Lambert v. M.N.R., docket 98-25-UI

Date: 19981112

Docket: 98-25-UI

BETWEEN:

GAËTAN LAMBERT,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Prévost, D.J.T.C.C.

[1] This appeal was heard at Rimouski, Quebec, on October 22, 1998.

[2] It is an appeal from a decision by the Minister of National Revenue (“the Minister”) dated December 3, 1997, determining that the appellant’s employment with Transports Jenkins Ltée (“Jenkins”) was insurable from March 10 to July 5, 1997, because it met the requirements for a contract of service but was not insurable from July 6 to December 3, 1997, because he was not an employee of Jenkins during that second period.

[3] Paragraph 5 of the Reply to the Notice of Appeal reads as follows (following an amendment to subparagraph (s) authorized by consent):

[TRANSLATION]

5. In making his decision, the respondent Minister of National Revenue relied on the following assumptions of fact:

(a) the payer was incorporated on December 8, 1981; (A)

(b) Francis Jenkins is the payer’s sole shareholder; (A)

(c) the payer operated a transportation business in Canada and the United States; (A)

(d) the payer owned about 15 trucks and employed about 20 truck drivers; (A)

(e) prior to the period at issue, the payer hired a dispatcher named Raynald Dionne; (A)

(f) Raynald Dionne’s weekly insurable earnings were $550; (NK)

(g) the payer hired the appellant to replace Raynald Dionne as a dispatcher; (ASA)

(h) the appellant had a designated office on the payer’s premises; (A)

(i) the appellant used the payer’s tools, including a fax machine, computer and telephone; (ASA)

(j) the appellant was supervised by Francis Jenkins, whose office was across from the appellant; (ASA)

(k) according to the payer, the appellant did the same dispatching work as Raynald Dionne; (ASA)

(l) the appellant invoiced the payer $35 an hour for the hours he worked; (ASA)

(m) the appellant’s invoices are false; (D)

(n) the appellant was paid $17.50 an hour by the payer; (ASA)

(o) on the invoices, the appellant divided the number of hours he worked by two; (ASA)

(p) the appellant did not assume any financial risk; (D)

(q) if a truck came back empty, the payer was the one that absorbed the loss; (A)

(r) on May 12, 1997, the appellant incorporated 374301 Canada Inc.; (A)

(s) since July 6, 1997, 374301 Canada Inc. has been invoicing the payer for dispatching services. (ASA)

[4] Paragraph 8 of the Reply reads as follows:

[TRANSLATION]

8. The respondent submits that the appellant did not hold insurable employment within the meaning of the Act during the period from July 6, 1997, until the notification date of December 3, 1997.

[5] Following each subparagraph in the above-cited passage from paragraph 5 of the Reply to the Notice of Appeal, the Court has indicated in parentheses the comments made by the appellant at the start of the hearing, as follows:

(A) = admitted

(ASA) = admitted subject to amplification

(D) = denied

(NK) = no knowledge

Hearing

Appellant’s evidence

According to his testimony:

[6] In the fall of 1996, he was unemployed and decided to start his own business.

[7] He therefore entered into a self-employment grant (SEG) agreement (Exhibit A-1) with the Canada Employment Insurance Commission on November 22, 1996.

[8] Although he asked his lawyer to get him a federal charter, his lawyer instead applied for a provincial charter in a letter (Exhibit A-2) dated February 24, 1997, to the Inspector General of Financial Institutions of Quebec. So the appellant then had to make another application, this time to the competent federal authority.

[9] When he obtained his federal charter, he had to take steps to get his GST and QST numbers. Once he had them, it was his company that did business with Jenkins.

With regard to subparagraph (g)

[10] Raynald Dionne had been a truck driver for 30 years when he became a dispatcher for Jenkins.

[11] When the appellant replaced Mr. Dionne, he also did some dispatching, but his work primarily involved marketing.

[12] It was initially his company that was supposed to contract with Jenkins, but he did not receive his federal charter.

