Hiring a self-employed contractor can have great benefits in terms of flexibility and cost savings but getting it wrong can be very costly.
Two court cases, one that has already been concluded in Canada and another that is about to go through US courts highlight just how easy it is to make a mistake.
Firstly is the case of Tetra Consulting and its owner Lewis Cassar. Tetra was contracted by Continental Bank and Continental Currency Exchange Canada to provide consultancy services to the companies.
The plan was for Cassar to become an employee of the bank following regulatory approval. However a month after the approval was received it changes its plans and decided not to hire Cassar.
Tetra Consulting and Lewis Cassar then took action in the Superior Court of Ontario claiming that he has not been given reasonable notice. The court ruled that Cassar became an employee immediately on regulatory approval but also that for the time before that he was a dependent contractor.
Its ruling took into account that he worked exclusively for the bank, held a senior position and used the bank’s equipment, offices and email address. For that reason he was awarded compensation in lieu of 8 months’ notice.
The second case is that of more than 160,000 drivers with the Uber service in California. They are seeking a class action for a law suit claiming that rather than being self-employed contractors they are employees of Uber and should be treated as such. This would mean certain benefits, including tips which are banned by their contract, being reclaimed from the company.
Both of these cases raise the issue of ambiguity in contracts between employers and those intended to be self-employed contractors. Regulators, courts and tax authorities are not generally bound by what is written in a contract but will instead consider how the work is being carried out. If they decide that a contractor is in fact an employee it can open up claims by the worker as well as tax authorities.