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Independent Operators and Transfer of Costs

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

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.

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