Newsletter > November 2018View/Download this newsletter in PDF
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
“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 Employees 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.
- 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.
“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|
(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 Endnotes (*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. Jaclyne Reive Twitter: @jaclyne_reive Blog: https://jaclynereive.wordpress.com End Notes (*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. Recordkeeping Requirements 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. Jaclyne Reive Twitter: @jaclyne_reive Blog: https://jaclynereive.wordpress.com Endnotes (*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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