Professional Engineers Acting As Independent Contractors. Prepared by: B. DiStefano P.Eng. / R. Hicks, P.Eng. / L. Mitelman, P.

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1 Professional Engineers Ontario GuidEline Professional Engineers Acting As Independent Contractors Prepared by: B. DiStefano P.Eng. / R. Hicks, P.Eng. / L. Mitelman, P.Eng/ Notice: The Professional Standards Committee has a policy of reviewing guidelines every five years to determine if the guideline is still viable and adequate. However, practice bulletins may be issued from time to time to clarify statements made herein or to add information useful to those professional engineers engaged in this area of practice. Users of this guideline who have questions, comments or suggestions for future amendments and revisions are invited to submit these to PEO using the form provided in Appendix C. November, 2001

2 Contents Foreword Introduction Engagement Issues Scope of Services Reporting and Direction Relationship with Client Participation on Teams Certificate of Authorization Use of Professional Seal Professional Responsibilities Professional Liability Professional Development Ethics Advertising Intellectual Property Duration of Contract Terms of Engagement....8 Appendix A. Sources of additional information....9 Appendix B. PEO Professional Practice Guidelines....9 Appendix C. Amendment and Revison Submission Form... 10

3 Forword Professional engineering in Ontario is regulated under The Professional Engineers Act, R.S.O. 1990, Chapter P28, Regulation 941/90 and Regulation 260/08. Professional Engineers Ontario (PEO) is responsible for regulating the practice of professional engineering and governing licensed professional engineers, licensees and Certificate of Authorization holders in order that the public interest is served and protected. To fulfill this mandate, PEO publishes professional practice guidelines. A list of guidelines is provided in Appendix B. Printed copies of PEO guidelines are available for purchase from PEO, or guidelines may be printed free of charge from the PEO website (www.peo.on.ca). This guideline has been developed by a task group of the association s Professional Standards Committee, and reviewed and approved for publication by the full Professional Standards Committee, the PEO Executive Committee and finally by Council. It aims to assist licensed professional engineers and the organizations employing them in dealing with the changing terms of engagement under which many individuals now work. The guideline has three primary objectives: to clarify the terminology associated with contract employment, which is an increasingly common experience for professional engineers and employers; to provide an overview of the expected roles and responsibilities of individuals engaged to provide services through an arm s-length contractual arrangement; to introduce professional engineers who contract their services to the legal, liability and taxation issues that they and their employers will face. This guideline is intended to clarify recommended professional practices for professional engineers working under retainer. It will also assist their clients in defining and addressing issues relating to retaining a professional engineer. Its application will vary, based on the size, nature and practice of each professional organization and individual. It has been created to complement other PEO and government documents. Readers are referred specifically to the Guideline for Professional Engineers Acting as Contract Employees. 1. Introduction Until recently, the employer-employee model was the predominant model of employment relationship in our society. Today, however, a wider variety of commercial relationships is the norm. Such relationships with employers can include an employment relationship of indefinite duration with permanent employees, but may also include temporary contract employees employed for a set period, or independent contractors retained for specific projects. Independent contractors may be incorporated entities, individuals who are registered as businesses, or individuals who are not incorporated or registered as a business. This new range of relationships has impacts not only on the involved parties, but also on tax authorities (taxation issues), the general public, insurers, and the court (issues of liability and spreading of risk). An independent contractor is not an employee, but an independent professional who renders personal services to those who seek them. Independent contractors may derive certain tax advantages, in that they may be able to deduct from business earnings some expenses and other deductions not available to employees. However, to satisfy the Canada Customs and Revenue Agency that one is a bona fide independent contractor, one must meet certain criteria established by the agency. These criteria include being registered as a corporate entity under the applicable business corporations act; maintaining an office and business phone and printing business cards and stationery in the name of the corporate entity; or registering for and having a GST number. This list is not exhaustive. Contract employment is a term used in businesses of all types and sizes to refer to the situation of an individual engaged to provide personal services to the organization. However, such a relationship is not actually contract employment, and should not be referred to as such by either independent contractors or their clients. In fact, the relationship is the Professional Engineers Ontario 3

