By Ranzell Ortega, Student-at-Law Starting a business involves more than developing a viable business idea. Business owners must also consider how they will operate their business, including how they hire, manage, and compensate their workers. Understanding your obligations as an employer from the outset can help you avoid costly disputes and establish a strong foundation for your business. Below are five important employment considerations for new and existing business owners. 1. Classifying Your Workers[1] One of the first decisions you will need to make when hiring workers is whether to engage them as employees or independent contractors. Depending on your business needs, working with independent contractors may offer greater flexibility. However, the classification of your workers has important legal and financial implications. Employers who hire employees must comply with applicable employment legislation, including Alberta’s Employment Standards Code, which establishes minimum requirements relating to matters such as vacation entitlements, general holiday pay, and termination notice. Employees may provide greater continuity within your business, while independent contractors often have greater flexibility to provide services to multiple clients. Determining whether a worker is an employee or an independent contractor can be complicated. It is also important to recognize that dependent contractors may be entitled to certain protections under common law, including reasonable notice of termination in some circumstances. Although a written agreement identifying a worker as an independent contractor can be helpful, the wording of the agreement alone does not determine the worker’s legal status. Courts will consider the actual working relationship, including the terms of the agreement and the circumstances in which the work is performed. There are five commonly considered factor that can help determine whether a worker is an employee or an independent contractor. The first factor is control over work. The degree of control a business exercises over a worker is an important consideration. For example, an employer who determine an individual’s working hours, assigns specific tasks and directors how the work must be completed may be more likely to have an employment relationship. Independent contractors generally exercise greater control over how they perform their services. The second factor is the ownership of tools. The ownership and provision of tools, equipment, and workspace may also be relevant. If a business supplies the equipment necessary to complete the work, this may indicate an employment relationship. Independent contractors are more likely to provide their own tools and equipment, although this is not always the case. The third factor is the chance of profit or risk of loss. Employees generally receive compensation for their work without bearing the direct financial risks associated with operating a business. Whereas independent contractors may have opportunities to increase their profits through efficient work and may bear financial risks associated with their services. The fourth factor is integration into the business. Courts may consider how closely the worker’s services are integrated into the business. A worker who performs duties that form an integral part of the business’ operations may be more likely to be an employee. A contractor may instead provide specialized services to support a particular project or business need. The fifth and final factor is payment. The way a worker is paid may also be relevant. Employees commonly receive regular wages or salaries and may receive employment benefits. Independent contractors often invoice their services and operate their own businesses. However, the method of payment alone does not determine the worker’s status. No single factor is determinative. Courts will assess the overall relationship between the parties to determine the appropriate classification. Whether you choose to hire employees or engage independent contractors will depend on your business needs. However, it is essential to understand the legal obligations associated with each arrangement to ensure that your workers are properly classified. 2. Independent Contractor Agreements / Employment Contracts Regardless of how you classify your workers, having a well-drafted written agreement is an important step in establishing clear expectations and protecting your business interests. A well drafted independent contractor agreement can provide you business with a number of protections against wrongful competition, can protect your intellectual property rights and provide both you and your contractor with much-needed predictability from the start of the relationship. An employment contract can outline the terms of the employment relationship, including compensation, benefits, job responsibilities, confidentiality obligations, and termination provisions. If you wish to offer benefits beyond the statutory minimums, your employment contract can set out those additional entitlements. For example, you may choose to provide additional vacation time, an RRSP contribution plan, performance-based bonuses, or enhanced termination notices. A carefully drafted employment contract can also help clarify the rights and obligations of both parties and reduce uncertainty if a dispute arises. Without an enforceable employment contract, an employee may be entitled to the minimum standards established by the Employment Standards Code as well as additional rights under common law. Depending on the circumstances, common-law reasonable notice of termination may be substantially grater than the minimum notice required by legislation. A properly drafted contract, particularly one containing an enforceable termination provision, can help establish grater certainty regarding your obligations and potentially reduce your exposure to liability. However, employment contracts must be carefully prepared to ensure that their provisions comply with applicable legislation and are legally enforceable. Seeking legal advice when preparing independent contractor agreements and/or employment contracts can help ensure that your agreements reflect your business needs while protecting your interests as a business owner or employer. 3. Terminating an Employee Terminating an employee is one of the most legally sensitive decisions an employer may face. Although employers can generally terminate employment without cause, they must comply with applicable contractual and statutory obligations, including providing the required notice or pay in lieu of notice. Employers must also ensure that a termination is not discriminatory or otherwise unlawful. Depending on the circumstances, additional legal protections may apply. Termination for cause is different. In appropriate circumstances, an employer may be able to terminate an employee without notice or pay in lieu of notice. However, the legal threshold for justifying termination for cause can be high and not every workplace misconduct or contractual breach will meet that threshold. Employers should seek legal advice before proceeding with a termination for cause. A clearly drafted employment contract can help establish expectations regarding an employee’s duties and obligations. Nevertheless, a breach of contract does not automatically justify termination for cause, and the specific circumstances must be carefully assessed. Progressive discipline may also be appropriate when addressing employee performance or misconduct. Rather than proceeding directly to termination, an employer may need to identify the issue, communicate its concerns, provide the employee with an opportunity to improve, and document the steps taken. The appropriate approach will depend on the circumstances, including the nature and seriousness of the conduct, the employee’s history, and any applicable contractual or workplace policies. Progressive discipline is not necessarily required in every situation, particularly where serious misconduct is involved. Because every employment relationship is different, employers should seek legal advice when developing disciplinary policies or considering termination. Taking the appropriate steps before terminating an employee can help reduce the risk of costly employment disputes. 4. Understanding Employee Rights Employers must understand and comply with the legal requirements governing the workplace. In Alberta, the Employment Standards Code and the Employment Standards Regulation establish various minimum standards relating to employment, including record-keeping, payment of wages, overtime, rest periods, leaves of absence, and termination. Understanding these obligations is essential to ensuring that employees are treated fairly and that your business complies with applicable legislation. Although employment standards can seem complicated, addressing these requirements proactively can help prevent misunderstandings, complaints, and potential legal disputes. Consulting an employment lawyers before problems arise may be more cost-effective than addressing a claim after an employee’s rights have been breached. 5. Conclusion Starting and operating a business can be both exciting and overwhelming, particularly when navigating employment law for the first time. From properly classifying workers and drafting employment contracts to managing performance concerns and understanding termination obligations, employers must make several important decisions that can have lasting consequences for their businesses. Working with one of our employment lawyers can help you establish a strong foundation from the beginning. Whether you need assistance drafting independent contractor agreements, employment contracts, developing workplace policies, addressing difficult employee situations, and ensuring compliance with Alberta’s Employment Standards Code, obtaining legal advice can help you make informed decisions and minimize potential risks. [1] CPLEA, “Employee or independent contractor?”, online: <Employee or independent contractor? – CPLEA.CA>.