II. The Forestry Workers Lien for Wages Act in Context: Then and Now

II. The Forestry Workers Lien for Wages Act in Context: Then and Now2017-03-03T18:35:03+00:00

A.   Introduction to FWLWA

Although 122 years old, FWLWA remains in almost original form.[8] It provides that persons performing labour on logs or timber may claim a lien over those logs or timber to secure their wages.[9] However, the passage of time has rendered the definitions in the Act ineffectual, leaving its scope unclear.[10]

“Labour” is defined in the language of 19th century logging practices to include anachronistic functions such as running, rafting and booming logs, as well as work done by bush camp personnel such as cooks and blacksmiths who have now virtually vanished from the industry.[11] The Act provides protection to both logging employees and logging contractors but is unclear as to whether it also covers subcontractors. Given the fragmented nature of the industry, this leaves the application of the Act to a large proportion of contemporary Ontario loggers in doubt.

The Act defines “logs or timber” as a list of items including telegraph poles, railroad ties, tan bark, pulpwood, shingle bolts and staves.[12] This definition is no longer meaningful. Some of the included items, such as tan bark, are commercially obsolete and some important outputs of modern logging, such as woodchips and biomass, are missing from the definition.[13] The definition also has the effect of limiting the life of the lien to the period during which the “logs or timber” remain in identifiable form. Once the logs are processed at the mill, a lien can no longer exist under the Act.[14] This provision may have made sense at the turn of the century when logs lay in the bush over the winter months. However, now that logs are processed much more quickly (sometimes even while they are still in the bush), the provision significantly restricts the scope of the Act and the value of a lien.

The procedures in FWLWA are equally anachronistic. The claimant must file a lien claim and an affidavit verifying the claim in the local office of the Superior Court of Justice but there is no reliable means for third parties to become aware of these claims. The Act’s filing deadlines assume that logging remains a seasonal practice. For example, the deadline for logging employees doing winter labour is the April 30th after the work is done, whereas the deadline for logging employees doing summer labour is 30 days after the work is done.[15] The presumption here is that loggers working in the bush over the winter have difficulty leaving camp to file a lien claim. Complicating matters further, a different deadline is specified for logging contractors filing a claim. This deadline is the September 1st after the work is done.[16]

After filing a lien claim, the Act provides that loggers have 30 days to bring an action to enforce the lien. An action may be filed either in the Superior Court of Justice or the Small Claims Court, depending on the amount at stake.[17] In both cases, the relatively informal procedures of the Small Claims Court are to be adopted where possible.[18]  While this provision might have been appropriate for wage recovery in 1891, it does not take into account the large amounts that may be claimed by contemporary logging contractors. Small Claims Court Rules are designed for claims less than $25,000 and provide for an abbreviated discovery process in order to facilitate access to justice.[19] The drafters of the original Act presumably did not contemplate lien claims approaching $1 million.[20]

The Act also provides that, where there is good reason to believe that the logs or timber are about to be removed from Ontario or sold or cut so as to be no longer identifiable, the Court may issue a writ of attachment and direct the sheriff to seize the logs.[21] In this circumstance, the owner of the logs may regain possession of them by posting a bond covering the amount of the lien plus costs.[22]

The Act provides that lien claims have priority over all other claims or liens except for certain Crown claims such as a claim for unpaid stumpage fees.[23] Although perhaps sensible in 1891, it is unusual today for a non-possessory commercial lien to leapfrog over almost all other interests in the property in the absence of a registration requirement. The Act also provides that liens are effective against ordinary course sales to third party purchasers.[24] This too is inconsistent with the modern convention which is to encourage the free exchange of goods by enforcing third party sales in the ordinary course.

Several other provisions of FWLWA are also outdated. For example, the Court is severely limited in the costs that it may award in relation to a lien proceeding. For uncontested claims in the Superior Court of Justice, costs are capped at $5 where a solicitor is employed. This increases to $10 for a contested claim.[25] Even lower amounts are provided for where the action is brought in Small Claims Court.[26]

Another provision provides that lien claimants may take proceedings under the Lakes and Rivers Improvement Act to procure the separation of logs seized by the sheriff from other logs with which they have been intermixed. This provision seems to have been orphaned since no such procedure remains in the current version of the Lakes and Rivers Improvement Act.[27]

There is also a geographic restriction built into the Act. The Act applies only to the County of Haliburton and to the territorial districts in northern Ontario.[28] This boundary excludes a significant area of commercial logging operations currently taking place in the southern part of the province. Loggers working in northern Ontario may claim a lien under the Act but loggers doing the same work in Mazinaw-Lanark, for example, may be excluded from protection.


B.   Historical Backdrop to Forestry Worker Lien Legislation in Ontario

The introduction to FWLWA above illustrates how important the historical context is to understanding the policy behind the enactment of a forestry worker lien regime in Ontario, as well as the legal structure chosen for the Act. We provide some of that historical context in this section.

