Fleets that misclassify truck drivers as independent contractors rather than employees face a growing number of court cases when the business relationships come to an end — and transportation lawyer Carole McAfee Wallace doesn’t expect the challenges to end there.
“At any point in time I have at least three cases in which I’m dealing with a dispute over whether a worker is an independent contractor or an employee,” the Gardiner Roberts partner said Wednesday in a presentation about “Driver Inc.” business models.
When courts decide the truck drivers are in fact employees, fleets can be forced to hand over things like vacation pay, holiday pay, and overtime pay. The businesses can also be forced to re-pay deductions that can’t be taken from an employee’s wages without written authorization.
Other costs can include administrative monetary penalties applied to Canada Labour Code violations. Although Just on Time Freight Systems of Brampton, Ont., is so far the only fleet that has been publicly named after receiving one of the penalties.
That $3,000 cost was paid in December 2022 after the fleet was found to be “treating an employee as if they were not their employee, in order to avoid obligations under Part 3 of the Canada Labour Code or to deprive the employee of their rights under Part 3 of the Canada Labour Code.”
Filling out ESDC questionnaires
Investigations are also being triggered by more than employee complaints alone.
McAfee Wallace, for example, referred to one case that involved a fleet which engaged an owner-operator who then hired truck drivers. It’s a common business model. But when one of those drivers was injured in a vehicle fire, Employment and Social Development Canada (ESDC) investigators determined that the driver was actually a fleet employee because of the name on the side of the truck.
It didn’t matter what the contract said.
It’s one of the reasons the lawyer stressed the need to take special care when filling out extensive ESDC questionnaires that ask workers and companies about control over work, tools and equipment, the chance of profit, risk of loss, and integrations.
“You have to fill out the questionnaire – but you also have the opportunity to make your case in a written submission that goes along with the questionnaire,” she said.
WSIB audits of Driver Inc.
Ontario Workplace Safety and Insurance Board (WSIB) audits, meanwhile, will raise questions after looking at a Commercial Vehicle Operator’s Registration (CVOR) that shows someone has 70 trucks and just two employees, she said. An abstract that identifies collisions without any corresponding claims will raise other questions still.
Unless the independent contractor owns or leases the truck they’re driving, the lawyer thinks fleets will have a hard time proving the people behind the wheel are truly independent contractors.
“Tools of the trade are one of the four factors [to determine whether someone is an employee]. I don’t know how you can disregard case law,” McAfee Wallace said, when asked about a Canadian Truck Operators Association (CTOA) lawyer who defended the Driver Inc. employment model.
But Gardiner Roberts partner Rui Fernandes alluded to grey areas that still exist.
“There are other industries where it’s allowed,” he said, referring to examples such as cable and internet installers. “They’re using a truck that has Bell or Rogers or Telus … They’re only working really for one company.”
Define relationships in contracts
While the model continues to be debated, lawyers at the seminar emphasized the need to take particular care with contracts that define relationships between fleets and contracted truck drivers.
Contract language that says someone is an independent contractor is not enough, McAfee Wallace said. Even the fact they pay sales taxes will not be enough.
“The Labour Board folks don’t really care about the tax implications,” she said, responding to a question from the crowd. “They just look at the worker and his or her rights.”
Regulators will be looking at factors such as whether the driver works exclusively for the employer, if they control the nature of work, own tools, have a direct stake in business success or failure, and whether they are integrated into the employer’s business.
It’s why she says it’s “imperative” to ensure written contracts will hold up to scrutiny.
“Vacation, those concepts that are similar to what employees are entitled to, take them out of your contracts,” McAfee Wallace said, noting that any language which suggests a specific level of control or an exclusive business relationship could be problematic.
Owner-operators and dependent contractors
The focus on contract language even needs to extend to traditional owner-operators who own or lease their own equipment. Their contracts should enshrine the rights to work for others – even if that would be difficult when they run under a carrier’s insurance and operating authority, she said.
“Companies may want to consider implementing policies wherein owner-operators are encouraged to provide transportation services to at least one other transportation company every six months to lessen the economic dependency that an operator may have on one company.”
Waters are further muddied by “dependent contractor” business models when someone relies on a single fleet for most of their revenue.
“Unlike independent contractors, a dependent contractor is entitled to reasonable notice of termination – just like an employee would be,” said Gardiner Roberts associate Saisha Mahil. In these cases, courts will look at whether the work was exclusively for one employer, the nature of work that was controlled, and whether the individual owned tools, took on risk, or was integrated into an employer’s business.
“A dependent contractor is entitled to reasonable notice of termination — just like an employee.”– Saisha Mahil, Gardiner Roberts
It’s a matter of determining how economically dependent the contractor is on that organization, she said.
One Ontario Court of Appeal case ruled that “near exclusivity” would involve more than 50% of the revenue, but a separate case involving Westport Telephone suggested the share was closer to 80%.
“This number continues to be refined,” Mahil said. And courts are awarding up to 24 months of notice after contracts are terminated, considering factors such as the worker’s age and the availability of more work in the industry.
McAfee Wallace admits that the muddled business models are putting fleets in a difficult spot.
“They feel almost trapped – that if they don’t hire a Driver Inc. driver, they’re not going to have enough drivers,” she said. “They can’t get the drivers to understand that it really isn’t the great regime they think it is.”