Independent vs. Dependent Contractors in Ontario
Not every contractor is truly “independent.” Ontario courts recognize a middle category—the dependent contractor—for people who run their own business but are economically tied to one client. Getting the category right affects termination rights, risk, and compliance for both sides.
The Three Categories at a Glance
Employee
Works within the organization’s structure and is protected by the Employment Standards Act, 2000 (ESA) (e.g., minimum standards, vacation, statutory leaves). Misclassifying employees as contractors can trigger liability.
Independent contractor
Operates an independent business, serves many clients, controls how work is done, bears profit/loss risk, and typically isn’t covered by ESA standards.
Dependent contractor
Runs a business but is exclusively or near-exclusively tied to one client over time. Courts treat dependent contractors like employees for reasonable notice of termination at common law (i.e., pay in lieu), though they generally do not receive ESA minimums by virtue of that status alone.
How Courts Decide: Two-Step Analysis
Employee vs. contractor. Courts look at control, tools, chance of profit/risk of loss, integration into the business, and the parties’ actual conduct.
If a contractor, independent vs. dependent. The hallmark is economic dependency shown by exclusive or near-exclusive service to one client over the course of the relationship (not a single “snapshot” in time).
How “exclusive” is “near-exclusive”?
The Court of Appeal has said “near-complete exclusivity” requires substantially more than a bare majority of income from one client. Average billings around 40% (even with one higher year) were not enough to prove dependency.
Why It Matters
Termination rights. Dependent contractors are typically entitled to reasonable notice (or pay in lieu) like employees; notice can be substantial in long, loyal relationships. In one leading case, two long-serving contractors received 26 months.
ESA vs. common law. ESA minimums usually apply to employees, not dependent contractors, but common-law notice entitlements can still be owed to dependents.
Unionization. For collective bargaining, dependent contractors can be treated as “employees” under the Labour Relations Act.
Practical Indicators of Dependency
One client supplies well over half of total income on average (often much higher).
Long, continuous relationship with that client.
Branding/holding out that suggests affiliation; client as primary source of work.
Limited ability (or real opportunity) to market to others due to the demands of the main client.
Tips for Businesses
Audit the relationship. Track revenue share by client and revisit classifications periodically.
Avoid accidental exclusivity. If independence is intended, ensure the contractor has real opportunities (and time) to serve other clients.
Contract carefully. Use clear termination provisions and avoid employee-like controls if the role is meant to be independent.
Plan exits. Where dependency exists, budget for reasonable notice.
Tips for Contractors
Track your income mix. If most revenue comes from one client over time, you may be dependent—with potential rights to reasonable notice if ended.
Negotiate terms. Clarify termination, non-compete/non-solicit, and how you can market to others.
Get advice early. Classification drives your rights and obligations.
We Can Help
Unsure how to classify a role—or what your termination rights are? Vanguard Law advises both contractors and organizations on proper classification, risk, and fair exits.
This article is general information, not legal advice. For advice about your situation, please contact a lawyer.