Citation: 2014 TCC 49
Date: 20140213
Docket: 2013-1935(IT)I
BETWEEN:
G & J MUIRHEAD HOLDINGS LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
G & J Muirhead
Holdings Ltd. (“Muirhead Holdings”) is a corporation owned by Gordon Muirhead
and his wife Judy Muirhead. In the year in question, 2008, Muirhead Holdings’
only employee was Gordon Muirhead. In earlier years, going back to when it was
established in 2002, Judy Muirhead had also been employed in an
administrative/office management function.
[2]
In 2008, Muirhead
Holdings was under contract to Harvest Operations Corp. (“Harvest”) to provide
certain oil well site and facilities services. Muirhead Holdings had no other
clients even though exclusivity was not required by Harvest. Muirhead Holdings
first contracted to provide contract operator well services at the particular
wells/facilities in 2003 when they were owned by Grand Petroleums Inc. When Harvest
took over from Grand Petroleums in 2007, Muirhead Holdings continued to provide
these services under contract to Harvest. Throughout this time all of the
services were provided by Gordon Muirhead working full time for Muirhead
Holdings to do so. Harvest also had employees doing this same type of work. The
Court was not told if there were any other non-employees performing such
services apart from Mr. Muirhead or, if so, whether they were also one-man
companies working full-time similar to Muirhead Holdings and Mr. Muirhead.
[3]
Muirhead Holdings has
been reassessed on the basis that it carried on a “personal services business”
and that it was entitled to only the limited deductions available to its so
called “incorporated employee”. The specific issue to be decided therefore is
whether Gordon Muirhead “would reasonably be regarded as an … employee of
[Harvest] but for the existence of [Muirhead Holdings]”.
Intention
[4]
Counsel for the
Appellant sought to rely heavily on the intention of the parties, specifically
the intention of the parties to the Contract Wells/Facility Operating Agreement
– Harvest and Muirhead Holdings. Intention of the parties is not of particular
help or relevance in a personal services business case. This Court has said and
explained that clearly in 1166787 Ontario Limited v. The Queen, 2008 TCC
93, 609309 Alberta Ltd. v. The Queen, 2010 TCC 166, and most recently in
Gomez Consulting Ltd. v. The Queen, 2013 TCC 135. Given the wording used
to define personal services business there is frankly no possible merit to the
contrary position in a case such as this. The Appellant was represented by an
experienced and very capable tax law firm and I was surprised to hear more than
passing reference to the parties’ intentions, unless it was to argue that this
Court was wrong in the decided jurisprudence which counsel neither advanced nor
explained. This Court’s position is that in any personal services business
situation, the agreement between the actual third party purchasing services
(Harvest in this case) and the corporation owned by the alleged/assumed
incorporated employee (Muirhead Holdings and Gordon Muirhead, respectively)
will always be a contract for services as a corporation can never be an
employee under a contract of service. Therefore, the intention of those two
parties should always have been to enter into a contract for services with each
other.
[5]
The alleged assumed
incorporated employee may be an employee or an independent contractor to his
corporation given the wording of the definition of “personal services business”
in the Income Tax Act (the “Act”).
[6]
The definition of
personal services business requires the Court to determine if the individual
actually performing the services would reasonably be regarded as an employee of
the third party purchaser of the services in the notional circumstances where
the individual services performer and the third party services purchaser had a
direct relationship without the individual’s corporation having a role.
[7]
The personal services
business provisions would be meaningless if the intention of the third party
purchaser of the services (Harvest) and the individual’s corporation (Muirhead
Holdings) in entering into their contract governed, as that contract can only
be a contract for services. Similarly, it can not be relevant or helpful to a
court in weighing the issue of employee versus independent contractor, since it
can only ever, and must always, point in a single direction – to independent
contract for services.
[8]
If it is always present
and always on the same side of the balance, it can not help in the weighing of
factors in any particular facts and circumstances. A court could expect to
never have any helpful evidence to assist in what the third party purchaser of
the services and the individual would have intended had they decided to
contract directly with one another. It can however be noted in this case that
Mr. Muirhead chose to become an employee of Muirhead Holdings, a company
controlled by him and his wife; presumably that reflects his intentional choice
and preference to be an employee in providing these services. With the
exception of this job with Muirhead Holdings and his very first job decades
earlier, there was no evidence of whether Mr. Muirhead was an employee or
independent contractor in the many other positions he held throughout the years.
