A. The Extent of Self-Employment
Until the 1970s, self-employment rates in Canada had been on a downturn due to decreased agricultural employment. From that point, however, self-employment rose steadily for almost two decades reaching a peak of approximately 17% in 1998 before falling back to about 15% in 2002. Levels remained relatively stable in the 2000s. In 2009, self-employment constituted 16% of employment in Canada. Ontario’s experience is reflective of Canada’s as a whole; self-employment has remained relatively stable over the past decade, with data suggesting that approximately 15% of the Ontario workforce was self-employed from 1999-2009.
B. Own-Account Self-Employment
The main area of vulnerability among the self-employed occurs among the own-account self-employed. Own-account self-employed people are those who “do not employ workers and who do not control the risks of the production process or accumulate capital.” Unlike traditional self-employment, it more closely resembles employment than entrepreneurship. In some cases, these workers may qualify as an employee under the Employment Standards Act. In other instances, workers may be self-employed but have only one client and be in a state of significant dependency upon that client, making them vulnerable to exploitation. Not all own-account self-employed workers are vulnerable, but own-account self-employment can be an indicator of precarity, particularly when coupled with low wages because it does not include the protections associated with employment (e.g., protection under the Employment Standards Act, 2000).
Canadian rates of own account self-employment grew dramatically between 1976 and 2000, from 4% to nearly 9% of total female employment and from 7% to 12% of total male employment. In the 1990s, nearly 45% of new employment emerged in the form of own-account self-employment. According to one research team, the “increase in own-account self-employment accounted for the entire increase in self-employment during the 1987–98 period”. This is consistent with findings across industrialized nations where growth in self-employment in the 1980s and 1990s was concentrated in own-account self-employment. Own-account self-employment also played a significant part in the more recent recessionary growth of self-employment.
Own-account self-employed workers generally earn less than employees or employers. This is exacerbated by the fact that self-employed workers are less likely to have benefits coverage. Women and members of visible minorities are more likely to be found in own-account self-employment as compared to other forms of self-employment. While the category of self-employed employers has a higher concentration of men and highly educated individuals, the own-account self-employed are more often women and workers with lower levels of education. Part-time employment rates for the own-account self-employed are high, particularly among female workers. Female own-account self-employed workers are often engaged in service jobs. In 2000, one third of female own-account self-employed workers were in the service industry. Nineteen percent of immigrants, compared to 15% of Canadian-born workers, were engaged in self-employed work and more immigrants were likely to report that they had entered self-employment because of a lack of suitable paid jobs (33% of immigrants, compared to 20% of Canadian-born workers).
Noack and Vosko found that approximately 15% of Ontario’s workforce are self-employed (5% of the Ontario workforce are self-employed employers and about 10% are own-account self-employed). The Ontario experience is similar to the Canadian experience as a whole in that Ontario women were less likely to be self-employed as compared to men; however, when they were self-employed, it was in own account self-employment, much of this work being in a low income category.
C. The Legal Framework
Self-employed workers are not covered under the ESA which requires the existence of an employment relationship where the worker and employer fall within the Act’s definition of “employee” and “employer”. For workers in precarious forms of work, classification as an employee is a condition of enjoying ESA protections and basic minimum standards. According to Parry and Ryan, the definitions of employee and employer have attracted more attention and controversy than any others under the ESA.
(a) a person, including an officer of a corporation, who performs work for an employer for wages,
(b) a person who supplies services to an employer for wages,
(c) a person who receives training from a person who is an employer, as set out in subsection (2), or
(d) a person who is a homeworker,
and includes a person who was an employee
(a) an owner, proprietor, manager, superintendent, overseer, receiver or trustee of an activity, business, work, trade, occupation, profession, project or undertaking who has control or direction of, or is directly or indirectly responsible for, the employment of a person in it, and(b) any persons treated as one employer under section 4, and includes a person who was an employer 
As Ryan and Parry point out, the Ontario Labour Relations Board has indicated that distinguishing employee from independent contractor can be very difficult. Because the definitions are broadly drafted, employment standards officers (ESOs) trying to distinguish between legitimate independent contractors and those who should be classified as employees must go beyond the text of the statute and apply common law tests. However, a clear test for determining whether a worker is an employee or an independent contractor remains elusive. As Fudge, Tucker and Vosko report, “[s]ince the 1950s, prominent employment and labour scholars have concluded that the English common law did not have a unified conception of employment or a coherent method for distinguishing between employees and independent contractors.”
