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Is it normal to sign a separate independent contractor contract with the law firm as an articling student?

Ryn

This thread does not constitute legal advice. While there may be some useful information in here to jumpstart your search for answers, please reach out to the law society in your province if you have concerns about your relationship with your articling principal. Do not rely on any of the comments in this thread when making decisions.

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To me the bigger question isn't would the CRA allow it to be classified this way, but would the law society consider this an appropriate articling relationship allowing you to get called. Tax reasons are a minor concern if you have to fight the law society to recognize your placement.

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This is not legal advice and might not even be good non-legal advice (going beyond my usual caveat...).

 

Has OP asked the law society whether it's okay and if they say no, that gives a principled (and principal...) reason to disagree? Has OP asked the articling principal why he wants it to be an independent contractor relationship?

 

Given the hallmarks of an independent contractor I'm somewhat skeptical that an articling student could be considered an independent contractor (unlike an already-admitted lawyer or paralegal) but don't rely on this in any way, shape or form.

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If I am considered an independent contractor by my articling principle, what can I do to make the best of my situation? Any and all information, but not advice, would be very appreciated.

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This might interest folks: https://tool.myopencourt.org/am-i-an-employee-or-a-contractor

Note it may  not take into account exclusions for professionals under the various employment standards statutes. 

In your case, if you don't end up working for the person after articling, consider speaking to an employment lawyer at the end of your articles to see if you are entitled to anything (vacation pay, etc.). 

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Yeah you pay CPP as both employee and as employer. 

The EI exemption means you can’t access it, if I recall correctly. So it‘s a double edged sword. You don’t pay in but you can’t get paid out. 

Try to get a percentage of your income automatically diverted into an account set up to pay your taxes. If you have money left over it’s only a good thing. My first 17,000 tax bill threw me for a loop. Not fun times. Save up. 

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Please note that none of the below is tax, accounting, or legal advice. 

EI premiums are 1.62% and are capped at $860.22 this year. You can opt into EI as an independent contractor, but you generally have to work for 12 months before you’re eligible for benefits.

CPP contributions for both employers and employees are 5.1% respectively, or 10.2% total. CPP contributions are collected up to $57,400, with a basic deduction of $3,500, meaning your CPP contributions as an independent contractor will cap out just shy of $5,500. 

Note that those numbers will vary based on your income, assuming you earn less than $57,400 for CPP purposes or $53,100 for EI purposes.

If you are categorized as an independent contractor, you should consider going to an accountant come tax time. You may be eligible to deduct some things, such as rent used for home office space, that you wouldn’t be able to deduct as an employee.

You may also want to consider pushing back on this for financial reasons. The delta between the extra CPP payments and the saved EI payments is about $1,900.

@Hegdis or other mods, feel free to delete if that comes too close to advice. It’s all knowledge from my point of view, but understand if you want to err on the side of caution. 

Edited by BlockedQuebecois

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I'll just note that if we're talking about a larger and sophisticated employer who has payroll already, then choosing to classify an articling student as a contractor is absolutely a strategic decision aimed at minimizing...whatever. People who understand tax and HR better than I do can comment on how it affects obligations on one side and the other. For a small shop, however, it may simply be the only immediate option. I have two people working for me. Both are classified as contractors, and I believe considering the degree of independence they are afforded this is a defensible arrangement based in truth. But it isn't so I can minimize CPP or whatever. I have no payroll arrangements set up. Maybe one day. But right now I'm just trying to keep my practice above water, and I simply don't have time to do more complex HR arrangements.

Also, note that in my area of practice, teaching a student or a young associate to claim their own expenses, manage their own deductions, etc. is absolutely a responsible way to train someone. This is an area where the end goal is, really, self-employment. It's not just more convenient for me. It sets up the young lawyer to transition into their own practice more easily one day.

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Quote

Is there a benefit for me to set up a sole proprietorship/HST account?

I assume your boss intends to pay you your agreed upon fee plus HST? If so, then yes get the GST/HST account so you can start claiming some input tax credits.

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16 minutes ago, Mountebank said:

I assume your boss intends to pay you your agreed upon fee plus HST? If so, then yes get the GST/HST account so you can start claiming some input tax credits.

