Independent Operators and Transfer of Costs

Recently, one of our Ontario based Trucking clients contacted us regarding a unique and troubling situation they were facing. One of their Ontario domiciled Owner Operators (Independent Operator) was involved in a serious MVA with another Tractor Trailer. The driver of the other tractor trailer was an employee of another Ontario based Trucking Company, and was a ‘worker’ in the course of his employment for another Schedule 1 (WSIB covered) employer at the time of the MVA.

As per WSIB policy, Independent Operators are not required to have WSIB coverage, but they may “opt in” if that is their preference. The determination of who is or is not an independent operator for WSIB purposes, must be made by the WSIB.

The WSIB examines the relationship between the person claiming to be an ‘independent operator’ and his or her contracting carriers (or the Principal using WSIB’s terminology).

The Owner Operator involved in the MVA had previously submitted his questionnaire to the WSIB to determine ‘Independent Status’ two years prior to the accident. This status is determined based on a series of questions contained on the WSIB 1149A questionnaire for those in the trucking industry. Shortly after submitting the questionnaire, the Owner Operator received a letter from WSIB confirming his ‘Independent Operator’ status, with respect to the specific relationship he had with the Principal (our Ontario-based trucking client). In lieu of mandatory WSIB coverage, the Owner Operator was required to purchase suitable WSIB Alternative Coverage from a Private Insurer.

As a result of the MVA, the employee Truck Driver sustained injuries which were determined to be severe, and as a result the recovery period would be prolonged. Because of the severity of the injuries, the carrier who contracted with the Owner Operator was levied a proportional surcharge based on this particular accident and their overall historical claims experience through WSIB’s NEER program (New Experimental Experience Rating program). On learning of the potential financial liability that would result from this specific accident, the Trucking Company quickly engaged the services of a third party WSIB consultant to address and help mitigate the issue. This consultant advised the client to apply for ‘Transfer of Costs’ from their WSIB account to the account of the Owner Operator’s contracting company (our client).

As a result of this application, WSIB quickly determined that our client’s Owner Operator was ‘at fault’ for the accident, and as such, the employer should be responsible for all, or the majority of the other employer’s financial liability – a calculated surcharge of $110,000.

Upon reviewing the facts with our WSIB lawyer, we quickly determined that a Transfer of Cost would have been appropriate had the Owner Operator been a ‘worker in the course of employment’ at the time of the MVA. However, since the Owner Operator had been declared an ‘Independent Operator’ who had contracted with the principal, any Transfer of Costs would not be applicable. Transfer of Costs can only occur when both parties involved in the work related incident are determined to be employees (Workers) of either a Schedule 1or Schedule 2 employer. Since the driver at-fault was an Independent Operator, transfer of costs should not be permitted. Upon appealing the decision, WSIB quickly reversed their previous decision and the impending penalty and costs were not levied against our client.

It should be noted that this ‘victory’ does also come with some risk of potential liability. Since the Independent Operator operates outside of the Act (Workplace Safety and Insurance Act), they are not protected from being sued. The Act protects Schedule I and Schedule 2 employers from being sued for injuries. Whenever a worker claims WSIB benefits the Board the worker’s legal rights are always subrogated to the Board. So if the worker could sue a Third Party for damages, the Board has the right to initiate that legal action to recover their costs. In this particular situation, the Board opted not to proceed with any legal action.

Action Items:

If the Owner Operator had not previously applied for Independent Operator determination from WSIB, it is quite possible that the Transfer of Costs would have been allowed. Here are some action items for you to take today:

1) If you contract with Owner Operators, do you have a letter confirming their ‘Independent Status’ from WSIB which names your company as ‘Principal’? If not, have each of your Owner Operators complete the following questionnaire and submit to the board as soon as possible:

      A) General Trucking: http://www.wsib.on.ca/files/Content/Downloadable%20FileForm1149/1149.pdf

      B) Courier: http://www.wsib.on.ca/files/Content/Downloadable%20FileForm1157/1157.pdf

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Key Facts about Independent Operators (Ontario):

