Ontario: Business and IT Consultants No Longer Protected by Employment Standards Legislation

Starting January 1, 2023 certain “business consultants” and “information technology consultants” in Ontario have been excluded from the protections afforded to employees under the Employment Standards Act, 2000 (“ESA”). This change will assist many businesses to provide consultants with more freedom in relation to work arrangements, and has the potential to significantly limit the organization’s liability towards such employees.

What Does Exemption from ESA Mean?

Workers who are classified as “employees” under the ESA receive certain benefits and protections that are not afforded to other types of workers, such as independent contractors. Some of the more significant benefits of the ESA include:

Vacation time and pay
Holiday pay
Overtime pay
Minimum termination entitlements, including continuation of benefits after
termination
Payroll deductions made on the employee’s behalf
Entitlement to EI unemployment benefits following termination, if certain
criteria are met; and
Job protected leaves of absence.

Workers classified as business consultants or information technology consultants (essentially “contractors” or people who are in business for themselves) are no longer guaranteed such protections or benefits under the ESA.

Who is Exempt from ESA

In order to qualify for ESA exemption, workers have to fall into one of the following two definitions:

Business Consultant: “[a]n individual who provides advice or services to a business or organization in respect of its performance, including advice or services in respect of the operations, profitability, management, structure, processes, finances, accounting, procurements, human resources, environmental impacts, marketing, risk management, compliance or strategy of the business or organization.”
Information Technology Consultant: “An individual who provides advice or services to a business or organization in respect of its information technology systems, including advice about or services in respect of planning, designing, analyzing, documenting, configuring, developing, testing and installing the business’s or organization’s information technology systems”

Workers who fall into one of the two definitions above must also meet the following
specific requirements:

The consultant needs to provide services through either a corporation or a sole proprietorship with a registered business name.
There must be an agreement for the consultant’s services that sets out (a) when the consultant will be paid, and (b) how much they will be paid. The amount of pay must be at least $60 per hour (excluding bonuses, commissions, expenses and travelling allowances and benefits).
The consultant is paid the amount set out in the agreement.

Workers who satisfy all of the above criteria will be exempt from the minimum standards of the ESA.

Common Law Termination Liability

Businesses beware! As with all other contractors, it still remains open to courts or other adjudicators with the power to do so, to make a determination that a consultant is really an employee or dependent contractor for the purposes of termination of employment.

The general overarching consideration for determining if a worker is an employee or a contractor is the amount of control the organization exerts over the worker, including but not limited to the following considerations:

Who owns the tools?
Who decides how, where, when the work is performed?
Does the consultant hold themselves out as being an employee of the business?
Does the consultant perform the same/similar work as employees of the business?
Does the consultant have any financial risk or an opportunity for profit?
Can the business discipline the consultant?

If the consultant is found to be an employee or a dependent contractor at common law, they are presumptively entitled to reasonable notice of termination or pay in lieu of notice (being approximately 1 month of notice or pay in lieu of notice for every year worked, up to a maximum of approximately 24 months).

In other words, a business consultant or IT consultant being exempt from the ESA minimums does not necessarily exempt them from common law entitlements.

Takeaways for Employers

Employers must first and foremost make sure that their workers are properly classified. Failure to properly classify a worker as an employee can result in fines; back pay for vacation, overtime, holiday pay, payroll deductions; claims for wrongful termination; etc.

Once a classification determination has been made, employers should ensure they have properly drafted contractor agreements in order to protect themselves from common law termination liability. A solid termination clause in a contractor agreement will limit the worker’s termination entitlements to ESA minimums (being approximately 1 week of notice or pay in lieu of notice for every year worked, up to a maximum of 8 weeks).

If you are unsure about your workers’ status, or if you require assistance to draft a proper contractor agreement to protect your organization, please reach out to HRC Law for assistance.

About the Author

Ljubica Durlovska is an Employment Lawyer at HRC Law Professional Corporation. With a passion for employment and labour law, she has spent many years helping employers with a wide range of workplace issues, including assisting clients with employment contracts, discipline, investigations, policy development, accommodation, termination, and employment-related human rights and health & safety matters. Ljubica also has previous experience in corporate/commercial law and leasing.

About HRC Law

At HRC Law Professional Corporation, our mission is to provide Canadian businesses with affordable, accessible and top-tier legal services. We will never bill you for our time or surprise you with additional fees. For more information on how we can help, visit www.hrcemploymentlaw.com or contact the author directly by sending an email to ldurlovska@hrcemploymetnlaw.com.