Employees or Independent Contractor? What You Need to Know in 2025

Contract work is on the rise, from freelance designers and consultants to gig workers and project specialists. Companies love the flexibility while keeping costs down. Workers enjoy the freedom. But the line between “employee” and “independent contractor” isn’t always so bright. Simply writing the word “contractor” in an employment agreement isn’t enough to legalize the relationship. Instead, the Ontario law focuses on the day-to-day reality of the working relationship rather than the title alone. Misclassifying a worker can carry serious legal and financial consequences for both the employer and the worker. 

Employee or Contractor? Or Somewhere in Between?: Key Distinctions Between Worker Classifications

Generally speaking, an employee is someone who works for a company as part of its team, performing tasks under the direction and supervision of their employer. They are integrated into the organization’s day-to-day operations, rely on the company for their income, and have a structed working relationship that comes with legal rights and protections. 

In contrast, an independent contractor is a person who provides services to a company but operates their own business. They control how, when, and where the work is done, often supply their own tools or resources, and can work with multiple clients. Unlike employees, independent contractors take on the financial risk and reward of their work, and their rights and obligations are primarily defined by the contracts they negotiate. As such, they typically do not receive protections under Ontario’s Employment Standards Act (ESA) or other such labour laws. 

In addition to these two classifications is a third that falls somewhere between an employee and an independent contractor: the dependent contractor. A dependent contractor is a worker who runs their own business, such as setting their hours or supplying their own tools, but is economically dependent on a single client or employer for most of their income. They don’t enjoy all the protections employees are entitled to, but courts recognize that they aren’t fully independent either.  In recent years, courts and tribunals have also faced complex questions around gig-economy workers, such as Uber Lyft, DoorDash, etc. drivers. These cases are evolving and illustrate how classification law continues to develop as work models change.

In practice, dependent contractors are often entitled to some employment protections, such as reasonable notice of termination, even though they aren’t considered full employees. This status exists to prevent employers from taking advantage of workers who rely heavily on one business for their livelihood. The leading Ontario decision confirming this entitlement comes from Keenan v. Canac Kitchens Ltd., 2016 ONCA 79, where our firm, Lecker & Associates, acted as counsel. In the ruling, the Court of Appeal upheld a 26-month notice award, the highest ever notice period awarded for the wrongful dismissal of a dependent contractor. Despite the fact that Marilyn and Lawrence Keenan were classified as “independent contractors” on paper, the Court found that they were in fact “dependent contractors” because of their longstanding and near-exclusive relationship with their employer, Canac Kitchens. So when Canac Kitchens terminated their contract without notice or pay in lieu, the court ruled that they were entitled to reasonable notice and awarded them damages of roughly $125,000 in lieu of 26 months’ notice.  

This case illustrates how the law doesn’t just look at titles on paper. The nature of the working relationship determines an employer’s legal obligations. 

Why the Classification Matters

The distinction between employee versus independent contractor is a critical one to make because the classification determines the rights and protections a worker receives. For example, employees are covered by laws like the Employment Standards Act in Ontario, which guarantees: 

• Minimum wage
• Overtime pay 
• Hours of work and breaks
• Vacation pay
• Termination pay or notice

These ESA rights apply only to employees. Dependent contractors do not receive ESA entitlements, but they may still be entitled to reasonable notice of termination under common law. Employees are also protected under Ontario common law and the Occupational Health and Safety Act.  Employers are responsible for providing the rights, protections, and safe working conditions these laws guarantee, and failing to do so can lead to hefty fines, civil claims, and other legal consequences.

Understanding whether those protections apply, however, depends on how the worker is legally classified.

What Courts Actually Look At: It’s Not the Title, It’s the Relationship

Slapping the term “independent contractor” on an employment contract doesn’t actually determine how the law will view it. The courts consider the working relationship as a whole, not just the title. The Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] SCC 59 lays out the the central question at the heart of the issue: whether the worker is truly operating an independent business or if they’re acting like a full employee on the company’s team. To arrive at an answer, courts first examine factors such as:

• Control over the work: who directs the daily tasks and workflow
• Provision of tools and equipment: whether the worker supplies their own or uses the employer’s
• Ability to take on multiple clients: whether the worker has the freedom to diversify their income
• Financial risk: whether the worker assumes personal risk in completing the work
• Reporting structure: who the worker reports to on a regular basis
• Payment terms: how and when the worker is compensated
• Hiring and termination process: the way the worker is brought on board or let go

While this is not an exhaustive list, it demonstrates the various elements courts consider when assessing whether a worker is running their own business or serving as an employee to determine legal obligations. Getting the classification wrong can have serious consequences.

If you are unsure of how your arrangement should be classified, speaking with one of our trusted employment lawyers can help make sure you’re covered and avoid expensive and time-consuming disputes down the road. 

How We Can Help

Whether you’re a worker trying to understand your rights or an employer trying to avoid costly misclassification claims, our team of skilled Toronto employment lawyers can help you navigate the grey areas with confidence.

From assessing your true entitlements to negotiating fair settlements and representing you in disputes, we ensure your rights are fully protected. 

📞 Call 416-223-5391, e-mail us at intake@leckerslaw.com or book your no charge assessment today.