The act of incorporating a business DOES NOT automatically establish an ‘Independent Operator’. Trucking companies who think differently are placing themselves in a very risky situation in the event of serious, fatal, or catastrophic injury arising from an MVA. Although incorporating a business is an important step in establishing a formal business relationship with a contracting company, the WSIB is primarily interested in assessing the overall business relationship between the parties. Part of this involves determining the amount of investment the Owner Operator has made in his/her business and their respective degree of operational control. In a nutshell, here are some of the key items that WSIB will review in making their determination regarding Independent Status.:

1) The Owner Operator must Own or have financial control over his or her truck. This establishes the amount of ‘skin in the game’ that the Owner Operator has. Traditional financing through commercial loans and arm’s length leases can satisfy this requirement.

2) The Owner Operator must be responsible for the majority of the costs of operating his/her business – Maintenance, Fuel etc.

3) The Owner Operator must have market mobility and the freedom to contract with other carriers.

4) There should be a very clearly defined contractual relationship between the Owner Operator and the Carrier which formalizes their intentions to remain as two independent businesses who are in a business relationship.

5) There should also be an easily distinguishable relationship (policies, practices, actions) between the Carrier Company and their own employee drivers and the Carrier Company and the Independent Operators. They should not all be treated the same way.

Trucker kids as employees – further details emerge

When we wrote about our client a few days ago, we decried the WSIB’s rush to judgment in declaring this Independent Owner/Operator (IO/O) to have employees when, in fact, he does not. We’ve now learned the confusion might have arisen because of the tax receipts the corporation issued to acknowledge income splitting. But that won’t excuse the WSIB from exercising poor judgment.

WSIB matches up records with Canada Revenue Agency and they received a report that this IO/O had issued T4 slips to his children. From the WSIB perspective, that appears like there are employees in this corporation. The IO/O, on the other hand, does not have a WSIB account because he is entirely self-employed and has his own private disability insurance. Like many independent operators, though, he does exercise his right under CRA rules to split income with family members.

So WSIB sent him a letter on September 30, 2010 demanding that he register an account. When he didn’t reply by October 13th, they called him and were advised that both he and his accountant were on vacation when the letter arrived, and were still away. WSIB was apparently unwilling to wait a short while for their return.

For their part, WSIB defends their action by saying they did write to the IO/O for clarification. But they waited two weeks for an answer and, even knowing he wasn’t available to answer, went ahead without hearing from him. They waited two weeks! When is the last time WSIB made a decision within two weeks?

Here’s the problem – issuing the tax forms appears to be an accounting matter. We’re told the T4 may not be the best way to share profits (note: we are  not taxation experts); but it was the issuing of those forms that got WSIB excited in the first place. So you would think a reasonable and sensible solution would be a discussion with the IO/O and an inquiry into whether or not there are any ‘employees’ under a contract of service with the corporation. Nope. Rather than a discussion, or to await the IO/O’s return from vacation, WSIB arbitrarily registered an account, listing the two children as employees, and demanded two years of retroactive premiums. [It isn’t hard to tell WSIB is getting desperate for money these days.]

These kids are NOT employees. No documentation filed, correctly or incorrectly, with any agency changes that fact. It cannot create an employee where none exists. Both WSIB and the Workplace Safety and Insurance Appeals Tribunal tell us this regularly, when ruling on the ’employee versus independent operator’ issue. You cannot create an ‘independent operator’ simply by completing enough documentation (or even forming a Corporation) to generate the appearance of independent status as a way of avoiding the ball-and-chain that an employer/employee relationship involves. In the same way, WSIB shouldn’t be permitted to create an ’employee’ out of thin air, or thin paper, as it were, simply by completing their own forms.

CRA permits the splitting of income and that does NOT create an employer/employee relationship.  There is no contract of service, no service performed, and hence no need for premiums and no ’employer’ as defined by  WSIB’s own governing legislation. To see just how little sense this makes, we can ask: “who would these premiums be protecting?” and “who could possibly file a WSIB claim”?  The director who drives the truck has valid private disability insurance and absolutely no need for WSIB protection. There is no one else to protect.