When the predecessor to the Act was first introduced in 1891, the logging industry was a central component of Ontario’s economy. It fed the saw mills which, in turn, produced lumber essential to building the railways and other infrastructure of a young country. During the second half of the 19th century, the industry experienced rapid growth. A raft of timbers worth approximately $12,000 mid-century was worth $100,000 by the turn of the century.[29] Lumber barons capitalized on this growth and built large scale sawmills to process the timber. Among these were Michigan mill owners who hired Ontario contractors known as “jobbers” to oversee logging operations and, then, to tow huge booms of these logs to mills across Lake Huron.[30]

Logging was strenuous physical work. Carrying or dragging logs required twice the energy necessary for drilling coal and three times the energy needed for bricklaying.[31] Early in the season, workers known as “beavers” would cut trees and clear the bush for logging roads. Next, choppers would go into the bush in teams of three to fell trees using axes and crosscut saws. They would strip the trees of branches and then buck them into logs. Skidding crews would use horses and chains to drag the logs out to the roadside. Rollers would stack the logs onto the skidway. Mid-season, once the logging roads were well iced, haulers would load the logs onto a sleigh and deliver them to a landing beside a river, or even directly onto the frozen surface of a lake, to await the spring river drive. Come spring, these logs were rolled into the water and directed downstream using long hooks. On arrival at a lake, the logs were tied together in huge booms and raftsmen towed them to their destination. Except for the use of saws, axes and horse-drawn sleighs, these tasks were carried out manually.

Logging was also dangerous work, rivaling mining as the most dangerous industry in the province.[32] Injuries resulted from falls, accidents with axes, rolling logs, falling trees and log jams.[33] Injured loggers had little government support before 1914 when the Workmen’s Compensation Act was introduced.[34] 

Loggers spent much of the year living in the bush in logging camps with rudimentary accommodations and few comforts. Wage rates were low – often too low to support a family.[35] Nevertheless, winter logging work was in demand as a means of supplementing other seasonal occupations such as farming and construction.[36] As a result, mill owners had their choice of workers and loggers had little bargaining power to negotiate improved conditions.[37] The demand for logging work, the isolated location of logging camps and the independent nature of bushworkers prevented unionization from taking hold in the early years.[38]

Loggers were hired seasonally.[39] Employment contracts set out the wage, length of employment (i.e., until spring) and other terms of employment. Wage rates were generally standardized depending on experience.[40] Loggers were paid a monthly rate, although in later years piece-work became more common.[41] Employment terms tended to favour the employer.[42]

Contracts sometimes provided that wages were not payable until the raft of logs reached its destination regardless of whether or not the logger was still on staff.[43] One reason for this was the relative scarcity of working capital in the early days of the lumber industry. Lumber companies were occasionally unable to meet payroll until they received the proceeds from selling the lumber at the end of the season.[44] A second reason to withhold wages was to prevent loggers from “jumping” mid-season to another camp in search of better food or working conditions.[45]

As a result, loggers were sometimes required to invest months of labour with only a promise of payment.[46] And when wages were not forthcoming, loggers had few avenues of recourse. They could seek a legal judgment in debt from the local magistrate. However, where lumber companies or jobbers became insolvent (which happened frequently even then), this judgment was of little use. In some circumstances, where loggers delivered the logs to the buyer, a practice developed that they would only release the logs if the buyer agreed to be responsible for their wages. In at least one case, this arrangement was enforced by the courts on the reasoning that the sale agreement between the buyer and the lumber company would have anticipated this practice and a certain amount withheld to cover the wages.[47]

 

C.   Adoption of Forestry Worker Lien Legislation in Ontario

It was in this historical context that the predecessor to FWLWA was introduced in 1891. It seems clear that the intent of the original Act was to protect nineteenth century loggers from the financial risk associated with the logging industry at that time. This was the purpose accepted by the court in Buchanan: “Implicit in the legislature’s desire to protect forestry claims is a recognition that forestry workers are vulnerable.”[48] But it is less clear whether this legislative intent was a general one or whether the legislators were targeting a particular mischief.

The 1891 debates in the Legislative Assembly leading up to the passage of the original Act are sparse. However, they suggest some specific factors motivating the creation of a logging lien. When the Bill was first introduced in the House, the Minister responsible indicated that it would provide lumbermen working in the shanties with the same protection given to mechanics under the Mechanics Lien Act.[49] That Act provided construction contractors and subcontractors the right to assert a lien against the owner of land for the price of materials furnished and improvements made to the land, the object being “to prevent an owner from obtaining the benefit of the labour and capital of others without compensation”.[50]

When the logging lien bill came up for second reading, it was described in a bit more detail:

Mr. Hardy explained that it applied to the districts of Algoma, Thunder Bay and Rainy River. Logs were got out in those places by jobbers who through lack of money sometimes could not pay the wages to the men they engaged. The object was to give a lien upon the logs with a view to securing these wages.[51]

Similarly, a member explained in a later session:

The bill…is intended to secure the payment of lumbermen’s wages and one of the difficulties – perhaps the principal one – it is intended to meet is that unscrupulous foreign employers sometimes run their logs over to the American side without any means of recovering payment for his labour in getting the timber out.[52]

