[1] This is an appeal from the judgment of the Tax Court rendered on January 18, 2001 dismissing the applicant's appeal from assessments under the Employment Insurance (Canada) and Canada Pension Plan by the Minister of National Revenue for the years 1997 and 1998.

[2] In that judgment the Tax Court found that a number of individuals (the installers) engaged by the applicant (Precision) to install building gutters were employed by Precision under a contract of service as distinguished from being independent contractors

Facts

[3] Precision's business consists of manufacturing and installing eaves troughing (gutters). Precision pays installers to perform the installation work and the dispute is whether those installers are employees or independent contractors.

[4] Precision would negotiate contracts with customers and then hire installers to perform the work. There was no guarantee of ongoing work for the installer. Precision had no right to the exclusive services of any of the installers and they worked for other gutter installation companies without informing Precision. As a result, an installer might refuse a job on the basis that the distance was too great and the gross revenue was not sufficient to make it worthwhile.

[5] Installers could work alone but more often worked in pairs. Furthermore, installers could have a helper. Precision would offer an amount for each contract and the installers would negotiate amongst themselves for the proper allocation of payment and the installers would pay their own helpers. Thus Precision would sometimes issue a cheque to only one person who would then pay the rest of the crew. Sometimes Precision would issue multiple cheques to each crew members based on the advice of the crew members. In order to get paid, the installer would have to render an invoice to Precision.

[6] Contracts were paid based on a per-foot amount. Around 70-80% of the time, installers would accept the contract amount offered by Precision. Around 20-30% of the time, installers would negotiate with Precision over the contract amount.

[7] Precision owns five gutter-roll forming machines that are capable of forming the material into the required shape. Some installers own their own gutter rollers. Others use Precision's machines. The installers own their own tools (typically having a value of around $2,000). Precision provides the aluminum gutters used for installation.

[8] Typically one installer would pick up the gutter roller and the rest of the crew would go directly to the job site. Precision would notify installers of work opportunities by posting notices at the business premises of the main material supplier.

[9] Installers did not work under any deadlines, although jobs typically lasted no more than two days. The work was not supervised and work was not inspected.

[10] Use of the gutter rollers provided by Precision was determined to be the easier part of the installers' task. The more difficult part was installation, which might involve working three stories high on the edge of a steep roof.

[11] In the event of a poor installation, the installer was required to complete the task at the installer's own expense.

Analysis

[12] The Tax Court Judge relied on the decision of this Court Wiebe Door Services Ltd. v. M.N.R. [1986] 2 C.T.C 200. That case set out a four-in-one test for determining whether a worker is an employee or an independent contractor. The Tax Court Judge described the four criteria as: (1) the degree or absence of control exercised by the employer; (2) ownership of the tools; (3) chance of profit and risk of loss; (4) integration of the alleged employee's work into the alleged employer's business.

[13] The Tax Court Judge has erred in describing the four-in-one test. That test comes from Lord Wright's discussion in Montreal v. Montreal Locomotive Works Ltd. et al. [1947] 1 D.L.R. 161 where he said at pp 169, 170:

In earlier cases a single test, such as the presence or absence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortious liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated tess have often to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss.

Lord Wright's test found favour with MacGuigan J.A. in Wiebe Door, supra at p. 5028.

[14] What the Tax Court Judge characterized as the fourth ingredient of the four-in-one test, namely "integration of the alleged employees' work into the alleged employer's business" is not part of that test but rather has been characterized as a wholly separate test (the integration test). It originated with Denning L.J. in Stevenson Jordan and Harrison Ltd. v. MacDonald and Evans [1952] 1 T.L.R. 101. He articulated it in the following way:

One feature which seems to run through the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.

[15] Thus the Tax Court Judge has confused the four-in-one test with the integration test. The four criteria of the four-in-one test are (1) the degree or absence of control exercised by the employer; (2) ownership of the tools; (3) chance of profit; (4) risk of loss (see Mirichandani v. Canada (Minister of National Revenue) [2001] F.C.J. 269 and Wiebe Door Services, supra at p. 5028).

