“Driver Inc.” is a phrase that has been used a lot within the Canadian trucking industry over the past couple of years. It is a term used for the concerns raised by organizations like the Canadian Trucking Alliance, regarding the increase in misclassifications of truck drivers as independent contractors.
The misclassification of truck drivers has legal implications, both for tax purposes and for employment standards. It is important to note that, while there is a lot of overlap in how worker classification is assessed for both the Income Tax Act (“ITA”) and the Canada Labour Code (“CLC”), these are two different statutes and there are some differences.
This article focuses on the potential consequences of misclassifying truck drivers under the CLC.
What is misclassification?
In general, “misclassification” is when a Company treats a worker as an independent contractor when they are actually an employee. Consequently, the Company does not provide the worker with the appropriate entitlements under the CLC.
Whether or not a worker is an “employee” is determined by the Labour Program (the government department that oversees compliance with federal legislation, including the CLC), a court, or an arbitrator.
If it is determined that the worker, who has been treated as an independent contractor by the Company is actually an employee, the Company may face a variety of consequences for contravening the CLC by failing to provide the worker with their entitlements under statute.
What are the potential consequences of misclassification?
One large consequence of misclassification is that workers who were previously treated as independent contractors become entitled to the rights and protections of the CLC. This includes the protection against Unjust Dismissal (Division XIV of the CLC). There are also implications with respect to whether an employer is responsible for source deductions such as EI and CPP.
Further, the Labour Program has several options for the type and severity of consequence(s) it can impose upon employers who misclassify their worker(s). The exact consequences are often applied based on the extent of the misclassification and the facts of the situation.
Some of these consequences include:
Voluntary Compliance Measures
These measures include guidance and counselling by the Labour Program to teach the employer about their obligations under the CLC and to provide assistance in becoming compliant. There may also be an “Assurance of Voluntary Compliance” where the employer acknowledges the violation and provides a written commitment to correct the problem within a specific time frame.
If the employer fails to voluntarily correct the problem and continues to violate the CLC, the Labour Program may issue a compliance order.
Administrative Monetary Penalty (“AMP”)
The Labour Program will issue an AMP if an employer continues to be non-compliant with the CLC. If the violation is severe enough, or if it is a repeat violation, the Labour Program may issue an AMP quicker.
The amount of the AMP depends on:
The type(s) of violation;
The size of the business; and
Whether this is the first AMP for the employer.
If this is a subsequent AMP, the monetary penalty will be doubled.
There are four categories of violations in connection with labour standards:
Violations related to calculations and payment of wages.
Violations related to leaves or other standards connected to financial security or health and safety of individuals.
Violations related to the employment and protection of employees under 18 years of age.
When an employee has been misclassified, there has likely been multiple types of violations. There is the misclassification itself, a violation of s.167.1 of the CLC, which would be a Type C violation. However, there may also other violations involved, such as a failure to provide general holidays or holiday pay (ss. 192 and 196 of the CLC – Type B violations).
The penalty amount associated with each type of violation is different depending on whether the employer is a(n):
Micro business (under 5 employees or less than $30,000 annual gross revenue);
Small business (under 100 employees or less than $5 million in annual gross revenue);
Large business (any business that is not micro or small).
The monetary penalties increase as the size of the business increases, and also increase as the type of violation does. The smallest AMP amount would be the first AMP of an individual who engaged in a Type A violation ($200). If a large business engaged in a Type D violation the AMP amount would be $25,000. If it was not the first AMP, that amount would be doubled to $50,000.
Further, if an employer receives an AMP, they may be publicly named.
Publicly Naming the Employer
When an employer fails to comply with the CLC, the Labour Program will publicly post their name on the Government of Canada Website. Employer names will be posted when there has been an AMP issued, if there has been a payment order of $5000 or more, or if there has been a prosecution.
The logic is that employers will be encouraged to comply with the CLC to avoid harming their reputation by being publicly named in connection to CLC violations.
If there continues to be non-compliance, or if there are repeated or wilful contraventions, the Labour Program may choose to prosecute the employer.
Why is this important to trucking companies?
Given the recent attention to the classification of truck drivers in Canada, it is important for trucking companies to be aware of the potential consequences they may face if it is determined that truck drivers who were previously treated as independent contractors are actually employees.
We can help companies in assessing their relationships with their workers, identify potential liabilities with respect to worker classification, and assist in managing worker relationships to best fit the company’s needs.