Boardman v. The Queen, 79 DTC 5110, [1979] CTC 159 (FCTD)

Collier, J:—This is an appeal by the taxpayer from a decision of the Tax Review Board [1977] CTC 2293; 77 DTC 200.

The plaintiff is a psychiatrist. Until July 31, 1972 he was an employee of the province of Saskatchewan. Up to that date, because his income was from an “office or employment” he had reported it on a calendar year basis. Effective August 1, 1972 he entered into a contract with the province of Alberta. He was engaged as a clinical psychiatrist for the Alberta Hospital, Ponoka, Alberta. The contract terminated on January 31, 1973. A new contract was then negotiated. It ran from February 1,1973 to January 31, 1975.

The plaintiff considered his income received under those documents was “income from a business as a sole proprietorship. .. [1] He adopted January 31 as the date on which the fiscal period of his proprietorship terminated. For 1972, the plaintiff reported only his income up to July 31,1972. For 1973, he reported the income for his alleged fiscal year of August 1, 1972 to January 31, 1973.

The Minister of National Revenue re-assessed. For 1972, the Minister included in income what the plaintiff earned from the provinces of Saskatchewan and Alberta during that calendar year. For 1973, he included in income what the plaintiff earned from the province of Alberta in that calendar year.

The Minister’s view was that the plaintiff’s taxable income was earned from “employment”, not from a proprietorship, and therefore reportable on a calendar year basis. The plaintiff’s view was that he was engaged by the province of Alberta under a contract for services, not a contract of service, and therefore his income was reportable on a fiscal year basis.

The Minister’s view was upheld by the Tax Review Board. This appeal followed.

There is here no matter of high principle, asserted by either Revenue or the taxpayer. I am told there are not, from either vantage, any real tax dollars involved. The plaintiff did not, nor was he seeking to, gain some saving by putting some taxable income into another year or years. The tax gatherer, no matter which way the returns were filed, ultimately obtained his maximum harvest.

Having said all that, I add this. The plaintiff, and the department of government to which he is attached, made it clear to me they feel strongly that the plaintiff and certain others like him are not “employees”, as the defendant suggests.

The issue resolves itself into the thorny question: was there a contract of service or a contract of services? Those are usually difficult cases, depending on their particular facts. This case is no exception.

Put in income tax terms, has the plaintiff brought himself within the term “business” (defined in subsection 248(1) of the statute)?

In the nineteen sixties and early seventies there had been criticism of the province of Alberta’s mental health services. One criticism was in respect of the qualifications of its employee doctors. At that time the departmental psychiatrists were full time civil servants, on salary, with pension rights, and other benefits.

The department decided to try and upgrade the staff. The idea of contracting with well qualified people was conceived. The concept saw these practitioners as contractors, not employees. They could individually negotiate their own salary. The aim was to pay them at the same level as psychiatrists in private practice. The department did not want them labelled as government employees. It was felt doctors of that status were looked on as inferior to those in private practice. Under the previous system, the department had trouble attracting well qualified people.

Improvements took place. Well qualified doctors applied and contracts were signed. There are now 40 such doctors.

Other civil servants were hired through a personnel department. They joined public service unions. Their pay raises were negotiated for them, and were, generally speaking, applicable to classes. Dismissal could be appealed. Each new employee took the oath prescribed by section 20 of the Public Service Act.* [2] Most public service employees were subject, generally speaking, to the Public Service Pension Act.i [3] There was, and is, compulsory contribution to a pension fund by those employees.

Psychiatrists, such as the plaintiff, were not engaged through a civil service personnel department. Nor were they recruited through competitions pursuant to the Public Service Act. These applicants, as I have earlier said, negotiated their own contracts. There was no probationary period. But the first contract was usually for six months only. I shall later set out the termination provisions in respect of these engagements. The plaintiff and his counterparts knew they would be paid more than the existing “employee” psychiatrists. They knew also they would not have any pension rights, nor certain other fringe benefits given to “employee” doctors. They entered into their contracts on that basis. The plaintiff said, at trial, he knew he would not be a civil servant; he regarded himself as self-employed.

