Newsletter > November 2018
In this issue:
1. News & Upcoming Events
2. Driver Inc.
3. Doing Business in Canada – Environmental Regulation
4. Government Policy and Tesla Motors Canada ULC v. Ontario
5. Update: New Real Estate Record-Keeping Requirements for Ontario Corporations
6. Privacy Law Update: Breach Reporting and Record Keeping Obligations of Companies
1. News & Upcoming Events
• Canadian Board of Marine Underwriters Fall Conference, November 27 th , 2018, Toronto. Rui Fernandes and Gordon Hearn will be presenting an update on Marine and Cross-Border Trucking law.
• Passenger & Commercial Vessel Association Annual Meeting November 28 to 30, 2018 Hull Quebec. Rui Fernandes will be speaking on a panel on “Cannabis in the Workplace.”
• The Toronto Transportation Club Annual Dinner will be held in Toronto on November 29 th , 2018 at the Metro Toronto Convention Centre.
• Grunt Club Annual Dinner December 7 th , 2018, Montreal. Rui Fernandes will be attending representing the firm.
• The Fernandes Hearn LLP Annual Seminar will take place in Toronto at the Advocates’ Society Education Centre on January, 16 th , 2019.
• The Marine Club Annual Dinner will be held in Toronto at the Royal York Hotel on Friday January 18 th , 2019.
• Rui Fernandes will be speaking on “Maritime and Energy Arbitration in Canada” at the 7 th Annual Arbitration & Investment Summit, Nassau, Bahamas , January 25 th , 2019.
• The Transportation Lawyers Association Chicago Regional Seminar and Bootcamp will take place on January 25-26, 2019 at the Fairmont Chicago – Millennium Plaza, Chicago . Gordon Hearn , Kim Stoll and Jaclyne Reive will be representing the Firm. Kim Stoll will be speaking on the Ethics panel “Lost at Sea: How Defeat was Snagged from the Jaws of Victory” and Jaclyne Reive will be moderating a panel on “Reefer Trailers and Perishable Food Claims”.
2. Driver Inc.
The “Driver Inc.” model is an employment model used by commercial vehicle operators who do not own/lease or operate their own vehicles. It is increasing in use. In essence an employee truck driver will incorporate and receive payment from their carrier with no source deductions. The practice opens the door to the possibility of tax evasion by those engaged in it. It is believed that the practice is becoming a preferred way to attract contract drivers to fleets. Stephen Laskowski, president of the Canadian Trucking Alliance states:
“Against the backdrop of a severe driver shortage facing our sector, the Driver Inc. payment system is unfortunately becoming a preferred way to attract contract drivers to fleets. However, CTA believes that contract drivers who are utilizing company vehicles, without any financial risk/responsibility to own/operate the vehicle, contravenes the historical definition of driver-contractor status in our sector …Incorporating yourself as a driver, without owning/operating your own truck, has significant labour law and tax implications. Many drivers and companies utilizing this system seem to think Driver Inc is some previously undiscovered tax oasis. It’s not; it’s a mirage … The tax filing implications make the Driver Inc. model a very questionable approach to legitimately increasing drivers’ take-home pay. Obviously not declaring your income is a highly illegal method to increasing pay, made easier by the fact that CRA does not always find businesses that don’t issue T4A’s to contractor drivers”
The Canada Revenue Agency (CRA) and Employment and Social Development Canada (ESDC) have recently clarified how they will treat the practice of so-called “Driver Inc.” by removing any grey area as it relates to the tax and labour status of incorporated drivers operating company vehicles. (*1) Both federal departments will commence a country wide inspection and enforcement campaign to ensure companies and drivers are paying their share of taxes.
The Canada Revenue Agency Position
In the normal employment situation, the employer will deduct Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax from the employee’s pay. The income taxes deducted, together with the employee and employer’s share of CPP and EI, will be remitted to the Canada Revenue Agency (CRA). At year-end, the employer will report the employee’s income and deductions on a T4 slip – Statement of Remuneration Paid.