4 execution of a retainer by an individual who is an independent contractor, to provide personal services to an organization. If the Canada Customs and Revenue Agency chooses to review the status of an individual executing a retainer, the agency will review any contracts between the individual and the client that describe their relationship. If the parties themselves identify their relationship as employment, the agency might also characterize the relationship that way. The focus of this guideline is on the independent contractor and the retainer the professional executes. Because the relationship between the parties is more at arm s length than the traditional employee-employer relationship, there is the potential for confusion or misunderstanding of each party s roles and responsibilities. For example, professionals who accept retainers will face a range of terms relating to duration, remuneration structure, liability obligations and termination of retainers, which are likely to be carefully documented in the retainer. Engaging a professional through a retainer usually changes the way in which an organization administers and uses professional services. Professional engineers must understand these differences to negotiate business and professional terms that will satisfy their own needs, and the needs of their clients. Professional engineers who are independent contractors should understand their responsibilities to the entities that retain them. This includes having clear descriptions of the scope of services to be provided, the work to be performed, the extent of their confidentiality obligations, the ownership of intellectual property they may develop during the course of their retainer, and their professional liability. In addition, such items as payroll, taxation, workers safety insurance, employer health tax, employment insurance, liability insurance coverage, nature of supervision given or received, provision of tools, and independence in choosing analysis and design techniques can be distinctly different for independent contractors than they are for employees. Professionals must ensure that they are aware of these issues, and address them where appropriate. This guideline outlines the issues that can have an impact on a professional engineer s ability to provide a high quality professional service. Professional engineers should discuss these issues with their clients before executing contracts and commencing work. To fully appreciate these issues, they should consult the PEO professional practice guidelines referred to throughout this guideline. They should also remember that they, not their clients, are accountable for adhering to PEO s Guideline to Professional Practice and other practice guidelines, and the practice requirements of the Professional Engineers Act and Regulations. 4 Acting as Independant Contractors

5 2. Engagement Issues This section provides a sequential overview of the important issues to address in developing a clear and effective relationship between a professional, as an independent contractor, and the client who retains that professional. An independent contractor should always negotiate and enter into an agreement with the client before commencing a retainer. Enforceable agreements may be oral or written; however, it is recommended that any agreement be confirmed in writing to ensure that the terms of the retainer are clear. This section also focuses on defining the roles in retainer relationships, so that both parties to the retainer can adequately address all issues. Indeed, it has been amply demonstrated that carefully considering and defining both parties responsibilities and expectations greatly reduces misunderstanding, and the consequential potential for professional liability, enabling the parties to focus on achieving a quality job. 2.1 Scope of Services The scope of services is a list of the specified tasks within the terms of engagement, and the delivery or performance expectations associated with these tasks. Depending on the size and complexity of the client and/or project, it might also be necessary to define the required technical knowledge and skills to execute the commission effectively. PEO s Guideline to Professional Practice requires that professional engineers practise within their competence. Failure to do so may be professional misconduct under section 72(2)(h) of Regulation 941. Professional engineers should clearly state the level of skill they can deliver to meet client and project requirements. It is detrimental to both parties for either of them to convey inaccurate expectations or abilities in the contractual relationship. The scope of services may also indicate potential or future scope, based on performance of services or an extension of project requirements. In special instances, a client may require a professional engineer to act for the client in supervising or administering an organization s employees and/or client relationships. It is important that these corporate responsibilities and authorities be clearly defined, that a contact person for reporting and approval to act be identified, and that the vehicle for acting on the client s behalf is reviewed for legal and financial implications. For information on what to include in such an agreement, see PEO s Guideline on the Use of Agreements between Clients and Engineers for Professional Engineering Services. 2.2 Reporting and Direction Clarity on reporting and progress reviews is critical to the flow of work and quality control Relationship with Client When entering into a contract, professional engineers should determine the nature of relationships with the client at the outset. Among the issues that should be clarified are: a contact person (single contact person is preferred); the person s non-employee status; the process for progress reporting and limits of stewardship; cooperative work on teams; and a process for terminating the contract. Hours or days of work should not be stipulated, nor should there be a restriction on other sources of income. An engineer acting as an independent contractor should expect to provide any required data processing equipment and software, and should not be restricted on analysis or design techniques Participation on Teams When professional engineers are to participate on a team in a client s organization that may involve staff or other professionals, they should define the relationships and their client s expectations. Contractors should consider defining: the contact person for whom they are acting; their role on the team; the process for progress reporting and deliverables; processes for changes in deliverables and schedules; their responsibility for team leadership; Professional Engineers Ontario 5

