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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

First time WSIAT has ever been overturned by the Divisional Court in Ontario

In Amin v WSIAT [2009] O.J. No. 4715 the Divisional Court finally reversed the first WSIAT ever. Unfortunately, this case illustrates the tremendous challenges faced by employers especially as they relate to “probationary” employees who are not performing well.  The worker had only been employed for 11 days and was a probationary employee. The worker had been given notice (the first mistake by the employer) by the company that they were going to terminate him for poor performance and for mis-representing his experience. Shortly after that on June 5, 2004 (unknown and unreported to the employer) the worker sought medical attention for pain in his right hand, arm and back. His employment was terminated on June 9, 2004 prior to any form or WSIB claim being filed.  He received full LOE benefits for almost two months following his termination until August 5, 2004 and then appealed the denial of ongoing LOE past August 5, 2004.  Four years later,  after working 11-days, the worker claimed that he was still feeling the effects of the gradual disablement type injury that he sustained and for this reason, he indicated that he was unable to find employment. He spent his time tending to his children, and giving advice to new immigrants.

The WSIAT Reconsideration Decision dated July 17, 2008 (390/08R) revealed that this worker had reported another injury of right sided back pain in 2003 (before his employment with the accident employer) on his second day on a job where he was sorting light metal parts weighing not more than five or six pounds in total and wherein the worker complained the job was too fast paced and was repetitive work.  His claim was denied.  “As I reviewed this matter for reconsideration, I found the description of events by the worker to be strikingly similar to the present claim-works for a very short period, complains that the work is too fast paced and repetitive, does not involve heavy products, and does not report an injury to his employer” see para [25] of WSIAT Decision No. 390/08R.

This case reminds employers to:

  • Do an intensive and thorough background check on every employee;
  • Quickly, make the decision to terminate (without notice) during the probationary period when it becomes apparent that an employee has mis-represented his or her skill level;
  • Have written documentation to verify performance issues on a daily basis for probationary employees;
  • Seek out the advice of a lawyer who specialize in management side workers’ compensation law  to conduct Independent Medical Examinations (IME) or a disability related surveillance investigation to assist with decision making by adjudicators, Appeals Resolution Officers and Divisional Court Justices.

There is absolutely no medical evidence to substantiate any ongoing impairment in this case and a whole lot of medical resources were wasted trying to verify this workers’ continuity of subjective complaint (which is not one of the criteria for entitlement in workers’ compensation).  Both the WSIAT Panel and the Divisional Court appeared to reluctantly admit that the worker did sustain a minor repetitive strain injury over a very short period of time.  However,  the Divisional Court allowed the worker’s appeal and referred the matter back to another WSIAT Panel because the end date for LOE benefits was not substantiated by evidence (just like the worker’s complaints for the following four years).  This should have been established by the Case Manager long before it went to WSIB Appeals Branch, WSIAT and the Divisional Court.   An application for leave to appeal to the Court of Appeal was dismissed on February 3, 2010. And the application for leave to appeal to the Supreme Court of Canada was dismissed on June 3, 2010. We are certainly looking forward to how the new WSIAT Panel will determine the date on which the worker’s injury is no longer work-related.

Link: WSIAT Decision 390/08 (now overturned)

Link: Ontario Superior Court of Justice – Divisional Court Decision

Posted by: Cézanne Charlebois