Independent Contractors (Individuals who own or lease their own equipment)
Self-employed individuals (sometimes referred to as an independent contractor), do not have income tax, CPP, and EI deducted from amounts paid to them by the companies employing them. At year-end, the individual is responsible for:
- paying all income taxes owing;
- paying CPP contributions (equivalent to both the employee and employer portions); and
- paying EI premiums if you entered into an agreement with the Canada Employment Insurance Commission to have access to EI special benefits (maternity, parental, sickness and caregiving benefits). All amounts paid must be reported on a T4A slip – Statement of Pension, Retirement, Annuity and Other Income.
Driver Inc. Model (Individuals who do not own or lease their own equipment)
The individual chooses to incorporate. The CRA has determined that if the individual would normally be an employee if it were not for the existence of the corporation, the CRA will consider the individual a personal services business (PSB). This is sometimes referred to as an incorporated employee.
PSBs are not entitled to income tax deductions available to other corporations such as the small business deduction and the general rate reduction. The corporation will be subject to the full federal and provincial tax rates on all taxable income. For 2018, the combined federal and provincial tax rate is 33%.
In addition, PSBs cannot deduct most expenses available to other corporations. These types of expenses include things such as office supplies, travel expenses, meals, and cell phone costs. The only expenses that your corporation will be able to deduct are:
- the salary and wages the corporation pays to its incorporated employee(s);
- any benefit or allowance the corporation provides to its incorporated employee(s); and
- legal expenses the corporation incurs for collecting amounts owing to it.
All amounts paid to the corporation must be reported on a T4A slip – Statement of Pension, Retirement, Annuity and Other Income. Those engaged in the Driver Inc. scenario will be responsible for completing a T2 Corporate Income Tax Return for the PSB in addition to a T1 Personal Income Tax and Benefit Return as an individual.
In determining a worker’s employment status, the CRA (*2) looks at all the facts of the working relationship between the payer and the worker. These conditions are generally arrived at from the jurisprudence.
In 71122 Ontario Ltd. v. Sagaz Industries Canada Inc. ,  2 S.C.R . 983 the Supreme Court of Canada outlined some of the conditions to determine if a worker is an employee or an independent contractor. In the decision, the Supreme Court of Canada makes the following point that one must search for the total relationship of the parties:
“It is exceedingly doubtful whether the search for a formula in the nature of a single test for identifying a contract of service any longer serves a useful purpose…The most that can profitably be done is to examine all the possible factors which have been referred to in these cases as bearing on the nature of the relationship between the parties concerned. Clearly not all of these factors will be relevant in all cases, or have the same weight in all cases. Equally clearly no magic formula can be propounded for determining which factors should, in any given case, be treated as the determining ones.”
The Supreme Court of Canada has also made it clear that courts and tribunals must take into account the particular policy objectives of a statute when deciding if a person has employee status. (*3) For example, for federally regulated trucking, the policy objectives of the Canada Labour Code are important. These are set to ensure minimum employment standards and to prevent accidents and injuries to health arising out of the course of employment.
There are a number of common law “tests” that assist in the determination of the employment relationship (*4).
1. The Control Test – This was the first attempt to clarify the relationship. In Regina v. Walker, (1858) 27 L.J.M.C. 207 the court stated:
“…A principal has the right to direct what the agent has to do; but a master has not only that right, but also the right to say how it is to be done.”
2. The Fourfold Test – This was developed in Montreal v. Montreal Locomotive Works Ltd. ,  1 D.R.L. 161. The court stated:
“… It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive.”
3. The Integration Test – This was first developed in Stevenson Jordon and Harrison, Ltd. v. MacDonald and Evans , (1952), 1 T.L.R. 101. This approach attempts to find if the service being provided by the worker is performed as an integral part of the business, or done on behalf of the business but not integrated into that business. The court stated:
“… One feature which seems to run through the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.”