6 the limit of their authorities for technical and administrative supervision; the limit of their assumption of professional responsibility for the work of staff, other professionals and team members; the required use of their professional seal; the numbers of people involved; the skills of those involved; and processes for dispute resolution. Professional engineers should keep in mind that, when reviewing the work of other engineers, they are subject to the provisions of PEO s Code of Ethics (section 77 of Regulation 941/90), and in particular subsection 77(7). They may find additional guidance in section 4.2 of PEO s Guideline to Professional Practice Certificate of Authorization When professional engineers are acting as independent contractors rather than as contract employees they must hold a Certificate of Authorization under the Professional Engineers Act, in addition to their P.Eng. licence. PEO s information guide on Certificate of Authorization Requirements can assist professional engineers in determining when they are in this situation Use of Professional Seal The PEO Certificate of Authorization allows individual professional engineers acting as independent contractors or companies to offer or provide professional engineering services directly to the public. Certificate of Authorization holders must stamp their work to indicate their responsibility for the services provided. PEO s Guideline to Professional Practice, section 9.2, provides valuable guidance on the proper use of a professional engineer s seal. 2.3 Professional Responsibilities Because professional engineers must adhere to PEO s Code of Ethics (section 77 of Regulation 941/90) both during and after the term of the contract, they require a clear understanding of the required services so as not to put themselves in compromising positions. If engineers are concerned that required services may be in conflict with PEO s Guideline to Professional Practice or with the Code of Ethics, they should discuss this with their clients to achieve a satisfactory resolution. In the absence of a satisfactory resolution, professional engineers should decline the contract. To facilitate this process, engineers should be fully conversant with PEO s Guideline to Professional Practice. Recognizing that prospective clients might not normally engage professional engineers, contract professionals should ensure that clients are aware of the professional obligations of professional engineers. In this regard, professional engineers should be prepared to supply to prospective clients summaries of the areas in which they consider themselves to be competent. They are also advised to make all clients aware in writing of actual, perceived or potential conflicts of interest. Once professional engineers enter into a contract, they are obliged to provide the contracted professional services to the best of their abilities. 2.4 Professional Liability When accepting an engagement to provide professional services, professional engineers should clearly understand all issues relating to the assumption of liability for the work being performed. Both parties must understand the client s expectation for indemnification against loss as a consequence of work done by a professional engineer. The ability of the professional engineer to obtain satisfactory professional liability insurance should be addressed. Providers of professional services should understand the extent of the liability they are assuming in doing the work, the acceptable level of risk, and the possible need and availability of professional liability (sometimes called errors and omissions) insurance. When negotiating conditions of liability and indemnification, or limitation of liability, professional engineers should consider: fixing the scope of work for which liability will be assumed, or limiting, or fixing, the type of liability (consequential, direct damages, etc.) that will be assumed. 6 Acting as Independant Contractors

7 They should also consider: responsibility for defense costs; extent of consequential damages, if applicable; post-contract liability; protection from the actions of third parties; remedies for negligence, omissions and willful acts on the part of the employer or third parties; responsibility for insurance premiums after completion of the contract, and/or survivability of the employer organization; and indemnification. Section 10 of PEO s Guideline to Professional Practice contains information on contractual liability. A lawyer should review all contract clauses dealing with liability before an engineer executes a contract with a client. 2.5 Professional Development Although training and accumulating experience are most often associated with the early stages of a professional engineer s career, all professional engineers in today s technology-based society require specialized knowledge to be effective and competitive. Because every professional engineer should establish a personal program of continuing education to maintain and upgrade his or her knowledge and competence, it is prudent that professional engineers build into their fee structures provision for direct and indirect professional development costs. However, contracts should not oblige clients to provide training to contractors. 2.6 Ethics In seeking, obtaining and maintaining employment, professional engineers are obliged to conduct themselves in an ethical manner. This applies to the manner in which they compete with others for employment, and portray their training, skills and experience to employers. It also applies to how they conduct their business affairs if they are self-employed independent contractors. Ethical and professional conduct expectations for professional engineers are described in the Code of Ethics (section 77, Regulation 941/90) and PEO s Guideline to Professional Practice. Employee engineers who also act as independent contractors in their own names must disclose this situation to their employers and their employment situation to their clients, in writing, as required by Regulation 941, subsection 77(5). 2.7 Advertising For professional engineers seeking employment, the most common means of advertising is through a personal résumé. Professional engineers should take care to ensure that information in their résumés is accurate and does not contravene confidentiality agreements with previous employers and clients. They must claim expertise in only those areas in which they are fully competent. Professionals who are self-employed, or those providing services on contract, often use such additional means to advertise as business cards and publication advertisements. The content of these and all other forms of advertising should comply with section 11 of PEO s Guideline to Professional Practice. 2.8 Intellectual Property Proprietary knowledge, or intellectual property, can be a critical ingredient to business performance. Intellectual property includes patents, trade secrets, know-how, computer programs, confidential practices, and other information the client treats as confidential, such as client lists and project/contract details. A professional engineer s confidential treatment of information is fundamental to professional conduct. It might be unlawful and is contrary to the Code of Ethics and PEO s Guideline to Professional Practice to divulge, misrepresent, or otherwise release, a client s propriety information and property without the client s prior permission. Procedures for identifying and handling intellectual property should be addressed in contracts, which may include confidentiality agreements. When the terms of the contract might result in a copyright, patent or other form of business venture, the agreement should identify the independent contractor s ownership of the intellectual property, participation in the development of the intellectual property, and remuneration for the transfer of the intellectual property, if any. If clients require engineers to assign rights to intellectual property, engineers should consider limiting Professional Engineers Ontario 7

