Employment lawyer highlights perils, best practices for employers as inspection blitz scrutinizes use of independent contractors
When the federal government launches an inspection blitz to crack down on driver misclassification in the trucking industry in the Hamilton and Greater Toronto Areas, it isn’t just a headache for transport companies there – it’s a warning shot for every employer leaning on contractor models as part of their business strategy, according to one expert.
In a news release announcing the inspection blitz, Employment and Social Development Canada said it was “cracking down on misclassification in the federally regulated road transportation sector” in the Golden Horseshoe region of Ontario. This follows the federal government’s investment in measures to fight employee misclassification over the past few years, including hundreds of inspections and educational sessions across Canada.
Ottawa also strengthened prohibitions against employee misclassification under the Canada Labour Code in 2024 and the most recent federal budget in November 2025 pledged $77 million over four years for a program addressing non-compliance related to personal services businesses.
The strategy of using independent contractors
Employment lawyer Ben Tarnow of Taylor & Blair LLP in Vancouver has seen misclassification up close, including a recent BC Supreme Court case in which he represented a driver in a dispute over the driver’s contractor status.
From his vantage point, the enforcement push is colliding with another powerful force: employers trying to contain rising labour costs through the use of independent contractors.
“I think that the overall cost and inflationary pressures that employers are feeling across the country and in all industries are leading some employers to cut corners,” says Tarnow.
He believes that pressure often shows up as efforts to “reduce some administrative costs” by turning what should be employee roles into contractor arrangements.
“Usually, workers at the outset of the working relationship don't have much of an issue with [being an independent contractor] because of some of the benefits that they get,” he says, pointing to the perceived tax advantage of being set up as a personal services business — exactly the type of structure the federal budget has now targeted in its efforts to address noncompliance.
Paper contractors, real employees
Despite the federal clampdown and a growing body of case law, many HR leaders still feel confident their contractor strategies are safe because the paperwork looks clean. Tarnow sees that confidence as misplaced: “I think a lot of employers are misguided in the sense that they think just because there's an agreement with the worker that labels them as an independent contractor, that's the end of the issue,” he says.
Regulators and courts aren’t swayed by labels. Employment standards officers, courts, and tribunals will “go through their own legal analysis as to whether the worker is legally an employee or an independent contractor and will put very little weight on what the parties may have agreed to at the outset,” says Tarnow. What matters is the actual working relationship, he says.
That reality has only grown more complex with the rise of an in-between type of status — the dependent contractor. Tarnow notes that dependent contractors are “entitled to a lot of the same legal rights as employees, including severance pay,” so for organizations still treating contractor status as a clean shield against termination obligations, this should be a wakeup call.
The bill comes due at termination
A big part of the liability risk shows up at the end of the business relationship, when a misclassified worker is cut loose, according to Tarnow. Workers who are actually employees aren’t just entitled to severance pay, they can also be owed other basic entitlements under employment standards legislation that they may not have received if they were considered contractors, such as vacation pay, overtime pay, and statutory holiday pay that should have been provided all along. In the trucking industry, for example, those liabilities can balloon across a fleet of drivers who have been treated as incorporated owneroperators only on paper.
On top of employment standards exposure, there is tax risk “if the worker ever sought an audit by the Canada Revenue Agency (CRA) as to the nature of their earnings,” says Tarnow.
When federal inspectors are actively hunting for noncompliance and sharing information with the CRA, that risk increases, as the organization could be responsible for all the payroll deductions for employees that it didn’t make in assuming the worker was an independent contractor.
Morale damage and culture fallout
The harm is not only financial, as forced contractor status often doesn’t go over well with workers who know they’re functioning as employees, according to Tarnow.
“If workers are forced to agree to these independent contractor agreements, their morale could be impacted by the fact that they're not being provided with all of the protections they should be receiving if they were properly treated as employees,” he says.
Much of that protection flows from employment standards legislation, which is designed to protect employees, yet some workers are led to believe they’re outside its reach just because they are called contractors, says Tarnow. Once a workforce realizes it has been denied statutory rights, damage to trust, engagement, and retention may linger long after any legal dispute wraps up.
For HR leaders charged with championing fairness and compliance, trying to justify a model that strips workers of basic protections while the federal government says misclassification “is not only exploitation, but also illegal,” should be a nonstarter, says Tarnow.
Avoiding misclassification right from day one
Avoiding that scenario takes more than a template contractor agreement. Tarnow believes that organizations need proper procedures for a thorough risk analysis at the outset of the working relationship, before the worker is hired.
That analysis has to go beyond job titles and invoices. Is the worker truly independent when it comes to control and supervision? How integrated are they into core operations? Who owns the tools and equipment? Tarnow says employers must “turn their mind to what the substantive working relationship looks like and how it functions, and whether the worker is truly independent in the eyes of law when it comes to level of control, integration into the business operations, and ownership of the tools that they're using,” he says.
Instead of taking the shortcut of contractor agreements because they look convenient, Tarnow says HR should insist on a structured classification process that includes legal review for highrisk roles — and in sectors squarely in the legal crosshairs, like trucking and logistics, anything less is effectively a gamble that inspectors won’t come knocking on the door or workers won’t challenge their status.
How to pivot if there’s a problem
For some organizations, misclassification of workers isn’t just a risk — it may be already baked into their operating model. Tarnow stresses that in such circumstances, it’s still possible to correct course. Organizations can take steps to have workers properly treated and characterized as an employee if they’ve been misclassified, which Tarnow says includes moving them into an employment agreement, putting them on payroll so that their proper deductions — such as CPP and EI — are being made, and ensuring they’re correctly registered with workers' compensation as an employee.
“There's nothing really that prevents an organization from pivoting like that if they want to minimize their risks from any misclassification issues that are prevalent in the organization,” says Tarnow.
As Ottawa’s inspection blitz moves through the trucking sector in the wake of other initiatives to address misclassification of workers, Tarnow sees the message for HR and their organizations as this: it’s not just a narrow compliance exercise for one industry — it’s a prompt to fix potentially illegal classification practices before an inspector, a tribunal, or a court does it for you with the associated legal costs that would come with it.
This article is part of our Monthly Spotlight series, which in January focuses on employment law. Full coverage can be found here.
