Was insured an employee or self employed?

November 15, 2010, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

Arbitrator: Jessica Kowalski
Decision Date: August 6, 2010

Mr. Ferguson was injured in a motor vehicle accident on August 23, 2007. He applied for and received statutory accident benefits from ING Insurance. An issue arose concerning the amount of the income replacement benefits to which Mr. Ferguson was entitled and the parties were unable to resolve their dispute through mediation. The issues in the hearing were to determine if Mr. Ferguson was an employee or self-employed at the time of the accident and to what amount of the income replacement benefit to which Mr. Ferguson was entitled pursuant to section 6 of the Schedule, from August 30, 2007 onwards.

The Accident

Mr. Ferguson was injured in a motor vehicle accident on August 23, 2007 when the car he was driving was broadsided by another vehicle. The accident claimed the lives of Mr. Ferguson's two-month old daughter, his stepdaughter and his fiancée and left his six year-old stepson brain injured. Mr. Ferguson was seriously injured.

Income Replacement Benefits

The issue in the arbitration was to determine whether Mr. Ferguson was an employee or self-employed at the time of the accident.

The parties disagreed on the classification of Mr. Ferguson's employment at the time of the accident and therefore on the quantum of the income replacement benefits to which he was entitled. Mr. Ferguson argued that he was an employee, while ING argued that he was self-employed. The distinction was important in this instance because the Schedule permits individuals who earn employment income to designate the last four weeks before the accident as the relevant period from which their income replacement benefits are calculated.

If Mr. Ferguson were self-employed at the time of the accident, his income replacement benefit would have been $27.70 per week. If employed, he was entitled to $294.12 per week.

Mr. Ferguson was an auto body mechanic by trade. In or about 2005, Mr. Ferguson opened his own business, DH Custom Auto. He operated DH Custom Auto until he started the work that was the subject of this arbitration.
In June 2007, Mr. Ferguson decided to shut down his business, DH Custom Auto, which had lost money each year since it started in 2005. Concerned that his business was not sufficiently consistent to support his family, Mr. Ferguson testified that he decided it made more sense to work for someone else. He began to look for employment. From the jobs offered to him, he took the one that sounded best: a job at a new auto body and repair shop on Park Road in Brantford operated by Ken Baker.
He was simply hired to work in exchange for a fixed steady wage. He argued that he had no financial or other interest in MS Welding.

Because he needed help with his first and last month's rent and the move to Brantford, Mr. Ferguson testified that he asked Mr. Baker for a cash advance of $1800. He deposited the cash along with $40 of his own money. They agreed that Mr. Ferguson would work off the advance at the rate of $200 per week, deducted from his salary, until the full amount was paid.

Mr. Ferguson testified that after the accident he and Mr. Baker decided that the cash advance would cover Mr. Ferguson's salary for the days worked because Mr. Ferguson could not return to work. They considered the $1800 his salary paid to date and he received no further income from his work for Mr. Baker.

Mr. Ferguson did not deny that he received no pay stubs or other documents from MS Welding, apart from the OCF-2 that he said Mr. Baker had Mark Smith sign.

ING argued that Mr. Ferguson was self-employed at the time of the accident. ING’s position was that Mr. Ferguson had no employment contract with MS Welding, which did not remit or make any source deductions off Mr. Ferguson's payment, and Mr. Ferguson did not receive a paycheque. ING argued that Mr. Ferguson was not on the company's payroll and had no time cards or pay stubs to support or record his attendance at work as an employee. ING said the work Mr. Ferguson did do, which included helping to set up Ken Baker's new business, was more in line with that of a self-employed individual.


Having suffered consistent business losses and faced with providing for a growing family, Mr. Ferguson had good reason to seek out steady employment. He testified that he received three employment offers. The first two offered a weekly salary of $500 and $800. The third, an offer from one Mr. Baker, offered $1200 per week, and included assisting him in starting up a new auto body and repair shop on Park Road in Brantford. Mr. Ferguson was previously employed by Ken Baker (at K & K Auto Body). He and Mr. Baker entered into an oral agreement, which Mr. Ferguson testified is common in his industry. Mr. Ferguson would work for Mr. Baker in his new shop in exchange for a weekly salary of $1200. His duties included preparing the shop before it opened to the public. He started work on August 10, 2007.

Section 2(5) of the Schedule defines "employee" as follows: “A person is employed if, for salary, wages, or other remuneration or profit, the person engaged in employment, including self-employment, or is the holder of an office, and "employment" has a corresponding meaning.”

