Ensuring compliance with employment laws in Canada not only reduces liability but also fosters a fair and transparent workplace.

Amid all the economic uncertainty — tariffs, stock market instability, and an impending federal election — U.S. and Canadian employers are increasingly resorting to laying off their workers. In doing so, many are exposing long-standing but risky employment practices, particularly in how they classify workers — as independent contractors or employees.

The distinction is more than just a label. The misclassification of employees as independent contractors carries significant legal and financial consequences for employers, which often only come to light after terminations.

Employers generally misclassify workers as independent contractors to avoid payroll taxes and other statutory obligations. In the case of U.S. employers engaging Canadian workers, such classifications may also allow companies to circumvent Canadian registration and compliance requirements entirely. However, the classification of a worker is not solely determined by the terms of a contract but also by the factual nature of the working relationship.

Recently, we received a response to a demand letter sent on behalf of a client who had been classified as an independent contractor. The employer’s legal counsel contended that, because the contract explicitly identified the worker as an independent contractor, no severance pay was owed. While it is true that bona fide independent...

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