This concern for American involvement in the Ontario logging industry was also reflected in another provision (remaining in the current Act) which made it illegal for wages to be paid by cheques drawn on foreign banks.[53] According to historian Ian Radforth, Michigan lumbermen were particularly active in harvesting timber in northern Ontario during the 1890s.[54] This had been identified as a problem and lawmakers were in the process of developing legislation prohibiting the practice. Eventually the Ontario government passed the “manufacturing condition” which prohibited the export of Ontario logs.[55]

In any event, the immediate mischief motivating the original Act appears to have been under-capitalized jobbers (whether foreign or not) hiring loggers without the means to pay them, as well as foreign companies operating in Ontario without local assets. These two particular circumstances contributed to a more general concern for protecting loggers in the same way that construction workers were protected under the Mechanics Lien Act.

Early discussion of the purpose behind Wisconsin’s logging lien legislation provides further clues to the rationale behind passage of the orginal Ontario Act.[56] One Wisconsin court emphasized the vulnerable financial position of loggers as follows:

…[the] legislation was passed for the protection of laboring men who, by reason of their exigencies, are generally neither able to investigate or insist upon the credit of their employers, nor, without suffering, endure the loss of the wages upon which they depend for existence, and is therefore to receive liberal construction.[57]

Wisconsin courts also acknowledged the importance of loggers to the industry and the labour-intensive nature of their work. James Willard Hurst summarized this idea:

The law must recognize the critical, operational importance of the continued readiness of laborers to lend the industry their strength and skill; these laws were ’for the protection of those whose labor constitutes the greater part of the value of this kind of property.’[58]

These early statements of legislative purpose suggest that the original logging lien acts were intended to address the economic vulnerability of loggers in somewhat different circumstances than exist today. This becomes apparent by contrasting these early conditions with the development of the modern industry as described in the following section.

 

D.   Transformation of the Logging Industry

Today, the logging industry has been transformed in ways that impact the operation of the Act both directly and indirectly. The logging industry is now a mature industry contained, for the most part, within Ontario’s borders.[59] Meanwhile, the Ontario economy has diversified. Manufacturing and the service sector have outpaced the role of primary industries in Ontario just as they have in Canada as a whole.[60]

Nevertheless, the forest industry remains important to Ontario’s economy, particularly in the North. In 2010, revenues from Ontario wood products amounted to more than $11 billion.[61] In 2011, the forest industry provided 53,500 jobs, making up approximately 1.2 per cent of all Ontario jobs.[62] Rural communities situated within or near forests are particularly dependent on the forest industry for their economic base.[63] Logging is also an important source of work for Aboriginal Ontarians. In 2005, it was estimated that between one-half to two-thirds of Ontario First Nations were actively involved in forest sector activities.[64]

The process of tree harvesting bears little resemblance to that in 1891. Logging was gradually mechanized after the Second World War. First to be introduced was the chainsaw which dramatically increased the productivity of cutters. These early chainsaws tended to be temperamental and companies found that selling them to loggers provided loggers with the incentive to keep them in good repair. Loggers were willing to buy them because of the increased piece-work earnings to be made.[65]

The introduction of mechanical skidders followed and these changed the logging industry forever. No longer were loggers reliant on winter conditions in order to transport logs. Skidding and hauling could take place year round.In fact, the high cost of these machines made it essential to use them for as much of the year as possible. As a result, the seasonal cycle of logging passed away and logging became a permanent career.[66] Loggers increasingly established homes in the north with their families. For the most part, bush camps became a thing of the past.

Mechanized harvesters were introduced in the 1960s and 1970s. These also resulted in dramatic changes to the nature of logging work. Cutters who had once wielded a saw now sat in a huge vehicle and manipulated levers and joysticks while mechanical claws and enormous cutting shears did the work of felling trees. Increasingly, companies looked for employees with the manual dexterity and depth perception to operate the machinery as well as the mechanical skills to repair it.[67] Logging became an occupation not dissimilar to factory work.[68] Fewer workers were needed and the number of Ontario loggers gradually dropped from approximately 40,000 in the late 1940s to just over 7,000 in 2006 and only 3,500 in 2010.[69]

Between the 1950s and 1980s, loggers increasingly became owner-operators of their machinery and began to contract with lumber companies as independent contractors rather than employees.[70] Lumber companies encouraged loggers to purchase their own skidders much as they had done with chainsaws. This reduced the capital outlay required to mechanize skidding operations and was thought to promote higher productivity in workers. It also allowed companies to avoid the cost of employee benefits and reduced the cost of supervising a workforce. Owner-operators were offered higher piece rates and, in some cases, companies gave owner-operators preferred stands (areas of forest within which to harvest). This was intended to partially offset the risk associated with the new machines. Because of the higher investment assumed by owner-operators, they also tended to receive preferred tenure (they were hired first and fired last).[71]

The transition from logging employees to independent contractors was not uncontroversial. In the late 1970s and early 1980s, the Lumber and Saw Union fought the trend, arguing that loggers would become “slaves to their machine”.[72] From the companies’ perspective, the issue was whether owner-operators would be sufficiently commercially sustainable (in spite of high interest rates and uncertain contracts) to provide a reliable supply of lumber.[73]

Today the vast majority of Ontario loggers operate as independent contractors. These are typically small incorporated businesses that are family-run with the help of a few employees.[74] Businesses own their own equipment subject to equipment loans. The high cost of the equipment and the need to maintain monthly loan payments means that many loggers have few capital reserves.

