Employer-Employee Relationships

In Canadian procurement, an employer-employee relationship is one in which the government's treatment of an individual contractor is close enough to an employer's treatment of an employee that the arrangement could be considered employment rather than an independent contract for services. The Government of Canada requires contracting officials and business owners to make sure that contracting for an individual's services does not create such a relationship.

The term rests on a basic distinction. A contract for services makes the supplier an independent contractor. A contract of employment makes the individual an employee of the client. Federal guidance ties the assessment to the Public Service Employment Act, common-law principles, Canada Revenue Agency criteria and relevant court decisions, as set out in the CanadaBuys Buyer's Guide.

Responsibility under the Treasury Board procurement directive

The Treasury Board of Canada Secretariat's Directive on the Management of Procurement assigns responsibility to business owners. They must ensure that an employer-employee relationship does not form during a contract. They must also inform contracting authorities of any condition or change in how the work must be performed that could create one. The requirement appears in the 2021 edition of the directive and in the 2025 edition.

Risk indicators and avoidance measures in the CanadaBuys guide

The CanadaBuys Buyer's Guide addresses contracts for the services of individuals, including temporary help. It tells buyers to assess the circumstances carefully so that no employer-employee relationship is established. The guide lists practical measures:

• Avoid employment-type language, such as prescribed work hours or control over how the work is performed.
• Avoid long-term assignments or continuing relationships that provide a steady income stream.
• State clear start and completion dates.
• Allow the contractor to set working hours.
• Have government personnel supervise the work and its results, not control how the contractor performs it.
• Avoid having the contractor work on government premises.

Where the classification is uncertain, buyers should seek legal advice. They should also escalate the contract for a higher level of approval than the procurement risk assessment would normally require.

How departments apply the requirement

Departments apply the federal requirement in their own directives. Correctional Service Canada's Financial Directive 350-3: Contracting requires budget managers, business owners and contracting or procurement officers to ensure that contracting for individuals' services does not result in an employer-employee relationship. They must use Canada Revenue Agency criteria and the department's Employer-Employee Relationships Instructions. The Canada Revenue Agency's related guidance is titled Employee or Self-employed?

Personal services contracts in NATO and defence work

NATO material uses a related concept, the personal services contract. NATO's Bi-SC Directive 60-70, available through Joint Force Training Centre, describes it as a contract characterized by a special employer-employee relationship between a NATO body or headquarters and the contractor's personnel. The U.S. Department of Defense draws the same line. Contractor personnel remain employees of the contractor, and a personal-services contract exists where the government-contractor relationship becomes analogous to employment.

What it means for a supplier bidding on Canadian public contracts

If you offer the services of an individual, including temporary help, expect the buyer to test the arrangement against the indicators above. Set out clear start and completion dates in your proposal. Keep control of how the work is done and when it is done. Expect government oversight to focus on results, not methods. Be aware that work on government premises, open-ended assignments and employment-style direction raise the risk of reclassification. They can also trigger legal review and a higher level of approval inside the buying organization, which can slow an award. If the work changes during the contract in ways that move it toward employment, the business owner is required to tell the contracting authority, so raise those changes early.