The ESA Policy and Interpretation Manual states that “it is the existence of the relationship between the employer and the employee that defines an employee for the purposes of the Act”. The definition of the employment relationship in other statutes has not been found to be of great relevance to the determination under the ESA. However, a number of approaches to making the determination have emerged within the common law.
In a 2003 decision, 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., the Supreme Court of Canada explicitly rejected a single test approach. It did, however, review the prevailing tests and present a non-exhaustive list of relevant criteria for making a determination as to whether a worker “engaged to perform…services is performing them as a person in business on his own account.” These factors include:
Whether the worker has control over his or her own activities,
Whether the worker owns his or her own tools,
Whether the worker hires other workers to help, and,
Whether the worker has i) an opportunity for profit or ii) takes on either financial risk or “responsibility for investment and management held by the worker”.
Sagaz reviewed the fourfold test set out in Montreal (City) v. Montreal Locomotive Works Ltd.,  3 W.W.R. 748,  1 D.L.R. 161 (Canada P.C.): control, ownership of tools, chance of loss or profit and integration. Following the direction in Sagaz that there is no single definitive test, employment standards officers, adjudicators and courts must draw upon the factors in Sagaz, the fourfold test in Montreal and other tests that have emerged: the “organization test” that focuses on whether the worker was part and parcel of or integral to the organization, the “enterprise test” that examines the degree of control and risk taken by the employer and the “business practices test” that looks at the intention of the business arrangement between the parties. Each test offers an approach to the central question: “is the person who has been engaged to perform services performing them as a person in business on his or her own account?”
One issue that has arisen in the legislation is whether a “dependant contractor” is or could be included in the definition of employee under the ESA. “Dependant contractors” are not defined under the ESA but they are under the Labour Relations Act. The definition of employee under the Labour Relations Act includes dependent contractor.
“Dependent contractor” means a person, whether or not employed under a contract of employment, and whether or not furnishing tools, vehicles, equipment, machinery, material, or any other thing owned by the dependent contractor, who performs work or services for another person for compensation or reward on such terms and conditions that the dependent contractor is in a position of economic dependence upon, and under an obligation to perform duties for, that person more closely resembling the relationship of an employee than that of an independent contractor.
In general, dependant contractors are workers with only one client, opening them up to extreme vulnerability. Whether this type of vulnerability can be remedied through legislation is an open question discussed later.
D. The Key Issue: Misclassification
The primary concern arising out the LCO’s research and consultations, regarding self-employment, was that of misclassification. Some individuals are misclassified as own-account self-employed independent contractors when they would more properly be considered employees under the ESA. If a worker is misclassified (i.e., defined as self-employed when they should be defined as an employee) either deliberately or erroneously, the worker may not be aware that he or she is in an employment relationship and can access the protections of the ESA. This can have particularly harsh impacts on low income workers with disproportionately negative impacts on women and immigrants.
Advocates have indicated that workers sometimes agree to be classified as self-employed by signing contracts or setting up paper corporations at the request of the employer simply in order to secure some form of income. In other cases, workers erroneously believe that they are self-employed simply because of an assertion made by the employer. However, these are not the governing factors in determining whether an employment relationship exists. Some advocates are concerned with what is referred to as “creative classification” by employers. Practices of misclassification have been identified in industries such as cleaning and trucking. In our consultations, we heard about examples of some pizza delivery persons and workers in the catering industry being misclassified as independent contractors to enable employers to avoid employment standards obligations.
Employers indicated that contracting out may be seen as a necessity for companies to compete in the global market in areas such as manufacturing. Workers’ advocates, however, do not accept globalization as the primary cause.