Is my employment contract void if I’m reclassified as a contractor?

June 09, 2017

If you are being reclassified as an independent contractor after working as an employee, your employment agreement may be void – but not entirely.

The employment agreement can provide that certain clauses “survive” upon termination. This means that the employee will remain bound by those specific obligations, even if the rest of the agreement has been terminated.

Assuming you weren’t in a unionized position covered by a collective agreement, in order to comply with applicable employment standards laws (such as Ontario’s Employment Standards Act) your employer likely terminated your employment contract with the required notice (or payment in lieu of notice), and then offered you a contract as an independent contractor. That contract could include many of the same responsibilities, obligations and terms as the previous employment contract, so that it would seem the same as the employment contract. But, your obligations would actually be governed by the new contractor/consultant contract, and not the previous employment contract.

(Note that this blog cannot consider the question of whether your employer breached the terms of your employment agreement, or their obligations under an applicable laws. Those are questions for an employment law expert!)

Survivability of Clauses

After your employment agreement has been terminated, you may still be bound to specific obligations for a defined period of time. These specific obligations would be designated in your employment contract to “survive upon termination” or to be “survivable”. Employers may choose many different clauses to be survivable but there are a few common ones that you can look out for.

(i) Non-Disclosure and Non-Solicitation Clauses

If your employment agreement contained a confidentiality (or non-disclosure) clause, or a non-solicitation clause, it is likely to have been included among those clauses that will survive the termination of your agreement. It is also likely that your contractor agreement will contain the same type of clause, and that it will also survive the termination of the contractor agreement.

(ii) Non-Competition Clauses

Another example of a clause that commonly survives the termination of an employment contract is a non-competition clause. Non-competition clauses provide restrictions on how you can compete with your employer, both during and after your term of employment, and must have reasonable limitations with respect to time, geography, and scope of activities in order to be enforceable. Again, if such a clause was included in your employment agreement and survived its termination, the same type of clause is likely to have been included in your contractor agreement.

(iii) Stock Options

If you received other benefits, e.g. stock options, under your employment contract, you will have to obtain copies of the stock option plan and your individual stock option grant to determine if you will continue to have rights under those agreements. If you are unclear about your rights, it would be prudent to contact an employment law expert.

Change of Status Implications

The change in your status from employee to independent contractor has additional implications that you should be aware of. Some of these changes may be noted in your independent contractor agreement. Changes include compensation, tax treatment, and benefits. Another change would be in status. For example, independent contractors are considered self-employed, which means that any provincial employment laws (applicable to employees) wouldn’t apply to you as an independent contractor, but you may qualify to deduct certain expenses from your income that were not deductible as an employee.

Employment Agreement
Independent Contractor
Consulting Agreement