It is unclear exactly how many logging employees remain in the industry. The mills do not employ many loggers directly. Those that remain tend to be unionized but unionization is gradually dying out. Some forest product companies have hired contractors to supervise their remaining unionized logging employees as a first step in outsourcing their logging operations. However, it is clear that these remaining employees are the exception and the logging industry is predominantly made up of independent contractors.

As independent contractors, loggers no longer receive a wage for their labour but, rather, a contract price based on the amount of wood that they deliver to the mill. It has been estimated that labour represents approximately 20 to 30 per cent of this contract price with the remainder covering equipment costs.[75]

The industry has become fragmented with general contractors hiring subcontractors to carry out specific functions in the harvesting process. Typically, there is not a significant difference in the business structure of these contractors and subcontractors. Large contractors will own most of the equipment and will subcontract work to individuals and smaller businesses owning, perhaps, one machine. However, general contractors tend to be in the bush as well, either doing part of the work directly or supervising the subcontractors.

The risk of non-payment assumed by modern logging contractors is quite distinct from the risks assumed by 19th century loggers. Working capital is no longer as scarce in the modern industry. Forest products companies are primarily large multinational corporations able to access financing at competitive rates. And these companies have mills operating in Ontario. No longer is there a risk of wood being taken across the border into Michigan or elsewhere.[76] Furthermore, modern loggers need not wait until the end of the season for payment. The process of wood being cut, skidded, chipped and delivered to the mill typically takes less than a week. Contractors are usually paid within a couple of weeks afterwards.

However, modern loggers continue to be of critical, operational importance to the industry and they do face other commercial risks. They are still ill-equipped to cover their losses should they not receive payment. And payment may take longer depending on the logger’s position in the supply chain. Since payment is typically due only on delivery of the wood to the mill gate, subcontractors involved early in the harvesting process may end up waiting several weeks for payment. Furthermore, mills sometimes reserve the right to reject wood at the mill gate and, therefore, may have no obligation to pay the general contractor until the wood is accepted.

Like many commodity-based industries, the health of the forest industry fluctuates with the economy. From approximately 2005 to 2008, Ontario’s forest industry experienced a significant downturn as a result of a number of factors including the increased value of the Canadian dollar, the U.S. housing crisis, and a reduction in demand for newsprint. The downturn affected every segment of the industry including logging. For example, between 2004 and 2008, annual harvesting levels in Ontario dropped by 43 per cent. In 2008, only 13 million cubic metres of wood was harvested from Ontario forests out of an available 31 million cubic metres.[77] During this period, forest-related employment (including wood product and pulp and paper manufacturing) deteriorated and approximately 67 forest-based communities were put at risk.[78] Logging work was affected particularly hard. Canada-wide statistics show a 6.4 per cent annual decrease in forestry services and logging employment between 2001 and 2011.[79] During this downturn, a number of forest product companies became insolvent and this resulted in several mill closures. The industry has rebounded since that time. However, the possibility of insolvency remains the primary risk of logging contractors not being paid.


E.   Impact of the Modern Logging Industry on FWLWA

Certain characteristics of the modern logging industry are of particular significance in considering a future role for FWLWA in Ontario. This section discusses three of these: the technologically advanced harvesting practices now employed, the different commercial relationship existing between loggers and forest product companies and the forest licencing regime regulating the management of Crown forests and the sale of timber in the province. Each of these impacts the continued viability of a forestry worker lien regime.

 

1.     The Applicability of a Lien Remedy to Modern Harvesting Practices

A lien is a charge on a property interest and, as such, is only as valuable as the property to which it attaches. The scheme of the Act is for a lien to attach to specific logs or timber worked on by the logger claiming the lien. This was a valuable remedy in 1891 when logs lay in the bush for months waiting for the spring thaw and then would be driven downstream to the mill for processing. The logs remained in original form and were identifiable for a substantial period of time during which the logger could assert his lien. However, the mechanization of logging has meant that logs no longer lie in the bush for a significant length of time. Hauling is an ongoing, year round practice and logs are typically delivered to the mill within a week or so.[80] The introduction of mobile “chippers” has meant that some wood processing takes place in the bush immediately after harvesting. Because logs are transformed into wood products so quickly, a lien over specific logs has a limited lifespan and its value may be negligible.[81]

The limitations of a proprietary lien remedy in the modern logging industry were evident in the Buchanan case. Some of the wood at issue in that case had been processed in the bush into woodchips. The “logs or timber” over which the logger could assert a lien claim had effectively disappeared. Madam Justice Pierce interpreted the definition of “logs or timber” to include the woodchips, thereby preserving the lien. However, in doing so, she was required to stretch the Act by characterizing wood chips as pulpwood “cut very small”.[82]

The status of woodchips under the Act was resolved in the Buchanan decision. However, the case reflects a larger problem with the Act. Is a statutory lien regime still appropriate protection for loggers where their output may be identifiable property only for a short time.

