March 13, 2024
AFTER SEVEN YEARS, Kyle Shapitka finally realized what he’d been missing.
From when he started his first job as a glazier around 2014 to leaving that job for a union gig in 2021, Shapitka had been misclassified as a “subcontractor.”
He was never paid time-and-a-half for overtime work, he didn’t get any benefits, he had to track and pay his own taxes, and he had to pay the employer’s half of the Canada Pension Plan (CPP) contributions.
“At the same time, you’re still being treated like a worker, right? You’re going to work when you’re told to go to work and where to go and stuff like that,” he said.
“[My boss] tried to make it seem like it was better to do it that way, because you could write things off and all sorts of stuff like that. And obviously it’s BS.”
The BS, he says, didn’t stop there. Shapitka says his boss coached him on what to tell government workers in a phone call when they were looking into potential misclassification claims — to say he was bidding on jobs, for instance — and hovered over him during the call.
“Huge red flag,” he said, with the clarity of hindsight.
Shapitka didn’t think too much about it before, but he was one of the thousands of construction trades workers in the underground economy, according to a 2022 report by the BC Building Trades. The underground economy includes workers like Shapitka, those who have been misclassified as contractors when they should be counted as employees.
Statistics Canada estimated in a 2023 report that the underground economy, between 2014 and 2021, accounted for almost three per cent of Canada’s total gross domestic product, or about $68.5 billion in economic activity, with residential construction being “by far” the largest contributor at $23.9 billion.
In misclassifying workers, construction companies are able to offer lower bids on projects by skirting various expenses related to employees.
When Shapitka joined a union, he got an immediate $10-an-hour pay bump from his previous job, as well as benefits and overtime pay, and he only had to pay the employee’s half of his CPP contributions. Besides that, he didn’t have to track his expenses or his taxes.
And he said working in a union shop was also safer, with his previous employer pushing unsafe labour practices, such as workers carrying heavy equipment to the top of scaffolding, rather than using a crane.
The Statistics Canada report takes figures from the 2019 Labour Force Survey in which there were 48,200 independent contractors working in construction. Reports from the joint compliance team project piloted in B.C. in 2001, estimated a misclassification rate of 29 per cent.
“We have been seeing underground economic activity in the construction industry for a number of years,” said Brynn Bourke, BC Building Trades executive director.
“It’s getting worse and worse. And you don’t have to take my word on that. Statistics Canada reports it is growing. It is now a business model that has rooted itself in the B.C. construction industry, and it’s growing.”
Bourke said it’s grown from previously primarily occurring in smaller residential construction to being “rampant” in high rise construction.
It’s worse, she said, in piecework trades, such as floor laying, drywall installation and tile setting.
Dan Jajic, business manager with the International Union of Painters and Allied Trades District Council 38, the union representing Shapitka, agreed with Bourke that misclassification of workers is part of the business model in construction.
“I have young folks come into my office, sit down across from me and explain to me that they’re subcontractors, while they’re 18 or 19 years old. They don’t have a business licence. Essentially the person who’s hired them said, ‘You’re a subcontractor and I’m just going to pay a flat cheque, right?” “So, no EI contributions, no CPP contributions,” Jajic said.
In all, misclassifying workers saves companies an estimated 20 per cent on their labour costs, between WorkSafeBC, CPP and employment insurance (EI) contributions, statutory holiday and vacation pay, and employer health taxes. Many of those cuts, like EI and CPP contributions, as well as holidays and vacations, are cuts directly to the workers.
“This is not just a BC Building Trades union issue. This is a whole-of-industry issue and legitimate, good-faith contractors are losing bids and are finding it incredibly hard, in certain trades, to remain competitive and viable because there’s such a high level of underground economic activity, in particular, sub-trades,” Bourke said.
And that’s how it becomes part of the business model — it’s a race to the bottom when companies are competing for bids.
But it isn’t just an industry issue. BC Building Trades estimates the misclassification of workers, along with under-reporting of income, costs governments $308.2 million in lost revenue every year in B.C.’s construction industry alone.
What is to be done about it? The BC Building Trades is calling for the provincial and federal governments to collaborate on reinstating the joint compliance teams that were piloted in 2001, before being cut by Gordon Campbell’s BC Liberal government of the day.
“This was actually, I think, just a casualty in a broad sweep [of government programs], not in a surgical analysis of the value of the pilot,” Bourke said.
“Since then, we’ve wanted to bring it forward and say we did this. This is possible. It is possible to bring these different departments together.” The teams consisted of employment standards staff at the provincial and federal level, staff from WorkSafeBC and the Canada Revenue Agency. The team was able to audit payrolls and compare them with the workers they observed onsite.
The collaboration, Bourke said, is necessary because Employment Standards Branch employees can’t probe into physical worksites like WorkSafeBC staff can, while the Canada Revenue Agency can compel companies to produce financial documents, like payroll, and Employment Standards can take on the role of enforcement.
After checking 400 worksites, the joint compliance teams identified $40 million in lost contributions to WorkSafeBC in 2001.
Workers from the time, Jajic said, remembered the joint compliance teams even years later because of their efficacy, despite not having any involvement in the project.
“Just the fact that somebody’s looking starts to curb employers’ behaviours for fear of getting caught,” Jajic said.
Today, WorkSafeBC said in an emailed statement, governments seek to address the underground economy through information-sharing with other government agencies, targeted enforcement and outreach, with a trilateral committee consisting of the Canada Revenue Agency, WorkSafeBC and B.C. Finance.
In January, BC Building Trades had consultations with the provincial government on reinstating dedicated joint compliance teams, but Bourke said progress is slow — particularly when you’re looking for collaboration between not only different departments in one government, but across two levels of government.
Still, she described the meeting as “really positive,” albeit with “more conversations to be had, for sure.”
By Dustin Godfrey