Neutral Citation: 1999 ONFSCDRS 244

FSCO A99-000338

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

MOHAMMAD MALIK

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

DECISION ON A PRELIMINARY ISSUE

Before: John Wilson

Heard: September 29, 1999, at Nimigan Court Reporting, Hamilton, Ontario.

Appearances: Michael W. Kelly for Mr. Malik Stuart Aird for Allstate Insurance Company of Canada

Issues:

The Applicant, Mohammad Malik, was injured in a motor vehicle accident on March 30, 1997. He applied for statutory accident benefits from Allstate Insurance Company of Canada ("Allstate"), payable under the Schedule.¹ Allstate refused to pay for the benefits requested. The parties were unable to resolve their disputes through mediation, and Mr. Malik applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issue is:

1. Was Mr. Malik "self-employed" or "employed" at the time of his motor vehicle accident, for the purposes of section 8 of the Schedule?

Result:

1. Mr. Malik was "employed" at the time of his motor vehicle accident.

EVIDENCE AND ANALYSIS:

At the time of his accident on March 30, 1997, Mr. Malik was working as a cab driver for 310-TAXI, operating as Veterans Cab in Hamilton, Ontario. There is no dispute about the nature of his occupation, nor of its duration, only of its characterization as either "employment" or "self employment" for the purposes of section 8 of the Schedule.

Although Mr. Malik had been a cab driver over a number of years, he had only been working with Veterans some four weeks, after an interlude of re-training, when he was not employed.

Section 8(1) of the Schedule permits a person who is not self-employed to designate either the four weeks prior to the accident or 52 weeks prior to the accident. Section 1(2) of the Schedule restricts a self-employed person to designating the 52 weeks before the accident, or the last fiscal year completed prior to the accident for the purposes of determining the amount of an applicant's income replacement benefit.

If Mr. Malik is found to be "employed" as a cab driver, then he will be able to designate his four weeks of active employment for the purposes of the determination of his income replacement benefit. If he is "self-employed" then he will have to include the balance of the year, including a lengthy period of no income as the basis of this calculation. The choice of relevant periods will make a substantial difference in the calculation of his income replacement benefit for Mr. Malik.

Section 2 of the Schedule provides a series of definitions of terms used throughout the Schedule. It contains no definition of "self-employed."

The Concise Oxford Dictionary defines "employ" as:

...use the services of (a person) in return for payment; keep (a person) in one's service... the state of being employed, esp. For wages

The same reference describes employment as ".. The act of employing or the state of being employed." "Self-employment," by contrast is described as: "...working for one's-self, as a freelance or owner of a business etc.; not employed by an employer."

A letter from 310-TAXI, signed by Rick VanKleek, vice-president, (Exhibit 2, Tab 1) indicates that; "Mr. Farooq Malik was a full time lease driver under the Veterans Taxi Banner."

Mr. Malik testified at the hearing as to his work with Veterans Cab. He had received instruction on company policies dealing with matters such as dealing with customers and where to pick up and drop customers. Failure to comply with company policies or complaints by the public could result in the removal of a driver.

Mr. Malik further testified that he did not own the cab that he drove. It was assigned by Veterans, and was owned and serviced by them. He was assigned mostly the night shifts and usually worked from 4:00 p.m. until 4:00 a.m. If his cab was not available, the company provided a backup vehicle. He was expected to drive through his whole shift.

According to Mr. Malik, Veterans Cab charged a flat "lease payment" of $50.00 per day for the use of the cab. This charge was levied whether a driver showed up for his assigned shift or not, unless he arranged for one of the part time substitutes to take his place. The driver was responsible for returning the vehicle with a full gas tank and to clean his cab. Veteran's Taxi paid for any repairs or maintenance to the vehicle. The taxi was insured under a taxi policy owned by Veterans.

Mr. Malik testified that he was required to file "run sheets" with the taxi company after the end of every day, but that Veterans made no deductions for income tax, CPP, or employment insurance. Veterans never issued Mr. Malik a T4 for his taxi-driving income.

