An Introduction from ignitephysio
Whether you’re a new physiotherapy grad or recently immigrated to Canada looking to work at a private clinic, you’re going to encounter the challenge and complexity surrounding becoming an employee or an independent contractor.
I know when I started out, it was a confusing topic and it was hard to find good advice that would protect you from potential dangers down the road. My hope is that this article will help bring some clarity to this topic and help you avoid the potential pitfalls that can happen.
Over the past few months, I’ve worked with Albert Nolette, a lawyer specializing in contract law, from Field Law in Edmonton to help work through the key issues.
One common theme throughout the work on this topic is that things are complex. Even as I discussed different scenarios with Albert, it was impressed on me that there are a lot of nuances in this area of law and a lot of “it depends”. That being said, getting a solid handle on this topic will arm you with important knowledge and more importantly give you an understanding of when you need to seek outside help.
Although we would like to trust that the employment scenarios we are presented with are viable and legitimate, it’s important to do your own due diligence. As someone once said: the devil is in the details.
I hope you find this article from Albert helpful in understanding the employee versus contractor landscape.
Disclosure: This article should not be construed as legal advice.
Physiotherapists should be aware of the significant legal ramifications that can result from their working status. This document provides a general summary of some of the legal issues you should be aware of prior to entering into a work relationship. However, advice should be sought from a lawyer to assist in determining the status of the working relationship and to review any agreements.
Understanding the Differences between Employee and Contractor for Physiotherapists
As a physiotherapist, your work arrangement can vary. The most common work relationships that exist for physiotherapists are:
- employment relationships; and
- independent contractor relationships.1
Employees work in an employer-employee relationship under a “contract of service”, whereas independent contractors work as freelancers or contractors under a “contract for service”.2 Although this one word gives the appearance of a small difference, it is entirely different type of relationship as you will discover in the rest of this article.
Table 1: Factors Affecting Work Relationships for Physiotherapists
|Factor||Employee||Independent Contractor/ Consultant|
|Responsibility and Liability for work||Employers are typically vicariously liable for the work done by their employees for third parties, and patients. However, employees always remain responsible and accountable with respect to their professional obligations * and this underscores the need for sufficient malpractice insurance.||Independent Contractors are usually responsible for the all work they perform and the services they provide.|
|Tools and Equipment||Employers usually provide employees with the tools and equipment required to do the work such as modalities, needles, charting computers, etc.||Independent Contractors are typically responsible to have their own tools and equipment including computer equipment, clinical tools. What is required should be discussed with the potential practice setting.|
|Patients/ Clients||Employees provide services to the clinic’s patients.||Independent Contractors may have their own clients, subject to the terms of an Independent Contractor Agreement.|
|Profitability Potential||Employees can usually only increase their income by working longer hours or providing more services, if they are paid on that basis.||Independent Contractors can increase profit by strategic and sound management including, but not limited to subcontracting of services and systemizing contract delivery (e.g. use of technology, etc).|
|Financial Risk/ Risk of Loss||Employees enjoy job security, benefits and the safety net provided by employment insurance. Employee’s will not typically be liable for expenses, losses, costs or damages relating to the clinic (e.g. administrative employee sues the clinic).||In exchange for a chance of profit and the ability to come and go as he or she wishes, Independent Contractors typically make financial investments in their business. Independent Contractors do not typically benefit from job security or benefits. Contractor’s will typically be liable to the clinic for the work they’ve been contracted to perform and may be liable for associated losses, costs, damages and expenses sustained in the performance of their work.|
|Work Schedule||Employers set work schedules and hours for employees.||Subject to the negotiated terms of an agreement, an Independent Contractor may come and go as he or she wishes.|
|Integration (e.g. non-compete clause)||Employees are typically bound to one employer and may be subjected to non-compete agreements.**||Independent Contractors may provide services for many different clinics at any given time.|
* Irrespective of the insurance requirements, a patient taking legal action with respect to a treatment or service might initiate civil proceedings against the clinic and the worker for damages. Liability would be an issue to be resolved at trial and the status of the worker would likely be examined by the court.
