Date: 19981016
Docket: 97-535-UI
BETWEEN:
DERRICK PINHORN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Cuddihy, D.J.T.C.C.
[1] This appeal was heard on September 18, 1998, in Sydney,
Nova Scotia.
I- The appeal
[2] This is an appeal from a decision by the Minister of
National Revenue (the "Minister") of
December 16, 1996, where it was determined that the
employment of the Appellant (the "Worker"), with
Fishermen’s Association (the "Payor"), from
May 2 to July 23, 1994, from May 1 to
July 22, 1995 and from May 6 to July 27, 1996, was
not insurable within the meaning of the Unemployment Insurance
Act (the "old Act") now known as
the Employment Insurance Act
(the "new Act ") because,
according to the Minister, the Worker was not engaged by the
Payor under a contract of service pursuant to paragraph
3(1)(a) of the old Act and paragraph 5(1)(a)
of the new Act.
II- The facts
[3] In rendering his decision the Minister relied on the facts
and reasons outlined in his Reply to the Notice of Appeal and
particularly in paragraph 4 as follows:
"(a) the Payor was an association of 13 self-employed
fishermen operating from the same wharf;
(b) the South Bar fisherman's Association was made up of
the same 13 fishermen as the Payor;
(c) the Appellant was engaged by the fishermen to act as a
night watchman and protect their boats and gear;
(d) the appellant's hours of work were from dusk until 6
a.m. seven days a week for the 12 week lobster season;
(e) the Appellant's Records of Employment indicate the
Appellant's rate of pay as $780.00 per week in 1994 and 1995
and $750.00 per week in 1996;
(f) the maximum weekly insurable earnings were $780.00 in
1994, $815.00 in 1995 and $750.00 in 1996;
(g) the Appellant's earnings in 1996 were reduced to the
maximum insurable earnings as allowed by the Unemployment
Insurance Act and the Employment Insurance Act.
(h) in 1996 the Appellant was paid $60.00 per week by each of
12 fishermen with class A licenses and $30.00 per week by
1 fisherman with a class B license;
(i) the Appellant or his spouse usually collected the money
from each fisherman each week and if neither of them were able to
do it, John Dwayne Fraser, a fisherman, would collect the money
and take it to the Appellant's residence;
(j) the Appellant issued receipts for these payments to each
fisherman at the end of the season;
(k) the amounts paid directly to the Appellant by the
fishermen were treated as amounts paid by the Payor to the
Appellant;
(l) the Appellant was responsible for paying both the employee
and employer portions of payroll source deductions;
(m) the Appellant was not supervised by the Payor;
(n) the Appellant took instructions from each individual
fisherman in regard to how he was to perform his services;
(o) the Appellant was free to substitute his personal services
with that of another individual without first obtaining
permission from the Payor;
(p) when the Appellant was unable to perform the services
personally he chose his replacement and was still paid the full
weekly amount by each of the fishermen;
(q) if a fisherman did not pay his weekly fee to the
Appellant, this adjustment would not be reflected in the earnings
on the Appellant's Record of Employment, and Income Tax,
Unemployment/Employment Insurance premiums and Canada Pension
Plan contributions were remitted as though the Appellant received
the full amount;
(r) the Appellant and the Payor participated in a sham
arrangement whereby they attempted to give the appearance of an
employment relationship which did not exist;
(s) there was no contract of service between the Appellant and
the Payor.
[4] The Appellant, admitted the allegations in subparagraphs
(a) to (j). The allegations in subparagraphs (o) and (p) were
admitted with explanations to be given at the hearing. The
allegations in subparagraphs (l) to (n), (q) to (s) were denied.
The allegation in subparagraph (k) was ignored.
III- The Law and Analysis
[5] i) Definitions from the Employment Insurance
Act
"employment" means the act of employing or
the state of being employed;
"Insurable employment" has the meaning
assigned by section 5;
Paragraph 5(1)(a) of the new Act reads as
follows:
"5. (1) Subject to subsection (2), insurable employment
is
(a) employment in Canada by one or more employers,
under any express or implied contract of service or
apprenticeship, written or oral, whether the earnings of the
employed person are received from the employer or some other
person and whether the earnings are calculated by time or by the
piece, or partly by time and partly by the piece, or
otherwise;
..."
Brief summary of the evidence
[6] The Appellant, Daniel Fortune, Dwayne Fraser and
Mary Neville were heard in support of the appeal. Exhibits
A-1 to A-8 were filed in the Court record.
