Employee or independent contractor? Food for thought relating to transportation professionals.
November 19, 2013
November 19, 2013
A recent conversation with a driver working in the transportation industry made me realize the complexity and varied types of relationship/engagement/employment agreements drivers utilize to fulfill the employer-employee role.
In a two part series I will be discussing the different types of relationships, implications and commonly held myths and misinformation (to be the best of our professional opinion) regarding the do’s and don’ts and vital information to consider when selecting which one to choose. This will be my first joint collaboration with both an income tax expert and a lawyer with expertise in employment law and workplace relations.
We start our dialogue with a Parisa Nikfarjam, an associate with Rubin Thomlinson LLP, a legal firm specializing in employment law. Parisa and I have shared a great passion for employment relations and I found her down to earth demeanor and extensive expertise in employment law very insightful and easy to relate to day to day scenarios.
Following are the highlights of our discussion:
Parisa, thank you for agreeing to contribute to my blog and for bringing your knowledge to the readers of ctl.ca and trucknews.com. I was approached by a professional driver who brought about a problem that is apparently and sadly quite common within the transportation industry – I must admit, this is not the first time I have heard it. I was hoping the blog could provide both the employee and employer a brief perspective of views on the following scenario. Following a verbal agreement, the driver choose to work as an independent contractor for a small transportation company, and found himself not getting paid for services rendered, having his hours cut short without notice, and eventually having his services terminated. The driver was providing services for only this one client, did not own his own truck (was using a company truck to provide services) and was receiving functional guidance/instructions from the trucking entrepreneur who negotiated/held the delivery agreement/contract with the client.
Q: Briefly, can you explain the distinctions used to determine whether a driver is an independent contractor or an employee?
Nikfarjam:There have been a number of factors that the courts have used to determine whether an individual- in this case a driver- is really an employee or an independent contractor. These factors include: control (i.e. does the driver or company determine scheduling; pay; costing associated with the work/service?); ownership of tools/equipment (i.e. does the driver or company own and supply the equipment/tools?); profit/loss (does the driver or company benefit from the profit or share in the loss/expenses of the project?); integration (i.e. is the driver an integral part of the company?); exclusivity (i.e. is the driver working exclusively for the company or providing services elsewhere?); form of compensation (i.e. is the driver paid regularly on company’s payroll or does driver provide invoices on a regular basis?).
So, if a company fully integrates a driver into its operation, and if the company exercises control over how that driver does their work, there is a chance that they will be an employee at law. On the other hand, if the arrangement looks like a bargain between two equals, with a substantial amount of control and flexibility resting with the driver, they may be seen as an independent contractor.
Q: How can an employer and an employee protect themselves to ensure the spirit of the relationship — i.e. the trucking company choosing to outsource to independent contractors remains as such in the eyes of employment/contract law?
Nikfarjam: Your best bet is to set out an independent contractor agreement in writing. Things that should be included in this agreement are: what the project/service being provided is; what the term of the agreement will be (keep in mind, independent contractor agreements that run for years may turn into employment relationships); how the driver will be compensated (i.e. invoicing procedure); and who owns the tools/equipment that the driver will use. The other very important thing to include is how the agreement can be terminated, and what each party’s obligations and rights are on termination.
However, even if an agreement is put into place, which states that a driver is an independent driver, they may still be an employee. What determines whether a driver is an employee or an independent contractor is the nature of the relationship- in other words, how their work is actually performed. Therefore, even if a driver signs a contract that says they’re an independent contractor, he or she may still have rights and obligations as an employee if they are really an employee.
As the final determination depends on the individual facts and circumstances of each arrangement, remember that old saying about the duck – if the driver acts like an employee; is treated like an employee (in all but receiving the benefits/protections of an employee), that driver is likely an employee, notwithstanding intentions to the contrary.
Q: In the scenario described above, what could the recourse be for the driver regarding unpaid monies?
Nikfarjam The driver may request the unpaid monies directly from the company or request assistance from the Ministry of Labour for his/her minimum entitlements under law. If the matter becomes contentious, and the company disagrees with the driver’s assessment of their entitlements, I suggest reaching out to an employment lawyer, who can assist with legal counsel and direction on this issue.