In a subsequent discussion with the manager in charge at WSIB, she refuses to even consider that this decision was simply wrong and offers the appeal process instead. There is no reason this IO/O should need to go through the expense of an appeal over a situation so inane. Far too often, adjudicators and managers who do not want to be held accountable for objective, legal, and evidenced-based decisions just pass the buck to Appeals, having no regard for the cost and the valuable resources being wasted.

It is quite clear that the WSIB rushed to judgment and has an incomplete understanding of the concept of income splitting, and even their own legal definition of an ’employer’. That is scary. We wonder how many ‘documentary’ deemed employers have been created in Ontario? As we pointed out in our last blog, there is not a lot of value to WSIB connecting and sharing information with CRA if they can’t grasp how to properly use the information the taxman gives them.

Posted by Paul Harris/Cézanne Charlebois

Trucker kids as employees – further details emerge

When we wrote about our client a few days ago, we decried the WSIB’s rush to judgment in declaring this Independent Owner/Operator (IO/O) to have employees when, in fact, he does not. We’ve now learned the confusion might have arisen because of the tax receipts the corporation issued to acknowledge income splitting. But that won’t excuse the WSIB from exercising poor judgment.

WSIB matches up records with Canada Revenue Agency and they received a report that this IO/O had issued T4 slips to his children. From the WSIB perspective, that appears like there are employees in this corporation. The IO/O, on the other hand, does not have a WSIB account because he is entirely self-employed and has his own private disability insurance. Like many independent operators, though, he does exercise his right under CRA rules to split income with family members.

So WSIB sent him a letter on September 30, 2010 demanding that he register an account. When he didn’t reply by October 13th, they called him and were advised that both he and his accountant were on vacation when the letter arrived, and were still away. WSIB was apparently unwilling to wait a short while for their return.

For their part, WSIB defends their action by saying they did write to the IO/O for clarification. But they waited two weeks for an answer and, even knowing he wasn’t available to answer, went ahead without hearing from him. They waited two weeks! When is the last time WSIB made a decision within two weeks?

Here’s the problem – issuing the tax forms appears to be an accounting matter. We’re told the T4 may not be the best way to share profits (note: we are  not taxation experts); but it was the issuing of those forms that got WSIB excited in the first place. So you would think a reasonable and sensible solution would be a discussion with the IO/O and an inquiry into whether or not there are any ‘employees’ under a contract of service with the corporation. Nope. Rather than a discussion, or to await the IO/O’s return from vacation, WSIB arbitrarily registered an account, listing the two children as employees, and demanded two years of retroactive premiums. [It isn’t hard to tell WSIB is getting desperate for money these days.]

These kids are NOT employees. No documentation filed, correctly or incorrectly, with any agency changes that fact. It cannot create an employee where none exists. Both WSIB and the Workplace Safety and Insurance Appeals Tribunal tell us this regularly, when ruling on the ’employee versus independent operator’ issue. You cannot create an ‘independent operator’ simply by completing enough documentation (or even forming a Corporation) to generate the appearance of independent status as a way of avoiding the ball-and-chain that an employer/employee relationship involves. In the same way, WSIB shouldn’t be permitted to create an ’employee’ out of thin air, or thin paper, as it were, simply by completing their own forms.

CRA permits the splitting of income and that does NOT create an employer/employee relationship.  There is no contract of service, no service performed, and hence no need for premiums and no ’employer’ as defined by  WSIB’s own governing legislation. To see just how little sense this makes, we can ask: “who would these premiums be protecting?” and “who could possibly file a WSIB claim”?  The director who drives the truck has valid private disability insurance and absolutely no need for WSIB protection. There is no one else to protect.

In a subsequent discussion with the manager in charge at WSIB, she refuses to even consider that this decision was simply wrong and offers the appeal process instead. There is no reason this IO/O should need to go through the expense of an appeal over a situation so inane. Far too often, adjudicators and managers who do not want to be held accountable for objective, legal, and evidenced-based decisions just pass the buck to Appeals, having no regard for the cost and the valuable resources being wasted.

It is quite clear that the WSIB rushed to judgment and has an incomplete understanding of the concept of income splitting, and even their own legal definition of an ’employer’. That is scary. We wonder how many ‘documentary’ deemed employers have been created in Ontario? As we pointed out in our last blog, there is not a lot of value to WSIB connecting and sharing information with CRA if they can’t grasp how to properly use the information the taxman gives them.