Employment and Social Development Canada
Inspectors and health safety officers for Employment and Social Development Canada recognize that employee relationships are not static and fall into a continuum. On one extreme end of the continuum would fall a worker who is clearly an employee. For example, a person who is hired to be a truck mechanic, is paid by the hour and is closely supervised by a foreman, would be classified as an employee. On the other end of this continuum is a worker who will obviously be an independent contractor. This would be a worker who has his own company and will perform work for a variety of companies. This worker is contracted for a specific task of moving one shipment with his one truck, and who is paid a specified amount for the job, signs a contract for a specific move, and is not supervised, works for multiple companies, and has his own insurance etc.
Employment and Social Development Canada Interpretation, Policies and Guidelines IPG -069 sets out the following chart which illustrates the points which differentiate an employee from an independent contractor (*5):
|Employee Characteristics||Independent Contractor|
|• Works exclusively for the payer
• Payer provides tools
• Payer controls duties, whether that control is used or not
• Payer sets working hours
• Worker must perform services
• Provision of pension, group benefits
• Worker is paid vacation pay
• Payer pays expenses
• Paid salary or hourly wage
• Reports to payer’s workplace on regular basis
|• May work for other payers
• Worker provides tools
• Worker decides how the task is completed
• Sets own working hours
• May hire someone to complete the job
• Not allowed to participate in payers benefit plans
• No vacation pay, and no restrictions on hours of work, or time off
• Worker pays own expenses
• Worker is paid by the job on predetermined basis
• Submits invoice to Payer for payment
• Worker may accept or reject work
Whether a worker is an employee or an independent contractor is a “question of fact”, in each particular case. Each case is unique and requires a thorough review of the facts. It is also important to remember that when attempting to move a worker to one side of the continuum or the other, you must examine the total working relationship. There is no one factor that is determinative, and there is a non-exhaustive list of factors to consider.
Misclassifying an employee as an independent contractor may be or may become prohibited under statute. In Ontario, for example, s. 5.1 of the Employment Standards Act, 2000 (ESA) prohibited an employer from treating an employee as if that person is not an employee. During an investigation, inspection or proceeding, the employer bore the burden of proving that any independent contractor it has retained is not, in fact, an employee, entitled to the protections and rights under the ESA. Recently, this provision has been reversed by legislation passed in Ontario by the Conservative government as part of the rolling back of employment legislation passed by the Liberal government. On the other hand, the federal government has introduced legislation (currently in 2 nd reading) which formally prohibits misclassification of employees and places the burden of proof back to the employer. (*6)
On any analysis the “Driver Inc.” model will fall on the employee side of the continuum. Employees who incorporate and fail to submit requisite deductions, file proper income tax returns corporately and individually and pay taxes risk severe penalties. Similarly, companies that pay employees as independent contractors when they are employees face risks of being audited by CRA and ESDC and the consequent penalties.
Rui M. Fernandes
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca
(*1) See bulletin CRA-Driver-Inc_public.pdf. The bulk of this article is taken from this bulletin.
(*2) As does Employment and Social Development Canada for federally regulated employees.
(*3) Pointe-Claire (City) v. Quebec (Labour Court),  1 S.C.R. 1015
(*4) See also more recent decisions in Belton v. Liberty Insurance Company of Canada (2004), 70 O.R. (3 d) 81 , Keenan v Canac Kitchens 2016 ONCA 79, 2015 ONSC 1055 and McKee v. Reid’s Heritage Home Limited, 2009 ONCA 916 which sets out the “dependent contractor” intermediate position.
(*5) Employment and Social Development Canada – Determining the Employer/Employee Relationship – IPG-069
(*6) See bill C-86 which introduces the following sections:
167.1 An employer is prohibited from treating an employee as if they were not their employee in order to avoid their obligations under this Part or to deprive the employee of their rights under this Part.
Burden of proof
167.2 If, in any proceeding in respect of a complaint made under this Part, the employer alleges that the complainant is not their employee, the burden of proof is on the employer.
3. Doing Business in Canada – Part 14 (*1) – Environmental Laws
Environmental regulation in Canada is an area of shared responsibility between the federal government and the provincial governments, which, in turn, have delegated certain matters to municipal governments.