Q: There are clear advantages and disadvantages to outsourcing versus hiring employees. What in your opinion would be the most important factors to consider?
Nikfarjam: Companies often prefer hiring independent contractors for the cost savings. Contractors do not receive benefit packages, pensions, or other perquisites provided to employees. Companies also do not have to withhold income tax or pay a share of a contractor’s CPP or EI. Contractors also do not have entitlements to basic employment rights such as minimum wage, overtime pay, health and safety protections, job-protected leaves, and human rights protections. Contractors also benefit from a big (tax) advantage too, in that they can deduct reasonable business expenses at tax time.
When deciding between a contractor or an employee, the factor to consider is where that particular person fits into the company’s workforce. Are they meant to be temporary? Are they performing a particular task? Are they going to have independence from the company in the way they work; bill; and prepare for tasks? Would the company like control over the management of the task? Does the company want the driver to work for them exclusively?Asking these questions is important so that the company can choose the arrangement that best suits its needs.
Q: What are the implications if the implied performance/agreement does not pass the test that matches the relationship entered into? How is it best remedied?
Nikfarjam Despite the potential benefits of contract work, there are significant drawbacks if a contractor is truly an employee, including unpaid taxes (for both the company and the contractor), penalties, interest, CPP, EI, and other legal liability (under Human Rights Code and the Employment Standards Act). Since misclassification of an employee as a contractor can be costly, I suggest taking a hard look at what the arrangement really is, and if the driver is looking like an employee, the company may be better off classifying him or her that way from the beginning. Whatever the relationship, one of the best ways to maximize protection is through a clearly drafted contract outlining the rights and responsibilities of the parties. That way, you have a roadmap if and when issues arise.
Q: Looking at it from the transportation purchaser’s point of view, what are the important things to consider when dealing with a transport company that sub-contracts its transportation services?
Nikfarjam: A purchaser should take a careful look at the company’s workforce: who is an employee and who is a contractor? Even if the company purports to have contractors, a purchaser should do its own investigation, and satisfy itself that the contractor is not truly an employee, who may at some point in the future be entitled to benefits, overtime, and all other forms of payment under law.
A purchaser should also examine the terms of the agreements between the company and a contract worker (i.e the length of time; payment schedule; termination). Finally, to the extent that agreements are verbal, a purchaser may wish to put these relationships in writing, through a formal contract outlining the parties’ expectations, roles and responsibilities.
It can often be difficult to purchase a company with different working relationships, and at times risky if the independent contractor agreements are really employment relationships in disguise. However, through careful analysis, preferably with the help of legal counsel, a purchaser can protect itself by infusing some clarity on these work relationships.
Thank you Parisa for your thoughts regarding this topic. I am sure there are many more questions and or discussions to elaborate on. If you wish to find out more on the topic please feel free to reach out to me and or to contact Parisa directly for further dialog. Parisa may be reached at:
Carolina M. Billings is an executive with 15+ year’s leadership experience in the fields of Business Development, Human Resources and Finance. As CFO-CHRO of a multi-million business conglomerate, she performs a truly interdisciplinary role within a portfolio of diverse industries ranging from Supply Chain, Logistics & Distribution, Wealth Management, Furniture Import, Sales & Distribution as well as Interior Design. She champions leadership initiatives as well as empowering and coaching/mentoring others to lead. Developing a hybrid of Finance and Human Resources has enable her to become leading business partner. Her great ability to influence and engage others in the pursuit of goals and objectives makes her a true innovator and change agent. Carolina is currently pursuing her Masters in Interdisciplinary studies with Royal Roads University, She holds Graduate Certificates from Cornell University and Queen’s University in the fields of Change Management and Leadership. She is a Co-Active Professional coach currently doing her practicum towards Certification with ICF. She holds a CHRL designation and a High Honor’s HRM Graduate Certificate.
Carolina is the founder of Big Fish Coaching a private practice specializing in personal leadership, career coaching, conflict resolutions and life change management.
www.bigfishcoaching.com All posts by Carolina Billings