New exceptions from the Employment Standards Act, 2000: business and information technology consultants

On January 1, 2023, business and information technology (IT) consultants who meet certain criteria will be excluded from the application of the Employment Standards Act, 2000 (the ESA). This update summarizes these new ESA exceptions and outlines the implications for organizations that work with consultants. 

The new exceptions allow organizations to achieve greater certainty over the status of their working relationships with consultants. If those relationships are structured within the new exception criteria, organizations can limit the risk of future claims of employment status under the ESA.

New ESA exceptions 

Effective January 1, 2023, the ESA will not apply to business and IT consultants, provided that these individuals meet the new definitions and criteria set out in the ESA.

A “business consultant” is an individual who provides advice or services to a business or organization regarding its performance, including advice or services regarding its operations, profitability, management, structure, processes, finances, accounting, procurements, human resources, environmental impacts, marketing, risk management, compliance or strategy.

An “IT consultant” is an individual who provides advice or services to a business or organization regarding its IT systems, including advice about or services for planning, designing, analyzing, documenting, configuring, developing, testing and installing IT systems.

For the exception to apply, the following requirements must be met:

• The business or IT consultant must provide services through either (1) a corporation of which the consultant is a director or shareholder who is a party to a unanimous shareholder agreement, or (2) a sole proprietorship where the consultant is the sole proprietor and provides services under a business name of the sole proprietorship that is registered under the Business Names Act.
• There is an agreement for the consultant’s services that sets out when and how much the consultant will be paid, which must be expressed as an hourly rate. The consultant’s hourly rate must be equal to or greater than $60 per hour, excluding bonuses, commissions, expenses, travelling allowances and benefits, or any other amount that may be prescribed.
• The consultant must actually be paid the amount set out in paragraph 2. 
• Any other requirement that may be prescribed. 

If the business or IT consultant meets the definitions and criteria set out above, the minimum employment standards in the ESA will not apply.   

Takeaways

Organizations that want to ensure business and IT consultants are not subject to the ESA should review their existing agreements to determine whether they comply with the requirements outlined above. To the extent that organizations want the exceptions to apply to consultants whose agreements do not meet the ESA requirements, the terms will have to be renegotiated or revisited in the future. Organizations will also want to keep these new exceptions in mind when retaining consultants in the future and draft agreements accordingly.  

However, it is unclear what impact these statutory exceptions may have, if any, on the analysis at common law regarding the (mis)characterization of independent contractors. At common law, courts assess whether an individual has been properly classified as an independent contractor by typically reviewing:

• the degree of control the company exercises over the individual, 
• whether the individual provides exclusive services to the company, and 
• whether the parties intended to enter into an employment relationship. 

It is unknown whether these new ESA exceptions might change that analysis for business and IT consultants. As such, there is a risk that business and IT consultants who are exempt from the ESA could still be found to be an employee or dependent contractor at common law. This may give rise to employment-related obligations for an organization, including the requirement to give reasonable notice of termination. As a result, until there is further clarity on how these new exceptions will be interpreted, it would be prudent for employers not to disregard the common law when deciding whether to take advantage of these new ESA exceptions.