The principal federal statutes are:
· Canadian Environmental Protection Act, 1999 (CEPA)
· Fisheries Act
· Canadian Environmental Assessment Act, 2012 (CEAA)
· Species at Risk Act (SARA)
· Transportation of Dangerous Goods Act, 1992
· Canada Shipping Act
· Hazardous Products Act
· Pest Control Products Act
Each province has its own environmental statutes. For example, Ontario statutes include:
· Environmental Bill of Rights
· Environmental Protection Act (EPA)
· Ontario Water Resources Act (OWRA)
· Clean Water Act
· Environmental Assessment Act (EAA)
· Pesticides Act
· Safe Drinking Water Act
· Nutrient Management Act
· Green Energy Act
· Toxics Reduction Act
Acceptable activities, standards and thresholds vary between jurisdictions. As well, many sectoral laws, i.e., those relating to a resource (e.g., forestry) or industry (e.g., mining, oil/gas extraction, nuclear power) include substantial environmental requirements.
Canadian provinces and territories have two principal mechanisms for protection of the environment with respect to commercial and industrial operations (including resource extraction): a general prohibition against the discharge of contaminants; and a system of permits or certificates required for activities that may impair the environment. In addition, decommissioning and rehabilitation costs related to waste and wastewater management facilities may have to be secured through financial assurances.
The federal and provincial (and to a lesser degree, territorial) laws require environmental permits to be obtained for many industrial and commercial activities. The permits are designed to restrict and control the discharge of pollutants into the environment. It is an offence under most of these laws to operate contrary to the terms of, or without having first obtained, an environmental permit.
Environmental Assessments (EIA)
The federal, provincial and territorial laws require environmental assessments of certain types of industrial and commercial projects and activities before they are undertaken. These environmental assessments generally require a study and consideration of the effect of the project or activity on air and water quality, fisheries, wildlife, recreational land use and nearby communities. The impact of the project or activity on First Nations is also a factor taken into consideration, and Aboriginal communities need to be consulted by the project’s proponents and the Crown.
The federal Canadian Environmental Assessment Act, 2012 , requires an EIA in respect of most large-scale development projects including infrastructure works, chemical and pharmaceutical manufacturing, oil and gas, mines, pulp and paper and electricity generation. Federal EIAs arise only with respect to areas of federal legislative jurisdiction, such as fisheries and migrating birds. Federal EIAs must be completed within two years. Provincial EIA regimes also require an assessment of certain private sector projects. Many provincial regimes require consideration of projects of a smaller scale than those assessed federally.
Canada’s environmental assessment process, particularly in the North, presents a complex challenge for project proponents, and delays for controversial projects are common. Further, environmental groups and other stakeholders may use the courts to challenge EIA approvals. As a result, judicial review of EIAs, even at the early scoping stage, is not uncommon and can cause project delays.
The law in this area places liability on those persons who cause the pollution and, depending on the particular situation, on those persons who own, occupy, manage or control contaminated sites, or who owned or occupied such sites in the past. Such liability now extends to past owners and occupiers.
Consequently, a “buyer-beware” philosophy prevails, making it critical in business and real estate transactions that either the buyer or the lender knows about all past and potential environmental problems associated with a particular business or property and, in some cases, formerly owned businesses and properties. Due diligence is essential in all transactions.
Officers & Directors
Directors and officers of a corporation have statutory obligations under federal and certain provincial environmental laws to take reasonable care to ensure that the corporation complies with such laws. Under the federal Canadian Environmental Protection Act, 1999 , directors and officers have a statutory duty to take reasonable care to ensure that the corporation complies with all requirements under that Act. In Ontario, there is a more limited statutory duty requiring directors and officers to take all reasonable care to prevent
the corporation from (i) causing an unlawful discharge, (ii) contravening administrative orders, and (iii) contravening obligations with respect to approvals, notification of unlawful discharges and hazardous waste management.
Canada is a signatory to the Kyoto Protocol . The Canadian government invoked Canada’s legal right to formally withdraw from the Kyoto Protocol on 12 December 2011 effective December 2012. A federal election in October 2015 brought a new government to power, with a renewed interest in re-engaging in international efforts to combat climate change.