To add to this, you’re going to want to clarify that your boss intends to pay you the “salary” you agreed to plus HST, otherwise you’re looking at earning ~18% less than you negotiated for (and there’s not really a good reason for your boss not to pay HST on top). 

ETA: Mountebank raises the point with his wording, but since @phenomanimal isn’t experienced with being an independent contractor and it’s not clear from their posts, I think it’s important to make this explicit 

Edited by BlockedQuebecois
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You should sit down and discuss all of this with your principal. Your principal has presumably been running their practice for some time now, and will have familiarity with how to operate a business. As an independent contractor, you are essentially operating your own business. 

Setting up an HST account and collecting HST isn't looking for more money – you won't be getting anything more, after tax. Additionally, your employer generally won't be giving you anything more, after tax. The input tax credits @Mountebank mentioned are designed to prevent hidden or double taxation. Generally, if a client went to a law firm, they would pay HST to the firm, which would then remit it to the CRA. In your case, as an independent contractor, the client would still pay HST to the firm. The firm would remit some of it to the CRA, but would also pay some of it to you. You would then remit it to the CRA, while the firm would then claim an input tax credit on the portion paid to you. Since legal fees are generally eligible for input tax credits (see here), the end result is that your boss takes home the same amount as they would have if you were an employee and they had remitted all of the HST to the CRA. 

But again, sit down with your principal about this. Say that you've done some basic research, and you understand that as an independent contractor it would be common for you to collect HST from them and for them to claim input tax credits on the HST paid to you. Then, ask them to help you set up your independent contractor business similar to how they've set up their practice. 

Also, ask your principal if they can help get your taxes organized. Depending on who prepares your principal's taxes, they may be willing to charge you a greatly reduced amount as a goodwill gesture, since you represent a good future client and you're a student. Also, accounting services such as tax preparation are, generally, deductible as a business expense. 

This is all information I know through osmosis, none of it is legal advice, please don't rely on it. 

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As an aside, is this common? I had never previously heard of this being done before. I don't understand how an articling student be anything but an employee given the nature of the principal/articling student relationship.

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10 hours ago, Mountebank said:

As an aside, is this common? I had never previously heard of this being done before. I don't understand how an articling student be anything but an employee given the nature of the principal/articling student relationship.

Further to this, and listen I get that I'm getting into a grey area here in terms of forum rules, but I have even more concerns about this.

If an articling student is a business, what is the source of the business income? It can't be fees collected for legal services rendered as the business is neither licenced nor insured for that. Yet, if someone is collecting fees for time billed out on a legal matter, is that not exactly what they're billing out for? Will lawpro even cover them under the principal's policy if they're not part of the same firm? Would the LSO take issue with an unlicensed law grad providing, and being compensated for, legal services in his personal capacity without the legal relationship of a firm or in-house environment?

I really think this is the kind if thing that merits a call to the law society ahead of time rather than after the fact.

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1 hour ago, Mountebank said:

Further to this, and listen I get that I'm getting into a grey area here in terms of forum rules, but I have even more concerns about this.

If an articling student is a business, what is the source of the business income? It can't be fees collected for legal services rendered as the business is neither licenced nor insured for that. Yet, if someone is collecting fees for time billed out on a legal matter, is that not exactly what they're billing out for? Will lawpro even cover them under the principal's policy if they're not part of the same firm? Would the LSO take issue with an unlicensed law grad providing, and being compensated for, legal services in his personal capacity without the legal relationship of a firm or in-house environment?

I really think this is the kind if thing that merits a call to the law society ahead of time rather than after the fact.

In theory, an articling student is allowed to provide legal advice so long as they're directly supervised by a lawyer – I don't think the nature of the business relationship between the parties actually affects that. You could, for instance, theoretically set up the articling-principal relationship as a partnership, since lawyers are allowed to form partnerships and the definition of "lawyer" under the Rules includes articling students. Although it would obviously be quite odd to have a partnership in which one person supervises the other, it's not impossible to conceive of – you could, for instance, have a partnership which includes paralegals who have to be directly supervised when conducting work outside of the approved scopes of practice for paralegals. 

As a legal matter though, you're correct that the direct supervision mandated by the Rules would seem to be in conflict with the legal definition of independent contractor. 

Re: LawPro, LawPro never insures articling students directly. The insurance of articling students is covered in the same way clerks are covered – through agency law. The relevant legal question, then, is whether an independent contractor can be said to be an agent while under the direct supervision of the lawyer. For obvious reasons, I won't attempt to answer that.