Although the accident took place while Mr. Malik was driving a taxi for Veterans, he indicated on his application for benefits (Tab 3 of Exhibit 1) and in testimony that no claim for any sort of worker's compensation was made in connection with the accident.

On the application for accident benefits filed with his Insurer, in the space for "Applicant Status," at page 5 of the form, Mr. Malik checked a box indicating that he was "self-employed." He testified at the hearing that he called his Insurer to say that he wasn't sure what to put on the form, and was advised by a lady who called at his home that he was "self-employed."

Mr. Malik also provided the Insurer with an income tax return, which covered the date of the accident (Tab 1, Exhibit 1). The return, which Mr. Malik testified was prepared by a tax-preparer, indicated that Mr. Malik was self-employed, and claimed deductions appropriate to his self-employed status.

Mr. Malik also confirmed in cross-examination that he had a GST number and was required to file GST returns on his taxi earnings.

From Mr. Malik's evidence at the hearing, it is evident that for the purposes of Income Tax, worker's compensation, and employment standards, Veterans Taxi treated him as a self-employed independent contractor. It is also apparent, that by filing an income tax return on a self-employed basis, Mr. Malik accepted to some degree that he was indeed self-employed for the purposes of income tax. No evidence, however, was brought that the income tax authorities themselves had ever accepted, or made a ruling that Mr. Malik was "self-employed" for the purposes of income tax.

Although the Schedule itself does not define "self-employment," the Financial Services Commission has issued a Guideline for identifying self-employed individuals pursuant to section 268.3 of the Insurance Act. Section 268.3 (2) of the Insurance Act provides that: "Subject to section 268.2, a guideline shall be considered in any determination involving the interpretation of the Statutory Accident Benefits Schedule."

The guideline sets out "indicators" of self employment in both a "traditional self-employment situation" and a "contract of service situation." The traditional indicators include the establishment of a regular place of business, participation in operations, control over scheduling and hours worked, the setting of prices or fees, and the eligibility or not for programmes such as Employment Insurance.

It is clear from Mr. Malik's evidence at the hearing that he possesses some of the "indicators" of self-employment as set out in the guidelines. It is equally clear that the guidelines for self-employment do not fully describe Mr. Malik's working relationships. I find that it is impossible to fairly determine the employment status of Mr. Malik, having regard only to the Guidelines. While the guidelines must be "considered" in any determination, they are not binding on an adjudicator, who is free to examine more broadly the concept of "self-employment." As Arbitrator Makepeace remarked in Neill and Zurich Insurance Company (A97-001983, May 10, 1999):

In determining whether the insured person was employed or self-employed, Arbitrators have looked beyond the form of the applicant's business arrangements "to examine the substance of each individual's financial situation within the overall pre-accident context"

The problem of determining employment status is not limited to matters before this tribunal, and his been dealt with extensively in other contexts. A determination of employment status may be relevant to such areas as employment standards, income tax calculation, employment insurance eligibility, labour relations and collective bargaining, to name a few. In the context of these other areas, the concept of "self-employment" has been examined extensively.

In Amalgamated Meat Cutters and Butcher Workmen of North America v. Cuddy Food Products Ltd. ([1977] O.L.R.B. Rep. 24) Vice-Chair Haladner found that the Ontario Labour Relations Board should consider both the common law indicia of employer/employee relationships and the purposes of the statute in question when determining whether or not a person is an employee.

In the case of Montreal v. Montreal Locomotive Works Ltd. 1946 CanLII 353 (UK JCPC), [1947] 1 D.L.R. 161, the Privy Council examined the issue of the test for the existence of an employment relationship. The Privy Council identified factors such as ownership of tools, the chance of profit or loss, and factors of control as evidence of the nature of the employment relationship. The Supreme Court of Canada in Co-operator's Insurance Association v. Kearney (1964), 1964 CanLII 21 (SCC), 48 D.L.R. (2d) 1, enlarged on the earlier tests, and examined the degree to which an individual is integrated into an organization, and whether and to what degree the individual's work is being subjected to the coordinational control of the organization.

