How Can You Tell a Common Law Employee From an Independent Contractor?

a person sitting in a car: Delivery driver using tablet in van with package on seat

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Delivery driver using tablet in van with package on seat

Independent contractors can be an invaluable addition to your workforce. But how can you be sure the person you’re contracting with is truly independent?

It’s not simply a matter of mutual agreement. You can sign a contract with someone specifically creating an independent contractor relationship that won’t hold up in court because the person is a common law employee.

Misclassifying a common law employee as an independent contractor is a major liability, exposing your business to potential lawsuits, penalties, back taxes, and audits. It can also damage employee productivity and morale. The longer the errors go on, the bigger the risk grows.

Before you contract with any worker, you need to know the difference between a common law employee and an independent contractor.

Overview: What is a common law employee?

The Internal Revenue Service (IRS) defines a common law employee as “anyone who performs services for you … if you can control what will be done and how it will be done.”

If you’re thinking the last half of that definition could use a little fleshing out, you have a very good point. Anytime you hire someone to do work, you control some aspects of “what will be done and how it will be done.” You don’t just hire a kid to mow any lawn on the block, right?

So, how much control can you exert before a worker becomes an employee?

Common law employee vs. independent contractor: What’s the difference?

The difference between independent contractor and common law employee rides on the control and independence evidenced in the relationship. You may be accustomed to taking a very hands-on approach to managing employees. Contractors require a different approach.

This is important because common law employees must be

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Prop. 22 would create new kind of independent contractor

Proposition 22, a hotly contested ballot measure, would create a new profession under California law consisting of app-based rideshare and delivery drivers with its own set of labor rules. Much of the campaign rhetoric has focused on competing claims about what most drivers want. Supporters and opponents also have argued over the value of protections the measure would provide to customers of these services.

This column focuses on the new independent contractor framework the measure would create and on the compensation and benefits app-based drivers would receive.

Current law

Under AB 2257, the successor to AB 5, a worker is presumed to be an employee unless the hiring entity can show the worker is: (A) relatively free of the hiring entity’s control; (B) performing work outside the usual course of the hiring entity’s business, and (C) customarily and regularly doing work, in an established trade, occupation, or business, of the same kind being performed for the hiring entity.

AB 2257 excludes from the ABC test certain professional and business relationships, generally subjecting those relationships to the more flexible Borello test which preceded the California Supreme Court’s 2018 Dynamex ruling and enactment of AB 5 the following year. The Borello test focuses mainly on the degree of control the hiring entity has over how the work is performed. It also uses such additional factors as whether the worker uses his own tools in the work to determine whether the worker is a bona fide independent contractor.

What Prop. 22 would do

Prop. 22 would not insert app-based drivers as an additional exception to the ABC test in AB 2257. Instead, “[n]otwithstanding any other provision of law,” the proposal would classify any such driver as an independent contractor “with respect to his or her relationship with a network company” if the network

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The pros and cons of hiring independent contractors

When filling a role in your company, there are many decisions to make. Not only do you want to find the right candidate to complete the job, but you want to ensure that you hire them under the best category to fit your business needs.

Choosing to hire an independent contractor or an employee is a significant decision since today more, and more companies choose to bring on independent contractors – and for a good reason.

There are pros and cons to this decision.

Let’s explore them below.

What is an independent contractor

Independent contractors are self-employed workers.

When hiring them, you have the right to control and direct the result of their work, but no legal rights to demand what will be done or how it will be done.

You won’t serve the role of their boss – even if you hire them for ongoing work for your company.

Also, compensation paid to independent contractors is subject to self-employment tax. This is unlike hiring an employee in which you are responsible for covering various costs, including income tax withholding and FICA (Social Security tax and Medicare).

Independent contractor vs employee

While an independent contractor and employee can complete the same duties, there are key differences between the two that you want to consider when making your decision.

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Pros of hiring independent contractors

Here are some of the many advantages associated with hiring independent contractors.

You might save money

While you might pay your independent contractors more per hour or per project, you will likely save in the end since you don’t have to pay employer-provided benefits, have office space available, provide equipment, and the like.

The benefits paid to employees can increase your payroll costs by 30% or more.

You face fewer legal problems

Usually, you will reduce your

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Howard Levitt: Why the independent contractor status of doctors leave them vulnerable in the workplace

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At trial, the judge acknowledged that both physicians would be required to “consider new career paths” as the College of Physicians and Surgeons of Ontario required that they complete extensive retraining to practice in emergency of family medicine, as they had spent their careers specializing in urgent care and found themselves with nowhere to practice. Dr. Luczkiw developed cancer shortly after the urgent care centre closed.

Despite the, frankly, tragic result and unfavourable outcome for the physicians in this case, the Court took an important step in finding that the physicians were dependent contractors due to their economic dependence on the hospital and their high level of exclusivity. As a result, where privileges are cancelled, revoked, refused or substantially altered, absent this limited statutory exemption, physicians would be entitled to damages for reasonable notice, as dependent contractors, in the same way as employees — and potentially for dramatically more if their loss of hospital privileges prevented them from getting back on their financial feet for years.

The case exposes the cracks in our system by which independent contractor status leaves our physicians vulnerable and unprotected. For a society that has become acutely aware in recent months of the importance of physicians to the health and functioning of our society, we must ensure more fair and equitable treatment of our healthcare heroes. The court in this case, as in others, has increasingly filled in the gaps and provided deserved protection for a group which was historically, to the surprise of many, vulnerable.

Got a question about employment law during COVID-19? Write to me at

Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers. He practises employment law in eight provinces. He is the author of six books including the Law of

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Why the independent contractor status of doctors leave them vulnerable in the workplace

Most physicians are not employees in the traditional sense, but rather are independent contractors with hospital 'privileges'.

© Provided by Financial Post
Most physicians are not employees in the traditional sense, but rather are independent contractors with hospital ‘privileges’.

The pandemic has shone a light on many aspects of society, but nowhere more brightly than on our healthcare system.


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Exposing both its frailties and resilience, COVID-19 has made it clear that the strength of our hospitals lies with our frontline staff: physicians, nurses and other healthcare professionals. However, the independent contractor status of physicians can leave them vulnerable to unfair practices in the workplace. Recently, however, our courts recognized one of the challenges physicians practicing in hospitals face: the dependent nature of many physicians’ practices and the lack of financial protection if their privileges are terminated. Shouldn’t a physician be entitled to compensation if a hospital effectively terminates their job?

Hospitals, and in particular academic hospitals, are complex work environments. Most physicians are not employees in the traditional sense, but rather are independent contractors with hospital ‘privileges’. A hospital grants its physicians the ‘privilege’ of using its resources to provide care to patients. Privileges are very valuable to the physicians who hold them as they have significant financial, professional and reputational benefits.

Increasingly, due to financial considerations, hospitals are seeking to limit the number of physicians on staff. But the loss of privileges has dramatic negative financial consequences for physicians who earn the bulk of their income in a hospital environment, particularly physicians requiring a hospital setting to perform aspects of their jobs, such as complex surgeries.

As privileges are now much harder to come by, some physicians who lose their hospital privileges can find themselves without the ability to earn a living. Recently, the courts acknowledged that some physicians have a relationship of dependence on hospital resources and therefore should be entitled to the

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