The Definitive Guide on Company Vehicle Use Agreements

Company Vehicle Use Agreements Explained

Company Vehicle Use Agreements are designed to protect the company from liability associated with vehicle usage and to ensure that employees understand the proper usage of company vehicles. The agreements establish important procedures that must be followed in order to be covered by the company’s insurance policy. For example, an employee must promptly report a recall notification or repair item to management and there are immediate reporting requirements for accidents and youth transportation.
Since many companies are looking for ways to control costs , they will often contract with a third party to provide maintenance on their company vehicles at an agreed upon price. This agreement needs to prohibit the driver from taking the vehicle to his or her mechanic unless directed by the company. It is also a good idea to include in the agreement a clause that permits the company to deny payment of damages caused by the driver, if the driver does not follow the established procedures.

Key Components of a Vehicle Use Agreement

A well-crafted company vehicle use agreement should clearly set out the boundaries of an employee’s eligibility to utilize a company vehicle as well as the scope and responsible maintenance of that use. The agreement should provide for the following at minimum:
Driver eligibility: The agreement should define who is authorized to drive the company vehicle. This could be limited to only employees or expanded to include third-parties.
Permitted use: The agreement should establish the limits on where and how the vehicle may be used. For example, is the employee allowed to drive the vehicle to work? After hours? Any limitations on when the employee can operate the vehicle? Furthermore, what type of use is prohibited? Is an employee permitted to let anyone drive the vehicle? Are they prohibited from using the vehicle for personal errands or travel? What mileage limitations are imposed and are they overage fees assessed for exceeding those limits?
Maintenance: This should also address any employer expectations and employee prohibitions on maintenance, repairs and vehicle cleaning.

Legal Considerations of Vehicle Use Policies

The legal implications for both the employer or employee when a company vehicle use agreement is not properly enforced can be substantial.
When used correctly, a properly drafted and implemented policy or contract provides strong evidence to rebut attempts by an employer or employee to argue that the use of a company vehicle constitutes an employment benefit that should be counted as part of the employee’s compensation or ‘income in kind’ for the purposes of any statutory regulation. This is especially true of claims for statutory benefits that rely on the income earned by an employee during his or her employment as well as income based claims under the Employment Insurance Act, 1971 (the "EIA") or the Canada Pension Plan, 1965 (the "CPP").
In assessing the value of benefits received by a worker as part of his or her employment, the Canada Employment Insurance Commission (the "Commission"), the adjudicator of the EIA or the Canada Revenue Agency (the "CRA"), the adjudicator of the CPP, must determine whether or not the worker received a benefit "in money" or "in a form other than money". Whether or not a vehicle used in the course of employment is considered money or a benefit that can be converted into money depends on whether or not there is a "charge provided" for the use of the company vehicle by way of a "deduction from the pay otherwise payable to the employee".
Indeed, either • the value of the vehicle and its operation (including fuel, repairs and insurance premiums), or • the value of the use of the vehicle (i.e. the rate per kilometer), can be deducted from an employee’s pay at the time the employee is paid. The amount of the reduction can be determined using the table set out in the EIA or according to detailed substantiation of the actual costs incurred. More information on this subject can be found in Interpretation Bulletin 44-250 which can be accessed at: www.cra.gc.ca/tx/bsnss/mntrnltnsvs.html.
Either option can have significant tax consequences on the earnings of both an employer and of the employee.
If an employer fails to implement or properly enforce a written company vehicle usage policy or contract (when required) or does not insist on adhering to the applicable statutory limits or requirements, the employer could find itself having failed to take every reasonable precaution to prevent a worker from sustaining a work-related injury as required under the OHSA. Similarly, the employee might receive less than he or she is entitled to under those statutes.
For example, if the employer fails to deduct the cost of using the vehicle from the employee’s pay as required under Interpretation Bulletin 44-250, the Commission or the CRA could determine that the employer had not take all reasonable care to ensure that the use of the vehicle was chargeable against the employee’s pay. The Commission or the CRA could then determine that the employee was unfairly receiving and salary and the proper ‘deductions’ were not being made, meaning that the employee would be entitled to claim Employment Insurance and/or Canada Pension Plan benefits that he or she would not otherwise have been entitled to.
For example, the value of the vehicle and its operation (including its insurance premiums) could be computed as $827.72 in benefits received by the employee rather than the $182.58 actually deducted from his or her pay. That $645.14 difference would represent the amount of Employment Insurance benefits that the employee did not receive – and will never receive; the same applies to Canada Pension Plan benefits. In the instance where an agreement was properly implemented but the employee subsequently failed to respect it, as a general rule, the resulting payments of Employment Insurance benefits to the employee are recoverable by the Commission. In certain circumstances, the employee may retroactively owe Canada Pension Plan benefits that were paid to him or her.

