How the presumption of employee status is changing workforce compliance in federally regulated industries
Author: Brittany Lamb
In mid-2024, Canada introduced groundbreaking legislation that fundamentally changed how worker classification is determined in federally regulated industries. On June 20, 2024 Bill C-69 (Budget Implementation Act, 2024, No. 1) received royal assent, establishing a new presumption of employee status that shifts the burden of proof from workers to employers.
This significant change represents one of the most substantial reforms to worker classification in Canadian labor law, with far-reaching implications for businesses across multiple sectors. Since implementation, this legislation has had significant impacts, making it crucial for businesses to understand the implications and necessary compliance measures going forward.
Understanding the Legislative Changes
At the heart of this legislation is a fundamental shift in how worker classification is determined. Previously, workers often had to prove they were employees to access various protections and benefits. Now, the equation has been reversed.
According to Employment and Social Development Canada (ESDC), the law establishes that “all workers – including gig workers – are considered employees unless proven otherwise when their classification is contested.” This means independent contractor status is now the exception rather than the norm when employment status is questioned, with employers bearing the burden of proof.
The legislation makes two critical changes:
- It creates a presumption of employee status for anyone paid remuneration by an employer
- It shifts the burden of proof to employers to demonstrate why a worker should be classified as an independent contractor
Additionally, the law introduces significant accountability measures:
- It makes it an offense to treat an employee as if they were not an employee
- It establishes a formal complaint mechanism for workers who believe they’ve been misclassified
- It requires stronger documentation and evidence from employers seeking to classify workers as independent contractors
These changes apply specifically to federally regulated industries, which include banking, telecommunications, transportation services that cross provincial or international borders, and certain Crown corporations. However, the legislation may influence provincial approaches and set standards that extend beyond federally regulated sectors.
Enforcement Mechanisms
The Canadian government has established robust enforcement measures to ensure compliance with the new worker classification standards. The legislation incorporates a structured approach to monitoring, investigating, and penalizing violations.
Employment and Social Development Canada (ESDC) and the Canada Revenue Agency have entered into data-sharing agreements specifically designed to facilitate inspections and enforcement activities related to employee misclassification. This collaborative approach significantly expands the government’s ability to identify potential violations across multiple datasets.
To support enforcement and provide clarity for businesses, the Labour Program has published detailed guidance documents:
- Misclassification – IPG-105
- Determining the Employer/Employee Relationship – IPG-069
- Misclassification in the Trucking Industry
The process gives workers a direct channel to challenge their classification. When an individual files a misclassification complaint, the burden falls on the employer to demonstrate why the worker should be considered an independent contractor rather than an employee. Failure to provide sufficient evidence can result in reclassification orders, requirements to provide back pay for benefits, penalties for non-compliance, and reputational damage.
Companies relying on independent contractor models should anticipate increased scrutiny and prepare accordingly.
Impact on Different Business Models
The presumption of employee status affects various business models differently, with some facing more significant adaptations than others.
Traditional Staffing Agencies
Staffing firms that already classify temporary workers as employees may see minimal direct impact. However, these agencies should review client contracts and indemnification provisions to address potential misclassification risks. Staffing firms might find competitive advantages in providing compliant worker engagement solutions to clients seeking to reduce their misclassification exposure.
Gig Economy Platforms
Digital platforms facilitating ridesharing, delivery services, and other on-demand work face substantial challenges under the new framework. The current independent contractor model typical to many platforms directly conflicts with the presumption of employee status.
Platforms operating in federally regulated sectors must evaluate whether their business models remain viable under the new rules or require restructuring. Even platforms not directly affected should monitor these developments closely. Federal legislation often establishes precedents that influence provincial regulations across other industries.
Professional Services and Blended Workforce Models
Organizations using a mix of employees and contractors must be particularly vigilant about consistent application of classification criteria. The presence of similar roles under different classifications may trigger heightened scrutiny from regulators. These businesses should conduct thorough workforce audits to identify and address potential vulnerability points.
Distinguishing Legitimate Independent Contractors
While the legislation creates a presumption of employee status, ESDC has clearly stated that “the changes will not affect legitimate independent contractors.”