Table 2. Additional Issues to Consider
|Issue||Employee||Independent Contractor/ Consultant|
|Taxes||Employers must withhold some of an employee’s income and remit the same to the Canada Revenue Agency (CRA).||Independent Contractors are responsible to pay their own taxes.|
|Employment Insurance (EI)||Employers must make payroll deductions from an employee’s remuneration and remit the amounts (the employee’s EI premiums) to the Receiver General. Employees may be eligible for EI benefits.||Independent Contractors do not pay EI premiums unless they opt into the EI program for access to employment insurance special benefits.|
|Canada Pension Plan||Employers must make payroll deductions from an employee’s remuneration and remit the amounts to the Receiver General for CPP.||Independent Contractors pay both the employer and employee portions of CPP contributions.|
|Alberta Employment Standards Code||Employees benefit from all protections provided by the Employment Standards Code including holiday pay, overtime pay, minimum wages, termination pay, vacation pay, maternity leave and parental leave and compassionate care leave.
Employees may complain to Alberta Employment Standards if their Employer has failed to respect the Employment Standards Code.
|Independent Contractors are not entitled to the protections of the Employment Standards Code as they are self-employed.|
|Alberta Labour Relations Code||Employees benefit from the protections and rights provided by the Labour Relations Code, including the right to join unions, take part in certification votes and bargain collectively.||Independent Contractors are not entitled to the protections of the Labour Relations Code.|
|Licensing or Professional Association Fees||Physiotherapists are responsible for their own registration and licensing fees as well as any professional association fees. However an employer may pay or reimburse these fees on an employee’s behalf.||Independent Contractors are responsible to pay their member fees.|
|Professional Development (e.g. course reimbursement)||An employer may pay or reimburse these fees on an employee’s behalf.||Independent Contractors are responsible to pay for their own Professional Development.|
Common Questions about Contractor vs Employee as a Physiotherapist
Here are some of the more common questions from Physiotherapists.
1. How do I determine if I am an employee or a contractor?
At law, the determination of whether an individual is an employee or contractor requires a two-step inquiry.
Under the first step, courts will examine the subjective intent of the parties. This means analyzing the words and terms used in the agreement and determining whether the parties identify the relationship as an employment relationship or a contractor relationship.
The second step requires an analysis of whether the objective reality reflects an employment relationship or a contractor relationship. For Physiotherapists, this step may include, but is not limited to an analysis of the factors identified in Table 1. Canadian courts have routinely looked at the following factors in particular:
- Control (Includes analyzing who controls how and when work is done)
- Tools and equipment (Who provides the tools?)
- Subcontracting (Can the worker subcontract?)
- Financial Risk (Includes analyzing who is responsible for the non-performance of services, losses, costs, damages or expenses)
- Responsibility for investment and opportunity for profit
2. What is a Dependant Contractor?
The law recognizes “dependent contractor” relationships as a category of contractor relationships.
When determining if an individual is a dependent contractor, courts have used the usual “employee vs. contractor” analysis noted in Question 1. If, following that analysis, the court considers the relationship to be that of a contractor, the court will then determine if the contractor is “independent” or “dependent”. This determination is based on factors including: (1) the duration/permanency of the relationship; (2) the degree of reliance/closeness of the relationship; and (3) the degree of exclusivity of the relationship.3
The principal difference between an “independent contractor” and a “dependent contractor” relates to notice upon termination of the contractor’s services. Where a dependent contractor relationship exists, reasonable notice will have to be provided to the dependent contractor to terminate the contract, unless it is specifically addressed in a written agreement. The length of notice that dependent contractors are entitled to is determined on a case-by-case basis.
Typically, all of the matters addressed in Table 2 will apply to dependent contractors in the same way as they do for independent contractors.
3. As an independent contractor, what is the impact of becoming incorporated?
The act of incorporating will have several legal consequences with respect to a contractor’s liability, tax obligations and legislative obligations. Furthermore, when a business is incorporated, it continues to exist until the corporation is dissolved.
The act of incorporating creates a new legal entity and limits the liability of the corporation shareholders. Generally, shareholders are only responsible for their investment in the corporation. However, directors of a corporation may be liable for the debts of a corporation in certain circumstances.
Corporations are also taxed differently. The corporate tax rate is generally lower than the individual tax rate, and thus, incorporation may offer some fiscal advantages (It is best to speak to accountant about these advantages). However, the Canada Revenue Agency may determine that a contractor’s corporation is a “personal services business”, meaning the contractor “would reasonably be regarded as an employee” of the company or companies for whom the contractor’s services were provided, but for the existence of the contractor’s corporation. Being classified by the Canada Revenue Agency as a “personal services business” rather than an incorporated contractor may result in significant negative tax consequences for contractors. (It is best to speak to accountant about these implications)
Contractor’s considering incorporation should also be aware that corporations are required by law to file various documents as required by the applicable laws, including annual returns, articles of incorporation and tax returns.
