Insurance and the Owner-Operator Dilemma

In most places across Canada, workers’ compensation is elective for sole proprietors or self-employed persons. Thus, most owner-operators can legally forgo workers’ comp insurance for themselves. And many do, seeking out more feasible coverage for themselves from private insurers.

But once a company takes on employees-even just one-workers’ compensation becomes compulsory. So, if that owner-operator who opted out of coverage for himself hires a couple of drivers, he’ll need to provide workers’ comp for them. That can be expensive, and a cost that an owner-operator running his business on a shoestring might look to dodge by claiming those drivers as independent contractors themselves.

Is it the smart thing to do? Equally important, is it the smart thing for a lease-carrier to allow? Insurance experts and many attorneys, in fact, say it’s asking for trouble.

“There’s nothing wrong with hiring subcontractors, but the more you try to work the system, the greater the chance that the system can come back to work against you,” says Mike Mitchell, a workplace safety and insurance consultant with L.A. Liversidge in North York, Ont.

The root of the problem as it relates to workers’ comp is the definition of an independent contractor versus that of an employee. The operator you leased may fit your definition of an independent contractor, but how the workers’ compensation board interprets his status is what matters most when liability is on the line.

In workers’ comp cases, the courts tend to broadly define “employee” in order to give legal protection to those who most need it. And some attorneys are adept at finding chinks in the independent contractor status.

Thus, owner-operator workers’ comp claims against carriers are often hard-fought and losing battles.

If the carrier is found to be the owner-operator’s “employer,” however, the consequences may not be confined to one workers’ comp claim. Likely, the worker’s compensation board could want to add all of the carriers’ owner-operators to the workers’ comp policy-often demanding retroactive premium payments.

“It can be done,” Mitchell says, “and that could mean big dollars.”

The workers’ comp decision may also attract the attention of provincial and federal tax agencies interested in unemployment and other withholdings.

And your owner-operators themselves, buoyed by this new “employee” status, may demand employee benefits like profit sharing and retirement plans.

So what’s the protection? Carriers that use owner-operators have a few choices.

One is to include owner-operators in the workers’ comp insurance carried for company drivers, paying the premiums out of pocket (in most jurisdictions, passing the cost on to the owner-operator is illegal). But that could jeopardize the owner-operator’s independent-contractor status.

Another option is to require, as part of the lease contract, that the owner-operator have some kind of protection, either workers’ comp or private occupational accident insurance.

That’s the easiest solution, Mitchell says. But it has its pitfalls: the differences between workers’ comp and “occ/acc” can be significant.

For instance, workers’ comp medical benefits are typically unlimited, including medical care and even rehabilitation. Occupational accident policies often have a cap. If a covered worker is killed on the job, most workers’ comp plans give the surviving dependents benefits that continue until children reach a certain age and sometimes beyond. Occupational accident insurance usually has a lumpsum death benefit. Sometimes it works out to be higher than workers’ comp, sometimes not.

Occupational accident policies may exclude common trucker problems like lower back pain, hernia, and hemorrhoids. With workers’ comp, they’re usually covered. Occ/acc claims may have to be made within a relatively short time period, say 30 or 45 days. Workers’ comp claims have much longer expiration dates, sometimes dating back several years. Some occ/acc policies cover a driver only when he’s under dispatch. If he’s deadheading or working on the truck, he’s not covered. With workers’ comp, he probably is.

Those gaps in coverage, Mitchell says, elevate the risk that an injured owner-operator or his survivors will come back to the carrier with a workers’ comp claim.

“For your own protection, it’s worth knowing what the coverage is and what your responsibilities are as an employer or contractor,” he explains. “Some shippers, especially those with high-risk loading areas, are asking carriers about the coverage of the drivers who enter their yards. They’re worried about liability, too.”