8 the assignment of such rights to only the intellectual property that is developed in the course of the retainer or using resources provided by the client. Engineers should consider retaining rights to intellectual property they might develop outside the scope of their retainer. Computer programs are protected under Canada s copyright legislation. Section 12 of PEO s Guideline to Professional Practice discusses certain exceptions for professional engineers to the copyright of computer programs. A lawyer should review all contract clauses dealing with confidentiality and intellectual property. 2.9 Duration of Contract Contracts may have specified end dates, or be defined in terms of completion of a project. In both cases, the contract should specify a scope of services to meet a client s requirements. A contract s duration may be determined by a client, or be negotiated based on a contractor s estimate of completion date. In either case, both parties should understand that the client is entitled to receive the contracted services in the specified timeframe, and in return will compensate the contractor in the agreed manner. For the protection of both parties, contracts may contain a clause that enables cancellation by either party, given agreed notice periods. Such clauses may also specify an employee s compensation should the employer terminate the contract without notice. If agreed, contracts may be extended for the originally contracted services, or renewed for additional required services. Additional clauses might address actions that would lead to termination without compensation, and would normally include provisions on agreed measurements of performance or conduct. If a client insists on restrictive covenants, such as non-competition clauses, such restrictions should be reasonable, with realistic definitions of the time, geography and scope applying to the services provided to the employer. Monetary compensation to the engineer may be negotiated for the duration of the business sector limitation. Confidentiality clauses can extend after termination, and address items discussed in the previous section, including know-how and customer information. Professional engineers who offer their services to multiple clients should make all clients aware of their time constraints Terms of Engagement Professional engineers should be aware of the business and legal aspects of any employment relationship. They should be knowledgeable on applicable laws, and seek professional advice from accountants and lawyers on such matters as liability, taxation, Canada Customs and Revenue Agency criteria for assessing the nature of a contractual relationship, statutory deductions, employment standards, and workplace health and safety. There should be no provision in the contract for vacation pay, holiday pay, overtime pay, healthcare or employee benefits, company cards or vehicles, or formal company office space. 8 Acting as Independant Contractors

9 Appendix A. Sources of Additional Information Canada Customs and Revenue Agency income tax; Employment Insurance; Canada Pension Plan; publications; forms; local addresses, telephone and fax numbers Ontario Ministry of Labour employment standards; occupational health and safety; publications; local addresses, telephone and fax numbers Appendix B. PEO Professional Practice Guidelines 1. Acting as Contract Employees (2001) 2. Acting as Independent Contractors (2001) 3. Acting Under the Drainage Act (1988) 4. Acoustical Engineering Services in Land-Use Planning (1998) 5. Building Projects Using Manufacturer-Designed Systems & Components (1999) 6. Commissioning Work in Buildings (1992) 7. Communications Services (1993) 8. Engineering Services to Municipalities (1986) 9. Environmental Site Assessment, Remediation and Management (1996) 10. General Review of Construction as Required by the Ontario Building Code (2008) 11. Geotechnical Engineering Services (1993) 12. Guideline to Professional Practice (2009) 13. Human Rights in Professional Practice (2009) 14. Land Development/Redevelopment Engineering Services (1994) 15. Mechanical and Electrical Engineering Services in Buildings (1997) 16. Professional Engineer as an Expert Witness ( 2011) 17. Professional Engineer s Duty to Report (1991) 18. Project Management Services (1991) 19. Reports for Pre-Start Health and Safety Reviews (2001) 20. Reports on Mineral Properties (2002) 21. Roads, Bridges and Associated Facilities (1995) 22. Selection of Engineering Services (1998) 23. Services for Demolition of Buildings and other Structures (2011) 24. Solid Waste Management (1993) 25. Structural Engineering Services in Buildings (1995) 26. Temporary Works (1993) 27. Transportation and Traffic Engineering (1994) 28. Use of Agreements between Client and Engineer for Professional Engineering Services (including sample agreement) (2000) 29. Use of Computer Software Tools Affecting Public Safety or Welfare (1993) 30. Use of Professional Engineer s Seal (2008) 31. Using Software-Based Engineering Tools (2011) Workplace Safety and Insurance Board workers compensation; responsibilities; premiums; forms; training; addresses, telephone and fax numbers Professional Engineers Ontario engineering practice guidelines; registration and licensing requirements; forms; chapters; address, telephone and fax numbers Professional Engineers Ontario 9

10 Appendix C. Amendment and Revision Submission Form Guideline: Statement of proposed amendment or revision: Reason: Submitted by: Date: Mail: Professional Engineers Ontario Sheppard Avenue West Toronto ON M2N 6K9 Attention: Standards and Guidelines Coordinator Fax: (416) or (800) Acting as Independant Contractors

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