Forestry worker liens may disappear more quickly than they once did, but they also may come into being later than they once did. As noted above, mills sometimes reserve the right to reject wood depending on their needs from time to time. Therefore, a mill may not have any obligation to pay for the general contractor’s services until the wood is accepted at the mill gate. If so, a lien remedy will be of little use to the contractor. The situation is a bit different with subcontractors since payment will typically become due when the subcontract is complete or, in other words, before the wood reaches the mill.


2.     The Changed Relationship Between Forest Product Companies and Loggers

The trend for forest product companies to outsource logging work to independent contractors gives rise to questions about whether loggers continue to need the protection provided by the Act now that they are, for the most part, small business owners.

From a legal perspective, logging contractors are true independent contractors. They control their work conditions and their output, they own their own equipment, they hire their own employees or subcontractors, and they bear the financial risk that their work will be profitable.[83] In many cases, the logger is incorporated and is carrying a large equipment loan. Therefore, a contract to harvest wood may resemble a supply contract more than it does a labour contract and a logger may resemble a trade creditor more than a labourer as originally contemplated by the Act. This is also apparent in the magnitude of the amounts involved which may be far in excess of a typical claim for unpaid wages. In Buchanan, the amounts claimed by logging contractors ranged from just under $20,000 to almost $1 million.[84] These contract prices typically cover the supply of machinery, other supplies and profit in addition to labour costs.

However, logging contractors continue to be exposed to commercial risk. Transportation costs prevent them from delivering wood to a wide market. Therefore, they are economically dependent on one or more local mills with which they may develop long-term relationships. A Quebec study found that more than 80% of logging subcontractors relied on three or fewer customers for their entire turnover.[85]

Furthermore, logging businesses often operate fairly close to the margin. They typically carry large equipment loans which increases their reliance on the mills hiring them. They are paid only on delivery of wood but, meanwhile, they may generate high receivables in a short time. One contractor commented during consultations that they are earning less today than they were 15 years ago. Rising fuel costs was a particular complaint. For many small operators, the distance between a load of logs in the bush and the mill is a key determinant of profitability.

Loggers may experience not only commercial dependency but a degree of social dependency as well. For the most part, the logging industry is situated in small close-knit communities. Many logging operations are family-run. In contrast, most mills are operated by multi-national forest product companies. All these factors might decrease the bargaining power that a logger has in contracting with a mill.

As independent contractors, loggers are relatively isolated in a political sense. They are not unionized.[86] In some jurisdictions, loggers associations have been created as a means of protecting loggers’ interests through collective action.[87] However, there are no such associations currently operating in Ontario. There were efforts to establish a loggers association in the early 2000s but this did not survive.

These features of the contemporary logging industry may result in unequal power relationships between logging contractors and forest product companies. A similar power imbalance has been observed in the Oregon logging industry:

…[C]ontracts are fundamentally not a meeting of equals in exchange. Rather, they are an instrument of power used to achieve flexibility via shorter term commitments to gyppo loggers [independent contractors], and at the same time to pursue integration and control via specific contract terms, various asymmetries in regional market competition, and differential control of assets….[88]

A 2001 British Columbia Government Report described a similar situation in that jurisdiction:

The consolidation of the forest sector during the last decade has resulted in fewer larger companies. This consolidation has effectively reduced the number of companies with which a contractor may enter into agreements. This reduction in contracting opportunities in turn provides the licencee with an ability to make take it or leave it offers as they know the contractor has very limited opportunity to find alternative sources of work.[89]

In an older BC study, the author found that small logging contractors were “entirely dependent on big companies for contracts” and that they could be “broken and put out of business by their employers”. These contractors took for granted their “inferior bargaining position”.[90]

The possibility of a mill closing as a result of insolvency is another risk for Ontario loggers. Logging contractors suffered during the recent recession and many went out of business, in part because of their business structure. With only a few customers, their fortunes are closely tied to those of the mills that they supply. And their small size and large capital costs mean that they are less resilient in difficult economic times.

Even after an insolvency event, loggers may continue to be disadvantaged. In consultations, the LCO heard about public subsidies being paid to forest product companies to bring a mill back into operation while amounts owing to loggers remain unpaid:

After they reorganized the company, the head guys got a big bonus for doing a good job reorganizing for less… easy when you don’t pay your contractors for 2 weeks. We had a scale of which truck was hauling our wood… but we still never got paid. I know it’s the same for all payables but it is frustrating to see that they got bonuses while we have to keep our loss…[91]

Some logging contractors have more equitable business relationships with the mills that hire them. This is particularly so in the southern part of the province where contractors are more likely to be dealing with a small local mill or private woodlot owner than a multi-national forest products company.[92] However, the predominant state of affairs in the industry is that loggers are economically reliant on the mills they supply.