After participating in the latest round of international climate change talks held from November 30 to December 11, 2015, Canada signed the resulting Paris Agreement on April 22, 2016. In June 2016, Canada also announced its commitment to the newly formed North American Climate, Clean Energy, and Environment Partnership with the U.S. and Mexico. The Partnership issued an action plan that included a target to achieve 50 per cent clean power generation by 2025. Then, in October 2016, the federal government introduced a Pan-Canadian Carbon Plan . The Plan announced that Canada would implement a national price on carbon, becoming the first major hydrocarbon producer in the world to advance a carbon pricing plan. There has been opposition in some of the Canadian provinces (Ontario and Saskatchewan). As a result, the federal government has passed legislation that will impose a carbon price on any province without its own beginning Jan. 1, 2019. It is starting at a minimum of $20 per tonne, rising $10 per year until 2022. The legislation is being challenged in court.
Rui M. Fernandes
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca
(*1) This article is part 14 of 17 parts dedicated to a review of doing business in Canada. Subsequent articles will include Taxation, Insolvency, Litigation and ADR.
4. The Limits of Discretion – Government Policy and Tesla Motors Canada ULC v. Ontario (Ministry of Transportation)
It is rare for government policy decisions of any kind related to public funding to be successfully challenged in the courts by those impacted by the decision, even where that impact can be quite severe. In cases of cabinet level decisions regarding public funding, our system of laws holds that it is within the jurisdiction of an elected government to make such decisions. In other words, where the government giveth, it may also taketh away. However, while the courts are not empowered to evaluate the fairness of government decisions to make changes in public funding based on policy priorities generally, the courts can, and – as seen recently – will look at the manner in which a funding (or “defunding”) decision was implemented, and may interfere where the government has been found to act for an “improper purpose.”
Just this occurred when Tesla Motors challenged the recent decision of the newly elected Ford government to end its predecessor’s program of subsidies for the purchase of electric vehicles, which ultimately led to Tesla taking the new Ontario government to court in Tesla Motors Canada ULC v. Ontario (Ministry of Transportation) (*1). The prior Liberal government maintained a number of programs designed to encourage the purchase of “zero emission motor vehicles” that were funded through its cap-and-trade tax. The new Conservative government, however, revoked the cap-and-trade tax on July 3, 2018. On July 11, 2018, it announced a transition program to end subsidies for electric vehicles. The transition program permitted consumers to continue to take advantage of the subsidy for an additional period in relation to vehicles ordered by dealers prior to July 11, 2018, provided that such vehicles were delivered the end customers, registered, and plated before September 10, 2018.
This transition program appeared to be intended to lessen the impact on car dealerships that had placed orders in reliance on the subsidy program prior to its cancellation. The government sent letters to car dealers across Ontario explaining the program, but deliberately omitted Tesla Motors Canada ULC, despite the fact that this wholly-owned subsidiary of its parent auto manufacturer in the U.S. was a registered Ontario dealership to which the announced transition program appeared to apply. In singling out Tesla for exclusion, the Ministry of Transportation instead sent it a separate letter advising that the program would only apply to a “ franchised automobile dealership.”
In sending this letter to Tesla, the government incorrectly assumed that Tesla customers all purchased their cars directly from the manufacturer, and not through an Ontario dealer. Tesla maintained it had been singled out unfairly and brought an application for judicial review on an urgent basis to a single Judge of the Divisional Court pursuant to s. 6(2) of the Judicial Review Procedure Act . The application was heard on August 22, 2018, and a decision was rendered in Tesla’s favour 6 days later.
Government discretion and “improper purpose ”
Tesla’s application was heard by Justice F.L. Myers. Although ruling in favour of Tesla, the decision made a point of reminding us of the general principle that “[n]o one has a right to receive government funds.” Indeed, where government decisions regarding public funding do not involve the exercise of statutory authority, they would not even be the proper subject of judicial review (*3). However, although it is not open for the courts to review a decision to fund or defund any particular program or project, where such funding is subject to statute or regulation, it is open for them to inquire into “the propriety of the payment or the withholding of payment in some circumstances” (*4).