Components of a Comprehensive Agreement

The company vehicle use agreement should be unique to the needs of the company. The nature of the business dictates the type of vehicles that will be used. For example, a delivery business would benefit from an agreement that has provisions in it for cargo damage and that specifies that the employee will not be transporting hazardous materials. For a delivery company with employees who may be liable for damage to the cargo, a waiver of liability will protect the company from claims that the employees may have against the company for damages to the cargo. Another consideration is the company’s size. A large company may require a point system that can be tracked by computer, while the local restaurant may simply require the employee to check-off a box on the work schedule that indicates whether he/she drove a company vehicle to work. For a construction company, the company’s insurance may require the company to conduct annual DMV checks on its employees who drive. That annual check can be simplified by incorporating it into the employee’s use agreement. Smaller companies may require more flexibility and less formality from their workers, while larger ones may require a more formal approach. That formality, however, should not prevent the company from crafting an agreement that is specific to the business’ needs. The following are general guidelines for crafting a comprehensive agreement. Consider the following: These are just some of the issues that may require a company vehicle use agreement. Because of the diversity of the businesses that use company vehicles and the diversity of the needs imposed by those businesses, each company will have to craft its own vehicle use agreement to address its particular concerns.

Common Issues and Remedies

Common challenges associated with vehicle use agreements can put businesses at risk for liability and employee issues. Understanding those challenges is critical to preventing legal and financial fallout.
Determining compensation is an issue that employers face, especially when employees are allowed to use company vehicles for personal reasons. Some companies choose to compensate employees for gas and maintenance, while others do not. Suppose the employee takes the vehicle home at night. Is the employee actually at risk of death or injury if he or she has the car parked at home? If the employee is on call for nighttime emergencies, should the company compensate the employee for gas and maintenance? Answers may vary, but what is most important is that the company develop a company policy that is in accordance with the law and informs the employee of the company’s expectations with regard to compensation going forward .
Employers face professional liability lawsuits on a daily basis. Failure to comply with internal policies and procedures or failure to comply with the law can lead to lawsuits. A well-written company vehicle use agreement can help avoid legal problems down the road. However, if the company does not have a sound policy in place prior to a lawsuit, it may hurt the company’s defense.
Disputes involving payments for expenses can lead to conflict between employees and employers. Common causes of disputes include whether to deduct the value of payments for personal use and whether to pay hourly employees for drive time. An employee may have a valid argument for payment if the employer regularly compensates employees for drive time, but it is generally advisable to make compensation decisions uniformly, rather than on a case-by-case basis, to avoid preferential treatment quirks. If the company has policies in place, that should provide a defensible position.