With regard to subparagraph (i)

[13] He also had a fax machine, a computer and a telephone at home, and he had paid for them with his own money.

[14] He did not bill Jenkins when he used that equipment at home to do work for Jenkins; in return, Jenkins did not bill him when he used its equipment at its office for his other clients.

With regard to subparagraph (j)

[15] He gave Francis Jenkins logistical advice; he found return runs and offered them to Mr. Jenkins, who either accepted or declined.

With regard to subparagraph (k)

[16] He did not operate from the same point of view as Raynald Dionne at all. Mr. Dionne did not like looking for runs and, all in all, was merely a stopgap.

[17] Raynald Dionne subsequently purchased a truck, and he went back on the road when the appellant started working at Jenkins.

With regard to subparagraphs (l), (m), (n) and (o)

[18] The appellant had agreed with Francis Jenkins on a flat rate of $700 for a full week of work, and no hourly rate applied; moreover, as between him and Francis Jenkins, there was never any question of an hourly rate.

[19] He might work 40, 50 and even 60 hours a week for Jenkins and his other clients.

[20] The appellant did issue the invoices (Exhibit I-1); the reason they were in his name was that he was waiting for his charter so that he could operate under a corporate name.

[21] The invoice dated May 26, 1997, was issued to another client, Somival Inc., and was based on an hourly rate of $35 plus long-distance charges; that was the agreement he had with that company.

[22] He did not note down the hours he worked for Jenkins; when he worked a full week, he could just as well have claimed the lump sum of $700 from Jenkins without any further explanation. The reason he invoiced Jenkins was to take into account times when he was not at the office because he was working elsewhere for other clients; he invoiced Jenkins at $35 an hour because he wanted to do the same thing as with Somival Inc.

[23] When he started his business, the contract with Jenkins was not something that was planned.

[24] It was only as of July 6, 1997, that his company had an agreement with Jenkins at an hourly rate of $17.50 on a contract basis.

[25] His invoices to Jenkins referred only to “logistical advice”, while those he issued to Somival Inc. contained a complete breakdown of the services provided.

[26] Exhibit I-1 contains 3374301 Canada Inc.’s certificate of incorporation. It is dated May 12, 1997, and was issued under the Canada Business Corporations Act.

[27] Invoice # 1 from that corporation to Jenkins was for the period from July 6 to 12, 1997.

[28] Invoice # 2, dated July 22, 1997, was issued to Nicholson Cates Ltd. and was for $10,549.34.

[29] Since his charter was issued, his company’s invoices have taken into account the GST and the QST where applicable.

[30] The reason why he wrote, at page 7 of a document entitled [TRANSLATION] “Project Description” (Exhibit I-2) — which he used in applying for $6,000 in assistance under the “Jeunes promoteurs” program —, that [TRANSLATION] “an hourly rate of between $25 and $40, depending on the work to be done and the applicable bonuses, will be charged for the consulting service and logistics,” is that the main client he had in mind at that time was Somival Inc.

With regard to subparagraph (p)

[31] The reason he denied this subparagraph was that, although it is true that Jenkins absorbed the loss when a truck came back empty, the appellant still ran the risk of losing his contract if the trucks always returned empty.

With regard to subparagraph (s)

[32] While it is true that someone who watched him work might think that all he did was dispatching, in actual fact he was doing many other things. On July 7, 1997, he signed a statutory declaration (Exhibit I-3) stating the following:

[TRANSLATION]

I am currently working as a dispatcher for Transport Jenkins, but I am not on salary or on the payroll. I am self-employed. I have been working for Transport Jenkins since March 10. The invoices I issue to Transport Jenkins indicate from 17 to 20 hours of work, but I actually work twice the number of hours shown. I prepare my invoices this way to maintain my hourly rate of $35. I got my incorporation this week along with my GST and QST numbers. My company is 3374301 Canada Inc., of which I am the sole shareholder. I opened my business account on June 29 at the Amqui credit union. Transport Jenkins is primarily engaged in transportation to the United States. There are 15 trucks. As dispatcher, I am responsible for finding loads for the trucks. I am not paid on a salary basis because it would look bad for an employee to be able to deal with other clients for transportation or other services. By being self-employed, I can make deals with other clients, and if I need transportation, I pay Francis Jenkins to provide it. At this time, my only clients are Transport Jenkins and Somival.