The facts of the Tesla Motors case involved just such a question, since, as was noted by the court, the Ministry of Transportation was authorized to implement the original subsidy programs by section 118(2) of the Public Transportation and Highway Improvement Act (*5), which provides that
(2) On and after January 1, 1997, the Minister may, out of money appropriated therefor by the Legislature and upon such conditions as he or she considers advisable, provide grants, loans and other financial assistance to any person…for specific projects that the Minister considers to be of provincial significance.
In deciding for Tesla, Justice Myers made it clear that the broader policy decisions taken by the Ford government, that is, those to both cancel the cap-and-trade tax and to implement a transition program for its defunding decisions were beyond the court’s power to review. These were pure policy matters that were too “high level or abstract” to involve the intersection of statute or regulation with policy implementation. The specific decision to benefit only “franchised” dealers, from which Tesla was excepted, did, in the court’s view, empower it to examine the precise manner of implementation in light of the statutory purpose of the Public Transportation and Highway Improvement Act . The court noted further that, once we descend to specific questions of implementation, the court can then intrude to examine whether it was “for improper reasons or without affording the applicant procedural fairness” (*6).
In looking at the government’s reasons for singling out Tesla for exclusion, the court noted that inconsistent reasons were advanced for its decision. At first, the government attempted to justify including only “franchised” dealers as having the goal of protecting small to medium-sized car dealerships from the harm that might arise from the sudden cancellation of the subsidy. The court noted, however, that franchised dealers included very large business as well; in fact, they included all dealerships in Ontario except Tesla. Later, however, the government took the position that it was seeking to protect “independently-owned” dealers, a characteristic it had not referenced in its earlier public justifications for the structure of the transition program.
The problem that was fatal to the government’s position was not that it was in any way improper to create a transition program aimed at protecting smaller businesses. The government was in fact entitled to do this. The problem was rather that its reasons for isolating and excluding Tesla from the program could not rationally be connected with this goal. In short, the court found the government’s shifting explanations for why Tesla should be excluded to be insincere, since many other large businesses would reap the benefits of the transition program. That was sufficient to conclude that it had acted for an “improper purpose.” The singling out of “franchised” dealerships further could not be connected to any purpose under the Public Transportation and Highway Improvement Act , which include the development, construction, and operation of public highways, or with purpose of the environmental regulations that governed the original subsidy programs, which were to reduce greenhouse gases.
Challenging discretionary public policy decisions
One needs to show some care in not drawing the wrong conclusions from the Tesla Motors decision. The general rule still holds, as stated by the court in this case, that there is no right to public funding. Most people would see this as a good thing. Moreover, even decisions to cut funding that appear arbitrary or unfair, and that may cause harm to large numbers, are also not subject to challenge for this reason alone. Governments are entitled to make bad decisions. These are subject to review at the ballot box, not by the courts.
What governments are obliged to do when making public funding decisions, however, is to ensure that the reasons for making specific choices in implementing the policy are connected with the purpose of the statute that authorizes the decision, or at the very least with the government’s stated policy goals. In this case, the Ontario government had singled out Tesla, it said, because the transition program was aimed at protecting smaller businesses. Tesla had shown, however, that many other “big” businesses would enjoy the benefit of the program; in fact, all of them would … except for Tesla (*7). The real lesson is that, in implementing a policy, governments can, and sometimes do, engage in specific actions that might be unfairly aimed at specific businesses, and may even be vindictive. In such cases, it cannot invoke general statutory authority or broad policy statements as justification where the true motives for the decision can be shown to be different. Where this occurs, whether the specific harmful conduct is the result deliberate malice or simple incompetence, a business may then turn to the courts for a remedy.
Oleg M. Roslak
(*1) 2018 ONSC 5062 [ Tesla Motors ].
(*2) Tesla Motors at para. 13.
(*3) Tesla Motors at para. 34, citing Hamilton-Wentworth (Regional Municipality) v. Ontario (Minister of Transportation) (Div. Ct.), 1991 CanLII 7099 (ON SC).
(*4) Tesla Motors at para. 35, citing Re Metropolitan General Hospital and Ontario (Minister of Health) , 1979 CanLII 2058 (ON SC).