[7] In 1990, a group of twelve fishermen decided that a
watchman was required at their wharf. Dwayne Fraser, one of
the twelve fishermen, applied to Revenue Canada and obtained a
taxation account No. ELX005335 as a Payor, under the name
"Fishermen's Association". This Payor was not a
corporate person as such but the name was used for the purpose of
filing to Revenue Canada, unemployment insurance premiums, Canada
pension plan contributions and income taxes of the watchmen they
had hired over the years.
[8] The Appellant was hired in 1991. At the time,
Dwayne Fraser took care of the books and paper work and
acted as the lead fisherman or organizer and participated in the
hiring of the Appellant.
[9] The duties of the Appellant were to arrive at dusk and
leave at around sunrise. He worked 10 hours a day, seven days a
week for a total of 70 hours. He used his car as a shelter and
patrolled the wharf on foot. He was to assure in general the
security of the area, the boats and their equipment.
[10] He was paid $780.00 a week in 1994 and 1995, and $750.00
per week in 1996.
[11] The Appellant was hired for the twelve-week duration of
the lobster season. The maximum insurable earnings were $780.00
in 1994, $815.00 in 1995 and $750.00 in 1996. The
Appellant’s earnings in 1996, were reduced to the maximum
insurable earnings as allowed by the Unemployment Insurance
Act and Employment Insurance Act.
[12] In 1994, Mary Neville took over the book work from
Dwayne Fraser. She explained how the Appellant was paid and
what she did to remit all the necessary deductions for the
Worker.
[13] The evidence established that the 12 fishermen agreed to
pay the Worker a sum of money which, in total, would amount to
his gross pay including the employer's contributions for
social benefits. The Worker would provide each fisherman with a
receipt . This money was collected by or for the Worker and kept
at his residence. Once every month, the Worker’s wife would
remit to Mary Neville, at her request, what money was owed
to Revenue Canada which included unemployment insurance premiums,
Canada pension plan contributions and taxes (Exhibits A-3
to A-5). Mary Neville would then once a month deposit
this money in the account of Revenue Canada.
Concluding analysis
[14] These fishermen needed a watchman. It was
Dwayne Fraser, after consultation with the other fishermen,
who initiated the steps to obtain from Revenue Canada a taxation
number, under the name of "Fishermen's
Association". The Appellant did not take part in these
consultations.
[15] The Appellant, who was not the first watchman to be
hired, began to work in 1991 until 1996. In 1994 and 1995, there
was another employee, Sheila Fougere, who, in the day time,
accomplished the same duties as the Appellant. In 1996, the
fishermen could no longer afford two people and retained the
services of the Appellant for the night watch.
[16] Was there a contract of service between the Payor and the
Appellant?
[17] In order to determine the existence of a true contract of
service I refer to the following excerpts from Wiebe Door
Services Ltd v. M.N.R., 87 DTC 5025, where
Justice MacGuigan, F.C.A. at pages 5027 to 5030 stated:
"[Control test]
The question of whether a contract is one of service,
in which case it indicates a master-servant or employment
relationship, or for services, in which case the
relationship is between independent contractors, has arisen most
often in the law of torts, as surveyed recently by Professor
Joseph Eliot Magnet, Vicarious Liability and the Professional
Employee (1978-79), 6 C.C.L.T. 208, or in labour law, as
recently summarized by Professor Michael Bendel, The Dependent
Contractor: An Unnecessary and Flawed Development in Canadian
Labour Law (1982), 32 U.T.L.J. 374.
The traditional common-law criterion of the employment
relationship has been the control test, as set down by Baron
Bramwell in R. v. Walker (1858), 27 L.J.M.C. 207, 208:
It seems to me that the difference between the relations of
master and servant and of principal and agent is this: A
principal has the right to direct what the agent has to do; but a
master has not only that right, but also the right to say how it
is to be done.
That this test is still fundamental is indicated by the
adoption by the Supreme Court of Canada in Hôpital
Notre-Dame de l'Espérance and Theoret v. Laurent et
al., [1978] 1 S.C.R. 605, 613, of the following statement:
"the essential criterion of employer-employee relations is
the right to give orders and instructions to the employee
regarding the manner in which to carry out his work.