[33] The appellant then offered to provide the investigator with his notebooks to show that he had not been doing the work in question just since the beginning of July 1997, but the investigator declined.

[34] He therefore filed them all together at the hearing as Exhibit A-3.

[35] They show, in great detail, all the steps he took to find return runs for Jenkins as well as everything he did for his other clients during and after the period at issue. With respect to his other clients, the hours he spent on their business are also shown.

[36] He was always looking for new clients for Jenkins for all types of transportation.

[37] In addition to marketing, he did brokering work.

[38] Somival Inc. is a subsidiary of a company where he had worked beforehand for seven and a half years.

[39] It was in fact the owner of Somival Inc. who suggested that he start his own business.

[40] The profit he makes from brokering can be from five to ten percent. This work involves purchasing runs and then reselling them; obviously, he tries to sell them before purchasing them. He does not need a licence to engage in such brokering activities.

[41] If he had gotten his charter in time, [TRANSLATION] “we would not be here” on the hearing date.

[42] In a letter (Exhibit A-4) dated September 17, 1997, Revenue Canada’s director of tax services in Québec informed him that his employment with Jenkins from March 10 to September 17, 1997, was insurable because all of the requirements set out in paragraph 5(1)(a) of the Employment Insurance Act had been met.

[43] The Minister subsequently decided that the appellant’s employment was insurable only until July 6, 1997; yet the appellant had always done the same work.

Respondent’s evidence

According to Francis Jenkins:

[44] Raynald Dionne was a former truck driver whom he hired on salary as a dispatcher; he left of his own accord.

[45] At that same time, the appellant offered him the services of the company he was incorporating.

[46] Raynald Dionne earned from $600 to $700 a week working for Jenkins.

[47] The reason his record of employment (Exhibit I-4) indicates that his salary was $550 a week was that he was paid extra for his expenses.

[48] Raynald Dionne may have also have done some work for Jenkins in January and February 1997, that is, after his last day of work, which was shown on his record of employment (Exhibit I-4) to be December 20, 1996.

[49] Francis Jenkins had an agreement with the appellant on a lump sum of $700 per week for a full week of work.

[50] The appellant worked at Jenkins’ office, but he was nonetheless managing his own business, either there or at home.

[51] Jenkins paid for the appellant’s long-distance calls and faxes when he was at the office, and the appellant did not bill Jenkins for such costs either when he was working at home.

[52] The appellant did not submit invoices to Jenkins when he was not at the office, and he was not paid for holidays.

[53] When the appellant invoiced Jenkins, Jenkins paid him without asking any questions, and Francis Jenkins did not have the time to find out whether the appellant had been absent or not, and he trusted him completely.

[54] Jenkins felt that the appellant deserved $700 for a week of work, and those earnings were reasonable.

[55] The appellant ran the risk of having his contract terminated by Jenkins if he was not productive enough; he had an obligation of result.

[56] Jenkins was able to grow thanks to the appellant’s services, and it now has more trucks on the road.

[57] There is a huge difference between an ordinary dispatcher, like Raynald Dionne, and the appellant, who also handled marketing and logistics for the business through his company.

Argument

According to the appellant:

[58] He started a business so that he would no longer have to deal with [TRANSLATION] “unemployment”.

[59] He did not pay for unemployment [TRANSLATION] “stamps” when he was with Jenkins, and he is now being asked to repay the benefits he received.

[60] It is regrettable that he did not receive his federal charter in time, but it was really not his fault.

[61] If he had known, he would have kept his provincial charter even though having a federal charter was preferable if he wanted to work internationally.

