One of these standards is the minimum termination notice or severance pay that must be given to an employee. Note that in order for these minimums to apply, there is very specific wording that must be included in an employment contract, or else the more onerous common law periods will apply.
Many corporations will hire independent contractors as they are not subject to the Employment Standards Code, including the termination provisions. However, a recent case from the Ontario Court of Appeal shows that this definitely not the whole story.
Monterosso v Metro Freightliner Hamilton Inc., 2023 ONCA 413 is a case dealing with an independent contractor with a 72-month fixed term contract. Seven months into the contract, it was terminated. Unfortunately for the corporation, there was no clear early termination clause in the contract. Therefore, it was held that they could not terminate the contract early and they had to pay the independent contract for the remaining term. This error cost the corporation $550,000.00 in damages.
Although not a case from Alberta, Monterosso is very instructive for all corporations that hire independent contractors. It is imperative to discuss any contracts that you are using with a good corporate lawyer to ensure that these mistakes are not happening. These contracts should be reviewed every few years to confirm that they are current with any changes made to the law. The same goes for employment contracts.
Our corporate commercial team at Stillman LLP are well versed in what needs to be included in employment and independent contractor agreements and can offer advice on these matters. Any corporation that hires employees or independent contractors and has not had their contracts reviewed by a lawyer in the past two years, or that do not have contracts in place at all, should not hesitate to reach out to one of our experienced team members.
By Shannon Kinsella, Associate lawyer at Stillman LLP
Note: This article provides general commentary and is in no way intended to replace the need to consult with a legal professional concerning the specific circumstances of your situation. This article should not be construed or relied upon as legal advice.