Posted by Paul Harris/Cézanne Charlebois

Truckers who haven’t hired their kids might be surprised to learn WSIB disagrees

We have learned of an Independent Owner Operator (IO/O) who is the director of a corporation with no employees. His Articles of Incorporation list both him and his wife as directors – and, so far as they are concerned, there are no other people involved in the company.

Like many IO/Os, he splits income for taxation purposes – perfectly in accordance with Canada Revenue Agency rules. But on reviewing the shared information from CRA, the WSIB decided that his two children – with whom there was also income splitting – were employees. They determined that the IO/O was, in fact, an employer and they assessed premiums against him – retroactive for two years!

Now here’s the problem – these kids are NOT employees. CRA permits the splitting of income and that does NOT create an employer/employee relationship. There is no contract of service, no service performed, and hence no need for premiums. WSIB says they wrote a letter to the employer asking for clarification but when he didn’t respond, they simply went ahead and issued their order for the back premiums. They wrote to the IO/O on September 30, 2010 and followed up by telephone on October 13. They were advised that both the IO/O and his accountant were on vacation, but they just went ahead and ruled against him rather than await his return.

They waited two weeks! That must set a new record for decision-making at WSIB.

In subsequent discussion with the manager in charge at WSIB, she refuses to even consider that this decision was simply wrong and offers the appeal process instead. There is no reason this IO/O should need to go through the expense of an appeal over a situation so inane.

It is quite clear the WSIB rushed to judgment and has an incomplete understanding of the concept of income splitting. There is not a lot of value to them connecting with CRA if they can’t grasp the information the taxman gives them.

Posted by Paul Harris

WSIB Funding Review needs to hear from you

The WSIB funding is being reviewed for major overhauls. Professor Harry Arthurs is charged with the review and recommendations.  This review will make sweeping recommendations on how the WSIB is funded, or, put into simple terms: experience rating will change; SIEF may go; rates will increase.

The committee will not be addressing worker benefits, only funding. The construction sector will likely face a cost burden that could cripple some employers.

The WSIB Task Force represents the construction industry and has produced a very detailed submission to be presented at a Hearing to take place:

Delta Chelsea
33 Gerrard St. West, Toronto, Ontario
April 28th, 2011 –  2:25 @ p.m.

Please spread the word to encourage others to attend and fill the audience. Details can be found at: http://www.wsibfundingreview.ca/faq.php

If we do not support the Task Force recommendations, the results could be very costly.

The independent third party review is part of the WSIB’s response to concerns about the size of its unfunded liability (UFL). This independent review will consult with the public on ways to make the WSIB a more financially sustainable system for the future. The goal of the funding review is to establish a dialogue and seek input from workers, labour, employers and employer associations on a range of public policy issues relating to the WSIB’s financial future.

Professor Harry Arthurs has been invited to Chair the Funding Review. Professor Arthurs is a former Dean of Osgoode Hall Law School and former President of York University. He has extensive experience as a labour lawyer and mediator and recently led a review of Ontario’s workplace pension system.

Professor Arthurs will be advised by a small committee to provide their insights and varied perspectives on the social and economic issues that arise in the context of Ontario’s workplace safety and insurance system. Members of the Advisory Committee are:

  • Maureen Farrow – is an external advisor on the WSIB Board of Directors’ Investment Committee. She is President of Economap Inc., a Director of the Equitable Life Insurance Company of Canada.
  • Buzz Hargrove – is the former National President of the Canadian Auto Workers. He is currently serving as a Distinguished Visiting Professor at Ryerson University’s Ted Rogers School of Management.
  • John O’Grady – is Chair of the Institute for Work and Health. As a consulting economist, he specializes in labour market and industry analysis.
  • John Tory – is a former leader of the Progressive Conservative Party of Ontario. He is now a broadcaster and volunteer Chair of the Toronto City Summit Alliance.

The Chair of the Funding Review will meet with stakeholder groups and will conduct public hearings across the Province. In addition, interested parties who prefer not to make a public presentation or are unable to attend a session will be able to submit their ideas in writing for improving the WSIBs financial position. The WSIB Funding Review website is also an excellent way to contact the Funding Review. The website address is www.wsibfundingreview.ca or you can email the Review at: questions@wsibfundingreview.ca.