It is fair to say, then, that Ontario’s logging contractors are most often not in a position to negotiate individualized contract terms.[93] In practice, mills set a price per cubic metre of wood harvested and loggers “take it or leave it”. In these circumstances, it is not realistic to expect loggers to protect themselves through consensual security agreements. As Professor Ronald CC Cuming has explained in the context of repairer, storer and carrier liens:

There are transactional costs associated with the use of security agreements, particularly those under which the debtor remains in possession of the collateral, and a degree of legal sophistication not generally found among service providers, is required. Since the amount of credit involved in a single transaction involving the supply of services is likely to be small, the transactional costs, including the costs of acquiring the necessary knowledge of secured financing law, are likely to be disproportionate to the benefits derived from acquiring a security interest. The practical result would be that many service providers would be unsecured creditors.

Inherent in this reasoning is the conclusion that liens should be provided by law only to suppliers who generally grant small amounts of credit and who do not have cost-effective alternative methods of securing payment.[94]

Recalling that some of the foresty worker lien claims filed in the Buchanan insolvency approached $1 million, this reasoning suggests that the ongoing economic dependence of forestry workers may not, on its own, indicate a continued need for a statutory lien regime. However, in a law reform project in 1992, the Law Reform Commission of British Columbia (LRCBC) pointed to the lack of consensual security agreements in the forest industry as a reason to retain statutory security for forestry workers in that jurisdiction:

Those who participate in the forest industry other than as wage earners might view the repeal of the Act as a loss, but as the Act is currently framed their right to assert lien claims rests on a very dubious and fragile basis. To the extent that these participants are able to use the legislation as a lever to induce payment, it might be asked why they should be entitled to a coercive collective device which is denied other players in the economy. This line of argument also suggests that repeal may be appropriate.

While we would welcome submissions directed at this issue, our provisional view is that some form of statutory security should continue to be available for those who work in the forest industry. They work in an environment where consensual security is not widely used and it is only fair that both workers and contractors have protection of a kind that the Woodworker Lien Act provides.[95]

 

3.     The Impact of Ontario’s Forest Licencing Regime on the Logging Industry

Approximately 80 per cent of Ontario forests are owned by the provincial Crown and licensed for the purpose of commercial harvesting.[96] The licencing regime under which the Ministry of Natural Resources (MNR) regulates these forests also impacts loggers’ contractual relationships and, therefore, the viability of a lien regime.

At the time that the Act was introduced, Ontario had a rudimentary licencing system. Lumbermen would obtain a licence to harvest a parcel of Crown land and would hire loggers to carry out operations on their behalf. Lumbermen paid fees to the Crown based on the volume of trees cut as well as, in some cases, a land rental fee.[97] As licencee, the lumber company had a property interest in the harvested logs.[98] The lumber company was also responsible for the loggers’ wages whether through its employee (the camp foreman) or its local agent (a jobber). A lien regime was straightforward in these circumstances. The logger had a direct service contract (whether as employee or independent contractor) with a licencee whose property interest in the harvested logs constituted the security for the amount owing under that contract.

Today, Ontario’s forest licencing regime is more complex and new models are emerging which affect how and with whom loggers contract. Under the Crown Forest Sustainability Act, 1994  (CFSA), the MNR grants sustainable forest licences (SFLs) which are issued for 20 years and may be renewed.[99] Of the 36 SFLs in Ontario (as of 2011), 18 are single-entity SFLs held by forest product companies with wood-using mills.[100] In these single-entity SFLs, contracting takes place much as it did at the turn of the century. The licensed forest product companies undertake forest management responsibilities as an adjunct to their commercial logging operations. They have a property interest in the forest resources (subject to the obligation to pay Crown stumpage fees) and they hire logging contractors to harvest on their licensed property. It is the licencee’s property interest in the harvested wood that makes it possible for contractors and subcontractors to assert a lien claim against the wood in the event of non-payment.

More recently, Ontario policy is to limit the involvement of forest product companies in the management of Crown forests in order to separate the commercial side of the industry from the forest management side.[101] The other 18 SFLs are held by cooperatives involved in forest management only. These coop SFLs may have a variety of shareholders, including commercial operators such as forest product companies, local sawmills and logging contractors. The relationships between these shareholders vary. In some cases, the controlling shareholder is a forest products company. It will be granted a Forest Resource Licence (FRL) authorizing it to harvest on the licensed property and then will hire logging contractors to carry out the harvesting. However, in other cases, the shareholders of coop SFLs are logging contractors and they are issued FRLs directly. These contractors carry out harvesting on their own account and sell their wood to third party forest product companies.[102] In this latter model, logging contractors are no longer in a service contract with a forest product company and the forest product company does not have any property interest in the wood until it is purchased at the mill gate. In this scenario, a lien claim makes little sense. Subcontractors, on the other hand, continue to have a service contract with the contractor and, therefore (assuming that subcontractors are covered by the Act), a lien remedy against the contractor continues to protect their interests. In any event, the myriad of licencing and contracting arrangements possible in Ontario’s modern forest licencing regime complicates the application of the Act and, in some circumstances, renders it inappropriate.[103]