Best Practices and Compliance

To effectively enforce the object and ensure compliance with Company Vehicle Use Agreement policies and rules, companies should establish practices that will help foster a culture of compliance. It is not enough to have an agreement or policy that sets forth general principles; rather, it is critical to create training and monitoring programs that keep employee behaviors in check to prevent them from violating the spirit of the rules.
To that end, there are several best practices that a company can adopt when enforcing policies and rules. First, train the employees on the objectives and the important elements of the policy. Whether the training takes place during periodic staff meetings or via a dedicated training module offered by the employer, regular and relevant training helps educate management and employees of the policy and the potential consequences of violating the agreement. Face-to-face training of new employees and refresher training for existing employees is often critical since it provides an opportunity to answer any questions individuals might have and enables the company to monitor and improve the delivery of accurate information about the policies. E-learning modules are also popular. Such modules provide 24-7 access and are an efficient way to keep the entire workforce up-to-date on the policies. Whatever the method, however, the key is to incorporate the education into regular mandatory training to ensure the rules are understood and continuously top-of-mind.
Second, it is important to employ a system of risk monitoring. For instance, using technology such as GPS or telematics can provide a continuous awareness of the employees’ vehicles, such as whether they are being used for business purposes only. The ability to monitor driving and speed data, hours of use, mileage and the locations of stops and starts allows a company to better monitor the drivers’ compliance with the use policies. There are also potential defenses to vicarious liability if the monitoring system can show that proprietary information was not disclosed, only business-in-the-round information was transmitted, the information was generated from off-site locations, consent was given, and the system was not otherwise shared or used in a manner that violates the state’s eavesdropping statute or similar law.

Navigating Evolving Trends in Agreements

Adapting Agreements to Accommodate Emerging Trends
New technologies have made smart vehicles and fleet optimization a reality. These "smart" vehicles and programs utilize telematics to gather real-time data about vehicle and driver performance, and can track speeding, idling, seat belt use, and hard braking. Combined with data gathered from the company’s other vehicles, this provides the company with an unprecedented level of access to employees’ work habits. While this data is already proving to be incredibly useful for companies in reducing their costs, it has raised other questions.
The Fleet Optimization Program
The Fleet Optimization Program allows companies to effectively "outsource" fleet management and maintenance, and share this data with employees and fleet administrators. The end result is a larger pool of data which can lead to cost savings and increased efficiency.
Telematics
Telematics refers to the gathering of a wide variety of data from the computers in your vehicles. This data is shared among individual vehicles, fleet administrators and human resources departments to monitor driver behavior and track vehicle performance. This real-time data provides a fully integrated fleet management system.
Telematics are becoming increasingly common. They record and transmit driver and vehicle data via wireless cellular and satellite networks. This data is then received by a central computer or server where an administrator can review the information and inspect each car’s location at any moment (or a historical overview). Fleet optimization programs (like those offered by Telogis, Fleetio and others) can send the driver and fleet manager automatic alerts about service requirements and collect feedback after service has been performed.
Telematics can also be used to reduce the incidence of theft or damage to vehicles, speeding, excessive idling and fuel consumption and seat belt use . In the future, the data collected by telematics may also be used to track the movement of goods and other real-time applications.
Electric and Hybrid Vehicles
On July 25, 2019, the Canadian government announced that the Canadian tax system would be changing to benefit electric and hybrid vehicles. Prior to this announcement, the 30-year-old federal vehicle cap would impose a maximum first-year lease expense deduction of $30,000 (plus sales tax) for companies that lease electrical and hybrid vehicles. Since the cost of these vehicles had risen dramatically over the last few years (some can be as much a $150,000), the $30,000 cap represented a significant restriction. As of September 2019, that cap has been increased to $55,000. Not only does the increased cap provide an incentive to businesses to buy more eco-friendly vehicles, the purchase of electric and hybrid vehicles has the added economic benefit of eliminating the need for gas and reducing maintenance costs. While Canada is well behind Europe in the production of eco-friendly vehicles, that gap is closing.
Ride-Sharing and Car Sharing
Many companies have allowed employees the option of participating in a ride-sharing service (some authorities are even partnering with emerging monitoring apps). This trend will no doubt become more popular as these apps become more available. Older style carsharing services tend to focus around a single location fixed-office arrangement. For example, one specific office would have a dedicated vehicle which would be used only by the employees of that office. Newer style of carsharing are becoming increasingly flexible. In these arrangements, vehicles are picked up in different locations making the program available to employees for a wider range of uses. These arrangements also allow for cars to be used by employees working from home and by families in the evening, making this option attractive to all employees and not just those with a close office fixed-office arrangement.