The plaintiff went on the staff of the Alberta Hospital at Ponoka. There, he and others, are allocated, by the senior doctor, to various programs. Those allocations can be changed, usually by agreement or request. How the programs are carried out by the individual doctor is largely left to him. The plaintiff was, at first, in charge of the forensic ward. He is now in charge of acute admissions. Part of his time was, and is, spent in community services at Ponoka, Wetaskawin, and Rimbey. The plaintiff organizes his own schedule to fit in, as far as possible, with hospital routine, as well as to provide out-patient service at the communities mentioned.

Counsel for the defendant, in argument, agreed that the concept of “control”, as determining whether the engagement was one of service or for services, is of relatively small weight here. It was conceded the province of Alberta, on the evidence, had relatively little “control” as to how the plaintiff carried out his duties.

In respect of the test of control, Lord Parker, CJ, in Morren v Swinton and Pendlebury Borough Council, [1965] 2 All ER 349 at 351 said:

. . . As the many cases before the courts have shown, it is not always easy to determine what the correct legal relationship is. It depends primarily on the true interpretation of the contract. Sometimes it is said quite generally that the test is whether the master can order or require what is to be done, where the true contract is one of services, or whether the master can order or require not only what is to be done, but how it shall be done, in which case it is a contract of service. That perhaps is an over-simplification, and in Short v J & W Henderson, Ltd (1) Lord Thankerton dealt with what he called the four indicia of a contract of service. These are, and he quoted the Lord Justice-Clerk (Lord Cooper):

“(a) The master’s power of selection of his servant; (b) the payment of wages or other renumeration; (c) the master’s right to control the method of doing the work; and (d) the master’s right of suspension or dismissal.”

Lord Thankerton went on:

“The learned judge adds that a contract of service may still exist if some of those elements are absent altogether, or present only in an unusual form, and that the principal requirement of a contract of service is the right of the master in some reasonable sense to control the method of doing the work, and that this factor of superintendence and control has frequently been treated as critical and decisive of the legal quality of the relationship.”

The cases have over and over again stressed the importance of the factor of superintendence and control, but that it is not the determinin test is quite clear. in Cassidy v Minister of Health (2), Somervell, LJ, referred to this matter, and instanced, as did Denning, LJ, in the later case of Stevenson, Jordon & Harrison, Ltd v MacDonald & Evans (3), that clearly superintendence and control cannot be the decisive test when one is dealing with a professional man, or a man of some particular skill and experience. Instances of that have been given in the form of the master of a ship, an engine driver, a professional architect or, as in this case, a consulting engineer. In such cases there can be no question of the employer telling him how to do work; therefore, the absence of control and direction in that sense can be of little, if any, use as a test.

The key to the problem in this case is, to my mind, the contracts (Exhibit 1) entered into between the plaintiff and the province. The two agreements are substantially similar. I shall refer to the second contract.

The plaintiff, in the agreement, was described as a contractor. In paragraph 1 he was hired as a clinical psychiatrist for the hospital at Ponoka. His powers and duties were those fixed by the appropriate deputy minister. His duties were to be “supervised by the Director of Clinical Services for the said Department”.

The plaintiff was to be paid $2,916 per month.

Paragraph 3 was as follows:

The term of employment shall be from the 1st day of February, 1973, for a term of two years, terminating on the 31st day of January, 1975, unless terminated at an earlier date in accordance with the terms of the Agreement. The terms of the contract may be renegotiated at the end of the first year.

Paragraph 4 read:

The Contractor shall devote his best efforts to advance the interests of the Minister, shall perform his duties to the best of his ability and shall be entitled to three weeks’ holiday with pay per annum plus optional unpaid leave by agreement and one week’s paid study leave per annum.

The holiday provision was similar to the holidays granted the employee doctors.

Paragraph 5 set out call back pay rates.

Paragraph 6 was as follows:

The Contractor will be entitled to 1-1/2 days’ sick leave per month, cumulative to a maximum of 36 days per duration of contract, but shall not be entitled to benefits under The Public Service Pension Act or to any of the other rights or privileges afforded to a member of the Civil Service. Six days’ cumulative sick leave shall be transferred into this contract.

The sick leave provisions were similar to those applicable to other employees.

Paragraphs 9, 10 and 11 are as follows:

The Minister agrees that the Contractor may obtain a part-time appointment at a university in the Province of Alberta but the Contractor agrees that he will not conduct a private practice of psychiatry during the term of the contract.