[62] He is also equipped at home, and he used his own equipment when he was there; Rome was not built in a day, and he is just starting out in his corporate activities.

According to counsel for the respondent:

[63] The Minister had already divided the period at issue in two at the outset, even though incorporation does not necessarily entail self-employment.

[64] The decisions in Montreal v. Montreal Locomotive Works Ltd. et al., [1947] 1 D.L.R. 161, and Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553, set out the tests for determining the nature of the relationship between an employer and an employee.

[65] In Wiebe, supra, MacGuigan J. wrote the following for the Federal Court of Appeal:

(pages 556-57)

The essential part of [the] Tax Court’s reasons for decision is as follows:

Case law has established a series of tests to determine whether a contract is one of service or for the provision of services. While not exhaustive the following are four tests most commonly referred to:

(a) The degree or absence of control, exercised by the alleged employer.

(b) Ownership of tools.

(c) Chance of profit and risks of loss.

(d) Integration of the alleged employee’s work into the alleged employer’s business.

Let us now subject the evidence to each of the above tests.

Firstly: The Control Test

The workers worked mostly on their own. They were free to accept or refuse a call. They were not required to work or attend at the Appellant’s place of business, except to pick up a door or parts. The Appellant did exercise some measure of control over the workers. Firstly, the Appellant assigned the jobs to the installer. The job was guaranteed for one year. Within that time the Appellant would require the installer to correct any faulty or defective installation or repair. On the basis of the Control Test, the evidence is indecisive.

Secondly: Ownership of Tools

Each worker owned his own truck and tools. The appellant provided only the special racks for transporting doors and the special cement drill, when required. On the basis of this test, the workers would seem to be independent contractors.

Thirdly: Chance of Profit or Risk of Loss

Each worker had a limited chance of profit. He got paid by the job. If he worked quickly and efficiently he could do more jobs per day if these were available. If on the other hand he was careless and did not properly complete the job, he would be required at his own expense as to gas, parts and services to redo or correct his work. On the basis of this test the workers would seem to be independent contractors.

Fourthly: The Integration Test

The Appellant was in the business of servicing and installing overhead electrically controlled doors. All the work performed by the installers formed an integral part of the Appellant’s business. Without the installers, the Appellant would be out of business.

In Stevenson Jordan et al vs. MacDonald and Evans, (1951) T.L.R. 101 at page 111, Lord Denning put forth his often repeated test in these words:

“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.”

Lord Denning’s test has been applied and followed in our Courts on many many occasions. In the case before me, this test tips the scales in favour of a contract of service, and not a contract for services.

This appeal is therefore dismissed, and the determination of the Respondent is upheld.

The applicant argued before us that the Tax Court committed an error of law in its use of the so-called “integration” test, which it contended was rightly applied only in relation to workers possessed of a high degree of professional skill and therefore not applicable at all to the present facts.

(page 560)

Taken thus in context, Lord Wright’s fourfold test is a general, indeed an overarching test, which involves “examining the whole of the various elements which constitute the relationship between the parties.” In his own use of the test to determine the character of the relationship in the Montreal Locomotive Works case itself, Lord Wright combines and integrates the four tests in order to seek out the meaning of the whole transaction.

[66] In Jean R. Fabi & Cie Ltée. v. M.N.R. (95-167(UI)), the Honourable Deputy Judge L.G. Robichaud of this Court wrote the following:

(page 2)

The question that arises in the case at bar is whether the persons called [translation] “brokerage or distribution directors”, including interveners Major, Favreau and Paré, were self-employed or employees bound by a contract of service pursuant to paragraph 3(1)(a) of the Act.

Mr. Fabi, the president of the appellant company, and Jean-Claude Major stated before the Court that the brokerage directors, including Mr. Favreau, were self-employed and had always considered themselves as such . . . .

(page 3)

The workers’ positions were identified as [translation] “brokerage directors” and they had to recruit insurance brokers and agents and interest them in selling the products distributed by the appellant.