I agree that OP should probably contact the law society, although I also understand the hesitancy to. I think the unfortunate fact is that if you're in the position, as an articling student, to be told by your employer that you're actually an independent contractor, you're unlikely to have the leverage necessary to feel comfortable pushing back against that classification. 

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Hard to imagine any articling student actually being an independent contractor. Absolutes are spooky but I’ll go all the way and say there’s a zero percent chance a court would ever make that finding. Even if a hypothetical articling student is mature, on their second career, bringing in clients, smarter than their principals, and works on split articles with different lawyers, they are simply not independent and they can’t do anything on their own. This is more about the poster navigating a tricky situation with the employer/ principal who obviously wants to make this classification. 
 

I wonder if contacting the law society involves any risk. Seems plausible that if the law society finds the tactic abhorrent they could come down on the principal in some way?

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You know, I'm not going to get extensively into this debate. I just want to say, the only judgmental and negative opinions I'm hearing here about the nature of structuring one's business are coming from full-time workers in large organized firms. In other words, the work that gets done to structure the business is never your problem. You just phone up HR and they do whatever HR does. Which means, quite frankly, that while everyone is entitled to an opinion, yours are uninformed here.

In terms of making some complaint to the Law Society, everyone is certainty entitled to do whatever they think is right. And God knows I've seen the Law Society of Ontario, at least, spend their time policing some God-awfully stupid shit. But here's the reality you aren't considering. The Law Society begs lawyers like me to take on articling students. Because if we left it entirely to large firms to supply articles, the entire system would collapse. They need  sole practitioners, who do not have payroll, HR, accountants, etc. to create positions, both because otherwise there is simply not enough, and also because sole practitioners need to come from somewhere, and believe it or not (as some seem not to believe it - importing an argument from elsewhere) not everyone who ends up sole somehow flunked out from larger firms. In fact the best way to end up with your own small practice is to learn from someone who has their own small practice.

All of which is to say, I rather suspect the Law Society is concerned with the supervision of an articling student's work, and not with policing the business structure within which that work occurs.

P.S. I was looking for a more appropriate example, btw, but this thread really does trigger me because I feel like it's a great example of lawyers from other forms of practice not getting the reality of mine, and judging lawyers like me for shit you wouldn't bother or ever need to bother with in a million years. So how about this. You have no problem with lawyers not paying their articling students at all (I mean, you tut-tut about how sad it is that anyone need article for free, but you don't consider it a problem necessarily) but you'd propose a Law Society complaint over the business structure within which a sole practitioner actually does pay their articling student. Get some damn perspective.

Edited by Diplock
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41 minutes ago, Diplock said:

You know, I'm not going to get extensively into this debate. I just want to say, the only judgmental and negative opinions I'm hearing here about the nature of structuring one's business are coming from full-time workers in large organized firms. In other words, the work that gets done to structure the business is never your problem. You just phone up HR and they do whatever HR does. Which means, quite frankly, that while everyone is entitled to an opinion, yours are uninformed here.

In terms of making some complaint to the Law Society, everyone is certainty entitled to do whatever they think is right. And God knows I've seen the Law Society of Ontario, at least, spend their time policing some God-awfully stupid shit. But here's the reality you aren't considering. The Law Society begs lawyers like me to take on articling students. Because if we left it entirely to large firms to supply articles, the entire system would collapse. They need  sole practitioners, who do not have payroll, HR, accountants, etc. to create positions, both because otherwise there is simply not enough, and also because sole practitioners need to come from somewhere, and believe it or not (as some seem not to believe it - importing an argument from elsewhere) not everyone who ends up sole somehow flunked out from larger firms. In fact the best way to end up with your own small practice is to learn from someone who has their own small practice.

All of which is to say, I rather suspect the Law Society is concerned with the supervision of an articling student's work, and not with policing the business structure within which that work occurs.

P.S. I was looking for a more appropriate example, btw, but this thread really does trigger me because I feel like it's a great example of lawyers from other forms of practice not getting the reality of mine, and judging lawyers like me for shit you wouldn't bother or ever need to bother with in a million years. So how about this. You have no problem with lawyers not paying their articling students at all (I mean, you tut-tut about how sad it is that anyone need article for free, but you don't consider it a problem necessarily) but you'd propose a Law Society complaint over the business structure within which a sole practitioner actually does pay their articling student. Get some damn perspective.