[9]
It can also be noted that
seemingly throughout his career, and definitely throughout his oil field
services years, Mr. Muirhead has chosen to only work for one company at a time.
[10]
The Court in a personal
services business termination should therefore be largely looking to the four
traditional Sagaz/Wiebe Door factors/considerations of (i) control (ii)
tools (iii) chance of profit, and (iv) risk of loss, in determining whether the
alleged/assumed incorporated employee would reasonably be regarded as an
employee of a third party purchaser of the services provided by him if his
corporation’s role, rights and obligations were entirely disregarded.
Control
[11]
Appellant’s counsel
stressed on two occasions in argument that all of the terms and conditions of
the contract between Harvest and Muirhead Holdings were in fact dictated by
Harvest. In counsel’s words “He was given this contract, he was told to either
take it or leave it”. Mr. Muirhead described it as “everything was set by
Harvest”.
[12]
Harvest dictated that
the hours of work would be from 7:30 a.m. to 5:00 p.m. each work day of a nine
day on/five day off-shift. Harvest set the hourly rate, the hours and the twice
monthly timing for submitting invoices which detailed hours actually worked as
logged by Mr. Muirhead. The contract provided a rate of $48 per hour and $65
per hour of overtime or if the worker was called out. The rate was increased
from time to time. The hourly rate was expressly set to include the labour,
tools and truck compensation. Only hours actually worked were paid for; had Mr.
Muirhead finished the day’s assigned work early he would either be assigned
further work, or not get paid for the remainder of the day. Mr. Muirhead said
he never let either happen.
[13]
The number of wells to
be checked, and which 90 to 100 of the 350 to 400 wells at the site were to be
checked, each day were determined by Harvest and were government regulated. Mr.
Muirhead could simply determine the order in which he attended to the assigned
wells for the day, unless he received instructions that there were concerns at
any particular wells which he should attend to first or at a particular point
in the day.
[14]
Harvest made the
decisions on how any particular task was to be performed. Muirhead Holdings
would get paid at the usual hourly rate, including overtime if called out or
required, if things had not been adequately done to Harvest’s satisfaction the
first time.
[15]
Mr. Muirhead reported
each day to the Harvest foreman and his lead at the well site. Harvest
conducted evaluations of the work performed by Mr. Muirhead in the same manner
as was company policy for its employees. Mr. Muirhead was required to abide by
Harvest’s code of business conduct and ethics as well as its drug and alcohol
program guidelines. Mr. Muirhead said Harvest could discipline him if he did
not perform appropriately or if it had concerns with his work, though neither
ever arose. Mr. Muirhead had to report to Harvest if he was sick or wanted to
schedule time off.
[16]
Mr. Muirhead described
the majority of his training as being on-the-job training for which Harvest
paid his company. He attended Harvest’s in-house training programs. Muirhead Holdings
did not invoice Harvest for that time. It appears this only occurred once in
the year in question and the surrounding years for which invoices were put in
evidence, and the amount was $170 worth of time. No off-site training was
required by Harvest. No outside training was required to maintain any
credentials to perform the work.
[17]
Muirhead Holdings’
contract with Harvest did not require that Gordon Muirhead provide the
contracted services personally. Other qualified employees or substitutes of
Muirhead Holdings were permitted under the contract. Mr. Muirhead said however
that he did all of the work, he wanted to do all of the work, and he never even
looked to have anyone else to do the work.
[18]
Harvest also had
employees doing the same type of work. There was no evidence that the levels of
control, direction and reporting et cetera was any different for Mr. Muirhead
than for his employee colleagues doing the same job. However, it can be noted
that in the Notice of Appeal paragraph alleging distinctions between Mr.
Muirhead’s performance and employees doing “much the same work” there is no
suggestion of any distinction with respect to any control factors.
[19]
While not determinative
or entirely inconsistent with independent contract status, an overall weighing
of the control factors clearly leans towards employee status for Mr. Muirhead
had he worked directly for Harvest. Harvest’s control over the work to be
performed by Mr. Muirhead could hardly have been greater.
Tools
[20]
Harvest is not required
to provide Mr. Muirhead or his company with the basic protective work clothing required.