Posted by Guy St-Gelais

WSIB Funding Review needs to hear from you

The WSIB funding is being reviewed for major overhauls. Professor Harry Arthurs is charged with the review and recommendations.  This review will make sweeping recommendations on how the WSIB is funded, or, put into simple terms: experience rating will change; SIEF may go; rates will increase.

The committee will not be addressing worker benefits, only funding. The construction sector will likely face a cost burden that could cripple some employers.

The WSIB Task Force represents the construction industry and has produced a very detailed submission to be presented at a Hearing to take place:

Delta Chelsea
33 Gerrard St. West, Toronto, Ontario
April 28th, 2011 –  2:25 @ p.m.

Please spread the word to encourage others to attend and fill the audience. Details can be found at: http://www.wsibfundingreview.ca/faq.php

If we do not support the Task Force recommendations, the results could be very costly.

The independent third party review is part of the WSIB’s response to concerns about the size of its unfunded liability (UFL). This independent review will consult with the public on ways to make the WSIB a more financially sustainable system for the future. The goal of the funding review is to establish a dialogue and seek input from workers, labour, employers and employer associations on a range of public policy issues relating to the WSIB’s financial future.

Professor Harry Arthurs has been invited to Chair the Funding Review. Professor Arthurs is a former Dean of Osgoode Hall Law School and former President of York University. He has extensive experience as a labour lawyer and mediator and recently led a review of Ontario’s workplace pension system.

Professor Arthurs will be advised by a small committee to provide their insights and varied perspectives on the social and economic issues that arise in the context of Ontario’s workplace safety and insurance system. Members of the Advisory Committee are:

  • Maureen Farrow – is an external advisor on the WSIB Board of Directors’ Investment Committee. She is President of Economap Inc., a Director of the Equitable Life Insurance Company of Canada.
  • Buzz Hargrove – is the former National President of the Canadian Auto Workers. He is currently serving as a Distinguished Visiting Professor at Ryerson University’s Ted Rogers School of Management.
  • John O’Grady – is Chair of the Institute for Work and Health. As a consulting economist, he specializes in labour market and industry analysis.
  • John Tory – is a former leader of the Progressive Conservative Party of Ontario. He is now a broadcaster and volunteer Chair of the Toronto City Summit Alliance.

The Chair of the Funding Review will meet with stakeholder groups and will conduct public hearings across the Province. In addition, interested parties who prefer not to make a public presentation or are unable to attend a session will be able to submit their ideas in writing for improving the WSIBs financial position. The WSIB Funding Review website is also an excellent way to contact the Funding Review. The website address is www.wsibfundingreview.ca or you can email the Review at: questions@wsibfundingreview.ca.

Posted by Guy St-Gelais

Does Bill 160 threaten worker safety

In a recent three-quarter page Toronto Star advertisement, the Canadian Union of Public Employees (CUPE) and the Ontario Compensation Employees Union (OCEU) have complained that the government’s proposed legislation, Bill 160, will endanger Ontario’s workers. Using some selective statistics, the joint advertisement claims that injuries and deaths have decreased since WSIB assumed responsibility for prevention in 1998.

It also claims that Bill 160 would represent an unfair tax load for some employers, apparently ignoring the present unequal burden of prevention costs.

The advertisement also suggests the Ministry of Labour – who is responsible for the Occupational Health and Safety Act – might not be the best place to locate prevention services. Noting that the whole point of the OHSA is to create workspaces that minimize or eliminate work injuries, it is not altogether easy to follow this logic.

It is hard to escape the fear of job losses at the WSIB as the main thrust behind this advertisement. That might be a legitimate and justifiable concern, but from our reading of the proposed legislation, we fail to see the peril that this legislation might introduce to the workplace.

It should be remembered that when Bill 99 created the WSIB, there was great fanfare in the announcement that the new Board would function as ‘an insurance company’. Responsibility for rehabilitation was off-loaded because that was not the proper job of an insurer, we were told. So it might seem to be ironic that when we are in the midst of rehabilitation services returning to the WSIB, they are losing prevention services – something else that never really seemed to jive with being ‘an insurance company’.