Another consequence of Ontario’s modern forest licencing policy is that it may go some way to alleviating the commercial power imbalance existing between contractors and forest product companies. Contractors who participate in collective ownership of a licence may have more bargaining power over the placement of the wood that they harvest. For example, logger shareholders in a coop SFL may sell their wood in bulk, allowing them to negotiate with different mills. An industry newspaper story quoted one shareholder logger as stating, “[b]ecause of the volume, we have had access to all kinds of markets that we might not have had as independent loggers”.[104] In consultations, more than one industry stakeholder suggested that one of the purposes of the cooperative licencing structure was to prevent any one segment of the industry from controlling the agenda.[105]

On the other hand, any such benefits resulting from forest licencing reform will take time. Meanwhile, many loggers remain at a disadvantage, perhaps more in practice than is apparent on paper. The licencing relationship between the Crown, mills and contractors can complicate this. For example, the LCO heard in consultations that, in some cases, contractors are jointly responsible for the payment of Crown stumpage fees. Also, mills control “scaling” (weighing the wood at the mill gate to determine the payment due). Scaling practices can be controversial with disputes over the measures used to scale wood for different purposes (such as calculating payment to contractors versus calculating Crown stumpage fees).

The development of Ontario’s forest licencing regime also calls into question whether the commercial lien regime in the current Act remains the best governance model for protecting today’s loggers. Unlike in 1891, almost every aspect of today’s logging industry is already affected by Ontario’s forest licencing regime.  Although the contractual relationship between licencees, contractors and subcontractors is not currently regulated, this would certainly be possible. For example, British Columbia has enacted a Timber Harvesting Contract and Subcontract Regulation which imposes certain conditions on the contractual relationship between licencees and contractors/subcontractors.[106] One of the core objectives of the regulation is to provide financial and job security for contractors and subcontractors. This purpose has been expressed as follows:

The underlying policy of the Regulation is to protect and promote the interests of the independent contract logging community. This community is generally comprised of small and medium sized businesses – anything from a single operator with a piece of equipment up to a relatively large outfit employing dozens of people and carrying on several integrated timber harvesting operations simultaneously. A common thread amongst these businesses is that they invest large amounts of money in supplies and equipment, and are extremely dependent upon license holders (i.e., forest companies with replaceable tenures under the Forest Act) for their work. In this context, the evolving policy behind the Regulation has been directed at:

(1) protecting the contract logging community generally by preserving its source of work;
(2) redressing the imbalance of bargaining power experienced by individual contractors as a result of their dependent relationship upon license holders.[107]

The BC Regulation requires that, in certain circumstances, licencees offer replacement contracts to their contractors and contractors offer replacement subcontracts to their subcontractors. Replacement contracts guarantee a fixed amount of work for the logger subject to several exceptions set out in the Regulation. The Regulation also mandates some of the other terms of these contracts, including provision for arbitration in the event of a dispute. The practical effectiveness of the Regulation may have been limited to some extent by a 2004 amendment which provides that most of its provisions, including the provision for replaceable contracts, may be waived by the parties.[108]

The BC Regulation does not regulate security interests nor does it provide a mechanism for contractors to recover amounts owing to them. However, there might be some benefit in Ontario to introducing any new financial protections for loggers in the form of a regulation under the CFSA. Direct regulation under the CFSA would signal that this is an industry-specific initiative that is intended to be an exception to Ontario’s overall commercial law regime. Also, given the dramatic changes to the relationship between loggers and licencees since 1891, MNR may wish to explore alternative means of combating unequal bargaining power in the industry. A regulation under the CFSA would allow for this issue to be addressed in the context of the broader regulatory environment affecting both loggers and licencees.

 

F.    FWLWA is Incompatible with the Modern Logging Industry

FWLWA was designed to respond to an industry model operating over a century ago. However, as explained above, almost everything about the industry has changed. It is apparent that the Act is no longer functional as is. It is equally obvious that superficial amendments to the existing structure of the Act would be inadequate to bring it in line with modern harvesting methods and labour practices.[109] In fact, the preceding examination reveals a number of factors suggesting that the Act has outlived its usefulness altogether:

  • The original legislative intent behind the Act contemplated a very different industry from that in operation today. There is no longer concern that American lumbermen are using the border to shield themselves from their payment obligations. No longer are loggers doing an entire season’s work in the bush without payment. The risk of non-payment has diminished substantially in the modern context.
  • The value of a lien remedy tied to the specific logs or timber worked on is considerably reduced now that logs are processed more quickly.
  • As independent contractors, loggers have a fundamentally different relationship with the mills than they did in 1891. They charge a contract price that covers their business costs over and above their labour and, with the aid of modern equipment, they can harvest enough wood to generate receivables in the hundreds of thousands of dollars. Although it is apparent that elements of economic vulnerability remain, these small business owners are far from the casual seasonal employees of 1891.
  • The Act is premised on a service contract existing between a mill and a logging contractor. Today, as a result of forest licencing reform, some loggers harvest on their own account and sell logs on the open market. A lien regime makes less sense where a sale of goods takes place rather than a sale of services.
  • Ontario’s licencing regime has, to some extent, supplanted the role of the Act in protecting loggers in their contractual relationships with mills. Some loggers are now participating in the collective ownership of forest management companies that control decisions about the logging and regeneration of Ontario forests. The future direction of licencing reform is to expand on this trend.