This consisted of a hard hat, steel toed boots and overalls. The overalls, and
in winter his coat, had to be made of flame retardant materials. This basic
work clothing is required of many Canadian workers, whether employees or
independent contractors. Not all employers provide such clothing or provide an
allowance for it. There was no evidence that Mr. Muirhead was treated any
differently than Harvest’s other employees, including those doing his same
work, with respect to clothing. Again, I can observe that in the paragraph of
the Notice of Appeal wherein counsel set out the distinctions with Harvest’s
employees doing the same job, there is no reference to work clothing. This does
not lean in either direction.
[21]
Harvest was not
required to provide the light hand tools required to be available in the truck
in the event they are needed to perform the services. The contract between
Harvest and Muirhead Holdings provided expressly that the hourly rate was set
to include compensation for the tools to be provided by the worker. These tools
consisted of a hand shovel, rake, crow bar, wrench and sockets. (Presumably, other
similar small basic hand tools may have been required such as screw drivers and
a hammer.) Mr. Muirhead simply used the ones he had on his farm pick up already
for farm use. In many sectors, working Canadians are required to provide their
own basic tools whether they are employees or independent contractors. This
includes mechanics, electricians, carpenters, forestry workers and many other
trades persons. The case law in this Court involves numerous such examples.
Employers do not need to provide them to employees and this is recognized in
the Act which permits a deduction by employees for such tools in certain
circumstances. Again, even the paragraph in the Notice of Appeal that seeks to
list the distinctions between Harvest employees who do the same work as Mr.
Muirhead does not suggest that they are treated any differently with respect to
the hand tools. This too does not lean in either direction.
[22]
A pick up truck is required
to perform the services at the different wells once at the well site. Harvest’s
hourly rate for Mr. Muirhead’s work was expressly set to compensate and account
for the provision by the worker of the truck. Mr. Muirhead uses the same pick
up truck he uses to drive 15 minutes to and from his house and the well site.
He owns that truck and uses it in his farming operations (the truck and the
tools were leased by him – or by his farm in his words – to Muirhead Holdings.
This was presumably not an exclusive lease as they were also used both personally
and in the farm operations). The Court was not told how much driving was
required once at the well site, either on a daily or annual basis. Mr. Muirhead
had Muirhead Holdings put commercial insurance on his pick up truck, though it
is not clear similar insurance was not already on the truck and required for
his farming operations. Again the ownership, insurance and provision of the
pick up truck is not particularly helpful. It is again not uncommon for
Canadians to be required to have and use their vehicles as a term of their
employment. The Act recognizes that not all employers provide vehicles
nor provide reasonable vehicle allowances or reimbursements to employees when
they are required to use their vehicles. The Act therefore has several
provisions allowing employees to deduct vehicle expenses in certain
circumstances.
[23]
With respect to the
commercial insurance on the truck, I would note that Mr. Muirhead used this
truck in his other business, and he leased it to Muirhead Holdings, either or
both of which might have warranted commercial vehicle insurance be placed on
it. Also, those who use their vehicles throughout each day in their employer’s
business might also be expected to prudently consider additional coverage for
such non-personal use, and especially in a business with certain increased
inherent risks of public liability occurrences.
[24]
There was no evidence
put in as to whether any of the Harvest employees doing the same work used
their own vehicles or, if so, how they were compensated for such use. However,
the evidence is that Harvest specifically set its hourly rates for Mr.
Muirhead’s services having regard to his use of a pick up truck and to that
extent he was compensated expressly for its use by way of an hourly allowance
even though that was not broken out separately.
[25]
The provision of the
pick up truck, and its insurance, is not inconsistent with either employment or
independent contractor status had Harvest and Mr. Muirhead contracted directly.
Given the nature of the work, and the limited evidence put in by the Appellant,
I find it neutral in determining whether Mr. Muirhead would reasonably be
regarded as an employee or independent contractor.
[26]
The basic thirty pound
ABC fire extinguisher in a pick up is similar to the truck and the tools and is
similarly neutral in this case.
[27]
The requirement that a
worker have a cell phone to be in touch with the person paying for his work,
and for which the worker is not specifically reimbursed, is similarly not at
all inconsistent with a worker being an employee.
[28]
Everything else,
including the substantive specialized tools and equipment used by Mr. Muirhead,
being the monitor, the monitor bumping station, the computer et cetera needed
to provide his services are owned by Harvest.
