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Contractors vs. Employees: Navigating the pitfalls and perils
Editorial by Christian Saint Cyr
National Director / Canadian Job Development Network
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As 'job developers' helping someone find a contractor role isn't often an outcome we want to see. So, it was concerning last week, when we reported on a Harris Poll survey which found almost one-third (28%) of job seekers are willing to accept contract or freelance positions.
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Obviously, this is a viable pathway for many skilled professionals, but for others it is a dangerous option leading to job insecurity and financial loss. This isn't just a challenge for job seekers but for employers too.
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Let me tell you the story of Mohammed Abdulb Elrateb. His recent Alberta tribunal decision serves as a stark reminder that how an employer labels a worker is far less important than the true nature of the relationship.
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In ARH Developments Inc. v Elrateb, an Alberta Employment Standards Appeal panel confronted this issue head-on.
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Elrateb worked as a security guard for ARH Developments for one month in the fall of 2024. The parties verbally agreed that he would be paid a flat fee of $3,000 per month. An hourly wage was never agreed to.
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When Eltrateb asked for payment after a month, ARH refused.
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Eltrateb filed a labour complaint claiming he was owed wages, overtime and vacation pay. At the tribunal, he produced his notebook where he kept track of his hours. For the month of September, he recorded working the 9 p.m. to 7 a.m. shift over 27 days with a total of 255.5 hours worked.
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A witness for ARH denied that Eltrateb worked all of the hours he claimed but did not produce accurate records to contradict Eltrateb’s evidence.
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Eltrateb was successful and was awarded damages in the amount of $4,860, including $4,418 in unpaid wages, overtime and vacation pay.
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ARH appealed, arguing Eltrateb was an independent contractor, not an employee.
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But the Appeal tribunal rejected that argument.
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Instead of accepting the “contractor” label, the tribunal applied the well-established test adopted by the Supreme Court of Canada – examining factors such as control, provision of tools by the company to the worker, allocation of financial risk, and opportunity for profit.
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It concluded overwhelmingly that Eltrateb was an employee. The Tribunal found that ARH retained control over how, where and when he performed his duties. ARH even provided the tools necessary for the job, from a key to the building to equipment like a “swing knife” used for security duties.
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The Appeal tribunal emphasized that the negotiated $3,000 “flat fee” by itself does not transform a contractor into a business owner or override his statutory protections. It also noted that when an employer fails to keep accurate records of hours worked, it will “have little choice but to accept” the hours claimed by the worker – particularly where the employer was not on-site and the worker “had the best knowledge of when he started and ended his shift.”
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To read this story, it seems as though it's a win for Eltrateb, but is it? It took him more than a year to get what the employer should have paid him in the first place. He didn't get sustainable employment and it's possible the publicity of this case will make employers in the future less likely to hire him.
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And while he was awarded $4,860 there is no guarantee the company will pay the funds out and he may need to seek additional assistance in getting his award.
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Contract employment can lead to minefield of unexpected consequences and they aren't just limited to whether the employer pays or not.
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If you've been calling yourself an independent contractor and the Canada Revenue Agency (CRA) determines you are an employee rather than an independent contractor, you risk losing business expense deductions, being denied employment insurance (EI) benefits if the contract ends, and facing potential retroactive tax penalties.
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There are risks for the business doing the contracting as well. If the CRA determines an independent contractor is actually an employee, the hiring business faces severe financial risks, including liability for unremitted payroll deductions such as CPP, EI, and income tax, interest, and penalties. The business may also lose business deductions, face tax reassessment, and be required to repay GST input tax credits.
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For a business which hires contractors, the CRA ignores contract labels and focuses on the actual working relationship based on several factors:
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Control: Does the payer control how, when, and where the work is done?
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Tools and Equipment: Does the worker own their own tools, or are they provided by the payer?
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Financial Risk/Chance of Profit: Can the worker incur losses or make a profit independently?
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Subcontracting: Can the worker hire helpers or subcontract the work?
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Integration: Is the work performed a key part of the payer's business?
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And while many businesses may fall back on the belief that this is something they've been doing all along without difficulty, times are changing.
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Right now, there is a parliamentary committee meeting in Ottawa to address the track record of Driver Inc.