Nevertheless, as Professor P.S. Atiyah, Vicarious Liability
in the Law of Torts, London, Butterworths, 1967, p. 41, has
put it, "the control test as formulated by Bramwell, B.,...
wears and air of deceptive simplicity, which... tends to wear
thin on further examination." A principal inadequacy is its
apparent dependence on the exact terms in which the task in
question is contracted for: where the contract contains detailed
specifications and conditions, which would be the normal
expectation in a contract with an independent contractor, the
control may even be greater than where it is to be exercised by
direction on the job, as would be the normal expectation in a
contract with a servant, but a literal application of the test
might find the actual control to be less. In addition, the test
has broken down completely in relation to highly skilled and
professional workers, who possess skills far beyond the ability
of their employers to direct.
[Entrepreneur test]
Perhaps the earliest important attempt to deal with these
problems was the development of the entrepreneur test by
William O. (later Justice) Douglas, Vicarious Liability and
the Administration of Risk (1928-9), 38 Yale L.J. 584, which
posited four differentiating earmarks of the entrepreneur:
control, ownership, losses, and profits. It was essentially this
test which was applied by Lord Wright in Montreal v. Montreal
Locomotive Works Ltd. et al., [1947] l D.L.R. 161,
169-70:
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 tortuous liability on the part of the master or
superior. In the more complex conditions of modern industry, more
complicated tests 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. Control in
itself is not always conclusive. Thus the master of a chartered
vessel is generally the employee of the shipowner though the
charterer can direct the employment of the vessel. Again the law
often limits the employer's right to interfere with the
employee's conduct, as also do trade union regulations. In
many cases the question can only be settled by examining the
whole of the various elements which constitute the relationship
between the parties. In this way it is in some cases possible to
decide the issue by raising as the crucial question whose
business is it, or in other words by asking whether the party is
carrying on the business, in the sense of carrying it on for
himself or on his own behalf and not merely for a
superior...
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.
[Organization test]
A similar general test, usually called the "organization
test" (though termed the "integration test" by the
Tax Court here), was set forth by Denning L.J. (as he then was)
in Stevenson, Jordan and Harrison, Ltd. v. MacDonald and
Evans, [1952] l T.L.R. 101, 111:
One feature which seems to run through all 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.
The organization test was approved by the Supreme Court of
Canada in Cooperators Insurance Association v. Kearney,
[1965] S.C.R. 106, 112, where Spence J. for the Court quoted with
approval the following passage from Fleming, The Law of Torts
(2nd ed. 1961) 328-9:
Under the pressure of novel situations, the courts have become
increasingly aware of the strain on the traditional formulation
[i.e., the control test], and most recent cases display a
discernible tendency to replace it by something like an
"organization" test. Was the alleged servant part of
his employer's organization? Was his work subject to
co-ordinational control as to "where" and
"when" rather than to "how"?
As Bendel points out, supra, at p. 381, the
organization test is now "firmly established in
Canada." He explains its attractiveness as follows,
supra, at p. 382:
The aspect of the organization test which makes it so
attractive in the labour relations context is that integration
into another person's business, the key feature of the test,
is a very useful indicator of economic dependence. The
relationship between integration and economic dependence has been
explained this way by the Ontario Labour Relations Board (in a
case predating the Ontario dependent contractor amendments):
The essence of operating a business is holding out to a
market society the availability of goods and services at the best
possible price having regard to competing pressures exacted upon
a particular market. It seems patently obvious to this Board
that a particular business will not flourish in circumstances
where growth is totally integrated with the operations of a
particular customer. The essence of resolving and distinguishing
the contractor from employee is his independence... In instances
where the driver's means of financial support is [sic]
inextricably bound up with the respondent we are of the view that
he cannot be considered an independent contractor.
(Underlining by undersigned)
...
Professor Atiyah, supra, at pp. 38-9, ends up with Lord
Wright's test from the Montreal Locomotive Works case,
as he finds it more general than Lord Denning's, which he
sees as decisive in only some cases.
[Analysis]
I am inclined to the same view, for the same reason. I
interpret Lord Wright's test not as the fourfold one it is
often described as being but rather as a four-in-one test, with
emphasis always retained on what Lord Wright, supra, calls
"the combined force of the whole scheme of operations,"
even while the usefulness of the four subordinate criteria is
acknowledged.
(Underlining by undersigned)
...
Of course, the organization test of Lord Denning and others
produces entirely acceptable results when properly applied, that
is, when the question of organization or integration is
approached from the persona of the "employee" and not
from that of the "employer," because it is always too
easy from the superior perspective of the larger enterprise to
assume that every contributing cause is so arranged purely for
the convenience of the larger entity. We must keep in mind that
it was with respect to the business of the employee that Lord
Wright addressed the question "Whose business is
it?"