[29]
The ownership of tools
considerations is not helpful to me in this particular case. Overall, it does
not weigh in either particular direction whether considered individually or
collectively. With respect to the protective clothing and the hand tools, Mr.
Muirhead appears to be in the very same position as Harvest employees doing the
same work.
Chance of Profit and Risk of Loss
[30]
This case involved an
hourly rate, including an overtime rate, fixed hours and a schedule of work on
a full-time basis. Harvest was the only company Mr. Muirhead provided services
to. He did not negotiate the hourly wage nor any other term of the work for
Harvest. He did not look for other clients, even though he could have grown his
oil services activities with the help of other workers. He did not look for
other workers. The expected revenues in his commercial insurance form are
consistent with only the Harvest work being done, and it being done by him.
Harvest had to give at least 30 days notice to terminate his full-time services
other than for cause. Mr. Muirhead wanted to be a one man show and from that
followed that he had no opportunity to increase his revenues beyond the 80 hours
every two weeks committed with Harvest, plus any overtime on that. There was no
evidence of significant overtime ever earned or expected. It is very difficult
to see any upside to Mr. Muirhead in his undertakings beyond that available to
a full-time hourly employee. His revenue from Harvest was not affected by any
efficiency or time saving on his part, whether equipment was defective, or
whether his work was not done to Harvest’s satisfaction the first time.
[31]
I would add that
overtime rates seem very odd for an independent contractor with the right to
hire others or subcontractors. Clients and customers of a business normally
seek to negotiate volume discounts, not volume surcharges, although that is not
invariably the case. There was no evidence to suggest or explain that volume
surcharges were normal in this line of work.
[32]
Mr. Muirhead’s revenues
were fixed. His ability to manage his work related expenses is not very
significant economically. He needed, or at least used, his pick up truck in his
farming activities and for personal use, which included his 15 minute drive
each way to and from work. He could choose a less expensive pick up truck or
one that could be expected to be less expensive to maintain, seek cheaper truck
financing, use a less expensive grade or shop for bargains on fuel, service his
truck less frequently, choose less insurance and take greater risk on either
the truck or liability insurance, shop for cheaper insurance and maintenance,
and stretch out his regular vehicle maintenance schedule. Only the portion of
any such reduction attributable to driving around the well site would be relevant
in any case. He could buy cheaper work clothes or wear them longer. He could
perhaps find cheaper hand tools than his used farm tools. Any of that, even all
of that, would only marginally affect his net income or his cash flow from
working for Harvest.
[33]
Similarly, it is hard to
see any material downside economic risk beyond being out of work on 30 days
notice and still owning his truck. The truck would have its same value at any
point in time regardless of whether he had work in the future or not. He also
had his truck to use it for farming and personal purposes. There was no
evidence of the extent of its use attributable to driving from well to well at
the well site.
[34]
Compliance by an
alleged/assumed incorporated employee’s intermediary corporation with government
requirements regarding such things as workplace safety and corporate
registrations and the like are not very helpful or relevant considerations in a
professional services business case to the extent they result directly from the
interposition of the very company that the personal services business
definition requires the Court to ignore. In this case I find them not
significant.
Conclusion
[35]
The Appellant’s case
was weak in law. The evidence relating to the terms and conditions of
employment of those Harvest employees doing the same work as Mr. Muirhead was
not put before the Court. This may be telling. I need not make any adverse
inference in this regard as it is the Appellant who bears the onus of proof
which it has not been able to otherwise discharge. The argument that intention
is as relevant and helpful in a personal services business case as an employee
versus an independent contractor case should not have been made as forcefully
as it was, if at all, unless counsel could distinguish the earlier cases on the
point or explain why they were incorrect, which was not done.
[36]
The only conclusion
available to me on the facts presented in this case is that, if the existence
of Muirhead Holdings is ignored and Mr. Muirhead were working directly for Harvest,
Mr. Muirhead or anyone else performing those services could only reasonably be
considered to be Harvest’s employee. Most significantly telling are the factors
addressed under the headings Control and Chance of Profit and Risk of Loss. All
of Mr. Muirhead’s available working hours were spent on regular daily activity
controlled by Harvest, and which was integral to Harvest’s business and which
permitted Harvest to continue in its business. He would not reasonably be
considered to be in a business of his own.
[37]
The appeal is dismissed.
Signed at Ottawa, Canada this 13th
day of February 2014.
"Patrick Boyle"
Email this Content