Can you be an employee without knowing it?
Employment contract or service contract: what distinguishes them, how do you choose between the two, and what are the risks? There are, in fact, fundamental differences between them.
The employment contract
An employment contract is one by which a person, the employee, undertakes, for a limited period and in return for remuneration, to perform work under the direction or control of another person, the employer.
The Act respecting labour standards further defines an employee as “a person who works for an employer and is entitled to wages; this term also includes a worker who is a party to a contract under which:
- They undertake to perform specific work for a person within the framework and according to the methods and means determined by that person;
- They undertake to provide, for the performance of the contract, the materials, equipment, raw materials or merchandise chosen by that person, and to use them in the manner indicated by that person;
- As remuneration, they retain the amount remaining from the sum received under the contract after deducting the costs of performing the contract. [2]
The service contract
A service contract is instead defined in section 2098 of the Civil Code of Québec: a contract of enterprise or for services is one by which a person, as the case may be the contractor or the service provider, undertakes towards another person, the client, to carry out physical or intellectual work or to provide a service for a price that the client undertakes to pay.[3]
The main difference between these two types of contracts is the mandatory presence of a relationship of subordination in the case of an employment contract. At first glance, this difference seems obvious. However, some self-employed workers find themselves on the borderline between a service contract and an employment contract, without even realizing it.
It therefore becomes all the more important to determine the nature of such a contract, particularly in the current context of a health and economic crisis, as the characterization of a contract can entail several consequences, notably regarding the laws applicable in a situation of contract termination or layoff. Labour and employment laws are in fact much more restrictive than those governing service contracts, as they are intended to protect vulnerable persons, namely workers.
In particular, labour laws provide remedies to protect workers from unjust dismissal or a workplace accident. The provisions of the Civil Code of Québec regarding service contracts leave much more freedom to the contracting parties.
Section 2125 C.C.Q. provides, among other things, that “The client may unilaterally resiliate the contract, although the work or the provision of the service has already begun”.[5]
Consequently, section 2125 C.C.Q. allows, for example, the client to terminate the service contract at any time, even without a serious reason. Case law has nevertheless established parameters for exercising this right, namely that the termination of the contract cannot be carried out in an unreasonable manner incompatible with the requirements of good faith.[6]
A grey area for self-employed workers
However, there is a grey area when a self-employed worker provides services to a single client within the framework of an intuitu personae relationship, that is, a very close relationship in which the service cannot be performed by anyone other than that person under the contract. In this particular situation, it is not because one declares oneself self-employed under tax laws that one necessarily is.
The courts have ruled on numerous occasions that it is not because a written contract calls itself a “service contract” that it must necessarily be characterized as such. Rather, it is the content of the contract and how it is carried out that determine its legal characterization.
It must also be determined whether the self-employed designation was imposed or whether the person genuinely wished to benefit from its advantages.
Each factual situation must therefore be analyzed in order to characterize such a contract. This involves examining how the worker is paid, the work performed, and whether there is a relationship of subordination between the service provider and the client. Among other things, if the worker must personally provide the required services, cannot be replaced, and has no employees, the arrangement is closer to an employment contract.
Moreover, if the worker does not own their work tools, is not incorporated, is required to follow a set work schedule, has their presence monitored, acts exclusively on behalf of a single client, has activities integrated into the client’s workplace, and has performance and discipline controlled by that client, the situation may closely resemble that of an employee rather than a self-employed worker. [7]
Conversely, the service provider enjoys freedom in the means of performing the contract, in the complete absence of subordination between the service provider and the client.[8] In principle, an employee cannot be a corporation. It is “only in quite exceptional circumstances [that] one may disregard the legal personality to establish an employer-employee relationship”[9].
Consequently, if your service contract has been unilaterally terminated, it is still possible to claim damages, provided that you can demonstrate that the right of unilateral termination was exercised in bad faith.
Finally, in light of the criteria set out in this article, we suggest that you consult a lawyer if, in your view, your service contract has an unclear characterization. It is always recommended to consult a lawyer before signing any contract related to an intuitu personae service arrangement, or before incorporating, in order to understand the benefits and drawbacks associated with that choice.
[2] Act respecting labour standards, CQLR c. N-1.1, s. 2.
[3] Supra, Note 1, s. 2098
[5] Supra, note 1, s. 2125.
[6] Roch Lessard Inc. v. Immobilière S.H.Q., 2003 CanLII 32361 (QCCS
[7] Id.
[8] Agences Jacques Parent Inc. v. Meubles Concordia ltée, 2011, CanLII1664, QCCA;
[9] Dicom Express inc. v. Paiement, 2009 CanLII 611 (QCCA)
[10] Technologies industrielles S.N.C. inc. v. Mayer, 1999 CanLII13867, QCCA;
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What indicators do courts rely on to distinguish employment from services?
A worker may be considered an employee if they do not own their work tools, are not incorporated, are required to follow a set work schedule, have their presence monitored, or act exclusively on behalf of a single client.
Is monthly invoicing enough to prove service provider status?
No, the worker will need to provide other evidence.