[16] The issue has been dealt with more recently by the Supreme Court of Canada in Sagaz Industries Canada v. 67112 Ontario Limited. In that case Mr. Justice Major, speaking for the Court, reviewed the various tests for determining whether a person is an employee or an independent contractor. He agreed with MacGuigan J.A.'s statement of a four-in-one test as set out in Wiebe Door, supra. Major J. said:

47 Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks.

[17] The passage relied upon by Major J. in Market Investigations, Ltd. v. Minister of Social Security, 9 [1968] 3 All E.R. 732 is as follows:

The observations of LORD WRIGHT, of DENNING L.J. and of the judges of the Supreme Court in the U.S.A. suggest that the fundamental test to be applied is this: "Is the person who has engaged himself to perform these services performing them as a person in business on his own account?". If the answer to that question is "yes", then the contract is a contract for services. If the answer is "no" then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task. [Emphasis added.]

[18] Thus Major J. has indicated that the central question to be decided in cases such as these is whether the person who has been engaged to perform the services is performing them as a person in business on his own account or is performing them in the capacity of an employee. In order to make this determination the four criteria set out in Wiebe Door are factors to be considered.

[19] While neither Major J. in Sagaz nor MacGuigan J.A. in Wiebe Door completely rejected the "integration test", they did find that it could be difficult to apply.

[20] The Tax Court Judge quoted from the Market Investigations case and then posed this question to himself, "whose business is it?" referring to the instant case. The Tax Court Judge pursued this question under the heading "Integration" in his reasons, apparently of the view that the question posed in Market Investigations was part of the integration test. It is clear from Justice Major's reasons that he did not consider what he referred to as the "central question" as being related to the integration test.

[21] Having concluded that the Tax Court Judge has erred in these respects, which I consider to be crucial, I will now proceed to consider the question according to the guidance provided by Major J. in Sagaz. He said there "The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account". Thus the question to be decided is whether or not the installers were in business for their own account. In making this determination I will examine the four factors set out in Wiebe Door, supra.

Control

[22] The Tax Court Judge concluded on the evidence that the control test favoured characterizing the installers as independent contractors. The respondent does not appear to question this finding and I see no basis for disagreeing with the conclusion of the Tax Court Judge.

Ownership of Tools

[23] The Tax Court Judge found that the personal tools owned by the installer were not specific to the gutter installation business in that they were simply drills and bits, saws and blades, plyers, small ladders, pry bars, measuring tapes and hammers. I do not feel that because such tools can be used in other occupations, this means that they are not important to the installers in this case. Because these are common tools, it can always be said that they are not peculiar to one business or another. Nevertheless, those tools require the expenditure of money on the part of the installers and are essential to the proper carrying out of the work of the installer.

[24] The Tax Court Judge placed great emphasis on the fact that the truck mounted units owned by Precision were essential in the manufacture of the gutters and that this component was the most significant aspect of the process and required the most capital outlay. There is no doubt that the truck mounted units were crucial to the manufacture of the gutters. However the tools owned by the installers were equally important to the installation of the gutters.

[25] It has been held that if the worker owns the tools of the trade which it is reasonable for him to own, this test will point to the conclusion that the individual is an independent contractor even though the alleged employer provides special tools for the particular business. See Bradford v. M.N.R. 88 D.T.C. 1661; Campbell v. M.N.R. 87 D.T.C. 47; Big Pond Publishing v. M.N.R. (1998) T.C.J. No. 935.

[26] I feel that the Tax Court Judge erred in refusing to place any meaningful emphasis on the importance of the tools owned by the installers, which were essential to the installation of the gutters.

