Employees vs Independent Contractors Canada

Updated as of 2025

Introduction

In Canada, companies have increasingly sought to classify workers as independent contractors to reduce costs and administrative obligations. Workers generally do not oppose this classification because of favourable tax treatment enjoyed by contractors and other small businesses.

There is an important distinction between employees, independent contractors, and dependent contractors. Firstly, employees typically work for a single business where an employer controls the working conditions (e.g., hours of work, wage rate, tasks, etc.). Employees are subject to an employment contract that specifies such conditions. Next, an independent contractor usually has many clients, controls their own working conditions, and possesses their own tools. Lastly, dependent contractors are financially dependent on primarily one client and are be entitled to certain rights that employees also have (e.g., reasonable notice, the right to unionize, etc.).

Unfortunately, some  independent contractors in Canada are misclassified and many would be deemed employees or dependent contractors if the arrangement between them and the company retaining their services was reviewed by a governmental authority or court. Often, such a review occurs when a worker has the contract arrangement terminated and seeks employment termination or employment insurance benefits. It also happens when workers attempt to unionize and collectively bargain.

The misclassification of workers can have profound consequences for both the company and the wrongly classified worker. Accordingly, the importance of understanding the classification of workers as employees or contractors has increased in recent years.

Classifying a worker as an employee, independent contractor, or dependent contractor in Canada involves a complex assessment of the true nature of the working relationship. Courts and adjudicators have established a complicated and flexible analysis for making such a determination. The importance of making a correct classification cannot be understated. It is hoped that the following will assist companies and workers in making proper classification decisions and avoiding the financial liability associated with misclassification.