These factors demonstrate that a forestry worker lien regime is no longer a logical legislative tool for protecting Ontario loggers in 2013 and, in some circumstances, is clearly incompatible with the way that the contemporary logging industry functions. They also call into question whether there is a continuing commercial need for FWLWA. It may be that not only the language of the Act is outdated but also the very concept of an industry-specific statutory lien regime in favour of logging contractors.[110]

There are two policy rationales that might be said to support the continued existence of a forestry worker lien regime. First is that  the degree of financial risk assumed by logging contractors  justifies their statutory protection. It seems clear that most of Ontario’s logging contractors remain economically dependent on the mills they supply. The pertinent issue is whether this sets logging contractors apart from other small contractors operating in Ontario’s economy (whether because of the absence of consensual security agreements, the political importance of forest resources or some other policy reason) such that they should continue to be statutorily protected at the expense of other industry players. This became a recurring theme during the LCO consultations. Several stakeholders asked why logging contractors should have a lien remedy when other small independent contractors do not.  Why should the owner/operator of a feller buncher be able to claim a lien but the business supplying fuel to the feller buncher not have the same protection? Or, if loggers are to have a lien, why shouldn’t sawmills also have a lien against the logs that they deliver to pulp mills for further processing? A number of stakeholders acknowledged an element of arbitrariness here.

Courts have traditionally had difficulty distinguishing between contractors engaged in “labour” on “logs or timber” for the purpose of the Act, and contractors who are only tangentially connected to the industry.[111] This gives rise to a concern for commercial fairness, particularly in the case of insolvency which is generally a zero-sum game. Super-priority for logging contractors means that other contractors only tangentially connected to the industry may lose out. In 1891, Ontario’s policy to support resource harvesting may have justified drawing this boundary between loggers and others in the supply chain leading to finished wood products. Today, the boundary line is no longer so apparent.

This same concern about equity can be extended to the Ontario economy more broadly. Outsourcing is a widespread labour market trend and logging contractors have counterparts in other industries such as the automotive industry.[112] This industry is also fragmented with small independent contractors operating several contractual links away from the Big Three manufacturers, thereby making it difficult to assess credit risk. The question is whether preferential statutory protection for logging contractors over small owner-operators in other industries is appropriate in this broader economic context.

A similar point was raised by the LRCBC in a 1972 report on that province’s Mechanics’ Lien Act:

The aim of the Act is to assist those who provide materials and services on a construction project in obtaining payment. But that is not in itself a sufficient analysis of the raison d’être of the Act. There are many classes of persons to whom others incur debts and yet the law does not grant them any special rights of security or priority. And indeed it could not do so. If the law sought to give the same or an equivalent type of protection to all persons to whom others incurred debts, it would succeed in protecting no one. Protection of one class of creditors can be purchased only at the price of rendering another class more vulnerable. Protection for everyone is protection for no one. The fundamental question is, therefore, why a particular class of persons engaged in the construction industry enjoys a protection over and above what is given to creditors generally?[113]

And further on:

From the point of view of policy, a simple argument against the continued existence of the Act is that it gives a measure of protection to a particular class of people, which not only does not exist in the case of other sectors of the community, but which actually operates to the detriment of other sectors of the community. …the persons who suffer directly are the other general creditors of the person whose default precipitated filing of liens.[114]

In spite of this reasoning, the LRCBC decided not to recommend repeal of the Mechanics` Lien Act since there was not sufficient evidence before it on the potential commercial consequences of repeal.  However, the same question of commercial fairness arises in considering the relative position of Ontario’s logging contractors within the broader economy.

A second policy rationale arguably supporting the continued existence of the Act is that traditionally underlying commercial lien regimes. Commercial lienholders typically add new value to the property (or preserve its value) which benefits all those with an interest in the property including earlier secured parties.[115] Loggers similarly add value to an eventual wood product but in a different context.[116] Unlike a repair person, a logger does not work on a finished product on behalf of its owner. Rather, a logger provides the first input in a supply chain that will eventually result in a finished wood product.[117] Along this supply chain there are several others who will also contribute value to the finished wood product. It is not feasible, nor would it make sense, to provide a lien to everyone along this value chain.[118] For example, silviculturists are involved in tree planting and forest regeneration. It could be argued that these forest professionals are prior even to loggers in the supply chain. However, there is no lien protecting their interests. Again, there is an element of arbitrariness here.

Having examined the operation of FWLWA in its historical and modern industrial context, the next chapter of the Report considers how FWLWA relates to the broader commercial law framework in Ontario.

 

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