To determine Mr. Malik's employment status, we must, then, examine the facts of his employment situation, and analyse the manner and degree to which he was integrated into the Veterans Taxi organization, as well as looking at some of the traditional indicia of self-employment.

Mr. Malik testified that his hours were set by Veterans Cab. He was chosen by Veterans and could not delegate his work to another driver, unless also approved by Veterans. Veterans Cab supplied the workplace, the means of performing the work and dictated the manner in which the work was undertaken. Although Mr. Malik "rented" a taxi on a daily basis, his risk was limited to the possibility of not getting enough fares to cover the rental cost. If the taxi broke down or required substantial repairs, it was up to the taxi company to supply another one at no extra cost.

On the other hand, Mr. Malik was issued no T4 for his taxi income. He worked hours in excess of those normally mandated by employment standards, without specified breaks or payment for overtime. He was required to file for GST. He was not covered for workplace accidents by Veterans. Veterans treated him as if he was self-employed.

It was in the interest of the taxi company to operate as if all drivers were self-employed. They were freed from the expense and obligation of adhering to any employment standards. They did not have to make payments for worker's compensation insurance, nor for employment insurance. Mr. Malik clearly acquiesced to some degree in the characterization of his work as "self-employment," at least until it became apparent that such a characterization had consequences upon his claim for accident benefits. It should be asked then, if this acquiescence effectively prevents Mr. Malik from claiming to be "employed" for the purposes of his statutory benefit application.

Labour arbitrators have dealt with the issue of whether the parties in an employment situation can limit the jurisdiction of an arbitrator by agreeing to include or exclude one or more groups as "employees." In the labour context, arbitrators have found that a previous agreement between parties does not preclude a later application to certify employees who were excluded by such an agreement. (see O.P.S.E.U. v. Fleetwood Ambulance Services, [1988] O.L.R.B. Rep. 886.)

Although the intention of parties may be relevant to the determination of employment status, it should not in itself be conclusive. To allow such an intention to be the last word, would be to allow employers to contract out of statutory obligations to employees simply by calling the work "self-employment," without any need to meet any objective criteria for such a designation.

I find that even if Mr. Malik tacitly agreed with the Veterans organization that he was "self-employed," such an agreement does not prevent an arbitrator from evaluating and characterizing his employment relationship for the purposes of the Schedule.

Mr. VanKleef, the vice-president of 310-Taxi did not testify at the hearing although I was informed that he was served a witness summons by the Applicant, Mr. Malik. It is possible to infer, however, from the evidence submitted by Mr. Malik and the Insurer, that Veterans intended to treat Mr. Malik as an independent contractor who merely rented a taxi from them. After all, they did not make EI or CPP, or Worker's Compensation contributions on Mr. Malik's behalf, nor did they issue him a T4 for his income.

Mr. Aird, Counsel for the Insurer, has submitted that Mr. Malik's relationship to Veterans was akin to that of a McDonald's franchisee, who is required to conduct his business in a certain manner, under the McDonald's banner, but nevertheless operates as an enterprise independent from the franchiser.

Mr. Aird's submission illustrates how complex and varied the world of self-employment has become in recent years, but it overlooks the cumulative effect of the tests enunciated by the Privy Council in Montreal Locomotive Works and the Supreme Court in Co-operator s.

A franchisee is subject to many restrictions on the manner in which it carries on business. Usually it invests heavily in the franchise, stands to suffer a major loss if the business does not take off, and has the freedom to hire and fire employees and to delegate work within the scope of the franchise, provided only that the work is carried out in the manner set out by the franchise agreement.

I accept Mr. Malik's evidence that his hours and conditions of work were under the control of Veterans, that Veterans owned the "tools" of the trade; (the taxi and the dispatch system) and that the majority of the risk of profit and loss was with the taxi company. Mr Malik also testified that he worked twelve hour days, six days per week. In practice this meant that Mr. Malik's services were provided to Veterans exclusively, and that there was no practical possibility of providing services to competing companies.