(pages 3-5)

According to the testimony of Mr. Fabi and Mr. Major, the workers considered themselves to be self-employed and contractors, with no obligation to be at the office and able to work at their own homes. As to Michel Paré, who supported the Minister’s position, he stated that he had to report to Mr. Fabi on his production volumes in a weekly activity report. A weekly meeting was held every Monday morning for that purpose. A report was produced such as the one filed in evidence in the instant case . . . . As to the clause referring to the working relationship . . . Mr. Paré said that that clause had been included solely to protect the employer’s interests. However, the clause never prevented Mr. Paré from considering himself an employee of Jean R. Fabi & Cie Ltée. Moreover, Mr. Paré stated that his objective was to interest brokers in selling products distributed by the appellant company. As to Jean-Claude Major, he claimed on the contrary that he had considered himself an independent contractor, since he had worked from his own office in his home. He even stated that he made personal sales and that he had filed about 15 T4 slips.

. . .

The Law

The case law has established that the following tests must be taken into consideration in order to determine whether or not there is a contract of service:

a) relationship of control and subordination between the parties;

b) degree of integration;

c) ownership of tools;

d) chance of profit, risk of loss;

e) method of payment;

f) ownership of the business.

. . .

In the case at bar, the weight of the evidence is to the effect that, based on a number of the aforementioned tests, the workers used resources and equipment provided by the appellant.

(pages 5-6)

It is also the Court’s view that, based on the whole of the evidence, there was some control which, to a certain degree, constituted a subordinate relationship between the appellant and its workers. Moreover, it is the Court’s view that the workers did not have an interest in the appellant company such that they could be said to be subject to a risk of loss or chance of profit. The company did not belong to them. Moreover, it is also the Court’s view that the work performed by the workers was integrated into the employer’s essential duties.

In the aforementioned case RE/MAX Real Estate Calgary South Ltd., the real estate brokers were considered to be employees of the RE/MAX brokerage company, even though they had no set work hours and were in some sense their own bosses. They did not receive a salary, but had to pay a fee to the brokerage company for the use of its name and the facilities made available to them. As the predominant test, Mr. Justice Dubinsky apparently relied on the integration of the agents’ work into that of RE/MAX.

[67] The former dispatcher’s salary was just $550 a week, while the appellant’s was $700.

[68] The tools the appellant used in his work were owned by Jenkins.

[69] The reason the hours worked by the appellant were not recorded was that Francis Jenkins trusted him; he allowed him to work elsewhere as a self-employed worker, but there was a genuine contract of service with Jenkins.

Analysis

[70] While the appellant had no knowledge of subparagraph (f) cited above, that subparagraph has been proved to be true.

[71] The appellant admitted subparagraph (g) subject to amplification, and he has provided that amplification: the uncontradicted evidence is that he did not do only dispatching work at Jenkins — far from it.

[72] He also admitted subparagraph (i) subject to amplification, and likewise provided that amplification: the uncontradicted evidence is that at home he also had a fax machine, computer and telephone, which belonged to him, and that when he was there he used them at his own expense, inter alia for Jenkins’ business.

[73] He admitted subparagraph (j) subject to amplification as well, and he provided the amplification: the uncontradicted evidence is that there was no supervision as such; he offered return runs to Francis Jenkins, who either accepted or declined.

[74] There is no doubt that the appellant did not do the same work as Raynald Dionne, and Francis Jenkins, who testified at the respondent’s request, said so.

[75] In his statutory declaration, the appellant explained that the reason he invoiced Jenkins $35 an hour was to maintain that rate, and that has not been contradicted either.

[76] The appellant denied that his invoices were false, and the evidence as a whole, which is moreover uncontradicted, shows that his agreement with Francis Jenkins was that he would receive $700 for each full week of work, with a reduction in that amount if he did not spend each workday at Jenkins’ office; he was not paid for statutory holidays; in short, his hours worked were of little importance, and Francis Jenkins did not have the time to find out whether he had been absent or not.