Chance of Profit and Risk of Loss

[27] The Tax Court Judge concluded, because at the time the rates were agreed upon between Precision and the installer, that there was no further opportunity for profit. As a result he concluded that this criteria favoured characterization of the installers as employees. In my view, this ignores certain important aspects of the relationship between the installer and Precision. In particular each installer used his own judgment to decide when to work and whether to accept or decline any particular job. He was of course free to take jobs with other gutter manufacturers. The contract price, although it was not negotiated on all occasions, was nevertheless negotiated 20%-30% of the time. In my view, the ability to negotiate the terms of a contract entails a chance of profit and risk of loss in the same way that allowing an individual the right to accept or decline to take a job entails a chance of profit and risk of loss. The installers were not given any set time for performance of the contract and hence efficient performance might well lead to more profits. An installer could choose to work alone or employ others to help him. Obviously, the more work he could do on his own the more profits he could make. The installer was responsible for defects in work done and had to return to repair the defects at his own expense. There was no guarantee of work from day to day, no guaranteed minimum pay and no fringe benefits. All of these things have led other courts to conclude that an independent contractor relationship exists. See Société de Projets ETPA Inc. v. Minister of National Revenue, 93 D.T.C. 516. I am therefore of the view that the Tax Court Judge erred in holding that chance of profit and risk of loss criteria favours characterization of the installers as employees.

Conclusion

[28] For the forgoing reasons and based upon the four-in-one test correctly stated and applied, I would say that all four factors favour the installers as being independent contractors.

Integration Test

[29] Although the issue could be disposed of without commenting further on the integration test, I wish to comment on some of the conclusions reached by the Tax Court Judge in purporting to deal with the integration test. In dealing with this criteria, the Tax Court Judge asked himself the question "whose business is it?" In my view he erred by basing his analysis on this question. He purported to rely on the case of Market Investigations at 738:

The observations of Lord Wright, of Denning L.J., and of the judges of the Supreme Court in the U.S.A. suggest that the fundamental test to be applied is this: "Is the person who has engaged himself to perform these services performing them as a person in business on his own account?" If the answer to that question is "yes", then the contract is a contract for services. If the answer is "no" then the contract is a contract of service.

While purporting to rely on this case, the Tax Court Judge failed to ask the question as stated.

[30] What the Tax Court Judge has failed to appreciate is that there may well have been in the instant case two businesses, one on the part of Precision and a second business on the part of the installers. The question is not "whose business is it" but rather "is the person who has engaged himself to perform the services performing then as a person in business for his own account". To pose the question in the form set out by the Tax Court Judge is to perhaps imply that there is only one business. Clearly there can be, and in this case, there were, two businesses - manufacturing gutters and installing them.

[31] Furthermore, in answering the question the Tax Court Judge said "if the manufacturing component had been completed - even though actually done by the installer - the installation thereafter was an integral part of the business of the appellant and had to be done in order for payment to be received from the customer". This approaches the problem from the point of view of the employer. This Court has already held that it is important that the Court approach the analysis from the perspective of the alleged employees. It appears to me that if properly applied, the integration test reveals that the installers were independent contractors operating their own installation business.

Result

[32] It is my conclusion therefore, that application of both the four-in-one test from Wiebe Door and the integration test must result in a conclusion that the installers were independent contractors.

[33] I would therefore allow this application with costs and remit the case to the Tax Court for determination in accordance with these reasons.

"J. EDGAR SEXTON"

J.A.

"I agree

Julius A. Isaac J.A."

"I agree

B. Malone J.A."

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-79-01 & A-80-01

STYLE OF CAUSE: Precision Gutters Ltd. v. Minister of National Revenue

PLACE OF HEARING: Vancouver BC

DATE OF HEARING: April 23, 2002

REASONS FOR JUDGMENT : SEXTON J.A.

CONCURRED IN BY: ISAAC, MALONE JJ.A.

DATED: May 21, 2002

APPEARANCES:

Douglas Mathew FOR THE APPLICANT

Margaret Clare FOR THE RESPONDENT

SOLICITORS OF RECORD:

Thorsteinsson FOR THE APPLICANT

Vancouver

Morris Rosenberg FOR THE RESPONDENT

Deputy Attorney General of Canada

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Precision Gutters Ltd. v. Canada (Minister of National Revenue), 2002 FCA 207

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2002 FCA 207