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Severance pay for contractors: What to know and what to do if you think you’re an employee

In Ontario and British Columbia, many workers are classified as independent contractors by their employers. Just because an employer has classified you as a contractor, however, does not mean that you are one.

Employers may mean well, but they benefit from this misclassification, particularly when the employee does not know their rights and how to enforce them.

This is because true contractors are exempt from the many protections afforded to employees by the Employment Standards Act. Under the Act, for example, employees have the right to collect worker’s compensation benefits, vacation pay, overtime pay, employment insurance benefits and severance pay, and to be paid for statutory holidays.

READ MORE: What to know about overtime pay in Ontario and B.C.

Are independent contractors entitled to severance pay?

True independent contractors are not entitled to severance pay when their employment is terminated. The only exception is if the contract explicitly provides for severance pay, in which case the employer must pay the stipulated amount. But contractors are entitled to severance pay if they are truly employees at law.

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Am I a contractor or an employee?

To figure out whether you are a contractor or an employee, ask whether you are carrying on business for yourself or for the employer. The courts generally look at the substance of your relationship with your employer rather than the form.

Even if there is a contract labelling you as an independent contractor, or you get paid through your own private corporation, this does not necessarily mean you are a contractor.

Courts will consider the level of control you have over your work, whether you provide your own tools and equipment, the degree of financial risk you assume and your opportunity for profit to determine the true relationship.

READ MORE: Coronavirus: What to know if you’ve been laid off or can’t work

If you have control over when, where and how you do your work; you provide your own equipment; and you’re allowed to subcontract your work, you are likely to be considered as a contractor.

If your employer sets your schedule, determines what work is to be performed and how, requires you to wear a uniform, supervises your work, provides all the equipment necessary to perform your work (such as a workstation, office supplies, toolbox, computer, etc.), and does not allow you to work for anyone else or hire a subcontractor, then you are likely to be considered an employee.

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I recently created the Pocket Employment Lawyer to give individuals a quick way to understand their true role within a company and to answer lots of other common employment law questions.

How much severance pay am I owed?

If you are fired or laid off from your job, and you are truly an employee, rather than a contractor, you are entitled to a complete severance package.

The law determines the value of a severance package by tallying various factors, including your age, years of service, the position you held, any commissions or bonuses earned, benefits and ability to secure new employment.

My employment law team will review those factors and calculate the amount of severance pay owed to you by the company, up to a general threshold of 24 months’ pay.

READ MORE: The 5 facts you need to read about severance pay

What should I do if I’ve been misclassified as an independent contractor?

Contact a lawyer or paralegal at Samfiru Tumarkin LLP as soon as you suspect that you have been misclassified. We can help you determine whether you have been misclassified and can help you enforce your rights as an employee. This may include helping you collect unpaid overtime or vacation pay, or helping you get severance pay if your employment is terminated.

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Once you have legal advice, consider speaking with your employer about the issue. If you have a good relationship with your employer, tell them in writing why you believe you are an employee and ask if they are willing to reclassify you as an employee. If they are not willing to do this, ask them to provide an explanation in writing.

If you are concerned about your taxation status, you can request a ruling from the Canada Revenue Agency to determine whether you are an employee or a contractor. The Canada Revenue Agency will speak to both you and your employer, and ask questions about your relationship.

If you are concerned about your eligibility for Employment Insurance (EI) benefits or participation in the Canada Pension Plan, you can request a Canada Pension Plan and EI ruling.

Have you been fired from your role as a contractor? Not sure if you’re owed severance pay?

Contact the firm, call 1-855-821-5900 or email help@employmentlawyer.ca to secure assistance from an employment lawyer in Ontario or British Columbia. Get the advice you need — and the compensation you deserve.

Lior Samfiru is an employment lawyer and partner at Samfiru Tumarkin LLP, one of Canada’s leading law firms specializing in employment law and disability claims. He hosts Canada’s only Employment Law Show on TV and radio.