Businesses in the trucking industry may soon face increased scrutiny from the Federal Government respecting the classification of drivers as independent contractors. With the release of the 2022 Fall Economic Statement, it was announced that the Federal Government will allocate $26.3 million dollars over five years to take stronger action against non-compliant businesses, through orders, fines, and prosecutions to enforce the Canada Labour Code (Canada), to protect the rights of road transportation workers. The announcement also referenced Employment Insurance premiums and Canada Pension Plan contributions, so it is possible that the Canada Revenue Agency could focus payroll audit activity on trucking businesses that use independent contractors as drivers.
By classifying workers as independent contractors as opposed to employees, businesses avoid the need to, among other things, make employer contributions for Employment Insurance and the Canada Pension Plan and compliance related to withholding employee source deductions. In light of the recent announcement, employers should be cautious and not simply label workers as “independent contractors” without reviewing the particular arrangement. This includes considering the relevant factors when structuring the legal relationship with a worker.
Independent contractor vs. Employee: The relevant factors
Whether a person is an independent contractor or employee is a question of fact. There is no “bright line” test. When determining whether a worker is properly classified as an independent contractor or an employee, the Supreme Court of Canada has held that the central question is whether the worker is performing the work as a person in business on their own account.[1] To answer this question, the Courts have considered several factors, including:
- the level of control the business has over the worker’s activities;
- whether the worker provides their own equipment;
- whether the worker hires their own helpers;
- the degree of financial risk taken by the worker;
- the degree of responsibility for investment and management held by the worker;
- the worker’s opportunity for profit in the performance of their task; and
- any other relevant factors.
There can be significant financial implications for businesses that incorrectly classify workers as independent contractors.
Review your independent contractor arrangements
In light of the recent announcement in the 2022 Fall Economic Statement, now is a good time for businesses in the trucking industry to review their arrangements with road transportation workers to ensure that they are not classifying workers as independent contractors when the relevant legal factors support the conclusion that they are actually employees. Increased scrutiny from government authorities may lead to an unwelcome result with significant financial implications.
If you have concerns about your relationships with road transportation workers, or if your business is selected for Canada Revenue Agency audit, a member of the Miller Thomson LLP Tax team can help.
[1] 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59 (“Sagaz”).
