Duhaime's Law Dictionary

Independent Contractor Definition:

A person hired by another not as an employee but, rather, pursuant to a contract for service where the engaging party does not supervise or control the detail of the work, and where the party engaged remains self-employed.

Related Terms: Personal Services Contract, Employee, Franchisee, Licensee

An entrepreneur, self-employed person as distinguished from an employee; who is in business on his or her own account.

See also, means and manner test.

Most of the law reports on the issue of independent contractors are income tax cases where an individual has a complex relationship with an employer and then both deny to a tax agency that the individual has the status of an employee, thereby escaping liability for deductions such as national pension pans or employment insurance, and benefiting, as an independent contractor, from tax deductions not available to an employee.

Independent contractor status also means that an employer may not be vicariously liable for the errors or omissions of the independent contractor towards third-parties.

In Shelter Mutual Insurance, Knight was hurt while working for Jones. He sude Jones' insurer claiming he was an employee. The decision of the United States Court of Appeals was short but on point, using these words:

"To determine whether an individual was acting as an independent contractor, we look at the totality of the circumstances. The factors to be considered are (a) the extent of control which, by the agreement, the master may exercise over the details of the work; (b) whether or not the one employed is engaged in a distinct occupation or business; (c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; (d) the skill required in the particular occupation; (e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (f) the length of time for which the person is employed; (g) the method of payment, whether by the time or by the job; (h) whether or not the work is a part of the regular business of the employer; (i) whether or not the parties believe they are creating the relation of master and servant; and (j) whether the principal is or is not in business. Among these factors, factor (a), the extent of control, is the principal factor in determining the relationship.

"[W]e conclude Knight was not an independent contractor. Viewing the record in the light most favorable to Knight, the record established Jones controlled the details of Knight's job, either directly or through Knight's supervisor; only basic skills were required for Knight's job; Knight supplied some basic tools, but Jones provided the bulk of the tools; the tasks Knight performed were part of Top Notch's regular business of setting up mobile homes; and Jones owned the business for which he hired Knight. Further, we do not believe our conclusion is undermined by either the fact that Jones did not withhold taxes from Knight's checks, or the fact that Jones provided Knight with 1099 tax forms (to report various types of income other than wages, salaries, and tips) rather than W-2 forms (to report wages paid to employees and the taxes withheld from them)."

In Canada, note the words of the Court in Montreal Locomotives:

"... in earlier cases a single test, such as the presence, or absence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortious liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated test have often to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive... In many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties."
In Carovar, a Canadian pension panel took up the suggestion of a fourfold test writing:

"... a fourfold test should be applied in the determination of whether the relationship was that of employer-employee or that of independent contractor. These were the tests of control, of ownership of the tools, of chance of profit, and of risk of loss."
In Wiebe Door, Justice Mark MacGuigan of the federal Court of Canada wrote:
"A principal inadequacy (with the control test) is its apparent dependence on the exact terms in which the task in question is contracted for: where the contract contains detailed specifications and conditions, which would be the normal expectation in a contract with an independent contractor, the control may even be greater than where it is to be exercised by direction on the job, as would be the normal expectation in a contract with a servant, but a literal application of the test might find the actual control to be less. In addition, the test has broken down completely in relation to highly skilled and professional workers, who possess skills far beyond the ability of their employers to direct."

"It is exceedingly doubtful whether the search for a formula in the nature of a single test for identifying a contract of service any longer serves a useful purpose. . . . The most that can profitably be done is to examine all the possible factors which have been referred to in these cases as bearing on the nature of the relationship between the parties concerned. Clearly not all of these factors will be relevant in all cases, or have the same weight in all cases. Equally clearly no magic formula can be propounded for determining which factors should, in any given case, be treated as the determining ones."
These conclusions were adopted by Canada's Supreme Court (Justice Major) in 671122 Ontario Ltd. who added:

"The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks."


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