Private Links: Preying on the uninformed or abusing the system?
December 1, 2006
Several years ago the hiring of drivers as 'independent contractors' was prevalent in the industry. In many cases it was a legitimate arrangement, but in other cases it was a method, deliberate or not...
Several years ago the hiring of drivers as ‘independent contractors’ was prevalent in the industry. In many cases it was a legitimate arrangement, but in other cases it was a method, deliberate or not, for employers to cut costs, and for these ‘independent contractors’ to take home a larger pay packet, at least in the short-term.
In fact this practice became so prevalent that it drew the interest of many different government levels and departments.
The Private Motor Truck Council of Canada made a concerted effort to educate our members about risks to employers, workers, and fleet operators if these arrangements were ultimately found to be less than sound. PMTC covered the subject in its newsletters and magazines, and hosted an all-encompassing seminar to examine the issue in detail.
That seminar included speakers from Revenue Canada, Ontario’s Ministries of Finance and Labour, and Chris Andree, a well-respected labour lawyer who has counseled PMTC members on that and other subjects. Our goals were to educate and to provide a definitive explanation of what constitutes a viable sub-contractor arrangement; and as importantly, what does not.
At that time there were a number of concerns raised about these arrangements. In some cases employers were using the pretense of a sub-contract simply to avoid the payment of certain statutory deductions that would normally apply against the wages of employees. Income tax, and contributions to the Canada Pension Plan, Workers’ Compensation and Employment Insurance are examples.
When driver agencies made use of the practice it appeared to give them an unfair financial advantage when quoting on new business.
For the worker there was the illusion of being an independent business person, but many were unaware of the inherent risks involved. These include no Employment Insurance or in the event of injury on the job, no compensation coverage, as well as the need to account for income taxes.
For fleets that utilized dubious sub-contractor arrangements there was the additional risk that the savings could all go up in smoke if Revenue Canada, WSIB, or any other agency of the government were to find the arrangement to be unsound, and could not collect fees and/or taxes from employers or workers – the fleet that utilized the service could be next in line.
During the seminar, Andree pointed to a four-fold test to help determine whether an independent contractor is in reality, an employee. A summary follows:
Control: Who sets the hours of work; and who provides day to day direction?
Ownership of Tools: Who owns and maintains the tools and equipment required to do the job?
Risk of Loss: Does the individual have any risk if the employer’s business is unsuccessful?
Chance of Profit: Does the individual have any chance of benefiting from the success of an employer’s business?
These four questions are useful tools for a preliminary assessment of whether a particular sub-contract arrangement will stand up if challenged. But it’s not that easy. There are a number of other factors that come into consideration and those considering entering into such an arrangement should seek legal counsel.
The Workers’ Compensation Board considers truck drivers who do not own and maintain their own trucks to be employees, not independent contractors running their own business. Truck drivers who drive trucks owned by their clients or fleet operators are considered to be workers of the client or fleet operator for whom they drive.
So why, after all this time, are we bringing this subject up again? Because, while the use of these types of arrangements has never totally gone away there are indications that they are back with a vengeance, most notably in Ontario, but certainly in other jurisdictions as well.
Companies seeking drivers are openly advertising for sub-contract positions, and drivers are known to be approaching potential employers with the demand that they be hired as sub-contractors. Both would be well-advised to consider at a minimum the test questions shown above before entering into any agreement.
We question whether the companies and prospective drivers are well enough informed to jointly enter into a sub-contractor agreement that will stand the various tests, or whether we have returned to the days of simply constructing these arrangements to circumvent payment of statutory deductions.
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