Contractor or employee: why the contract does not decide

Current to September 11, 2026.

Very few arrangements fail because the contract was badly drafted. They fail because of the gap between what the contract says and how the relationship operates in practice.

A written agreement calling someone an independent contractor is evidence of what the parties intended. It is not the answer. If the CRA or a court looks at the arrangement, they look at how it operated in practice, and the label goes only as far as the facts support it.

What gets examined

The analysis is fact-driven rather than mechanical, but the recurring themes are familiar. Who controls how, when and where the work is done. Who supplies the tools and equipment. Whether the worker can make a profit or suffer a loss on the engagement. Whether they can subcontract or hire helpers. How integrated the work is into the payer’s business, and whether the worker has other clients at all.

No single factor settles it. A worker who sets their own hours but has one client, uses the payer’s systems and cannot subcontract is in a different position from one doing the same tasks for six different businesses.

What a wrong answer costs

For the payer: source deductions that were never withheld, remittances that were never made, and reporting obligations that were never met — usually with interest and penalties attached. Employment standards entitlements such as notice, vacation and overtime may also apply, none of which were priced into the arrangement.

For the worker’s corporation, a finding can go further and land on personal services business treatment, which is a considerably more expensive place to be. That is dealt with separately in what a personal services business is.

The practical point

Long-running engagements drift. An arrangement that was genuinely independent in year one often is not by year three, because the working relationship has quietly become something else while the paperwork stayed still. The cheapest time to establish the position is before anyone asks for it.

Two related points come up in the same review. Restrictive covenants operate differently depending on which side of the line the person falls — see non-competes and non-solicits. And where the worker is in another country, the classification question arrives with a tax and withholding question attached — see working across a border.