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Driver Inc. is a controversial Canadian business scheme where trucking companies misclassify drivers as incorporated, independent contractors (selling services via their own "company") to avoid paying payroll taxes, Employment Insurance (EI), Canada Pension Plan (CPP) contributions, and other employee benefits.
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In many cases, these drivers use company equipment, follow company rules, and lack true business independence, effectively creating an illegal tax dodge for carriers and leaving drivers without essential protections like overtime, vacation, and workers' compensation.
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In 2023, the Government of Canada invested $26.3 million over five years to combat employee misclassification in the federally regulated road transportation sector. Since then, the Labour Program’s Misclassification Team has conducted more than 670 inspections and 420 educational sessions across Canada.
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If employers believe it makes sense, there are ways to legally and ethically set this up. Sunira Chaudhri, Founder and Principal Lawyer at Workly Law, has outlined a few considerations for businesses wanting to set up a contractual arrangement to have work done. According to Chaudhri:
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Focus on the reality, not the title: Assess how much control you exercise over schedule, tasks and performance – high control leans toward employment.
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Ensure real independence: Contractors should have the ability to set their own hours, work for multiple clients, and assume financial risk.
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Maintain accurate records: Track hours, tasks and communications. Poor recordkeeping weakens your position if a dispute arises.
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Get legal review early: Before launching contractor arrangements, have employment counsel review your contracts to align them with labour market realities and avoid misclassification.
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If you are advising job seekers who are considering a contract role, encourage them to carefully consider all of the implications. As an independent contractor they will not have, or will have to pay for, protections such as employment standards legislation, CPP contributions, Employment Insurance, workers compensation, and liability insurance.
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Independent contractors can find themselves without regular hours, payment or support with little recourse other than a lengthy court process.
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All of this said, contractors with high demand skills can earn far more than they would be paid in a traditional employment role. They can work for multiple companies, pay subcontractors to do work on their behalf, control their schedule and determine when and how the work gets done.
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I've been asked many times what someone should charge for doing contract work. Often people charge little more than they would earn if they do the work for the employer. I advise independent contractors to charge at least twice what they would earn if they were doing the work as an employee. This is to account for the many supports and benefits employees lose as independent contractors.
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Self employment (contractor roles) are a natural reaction to a skills shortage. An employer can't hire who they need to do the work so they turn to a more expensive independent contractor and have the work done on an as-needed basis. Unfortunately, this is a response to a 'skills shortage'.
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All too often employers are using this 'contractor dodge' with lower skill roles to do exactly that: - to dodge financial responsibility and accountability. It is to the detriment of the employee but in many cases also to the employer.
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In a career development role, we're here to help coach job seekers but also support and inform employers. There is lots of information out there to support both employers and job seekers to better understand contract roles and I believe this is one of those cases where we best serve both populations by sharing this subject matter expertise.
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We’ll be discussing the challenges of contracting vs. employment at our #MotivatingMondays meeting of the Canadian Job Development Network, Monday February 2nd at 8:30am Pacific; 9:30am Mountain; 10:30am Central; 11:30am Eastern; 12:30pm Atlantic and at 1pm in Newfoundland.
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On the morning of Monday Feb. 2 'Click this Link' to join the session LIVE.
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Labour Market 101 Training Modules
for British Columbia and Ontario
20% Discount Until Feb. 12th, 2026
ENDS NEXT WEEK
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We're gathering final registration for our annual Labour Market 101 Training Modules. This is an excellent introduction to important LMI divided up into five different occupations:
Resource Room Advisors (Mon. Mar. 2nd);
Employment Case Managers (Tues. Mar. 3rd);
Facilitators (Wed. Mar. 4th);
Job Developers (Thurs. Mar. 5th); and
Managers / Supervisors (Fri. Mar. 6th)
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Up until next week, Thursday February 12th, everyone who registers is going to benefit from a 20% Discount on their registration.
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We have two series planned, one for British Columbia career professionals and another for Ontario. To learn more, click on one of these links:
BC LMI 101 Training Modules
Ontario LMI 101 Training Modules
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or to learn more, email Christian Saint Cyr, at: csaintcyr@labourmarketonline.com.
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