When a Long-Term Contractor Turns Out to Be an Employee

The situation

Eitan and Miriam run a small security services company out of Caledon, staffing licensed guards for construction sites and commercial properties across the region. The business brings in somewhere between $250,000 and $700,000 a year, depending on how many sites they have under contract, and it has always run lean: Eitan manages scheduling and client relationships day to day, while Miriam keeps the books alongside her part-time work as an early childhood educator.

About eighteen months earlier, they had brought on Soo-jin to cover overnight shifts at two commercial sites. Like several of the guards they use, Soo-jin was engaged as an independent contractor: she invoiced monthly, was responsible for her own security licensing fees, and signed a one-page agreement describing her as a contractor rather than an employee. In practice, she worked almost exclusively for Eitan and Miriam's company, followed a schedule they set, wore a uniform they supplied, and had no real ability to send someone else in her place or take on other clients given the hours involved.

When one of the two sites lost its contract, the company had less overnight work to offer. Eitan let Soo-jin go with two weeks' notice, the same courtesy he had extended to other contractors whose assignments ended. He assumed that because she was a contractor, no further obligation followed.

What the review found

Soo-jin did not see it that way. Within a few weeks, the company received a letter from a paralegal acting on her behalf, asserting that she had in substance been an employee throughout the engagement and was owed termination pay, vacation pay that had never been paid out, and payment in lieu of the notice period the Employment Standards Act, 2000 requires for employees with her length of service. The letter proposed a settlement figure well above what two weeks' pay would have covered.

Eitan and Miriam brought the letter to Treadstone Law before responding. The uncomfortable truth was that the label in the contract Soo-jin had signed did not control how a tribunal or court would classify her. Ontario employment law looks at the substance of the working relationship, not the words used to describe it. The questions that matter are things like: who set the hours and controlled how the work was done; who supplied the equipment and uniform; whether the worker could realistically work for other clients or subcontract the work to someone else; and whether the arrangement was, in economic reality, closer to a job than a business relationship.

On nearly every one of those questions, Soo-jin's situation pointed toward employee status. She worked set overnight shifts assigned by the company, wore a company uniform, worked exclusively for this one client for the length of the engagement, and had no meaningful independence in how the work was performed. A one-page agreement calling her a contractor, without more, was unlikely to change that outcome if the matter proceeded to a Ministry of Labour employment standards complaint or a civil claim. Worse, the same reasoning could extend to some of the other guards the company had engaged on similar terms, which meant the exposure was not necessarily limited to Soo-jin alone.

What we did

1. Assessed the real exposure before responding. We reviewed the engagement history, the written agreement, the schedules Soo-jin had worked, and how she had been paid, then gave Eitan and Miriam an honest estimate of what a termination pay and vacation pay claim was likely worth if it succeeded, rather than what the demand letter asked for.
2. Advised against contesting the classification. Fighting the employee-versus-contractor question head-on would have meant months of dispute and legal cost with a low chance of success, given how one-sided the facts were. We recommended treating the claim as a wage and termination entitlement issue to be resolved quickly, not a fight worth having.
3. Negotiated a settlement directly with Soo-jin's paralegal. We countered the initial demand with a figure grounded in what the Employment Standards Act, 2000 actually provided for someone with her length of service, plus the vacation pay that had genuinely gone unpaid, and reached agreement within a few weeks rather than letting the dispute drag toward a formal complaint or claim.
4. Reviewed every other contractor relationship the company had. Several other guards were engaged on similar exclusive, company-scheduled terms. We flagged which ones carried the same misclassification risk so the company could decide, with full information, how to restructure those arrangements before another dispute arose.
5. Rebuilt the contractor agreements and, where warranted, moved workers onto proper employment terms. For guards who were genuinely independent, we tightened the agreements to reflect real contractor characteristics. For guards whose day-to-day reality matched Soo-jin's, we advised bringing them on as employees with proper offer letters, so the company's paperwork matched how the work actually functioned.

The outcome

The claim settled for roughly $18,000, covering termination pay, unpaid vacation pay, and a modest amount to close out the dispute without further escalation. That figure was real money for a company of this size, and Eitan and Miriam were candid that it stung more than the two weeks' pay they had originally offered would have. It was, however, well below what a Ministry of Labour order or a drawn-out claim could have cost once interest, potential penalties, and the time spent managing a formal proceeding were factored in.

The more lasting value came from the review of the other contractor relationships. Two more guards were reclassified as employees on a going-forward basis, with proper payroll deductions and vacation entitlements built into their pay rather than left as a gap waiting to surface at the next termination. The company also adopted a simple internal practice: before ending any contractor's engagement, someone checks whether the relationship still looks like a contractor relationship in substance, not just on paper, before deciding what notice or pay is owed.

Eitan and Miriam also asked us to look at how they hire going forward, since the business regularly brings on new guards as work picks up and drops them when a contract ends. We put together a short intake checklist they now use before engaging anyone on a contractor basis: who sets the shift, who owns the equipment, whether the person genuinely has other clients, and whether the relationship could plausibly last beyond a single short assignment. Where the answers point toward an employment relationship, the company now budgets for it from the start rather than discovering the cost at the point of termination.

Eitan and Miriam did not get a clean win here. The company paid out money it had not budgeted for, and it now carries higher payroll costs for the guards who moved to employee status. What it avoided was the larger and more damaging version of this problem: a Ministry of Labour investigation that could have reached back across every contractor the company had ever engaged, or a wrongful dismissal claim pursued in court rather than resolved by negotiation. Acting quickly and honestly once the letter arrived, rather than digging in on the word contractor, is what kept the damage to one settlement and one corrected practice instead of a much longer, costlier process.

What you can learn from this