While specific Canadian nuances exist in determining worker classification, many core principles remain consistent globally. For a detailed breakdown of how to properly identify independent contractors versus employees, refer to our infographic.
Key factors that Canadian authorities consider when evaluating contractor status include:
- Business independence (separate business identity, multiple clients)
- Operational control (how and when work is performed)
- Integration level with the company
- Financial risk and opportunity for profit
For businesses operating in federally regulated sectors, documenting evidence of independent contractor status is essential for compliance. Simply having a contract that labels someone an independent contractor, even if both parties agree to those terms, is insufficient if the working relationship resembles employment.
Comparison with Provincial Approaches
Canada’s federally regulated industries now operate under this presumption of employee status, but provincial approaches to worker classification vary significantly, creating a complex compliance landscape for businesses operating across multiple jurisdictions.
Ontario’s Approach
Ontario’s Digital Platform Workers’ Rights Act, scheduled to come into effect on July 1, 2025, creates a separate category of worker protections specific to platform-based work rather than reclassifying gig workers as employees. Workers must receive transparency regarding pay, minimum wage guarantees for active work time, and protection from arbitrary platform removal.
British Columbia’s Model
British Columbia’s amendments to its Employment Standards Act specifically recognize two types of “online platform workers” as employees: delivery service workers and ride-hail service workers. This contrasts with Ontario’s approach by directly classifying specific categories of gig workers as employees rather than creating a separate regulatory framework.
Organizations with operations spanning multiple Canadian jurisdictions should consider implementing jurisdiction-specific compliance protocols rather than applying a one-size-fits-all approach.
Practical Compliance Strategies
With eight months of implementation experience, businesses can now draw on emerging best practices to navigate this new classification landscape:
1. Conduct a Comprehensive Classification Audit
- Examine each contractor relationship individually
- Compare actual working conditions against written agreements
- Identify high-risk classifications requiring immediate attention
- Consider engaging external experts such as payroll and compliance partners
2. Update Contracts and Documentation
- Strengthen contractor agreements to address legitimate independent contractor criteria
- Ensure contracts reflect the actual working relationship
- Specify project deliverables rather than ongoing responsibilities
3. Revise Operational Practices
- Limit supervisory control over how work is performed
- Establish clear project parameters rather than ongoing oversight
- Create separate communication channels for contractors versus employees
4. Consider Alternative Workforce Solutions
- Employer of record (EOR) services for your contingent workforce
- Agent of record (AOR) solutions for managing legitimate independent contractor relationships
- Staff augmentation through established staffing agencies
5. Implement Ongoing Compliance Monitoring
- Schedule regular reviews of contractor relationships
- Provide manager training on proper contractor engagement
- Monitor relevant case law and regulatory developments
Future Outlook
As we look to the future, several key trends will likely shape worker classification in Canada:
- Expanded Enforcement: Expect more audits of high-risk industries, stringent penalties for violations, and data-driven identification of potential misclassification through enhanced tax information sharing.
- Evolving Interpretations: As cases move through administrative and judicial processes, expect clearer guidance on what constitutes a “legitimate independent contractor” and industry-specific standards reflecting different operational realities.
- Cross-Jurisdictional Harmonization: Economic pressures and business advocacy may drive greater consistency across federal and provincial approaches, potentially simplifying compliance for multi-jurisdiction operations.
Organizations should prepare for these developments by addressing compliance gaps proactively rather than reactively.
Conclusion
Canada’s gig worker protection legislation represents a significant shift in how worker classification is determined in federally regulated industries. Businesses now face increased documentation requirements, greater scrutiny of contractor relationships, and potentially significant penalties for misclassification.
For businesses navigating this complex environment, the path forward requires both rigorous compliance and strategic workforce planning. By understanding the specific requirements, conducting thorough audits, updating documentation, and considering alternative workforce solutions, organizations can manage risks while maintaining operational flexibility.
How People2.0 Can Help
People2.0 offers comprehensive solutions for Canadian businesses seeking to navigate the complexities of worker classification compliance. Our services include:
- Employer of record (EOR) solutions taking on responsibility for your contingent workforce
- Agent of record (AOR) services for managing compliant independent contractor relationships