Physiotherapists considering incorporation should consult a lawyer and an accountant for advice.
4. What if I need to provide my own locum coverage as a contractor? Does this make a difference?
If a contractor must provide his or her own locum coverage, this may increase the likelihood that a court or other administrative body consider the relationship to be a contractor relationship as opposed to an employment relationship.
The terms of a contractor’s agreement, including locum coverage, may be freely negotiated between a contractor and a clinic.
5. Can a clinic include a non-compete clause in an independent contractor agreement or an employment agreement?
A clinic can include a non-compete clause in an independent contractor agreement. However, the terms of a contractor’s agreement are freely negotiated between the contractor and the clinic. Contractors are not required to have such clauses in their agreements.
If a contractor’s agreement includes a non-compete clause, this fact may increase the likelihood that a court or other administrative body consider the relationship to be an employment relationship as opposed to a contractor relationship.
Employment agreements may contain non-competition clauses. However, employees are not required to have non-competition clauses in their employment agreements. The terms of employment agreements are freely negotiated between the employee and the clinic, so long as they meet the minimum standards required by the Alberta Employment Standards Code.
With respect to non-competition clauses that prohibit an employee from competing with their employer after the employee’s employment ends, Canadian courts have held that such clauses are only valid where they are reasonable. The onus is on the employer to prove that such clauses are reasonable between the parties and not contrary to the public interest.
For a determination of reasonableness to be made, the terms of the clause must first be unambiguous. A term is ambiguous if it supports two or more reasonable interpretations. If the clause is found to be clear, a court will then proceed to consider the following factors in determining if the non-competition clause is reasonable: (a) the scope of activities being restricted or prohibited; (b) the duration of the restrictions or prohibitions; and (c) the geographic scope of the restrictions or prohibitions.
Professional advice should be sought before signing an agreement to determine if a non-competition clause is reasonable and valid.
6. What kind of costs do I incur with being an independent contractor?
Contractors who wish to incorporate must be prepared to incur various costs associated with the act of incorporating (ex: preparation of articles of incorporation) and the continuation of the corporation (ex: preparation and filing of annual returns, annual minutes, corporate tax returns, notices of any changes in the board of directors and/or the address of the registered office, etc.). Contractors should also consider the costs associated with obtaining professional services to ensure the corporation is compliant with its legislative obligations.
Contractors are also typically responsible for the costs associated with their own supplies, equipment and tools. This is a factor that may be considered by a court or an administrative body when determining if a worker is an employee or a contractor. See the factors in Table 1 above.
7. I am paid via fee split/commissions. Am I a contractor or an employee?
The determination of whether there exists an employment relationship or an independent contractor relationship is never based on a lone factor. Accordingly, a worker’s compensation structure will not be a determinative factor on its own. It will be one of several factors that a court or an administrative body will consider. Other factors include, but are not limited to those noted in Table #1. It is possible for both contractors and employees to be remunerated by way of fee split/commissions.
Keeping in mind that it is simply one factor in the analysis, a fee split/commission based remuneration may weigh in favour of an employment relationship in situations where the worker provides services to the clinic’s patients and is not required to assume responsibility for losses, costs, damages or expenses. Conversely, if the worker is paid a flat fee for specific services and is responsible for losses, costs, damages or expenses associated with those services, the fee split/commission may weigh in favour of a contractor relationship.
It should be noted that fee split/commission structures vary from one clinic to another. Professional advice should be sought to determine if a fee split/commissions will impact the status of a worker’s relationship with a particular clinic.
8. When does it make sense to speak to a lawyer?
As you can see the matters of employee vs contractor can be complex and are specific to individual situations. If you have any doubt about the nature of a proposed working relationship, it is highly recommended to speak to a lawyer who specializes in contract law.
- The law also recognized “dependent contractors” as an intermediate category.
- In 2008, the Government of Alberta published a document elaborating on the difference between “employee” and “contractor” status—and the various implications and requirements of each. See: Government of Alberta, Alberta Employment and Immigration, Employee or Contractor? Know the Difference (2008), online.
- Drew Oliphant Professional Corp v Harrison, 2011 ABQB 216 at para 76.