[77] The appellant incurred a financial risk, since he absorbed the cost of faxes and long-distance calls when he worked at home, which was of benefit to Jenkins; he also ran the risk of losing his contract if he was not productive enough.

[78] Under the SEG agreement (Exhibit A-1), the appellant did work full-time developing and implementing his business plan.

[79] The fact that the appellant’s lawyer made a mistake in the selection of the charter the appellant wanted has not been not contradicted, and it should be noted that the provincial charter was applied for on February 24, 1997, which was before the period at issue; if it had not been for that unfortunate mistake, Jenkins would have been invoiced by the company from the outset and there would not have been a trial. That is in fact what was done as soon as the company had its GST and QST numbers.

[80] The difference between Raynald Dionne’s work and the appellant’s has been clearly described, and Francis Jenkins has admitted it completely.

[81] The appellant could have claimed $700 from Jenkins for a week of work without providing any explanation, and he did not have to record his hours.

[82] The reason his statutory declaration makes no mention of his logistic and marketing services is no doubt that the investigator made no note of them; however, the declaration does state that, as dispatcher, the appellant looked after finding loads for Jenkins’ trucks.

[83] The declaration also states that the appellant was not on salary or on the payroll and that he was self-employed.

[84] At the time of the declaration, the appellant had only two clients, but he has since found others, which is much to his credit.

[85] The investigator did not want him to submit his notebooks, which leads the Court to believe that the investigation was botched.

[86] The appellant did some brokering for himself as well, which also shows that he was indeed self-employed.

[87] The Minister should have totally reversed the decision by the director of tax services, and it was wrong for him not to do so.

[88] Francis Jenkins’ testimony, which was heard at the respondent’s request, does not help the respondent’s case at all.

[89] The Montreal Locomotive and Wiebe decisions, supra, are well known, as are the four tests set out therein.

[90] In the case at bar, Francis Jenkins really did not exercise any control over the appellant, and all that mattered to him was the result.

[91] The appellant used Jenkins’ tools when he was at Jenkins’ office, but when he was at home he used his own tools for Jenkins and for his other clients.

[92] In both cases, the appellant and Jenkins did not bill each other for such use; they each absorbed the costs themselves. It was obviously for the sake of convenience that the appellant used Jenkins’ tools when he was at the office, but he also had his own tools that he used for Jenkins’ benefit when he was at home. This test is therefore not so unfavourable to the appellant as to cause him to lose his case.

[93] The appellant had a chance of profit and a risk of loss depending on where he worked for Jenkins; his notebooks show the very large number of long-distance calls he made and the many faxes he sent and received for Jenkins; he had an obligation of result, and he risked losing his contract if he was not productive enough.

[94] The appellant could work either at home or at Jenkins’ office, which leads the Court to believe that there was no integration as there had been in the case of the dispatcher Raynald Dionne.

[95] In Fabi, supra, the evidence was contradictory, whereas in the instant case it is not at all contradictory.

[96] The Honourable Judge Robichaud concluded that the weight of the evidence was to the effect that the workers used resources and equipment provided by the appellant in that case, whereas the appellant in the case at bar also provided his own resources and equipment.

[97] The Honourable Judge Robichaud also considered the method of payment test and, in the case at bar, the appellant was not paid wages, but rather received payment of his invoices.

[98] Judge Robichaud concluded that there was some control, whereas in the case at bar the appellant and Francis Jenkins both said that there was no control and that only the result mattered; the hours worked by the appellant were not recorded.

[99] Both of the witnesses heard are decent, hard-working people, and the Court believes them entirely.

[100] The appeal must therefore be allowed and the first part of the decision under appeal vacated, since there was no contract of service between the appellant and Transports Jenkins Ltée from March 10 to July 5, 1997.

Signed at Laval, Quebec, this 12th day of November 1998.

“A. Prévost”

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 30th day of June 1999.

Erich Klein, Revisor