In Part two of Clarity on calculating income replacement benefits for self-employed — sort of: Timing, Pace Law’s very own, Steven Glowinsky, adds his insight into the implications of the K.D. v. Aviva decision.

In part one of this series we explored the possibility of over- or under-compensation to the plaintiff based on the difference between using the last fiscal year and the last 52 weeks.

If we look at one final example where we change the situation of the injured, self-employed computer technician Jill, it also demonstrates that timing can be everything. If Jill had started her own corporation instead of being a sole proprietor, her year end would not necessarily be Dec. 31. In fact, many corporations use other dates than the calendar year end.

As such, let’s assume Jill incorporated on Jan. 1 and then set her year end on Nov. 30. She would have earned exactly the same income as she did as a sole proprietor but she’d get to use it all for calculation of her income replacement benefits (IRBs) under the statutory accident benefits schedule (SABS) s. 4(3). This implies that the Licence Appeal Tribunal (LAT) interpretation of s. 4(3) therefore can have different measures of income depending on whether you’ve bothered to pay your incorporation fee to the government of Ontario or not.

As the examples above demonstrate, the SABS has a bit of a blind spot when it comes to people who start their businesses in the same year they are injured in a motor vehicle accident, at least when you take into account the findings of the adjudicator in K.D. v. Aviva Insurance Company 2020 ONLAT 18-011646/AABS (K.D. v. Aviva).

Except of course, as I said earlier, things aren’t quite that clear (it seems like they never are when it comes to the SABS). In laying out her decision, adjudicator Avril A. Farlam, vice-chair, also wrote the following:

The applicant’s submissions that to apply s. 4(3) would create an unjust result, will create an ‘unintentional blind spot’ and possibly other perceived unfairness to the applicant is also not persuasive. Section 4(3) of the Schedule is clear and unambiguous. The applicant has not brought forward any evidence to establish he started his self-employment after 2016. The evidence from the applicant’s own accountants is to the contrary. The evidence is clear that the applicant has been self-employed since 2010 and did not declare any income in 2016 and those are the facts that have determined the result of this hearing.

This seems to suggest that there may be an argument that plaintiffs who start businesses may be treated differently and that somehow the rules may not apply to them in the same way, thereby allowing them to receive some income under the SABS.

In the meantime, unless the SABS are changed, it appears that self-employed plaintiffs have only one option in calculating their entitlement to IRBs, and that is using their earnings in the last fiscal year before the accident.

I reached out to a plaintiff counsel for an opinion on the implications of K.D. v. Aviva. Steven Glowinsky, of Pace Personal Injury Law Firm (who was not involved in this matter), states:

“The problem with the decision in K.D. v. Aviva Insurance Company isn’t that it was incorrectly decided — I do not believe that it was. It’s that it applied the legislation as it is intended to be applied, which is void of any ambiguity or plausible alternative interpretations. The Ontario Court of Appeal in Beattie v. National Frontier Insurance Co. [2003] O.J. No. 4258 was clear in discussing these unfortunate situations where unambiguous legislation leads to an absurd and/or inequitable result, as it did for K.D. The remedy cannot be judicial interpretation; it must be legislative amendment.

“I think one sentence from vice-chair Farlam’s decision in K.D. v. Aviva Insurance Company was peculiar. She discussed the timeline of the applicant’s self-employment, which we know has no relevance outside of the last completed fiscal year in accordance with s. 4(3). Did that open the door for an argument that s. 4(2) is applicable? Perhaps. I think it’s an uphill battle, but it’s worth exploring for those who want to roll the dice.

“As [an] applicant’s counsel, I am always focused on finding an avenue to obtain the most favourable outcome for my client. In claims where a self-employed person was paying him/herself salary as an employee (and preferably providing him/herself a T4), the possibility exists that the applicant may be considered an ‘employee’ and so eligible to receive income replacement benefits while wearing that hat and to calculate the quantum of those benefits pursuant to subparagraph 1 i) of s. 5(1).

“The facts, however, must be specific and on point to those discussed in Piper and Zurich Insurance Company (FSCO Appeal P-002585), in which director Sachs held that the claimant was an employee of his own company because there was ‘a consistent pattern of salary-based payments, and treatment of Piper as an employee, rather than a self-employed majority shareholder.’ In that claim, Piper’s revenue year-to-year fluctuated, but he always paid himself the same salary.

“I think that argument is counsel’s best shot at avoiding a calculation under section 4(3) if 1) the facts support the argument; and 2) until the legislation is amended to correct the lacuna and the absurd and unjust end result that can arise when section 4(3) penalizes a claimant whose income 52 weeks pre-accident has been high, but his/her last completed fiscal year was not.”

One thing is clear: there is no one size fits all in this piece of legislation, as certain individuals will be overcompensated and others undercompensated compared to their earnings at the time of the accident. This is part two of a two-part series. Part one: Clarity on calculating income replacement benefits for self-employed — sort of.

Matthew Krofchick is a principal at Krofchick Valuations. He specializes in forensic accounting, economic damage assessments, family law valuations and business valuations for transactional and litigation purposes. Krofchick has lectured and authored on topics including business, pension and income valuations in the context of marital breakdowns, and financial issues surrounding business valuations and damage quantifications.

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