CTOA lawyer defends Driver Inc. model

You’d be hard pressed to find a more divisive issue in the Canadian trucking industry than the so-called Driver Inc. employment model for truck drivers.

Driver Inc. — a definition coined by those who oppose the practice of classifying drivers of company owned equipment as independent contractors — has been widely adopted in the trucking industry. Carriers that stand by the traditional employee/employer classification feel the Driver Inc. model is used to reduce costs and undercut rates by sidestepping employer source deductions, and depriving drivers of certain rights under employment law.

The Canadian Trucking Alliance (CTA) and its provincial partner associations have aggressively called on federal and provincial governments to crack down on the practice and have complained that enforcement has been woefully inadequate.

But tell that to the member fleets of the newly formed Canadian Truck Operators Association (CTOA), comprised largely of the growing number of fleets who prefer the model. They say they’ve been unfairly targeted by federal and provincial agencies that have in some cases laid fines against them for misclassifying drivers. And they have a lawyer who supports their position and is willing to go to bat for them where drivers in fact have an independent contractor relationship with the company for which they drive. Enter Shari Cohen, a lawyer with Davies Ward Phillips & Vineberg LLP, who is working with CTOA members to defend their employer-employee structures.

Questions and answers about Driver Inc.

Cohen spoke at the inaugural meeting of the CTOA and suggested that the independent contractor model is legal and viable under certain conditions. We later caught up with her to expand on the topic:

Q. You believe the so-called Driver Inc. model, which classifies drivers who operate company-owned trucks as independent contractors, is legal. Is that correct and what’s your basis for that understanding?

We believe that many drivers who are not owner-operators may nonetheless be properly classified as independent contractors under the law.

The determination of whether a driver is an independent contractor is based on a multi-factor legal analysis. The simple test that we have seen deployed by some governmental agencies seems to be based largely, if not exclusively, on whether a driver owns the vehicle. This narrow approach to such assessments is not supported by the case law.

Q. Has your firm successfully defended the use of the independent contractor model in trucking?

Our firm has successfully worked with a number of federal and provincial agencies to have decisions overturned. In addition to transportation industry clients, we have also worked with clients in other industries to represent their interests where claims of misclassification have been made.

Q. In what other industries is this model employed and accepted by government?

Similar arrangements for other occupations are commonly accepted. These include technicians hired by a telecommunication company to undertake work on infrastructure; landscapers retained to undertake garden maintenance; pipe fitters and oil drill consultants retained on a seasonal basis; and mechanics retained to perform automobile repairs.

Q. What criteria have to be present for the model to be acceptable for CRA, WSIB and ESDC?

There is no bright line test to determine whether driver contractors are properly classified as independent contractors and different governmental agencies have varying approaches. The primary focus in any analysis is generally the level of control that a company has over a driver’s activities.

The more control a company exercises over the driver, the more likely the relationship will be one of employment. In making this determination, the courts traditionally examine the ownership of tools and equipment; whether the driver can hire their own staff; the degree of financial risk undertaken by the driver; the driver’s degree of responsibility over investment and management; and the driver’s opportunity for profit in the performance of the services.

“Drivers would be more likely to be found to be independent contractors where they have the control and freedom.”

– Shari Cohen, lawyer, Davies Ward Phillips & Vineberg LLP

The courts have also afforded some weight to the parties’ understandings and intentions concerning their relationship structure. We understand that many driver contractors wish to assume the risks of profit and loss over the constraints of an employment relationship, which they associate with a loss of freedom and flexibility.

This free agency calculus by drivers should inform an adjudicator’s determination of the issue and therefore lean in favor of finding the “Driver Inc.” model to be an independent contractor relationship.

Drivers would more likely be found to be independent contractors where they have the control and freedom to: service a variety of trucking companies at their discretion; choose or reject their own routes, hours and schedule; set their own service hours to the extent that many drivers will take several months per year as vacation time; take the financial risk in determining their revenue stream based on the volume and scope of services performed, types of routes undertaken, service hours performed (or for which an assistant relieves them); and taking on profit and loss if not able to complete a delivery assignment or by taking on more assignments and hiring assistant drivers where necessary.

