Safety, insurance, and the law: part Two in our insurance series seeks toclarify the grey areas around independent operators and WCB liability

Canadian Forest Industries, Mar 2003 by Belanger, Charles, Janveaux, Luc

Under the Workers Safety and Insurance Act, workers are entitled to disability benefits if they are injured on the job. In exchange for the right to obtain such benefits, the worker is prohibited from suing the employer for negligence. In Ontario, this arrangement is administered by the Workers Safety and Insurance Board (WSIB). However, whether an individual is covered by the Act and therefore eligible for benefits depends mostly on whether the person is an "independent operator" or a "worker."

Similar issues also arise around employment standards legislation. Eligibility for overtime premiums, maternity leave, notice/severance pay, vacation pay and other provisions of the Act depend on the individual's status as an employee under such legislation. Nor is it as simple as stipulating employment status in the work contract. Jurisprudence indicates that neither the courts nor employment-related statutory tribunals will allow the terms of the contract, by themselves, to determine whether an individual is an employee or independent contractor.

Courting History

The distinction between independent contractors and employees is set out in the Montreal Locomotive Works Ltd. (1947) decision, which outlines the following fourfold test:

- Control.

- Ownership of tools.

- Chance of profit.

- Risk of loss.

Courts and statutory tribunals will look beyond the wording of a contract, and are quite prepared to find that an individual is in fact an employee even when the parties have agreed among themselves that the relationship is one of engager and independent contractor. Previous cases have determined that where an individual is told not only what is to be done, but the way in which it shall be done, the means to be employed in doing it, and the time and the place where it shall be performed, then the individual is usually considered to be an employee. Where the individual performing the function in question has greater control over the how, the what, the when and the where the work is to be done, there exists much greater likelihood that the individual will be found to be an independent operator.

The employer is required to deduct income for tax remittance at source before paying an employee. No similar deduction is required when dealing with an independent contractor. In the event the independent contractor is later deemed to be an employee, the employer can be liable for the tax that should have been deducted at source. Under both pieces of legislation for the Canada Pension Plan (CPP) and Employment Insurance (EI), the employer may be liable for payment of both the employee's and the employer's contribution for a retroactive period, which includes all of the current year and up to three previous years, including interest and penalty. Also, the directors of a corporation assume personal liability for both of these payments under the respective Acts.

With regard to termination, unless the amount of notice to be given on termination is specifically set out in the contract, common law implies a reasonable notice provision on every contract of employment. Although employment standards legislation sets the minimum amount of notice and/or severance that must be given to an employee, the implied "reasonable notice" required by common law is many instances significantly more than the minimums required by the Employment Standards Act.

Potential liability can also be examined through the 1989 Regina v. Wyssen decision. A respondent was charged under the Occupational Health and Safety Act for failing to ensure that safety measures and legal procedures were carried out. He was handed a fine of $25 000 or imprisonment of not more than 12 months, or both. The respondent was a window cleaner who contracted out a portion of his work, which was beyond his capabilities, to an independent contractor who was an experienced window cleaner. The subcontractor supplied his own materials and had done work for the principal in the past. The independent contractor fell to his death when his rope broke. It was the opinion of the legislature that the "employer" be responsible for safety in the workplace and compliance with the Act.

Worker or Independent?

For Ontario WSIB purposes, a subcontractor may be a worker or an independent operator. According to WSIB, workers are automatically covered in the logging industry and the principal is required by law to pay premiums for this coverage. However, WSIB coverage for independent operators is not mandatory.

An independent operator in the logging industry operates a separate business from that of the employer and usually has the following characteristics: he/she is able to sell logs to others for the best price possible; reports to other government agencies as a self-employed business (CCRA, GST); owns and operates his or her own equipment as well. The first test alone excludes many current "independent operators."

If a subcontractor does not have any employees, an organizational test is needed to determine whether a subcontractor is a worker or an independent operator. The test examines the work relationship between the individual and the principal. The Board outlines such factors as degree of control and opportunity for profit or loss to characterize the working relationship. It is an extension of the control test and is used to determine whether a separate business entity exists.