The arbitrator found that Mr. Ferguson's situation fell within the definition of "employee". The facts of Mr. Ferguson's relationship with Mr. Baker and MS Welding as a whole served to determine his employment status.
Ms. H, a certified general accountant whom ING retained to calculate Mr. Ferguson's income replacement benefits, concluded that there was no employment relationship between Mr. Ferguson and MS Welding. Based on its understanding of the manner in which Mr. Ferguson was remunerated for his activities at MS Welding, PricewaterhouseCoopers recommended that Mr. Ferguson be treated as a self-employed individual for accident benefit purposes.
Ms. H testified that based on the documents that Mr. Ferguson provided to ING, his tasks were more representative of self-employment.

On cross-examination, Ms. H testified that: MS Welding would have had until September 15, 2007 to open a payroll account and remit Mr. Ferguson's source deductions; if Mr. Ferguson had worked more than a couple of weeks, he could have gone to MS Welding and asked that the source deductions be taken from his pay; and lastly, as Mr. Ferguson was no longer working on August 23, 2007, it would not be unusual for MS Welding not to add him as an employee knowing that he was not coming back to work.
Mr. Ferguson's work at MS Welding was very different from his work as a self-employed person. Unlike when he entered into business with his uncle or on his own, Mr. Ferguson did no investigation. Before accepting the job, he conducted no credit checks on Mr. Baker, did not inspect financial records or a lease. He did not set up utilities like he testified he had with his uncle or on his own. He had no ownership interest, invested no money of his own, and had no expectation to share in any potential profits of the business. His responsibilities were to do the work assigned to him. He had a set salary and a fixed work week. His pay did not change based on hours worked. It was Mr. Baker who assigned Mr. Ferguson's work, and no evidence was heard to suggest that Mr. Ferguson was free to work when and for whom he chose, that he could provide his services to others at the same time, or that he could refuse the work that Ken Baker assigned. There was no evidence before the arbitrator that Mr. Ferguson had any opportunity to exercise control over his daily activities.

Whether Mr. Baker's business lost or gained money, the amount of Mr. Ferguson's weekly pay was to remain the same. He made no financial investment in the business, like he did when he partnered with his uncle or on his own.
The arbitrator did not find the fact that Mr. Ferguson used his own tools as determinative of a business relationship. He testified that he had been amassing tools using a government grant when he started his apprenticeship. He also testified that in his industry it was standard for auto body mechanics to move with their own tools. In a bulletin distinguishing between employment and self-employment situations, the CRA specifically identifies auto mechanics as skilled trades-people that are often required to supply their own tools, even if they are full-time employees.

The arbitrator also found that Mr. Ferguson's working arrangement did not fit the criteria of a self-employed worker under the Schedule, demonstrated by the questions listed in the Guideline under the heading "Traditional Self-Employment Situations". When applied to the evidence, these questions confirmed Mr. Ferguson's status as an employee.

The arbitrator found that Mr. Ferguson met the definition of "employee" in the Schedule and Guideline. He was hired by Mr. Baker to work as an auto body mechanic and to generally assist in his workshop. Mr. Ferguson worked for Mr. Baker from August 13 to August 23, 2007, disrupted by the accident. The arbitrator accepted Mr. Ferguson's evidence that it was not uncommon in his trade to accept work based on an oral agreement, and that, even when he worked for larger outfits like Brant County Ford, he did not have a written employment contract. Mr. Ferguson's oral contract with Mr. Baker established the terms of their working relationship: that Mr. Ferguson would work for Mr. Baker in his new shop, that he would assist in preparing that shop before it opened to the public, that he was to work during the week and be paid a salary of $1200 per week.

The evidence was limited to a short period of time: Mr. Ferguson simply did not work long enough to establish a demonstrated history of payments, and/or payroll deductions.

That his employer had not yet set up a payroll account, or that that it did not take deductions off Mr. Ferguson's sole payment were outside Mr. Ferguson's control, as was the relationship between Mr. Smith and Mr. Baker. Whatever that relationship was, or whether Mr. Baker was acting as a rogue, Mr. Ferguson should not have been penalized for having entered into what he believed was an employment arrangement in good faith.

Posted under Accident Benefit News, Automobile Accident Benefits, Car Accidents

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Deutschmann Law serves South-Western Ontario with offices in Kitchener-Waterloo, Cambridge, Woodstock, Brantford, Stratford and Ayr. The law practice of Robert Deutschmann focuses almost exclusively in personal injury and disability insurance matters. For more information, please visit www.deutschmannlaw.com or call us toll-free at 1-866-414-4878.

It is important that you review your accident benefit file with one of our experienced personal injury / car accident lawyers to ensure that you obtain access to all your benefits which include, but are limited to, things like physiotherapy, income replacement benefits, vocational retraining and home modifications.

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