All medicare coverage, pension holdings and Canada Pension are to be the responsibility of the Contractor.

Income tax will be deducted at source unless the Contractor provides an exemption form from the Federal Government.

The plaintiff was paid subsistence and travelling allowance at the same rate as employees of the public service (paragraph 12).

I set out paragraphs 13, 14, 15 and 17:

This agreement may be terminated by the Minister by giving the Contractor six months’ notice in writing of intention to terminate the contract without any reason and without giving reason therefor, or by giving to the Contractor salary in lieu of notice.

This agreement may be terminated by the contractor by giving to the Minister six months’ notice in writing of intention to terminate the contract without any reason and without giving reason therefor.

Notwithstanding clauses 13 and 14 herein, this agreement may be mutually terminated by the Minister and the contractor at any time.

This agreement may be renewed from time to time for such further periods of time as may be agreed upon the same terms and conditions as are contained in this agreement, or upon such other terms and conditions as the Minister and the contractor may agree upon, by the Minister giving the contractor three months’ notice in writing of his intention to renew the contract.

Construing this agreement as a whole, I conclude it is more consistent with a contract of service than a contract for services.

As Jackett, P, now CJ, said in Alexanders MN Fl, [1970] Ex CR 138; [1969] CTC 715; 70 DTC 6006.

Counsel for both parties made very helpful and extensive references to the authorities on the distinction between a contract of service and a contract for services. I do not think that I need to review the authorities as a preliminary to reaching a conclusion. It seems evident that what is an appropriate approach to solving the problem in one type of case is frequently not a helpful approach in another type. On the other hand, a contract of service is a contract under which one party, the servant or employee, agrees, for either a period of time or indefinitely, and either full time or part time, to work for the other party, the master or the employer. On the other hand, a contract for services is a contract under which the one party agrees that certain specified work will be done for the other. A contract of service does not normally envisage the accomplishment of a specified amount of work but does normally contemplate the servant putting his personal services at the disposal of the master during some period of time. A contract for services does normally envisage the accomplishment of a specified job or task and normally does not require that the contractor do anything personally.

The problem arises in these cases because, in fact, there can be a contract of service that has features ordinarily found in a contract for services and there can be a contract for services that has features ordinarily found in a contract of service. A servant can be employed on terms that he is paid on a basis related to the volume of work and that he himself hires and pays help that is required. Compare the postmistress in Reference as to the Applicability of the Minimum Wage Act of Saskatchewan to an employee of a Revenue Post Office. So, also, while a person who contracts to do a job ordinarily has his own place where he works and has his own plant and equipment with which he works, and supplies the materials required to do the job, nevertheless any one or more of these features can be eliminated by special agreement without changing the character of the contract as a contract for services. Here I am faced with a contract that can be analyzed either as a contract of service with deviations from the normal, or a contract for services with deviations from the normal. I must, therefore, seek some basis for a conclusion as to what is the correct character to assign to it.

I was referred to a number of other decisions.* [1] They were helpful, but not conclusive.

The plaintiff was, to my mind, during the years in question under contracts of service. He was, as a matter of business and economic reality, an employee.

The Minister’s assessment is confirmed, as is the decision of the Tax Review Board.

I have come to this conclusion without hesitation, but with regret. The province of Alberta and the plaintiff obviously intended the plaintiff should be in the position of contractor rather than employee. But the test is, unfortunately, not what the parties intended but what they accomplished. In this case they created, as I see it, an employer-employee relationship. The contract falls, I think, within section 46 of The Public Service Act of Alberta.

I do not know why Revenue chose to re-assess here. That action merely engenders bewilderment and chagrin in taxpayers such as the plaintiff. As a citizen and taxpayer in Alberta, he is for Alberta purposes (including exclusion from pension rights) treated as a contractor.

The Minister of National Revenue, however, for purposes of a federal statute, and regardless of conflict, chooses to treat him as an employee.

The purpose of this re-assessment here does not, as I see it, further, in the interests of Canadian taxpayers, the administration and enforcement of the Income Tax Act. The most that can be said, from the evidence and explanations put before me, is that for some reason, someone in the Revenue Department felt there should be, in the case of this taxpayer, tidy housekeeping.

The plaintiff’s action (appeal) is dismissed. The defendant is entitled to costs.