When working for Veterans, Mr. Malik would be responsible for paying the daily taxi cost and his gas, and cleaning, and no more. This is not substantially different from the situation of any employee who is paid on a commission basis, and who will receive no net revenue if he or she makes no sales. If Mr. Malik does not "sell" sufficient taxi services in his shift, he as well, will receive no net revenue.

The indicators of "self-employed" status referred to by Mr. Aird such as the lack of source deductions, including payment of EI and CPP, the lack of worker's compensation coverage, and lack of fixed break times or enforcement of employment standards were all factors that created a financial advantage to the employer. I find that the company's treatment of drivers as self-employed has the appearance of a convenient subterfuge that had the effect of reducing its obligations to its workers, and should not be taken as determinative of the issue.

An absurdity is not necessarily created, if, for the purposes of one piece of legislation, a person is considered an "employee," while for other purposes a worker is considered "self-employed." The characterization of the employment also must turn on the purpose of the legislation in question.

Arbitrator Novick in Chahal and Zurich Insurance Company (A96-001785, August 27, 1998) examined the legislative purpose of making a distinction between employed and self-employed status in the determination of income replacement benefits in the context of the Statutory Accident Benefits Schedule:

The rationale behind this distinction is due to the manner in which income from self-employment is usually calculated, that is the individual's business expenses are deducted from his or her earnings, and the nature of some of those expenses makes it impractical to consider a period as short as four weeks.

Mr. Malik testified that he pays a flat amount on a daily basis for the use of the taxi itself, together with the cost of fuel and cleaning of the cab. His income tax returns as filed (Exhibit 1, Tab 1) confirm this approach to accounting for his net income. There are no claims for capital cost allowance or other yearly expenses listed, that would make it impractical to consider a period as short as four weeks.

Mr. William Thomas, an accountant from McCully and Associates Inc. was called by the Insurer to testify as to Mr. Malik's employment status, and to his calculation of Mr. Malik's income. He testified that he regarded Mr. Malik as being self-employed. While I recognized Mr. Thomas expertise as an accountant in arriving at income calculations for the determination of income replacement benefits, and in dealing with questions relevant to income tax, I found that his expertise did not extend to the determination of self-employment status for the purposes of the Schedule.

Mr. Thomas's testimony may be relevant to other issues to be heard later, but did not add to my understanding of the nature of Mr. Malik's employment relationship with the Veterans organization, which is the sole matter at issue in this preliminary issue hearing. Accordingly, I give his testimony in this matter little weight.

I find that Mr. Malik's position with Veterans is not significantly different from that of an employed commission sales agent, whose income is dependent on sales, and who is permitted to deduct the expense of sales from his income. He worked exclusively as an integral part of the Veterans organization, and responded to their directions and schedule. He was not free to subcontract his work, and he owned neither the vehicle, the taxi licence nor access to the dispatch system. These were all under the control of the Veterans organization.

Although Mr. Malik may meet some of the criteria of the traditional concept of "self-employed" and some of the "contract for service" situation, I find that on balance, Mr. Malik's situation most closely resembles that of an "employee."

This conclusion is consistent both with the manner in which he worked, as well as with the ordinary meaning of the word "employed." He was clearly employed "in the service" of Veterans Cab and was not "working for himself."

I find therefore, that Mr. Malik is entitled to base his calculation of income replacement benefits on the four week period prior to the accident rather than the preceding 52 weeks, or fiscal year.

EXPENSES:

I exercise my discretion to award Mr. Malik his expenses incurred in this preliminary issue hearing.

December 16, 1999

John Wilson Arbitrator

Date

Neutral Citation: 1999 ONFSCDRS 244

FSCO A99-000338

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

MOHAMMAD MALIK

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. Mr. Malik is entitled to base his calculation of income replacement benefits on the four week period prior to the accident rather than the preceding 52 weeks, or fiscal year.

December 16, 1999

John Wilson Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96, 551/96 and 303/98.