I don’t think anybody’s opinions here have been all that judgmental or negative? At least not any posted within the last five years. Maybe you’re reacting to @BringBackCrunchBerries’s “abhorrent” comment? 

Also, @Mountebank, who I think has been the most judgmental (and to be clear, I don’t think that’s a good characterization), is a sole practitioner. And I’m pretty sure CrunchBerries is, too. 

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44 minutes ago, Diplock said:

You know, I'm not going to get extensively into this debate. I just want to say, the only judgmental and negative opinions I'm hearing here about the nature of structuring one's business are coming from full-time workers in large organized firms. In other words, the work that gets done to structure the business is never your problem. You just phone up HR and they do whatever HR does. Which means, quite frankly, that while everyone is entitled to an opinion, yours are uninformed here.

In terms of making some complaint to the Law Society, everyone is certainty entitled to do whatever they think is right. And God knows I've seen the Law Society of Ontario, at least, spend their time policing some God-awfully stupid shit. But here's the reality you aren't considering. The Law Society begs lawyers like me to take on articling students. Because if we left it entirely to large firms to supply articles, the entire system would collapse. They need  sole practitioners, who do not have payroll, HR, accountants, etc. to create positions, both because otherwise there is simply not enough, and also because sole practitioners need to come from somewhere, and believe it or not (as some seem not to believe it - importing an argument from elsewhere) not everyone who ends up sole somehow flunked out from larger firms. In fact the best way to end up with your own small practice is to learn from someone who has their own small practice.

All of which is to say, I rather suspect the Law Society is concerned with the supervision of an articling student's work, and not with policing the business structure within which that work occurs.

P.S. I was looking for a more appropriate example, btw, but this thread really does trigger me because I feel like it's a great example of lawyers from other forms of practice not getting the reality of mine, and judging lawyers like me for shit you wouldn't bother or ever need to bother with in a million years. So how about this. You have no problem with lawyers not paying their articling students at all (I mean, you tut-tut about how sad it is that anyone need article for free, but you don't consider it a problem necessarily) but you'd propose a Law Society complaint over the business structure within which a sole practitioner actually does pay their articling student. Get some damn perspective.


I'm not judging the compensation or the set up. 

I am worried that the nature of the relationship between articling student and principal means that it is impossible for the test for independent contractor to be met, and both the student and the principal could be in for a nasty surprise when the CRA comes knocking.

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If we’re talking about what was posted five years ago and saying those comments were negative, Diplock called the arrangement “very close to exploitative” and people in smaller shops, including Hegdis, said to call the law society to confirm this arrangement is acceptable. 

I find this aside rather bizarre. 

Edited by BlockedQuebecois

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First of all, an articling student is clearly not an independent contractor, regardless of what the parties agreed to. Second, the "independent contractor" should feel no shame about holding the other side to their agreement and collecting their HST. 

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I completely get @Diplock's frustration with apparent ivory tower opinions when it comes to law firm management (that is, judgements pronounced in complete ignorance of the context on the ground). It's the same as urban/rural, practitioner/academic, or, yes, big law/small law tension. And, no, I doubt very much that his comments are aimed at me or @BringBackCrunchBerries, being fellow sole practitioners. I expect that some of the earlier comments in the thread got his blood pressure up a bit, which, believe me, I absolutely understand.

But, ultimately, I just don't see how an articling student could be an independent contractor rather than an employee as far as the law settling that distinction goes.

That's not to say that another staff member such as a law clerk couldn't be an independent contractor (certainly, many of us who practice real estate retain title searchers on this basis). And it's not to say that I have a moral or ethical objection to wanting an articling student to act as his or her own business. I just don't see how articles, as they exist in Ontario, could ever fall outside the contemplation of an employer/employee relationship as defined. My concern is a legal, not ethical, one. Though I'm open to correction on this point as it's the first time I've even considered it (I truly had never heard of this kind of arrangement before).

And while I would be pleased to offer a fulsome opinion on the distinction as it applies to the (not so original) OP's situation, I'm afraid I require a retainer amount of $5,000.00, having cleared my trust account, before I can undertake any work on this matter.

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