(*5) R.S.O. 1990, c. P.50.
(*6) Tesla Motors at para. 47.
(*7) Tesla had in fact provided evidence from public speeches of government representatives that named it specifically as unworthy of protection, in one instance because it was not manufacturing cars in Canada. Although the court expressly noted that such statements are inadmissible as evidence of improper purpose, these statements appear to have had some influence on the ultimate outcome of the case.
5. Update: New Real Estate Record-Keeping Requirements for Ontario Corporations
On December 10, 2016, changes were implemented to record keeping obligations for certain Ontario corporations under the Ontario Business Corporations Act (the “ OBCA ”). Section 140.1 of the OBCA requires all companies incorporated, amalgamated or continued in Ontario, including not-for-profit corporations, to prepare and maintain a register of their ownership interests in real property located within Ontario. Ontario corporations must keep this new register on file with their minute books and other corporate records, at their registered offices. (*1) Ontario corporations formed before December 20, 2016 have until December 20, 2018 to comply with the requirement to establish a register, while those formed after December 20, 2016 are required to comply immediately. (*2)
Ontario corporations must list in this new register all “ownership interests in land”, which includes legal ownership, leasehold interests, mortgage interests, or any other beneficial interest in real property, and include the following information:
1. Description of each property;
2. Date of acquisition of each property; and
3. Date of disposition of each property.
These corporations must also keep copies of any supporting documents with respect to each property, such as deeds or transfers, that contain further information about each property: (*3)
1. Municipal address;
2. Registry or land titles division;
3. Property identifier number;
4. Legal description; and
5. Assessment roll number.
As the language “ownership interests in land” has not been defined and has not yet been the subject of judicial interpretation or governmental guidelines, we have received many inquiries regarding the nature of the interests that should be included in the registry. The Ministry of the Attorney General, Civil Law Division has indicated to us that although the property register is meant to capture “registered” ownership interests in land, they consider it best practice to also “maintain a record of any other interests in land owned by the corporation which could include leasehold interests or mortgage interests.” Accordingly, Ontario corporations may wish to include leases and mortgages on the register, out of an abundance of caution.
Why is the Register Needed?
As indicated in our Fernandes Hearn LLP newsletter of June 2017, this new OBCA requirement was introduced to support another legislative initiative: the Forfeited Corporate Property Act, 2015 (the “ FCPA ”), which also came into effect on December 10, 2016. Pursuant to the FCPA, if an Ontario corporation is dissolved and some or all of its real or personal property was not transferred, sold or distributed prior to the dissolution, then starting three years after the dissolution, the Government of Ontario may use any or all such property (the “ forfeited property ”) for Crown purposes. (*4) Ownership of the forfeited property is vested in Her Majesty the Queen in right of Ontario, regardless whose name appears as registered owner on any public registry; however, any associated debts do not pass to the Crown along with the forfeited property.
(*1) OBCA, s. 139.
(*2) OBCA, s. s140(4).
(*3) OBCA, s. 140.1(3).
(*4) FCPA, s. 24.
6. Privacy Law Update: Breach Reporting and Record Keeping Obligations of Companies
On November 1, 2018, new mandatory privacy breach reporting obligations came into force, amending the Personal Information Protection and Electronic Documents Act (“PIPEDA”) (*1) and organizations should ensure that they update their privacy policies to ensure compliance. Federally regulated businesses, such as banks, telecommunications and cross-border transportation companies, as well as businesses operating within a single province only (unless that province has legislation that is substantially similar to PIPEDA in place) are required to be in compliance. To date, the only provinces with substantially similar legislation to PIPEDA are Quebec, British Columbia and Alberta, as well as Ontario, New Brunswick, Nova Scotia and Newfoundland (with respect to health information only). Public sector organizations have a different privacy regime with which they must comply.
PIPEDA applies to the collection, use and disclosure of personal information by organizations in the course of commercial activity. The newly introduced section 10.1 deals with what an organization must do if a data breach occurs. For more information on PIPEDA generally and what constitutes personal information, see our Fernandes Hearn LLP newsletter article from August 2015.