Posted by Paul Harris

WSIB Adjudicator sees the light

In a blog posted here March 9 by Cézanne Charlebois, we advised of an adjudicator who refused to reconsider her entitlement decision, even in the face of incontrovertible proof that the worker had fabricated a story. There was video evidence and telephone records to prove that he was not where he claimed to be – in fact, nowhere near it – when he alleged to have sustained a workplace injury. He simply could not have injured himself as he claimed. This information had already been provided to the adjudicator by the employer, but she refused to consider it or to reconsider once she had made her ruling.

The employer felt so strongly about this injustice that they incurred the expense of hiring a lawyer. They, as we, also believed the worker needed to be held accountable for what was clearly an attempt to misrepresent.

We made a detailed submission to WSIB and we are pleased to report that the adjudicator relented and agreed to reconsider her decision. Further, the evidence presented was so persuasive that she reversed her initial ruling and has withdrawn WSIB entitlement from this worker.

In our eyes, the worker is guilty of violating s.149 of the Workplace Safety and Insurance Act and should face charges accordingly. That fight is still to come, but we have the satisfaction of knowing that his employer is not facing the costs of what amounted to a fraudulent claim.

Posted by Paul Harris

Private investigators can help protect companies from fraudulent WSIB claims PART 1

Today many employers are willing to take a stand against workplace fraud but lack the resources to deal with these sensitive issues.  Issues most likely to plague the workplace are fraudulent Workplace Safety Insurance Board (WSIB) claims, flagrant absenteeism, drug and alcohol abuse, theft and racial/sexual harassment.

The most costly issue for employers can be suspicious WSIB claims. Whether an employee is truly unable to return to work may be an issue. WSIB claims can seriously affect the premiums employers must pay.  Moreover, WSIB has placed a heavy obligation on both the employer and the employee to facilitate a return-to-work program.  Failure to comply can result in serious financial penalties.

Employers can become aware of suspicious claims in a number of ways.  Perhaps the most common occurs when an employee’s absence is much longer than anticipated.  This can be accompanied by an apparent reluctance on the part of an employee to co-operate with the employer.

A second common source of suspicion can be comments from third parties (e.g. co-workers) that the claimant has been seen engaging in activities inconsistent with the injury.

What can a company do when red flags surrounding a claim create suspicion?  The services offered by a private investigator can effectively reduce workplace fraud.  But beware, suspicion alone, albeit grounded, is not sufficient to engage the services of a private investigator.  The following guidelines should be strictly followed before surveillance services are requested:

  • Were other alternatives considered before surveillance was ordered?
  • Were there reasonable grounds for suspecting fraudulent conduct by the employee?
  • Was the employee’s disciplinary record taken into consideration?
  • Would the video surveillance contravene any terms of the collective agreement?
  • The surveillance must be carried out with as little intrusion as possible and must not infringe on the employee’s right to dignity.

Part 2 of this blog will cover the private investigator’s role in a WSIB investigation.

Please visit our website for more information about the services we provide.

http://irgcanada.com/our-services

Bill 160 will change health and safety delivery in Ontario

On March 3, 2011, Minister of Labour Charles Sousa introduced Bill 160, an act to amend the Occupational Health and Safety Act (OHSA) and the Workplace Safety and Insurance Act (WSIA).  At this point, it has only undergone First Reading so there may be a long road ahead before it might become law. Since Ontario is facing a provincial election in October this year, it might die on the order paper before an election ever occurs.

The gist of the Bill is to remove from the WSIA (and, thus, from the WSIB) oversight for health and safety certification and training.

There is also the intent to create a Prevention Council and a Chief Prevention Officer under the OHSA although details are scant about what those would be expected to accomplish.

One interesting proposed amendment in the WSIA would see WSIB paying construction workers for their time in regard to fulfilling the requirements to become certified under the OHSA – sort of compensation for learning how to help others not get injured and need compensation themselves.

Since those certification and training matters will no longer be provide by WSIB, does that mean employers can expect to see lower premiums?

Posted by Paul Harris