Fleets that misclassify employed truck drivers as independent contractors – a model often referred to as “Driver Inc.” – was once seen as a phenomenon mainly affecting Ontario. But the business model is now crossing the Quebec border in full truckloads, and carriers in that province are sounding the alarm.
“We’ve been talking about this scheme in Ontario for 10 years. Now it’s gaining momentum here, and we have to stop it,” says Groupe TYT president Patrick Turcotte.
“We’re up against crooked entrepreneurs who know the system inside out. They’re organized,” adds Groupe Robert president Michel Robert.
They were among seven executives at major Quebec trucking companies interviewed by Transport Routier, all concerned about businesses that use the scheme to avoid source deductions and other employer obligations.
“These companies bid on dedicated contracts. They also use brokers. We’re losing trips left and right,” adds Jean-François Pagé, executive vice-president at Transport Hervé Lemieux.
10% cost advantage
Labor costs represent 35% to 50% of fleet operating costs, leaving Driver Inc. companies with a 10% cost advantage, he explains. “Ten percent in transportation is a difference that will make a shipper quickly turn to another carrier.”
All the fleet executives expressed concerns that employees at non-Driver-Inc. companies will ultimately suffer because of the lost revenue.
“The gains that have been made in recent years, for example in truck driver wages, risk being lost if law-abiding companies lose contracts and revenue to companies that shirk their tax and social obligations,” Pagé says.
Daniel Bérard, President of Danfreight Systems, agrees wholeheartedly. “When you cut rates, you put pressure on the financial performance of companies that pay their drivers according to legitimate methods, so you prevent these drivers’ salary evolution.”
There’s also a risk that employed drivers will quit and move to those that offer the Driver Inc. model, because the net income for an incorporated business can seem enticing.
“In the trucking industry, there is a long history of companies using the misleading Drivers Inc. practice, whereby drivers are encouraged to self-incorporate and operate as independent contractors without being provided information on the downsides of the practice,” Finance Minister Chrystia Freeland said when delivering the fall economic statement.
“By not classifying drivers as employees, companies are denying them access to important rights and entitlements under the Canada Labour Code, such as paid sick leave, health and safety standards, employer contributions for Employment Insurance and the Canada Pension Plan, and provincial or territorial workplace injury compensation.”
Truckers who choose to adopt the Driver Inc. model are often uninformed or misinformed about the repercussions of their choice, Pagé warns. “Sometimes you have to protect them from themselves. They may not know the rules, and they may not be aware of the risks.”
Who will pay for a Driver Inc. driver who is seriously injured on a shipping dock,” Robert asks. “The responsibility will be shifted to the shipper, or he’ll end up on welfare.”
Martin Lavoie, president of Transport Lavoie, also believes that shippers need to understand the implications of their choice when dealing with companies that adopt the Driver Inc. model. “Shippers have a responsibility to verify that the companies working for them are paying their [workers’ compensation] and that the drivers going to their facilities are covered.”
Jérôme Veer, president of VTL Express/MV Express, is surprised that the companies and drivers taking part in the business model navigate the system so easily, and that they are not subject to more coordinated, numerous and rigorous tax audits.
Federal Labour Minister Seamus O’Regan announced on Nov. 7 that trucking companies found to be misclassifying their truck drivers will face federal fines of up to $250,000. But the carriers who spoke to Transport Routier said that clearly isn’t enough, noting that Driver Inc. companies can avoid millions of dollars in payroll taxes.
Employment and Social Development Canada (ESDC) committed $26.3 million over five years, starting in 2023-24, to take tougher action against non-compliant employers: issuing orders and fines, and taking legal action to strengthen the Canada Labour Code.
No mention in the budget
But when the federal budget came down on March 28, there was radio silence.
“What concerned us when the budget was tabled was not hearing anything about the money allocated. Needless to say, this caused quite a reaction in the industry,” said Marc Cadieux, CEO of the Quebec Trucking Association.
The association subsequently wrote to Canada’s Department of Finance, Minister of National Revenue Diane Lebouthillier, and Freeland. A press conference hosted on Parliament Hill by the association, Canadian Trucking Alliance, and Teamsters Canada followed on May 16.
Mélanie Beaulieu, national operations manager for ESDC, and manager of the $26.3 million budget, confirmed that “she has received the sum in question and is in the process of putting together a team to begin operations in connection with this budget in mid to late June,” Cadieux said.
As the month came to a close, he also received a letter from Pablo Rodriguez, minister of Canadian Heritage and Quebec’s lieutenant, who confirmed Driver Inc. was a problem and confirmed the federal financial commitment.
And Cadieux says Agence du revenu du Québec vice-president Charles Noël de Tilly has confirmed meetings with federal counterparts, the Canada Revenue Agency, and CNESST (responsible for workers’ compensation in Quebec), which is conducting a pilot project of audits similar to one conducted by WSIB in Ontario.
The Quebec association leader also raised the issue with Christine Fréchette, minister of immigration, francisation, and integration.
“We discussed the issue of Driver Inc. … and talked about the information they need to have as immigrants about tax schemes.”
“Someone, somewhere, is responsible for this. Who is responsible for this problem? It’s the federal government,” Bérard says. “If we don’t wake up, we’re going to be swallowed up quickly.”