What to do if you Experience a Data Breach
The Office of the Privacy Commissioner (“OPC”) has published guidelines indicating that a “breach” is considered the loss of, unauthorized access to or unauthorized disclosure of personal information resulting from a breach of an organization’s security safeguards or a failure to establish those safeguards. (*2)
Organizations that experience a breach of security safeguards involving personal information under their control must first determine if the breach poses a “real risk of significant harm” to the individual about whom the information relates. This risk assessment must consider the sensitivity of the information involved and the probability that the information could be misused. Significant harm can include “bodily harm, humiliation, damage to reputation or relationships, loss of employment, business or professional opportunities, financial loss, identity theft, negative effects on a credit record and damage to or loss of property”. (*3)
If the breach poses a real risk as outline above, the organization is required to notify the affected individual and report the breach to the Privacy Commissioner of Canada (the “Commissioner”), as soon as feasible. (*4)
The organization must keep a record of any data breach of which it becomes aware, irrespective of whether it is reportable. This record must be provided to the Commissioner upon request. See below for more information about the nature of the record.
Notifying the Affected Individual
The notice provided to an individual should include enough information to help the person understand the significance of the breach and what steps they can take to mitigate any harm. The Breach of Security Safeguards Regulations (the “Regulations”) also provide minimum standards regarding the information that must be included in the notice to the individual. (*5)
Both direct and indirect methods of notification are specified in the Regulations. Direct methods include by email (if the individual has consented to receiving email notifications), by letter, by telephone and in person. Indirect methods include any form of public communication that is likely to reach the affected individual. (*6) It is important to note that indirect notice may only be used under limited circumstances.
We recommend consulting a privacy specialist prior to using an indirect method, especially if: (i) harm to the individual could result from any delay in receiving notice; or (ii) there is a chance that litigation could result from the breach. If indirect notice is provided where direct notice was more appropriate, and the individual experiences a loss as a result, the organization may face exposure to liability in court.
Notifying the Commissioner
The Regulations also set out minimum standards for information to be included in a report to the Commissioner after becoming aware of a data breach. (*7) Of note, the organization must include description of the steps that the organization has taken to reduce or mitigate the risk of harm to affected individuals and a description of the steps that the organization has taken or intends to take to notify affected individuals.
Pursuant to the Regulations, organizations must maintain records of any data breach for a minimum of two years. (*8) Note that during this time period, the Commissioner can request access to these records, and such access must be provided. The records should contain enough detail for the Commissioner to be satisfied that the organization is in compliance with PIPEDA.
The OPC has indicated that as a starting point, they expect at minimum a record to include:
– date or estimated date of the breach;
– general description of the circumstances of the breach;
– nature of information involved in the breach; and
– whether or not the breach was reported to the Privacy Commissioner of Canada / individuals were notified. (*9)
Bottom Line: Robust Privacy Polices are Needed
Organization should ensure that their existing privacy policies adequately address these new data breach requirements. If the organization does not already have a policy in place then it should consider implementing a policy that addressed both the data breach requirements and PIPEDA generally. Organizations who disclose personal information in their control to third party service providers should also pay particular attention to their contracts with such third parties. By doing so, the organization can ensure that the third parties are adequately safeguarding the personal information and complying with PIPEDA, since the transferring organization remains accountable for the protection of the information.
(*1) Government of Canada, Order in Council made March 26, 2018, online: < http://orders-in-council.canada.ca/attachment.php?attach=36009&lang=en >
(*2) Office of the Privacy Commissioner of Canada, “What you need to know about mandatory reporting of breaches of security safeguard”, online: < https://www.priv.gc.ca/en/privacy-topics/privacy-breaches/respond-to-a-privacy-breach-at-your-business/gd_pb_201810/ >
(*3) PIPEDA, s. 10.1(7).
(*4) Ibid ., s. 10.1(6).
(*5) Breach of Security Safeguards Regulations, s. 3.
(*6) Ibid ., ss. 4-5.
(*7) Ibid ., s. 2.
(*8) Ibid ., s. 6.
(*9) Supra , note 2.
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