Q. What do drivers need to know about working under this model? What additional tax filings must they comply with, that an employee driver would not?

Employers are responsible for remitting payroll deductions such as CPP contributions, Employment Insurance premiums and income tax from any remuneration paid to employees. Employees generally do not share in profits or suffer losses incurred by an employer’s business.

Employees have the reliability of a regular wage and are usually paid on an hourly, daily, weekly or bi-weekly basis. Upon a termination of employment, an employee will be entitled to notice or pay in lieu of notice and potentially severance.

By contrast, independent contractors accept the risk of variability, ie., the possibility of profit or loss, because they have the ability to pursue and accept contracts as they see fit. They can negotiate the price for their services and have the right to offer their services to more than one client. They may incur expenses to carry out the terms and conditions of their service contracts.

A contractor is operating a business and therefore responsible for remitting their own taxes. They must generally register with the Workplace Safety and Insurance Board or applicable workers’ compensation board, have obligations with respect to health and safety under applicable occupational health and safety legislation, and register for a business number. They are also not entitled to notice of termination except as set out in a contract, and which is generally much less than what an employee might be entitled to.

Canada Labour Program scrutinizing Driver Inc.

You said at the CTOA gala that fleets using this model have been targeted. Can you expand on that?

We have seen increased scrutiny from the Canada Labour Program in the form of auditing trucking companies who use a “Driver Inc.” model. The Canada Labour Program is assessing whether driver operators are properly classified as contractors.

We have encountered a narrative that drivers are being exploited and are therefore in need of protection. This may be a factor motivating the Canada Labour Program to target this model in the transport industry.

However, we understand that most of the drivers under the Driver Inc. model have explicitly chosen, and want to maintain, a business service relationship with trucking companies. They are rejecting the constraints of an employment relationship that erodes their freedom. Many drivers choose this arrangement because of the flexibility, lifestyle, choice of services, hours and schedule, including the ability to refrain from providing services for months at a time to allow for travel.

For a fleet that is considering a Driver Inc.-type arrangement, what is your message? How comfortable can they be in doing so?

A fleet that is interested in working with driver contractors must ensure that the model they deploy fits with their operations and satisfies the legal test referred to earlier. Labelling their drivers as contractors, when they are actually employees in practice, will invite scrutiny from  governmental agencies and leave businesses liable for employee and tax-related liabilities.

Generally, employee drivers must accept all loads and trips, follow specific routes set by the company, report daily, explain delays and downtime, obtain approval for repairs and parking, and be subject to discipline for not following company rules and policies. They are entitled to overtime, paid for downtime associated with truck repairs, receive employer benefits such as paid vacation, sick days and healthcare, and require permission to be absent from work for vacation, sickness, etc. They rely on the company for all tools, including the truck and communication devices, and are not responsible for operating expenses.

“Assessments are based on a case by case evaluation and related risk analysis.”

– Shari Cohen, lawyer, Davies Ward Phillips & Vineberg LLP

By contrast, drivers who are independent contractors may have the ability negotiate their compensation level, exercise discretion in choosing loads, trips and routes, and are not required to report in to the fleet. They may hire a replacement or assistant driver at their discretion, own or lease their own vehicle and have control over their vehicle, including responsibility for operating costs like fuel, repairs and maintenance, insurance, communication devices such as on-board computer or electronic logging devices.

They may provide their own equipment to secure loads, pay for their own certification and training, take responsibility for any penalties or costs arising from late deliveries, pay fines related to infractions, are ineligible for benefit packages offered to fleet employees and are free to work for other companies, including competitors.

Assessments are based on a case by case evaluation and related risk analysis. The fleet’s comfort level will depend on their service model and whether the factors reviewed favor an independent contractor finding. Legal counsel can assist with such assessment.