Perhaps the best synthesis found in the authorities is that of
Cooke J. in Market Investigations, Ltd. v. Minister of Social
Security, [1968] 3 All E.R. 732, 738-9:
The observations of Lork 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 be taken, 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. The application of
the general test may be easier in a case where the person who
engages himself to perform the services does so in the course of
an already established business of his own; but this factor is
not decisive, and a person who engages himself to perform
services for another may well be an independent contractor even
though he has not entered into the contract in the course of an
existing business carried on by him.
(Underlining by undersigned)
There is no escape for the trial judge, when confronted with
such a problem, from carefully weighing all of the relevant
factors, as outlined by Cooke J."
[18] Desjardins, J.A of the Federal Court of Appeal in
Hennick,[1]
reiterated the position of the Court:
"While this test is well known, it might be useful at the
outset to emphasize that in his analysis of both Lord
Wright's fourfold test (control, ownership of the tools,
chance of profit, risk of loss) and of Lord Denning's
organization or integration test, MacGuigan, J.A., in
Wiebe Door Services Ltd., stressed all along that what
remains of the essence is the search for the total relationship
of the parties. He first quoted at length Lord Wright in
Montreal v. Montreal Locomotive Works Ltd.[2]
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 tests 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. Control
in itself is not always conclusive. Thus the master of a
chartered vessel is generally the employee of the shipowner
though the charterer can direct the employment of the vessel.
Again the law often limits the employer's right to interfere
with the employee's conduct, as also do trade union
regulations. In many cases the question can only be settled by
examining the whole of the various elements which constitute the
relationship between the parties. In this way it is in some cases
possible to decide the issue by raising as the crucial question
whose business is it, or in other words by asking whether the
party is carrying on the business, in the sense of carrying it on
for himself or on his own behalf and not merely for a
superior." (Emphasis in text)
Then, he added:[3]
". . . I interpret Lord Wright's test not
as the fourfold one it is often described as being but rather as
a four-in-one test, with emphasis always retained on what Lord
Wright, supra, calls "the combined force of the whole scheme
of operations", even while the usefulness of the four
subordinate criteria is acknowledged.
. . . . .
What must always remain of the essence is the search for
the total relationship of the
parties . . .
Of course, the organization test of Lord Denning and others
produces entirely acceptable results when properly applied, that
is, when the question of organization or integration is
approached from the persona of the "employee" and not
from that of the "employer", because it is always too
easy from the superior perspective of the larger enterprise to
assume that every contributing cause is so arranged purely for
the convenience of the larger entity. We must keep in mind
that it was with respect to the business of the employee that
Lord Wright addressed the question "Whose business is
it?" (my emphasis)
[19] In 1997, Décary, J. of the Federal Court of Appeal
in Normand Charbonneau,[4] also stated:
"...
Two preliminary observations must be made.
The tests laid down by this Court in Wiebe Door Services
Ltd. v. M.N.R. [5] - on the one hand, the degree of control, the
ownership of the tools of work, the chance of profit and risk of
loss, and on the other, integration - are not the ingredients of
a magic formula. They are guidelines which it will generally be
useful to consider, but not to the point of jeopardizing the
ultimate objective of the exercise, which is to determine the
overall relationship between the parties. The issue is always,
once it has been determined that there is a genuine contract,
whether there is a relationship of subordination between the
parties such that there is a contract of employment (art. 2085 of
the Civil Code of Québec) or, whether there is not,
rather, such a degree of autonomy that there is a contract of
enterprise or for services (art. 2098 of the Code)...
Moreover, while the determination of the legal nature of the
contractual relationship will turn on the facts of each case,
nonetheless in cases that are substantially the same on the facts
the corresponding judgments should be substantially the same in
law. As well, when this Court has already ruled as to the nature
of a certain type of contract, there is no need thereafter to
repeat the exercise in its entirety: unless there are genuinely
significant differences in the facts, the Minister and the Tax
Court of Canada should not disregard the solution adopted by this
Court.
In our view, when the judge of the Tax Court of Canada allowed
the respondent’s appeals in this case and found that the
contract was a contract of employment, he fell into the trap of
doing a too mathematical analysis of the tests in Wiebe
Door, and as a result he wrongly disregarded the solution
adopted by this Court in Attorney General of Canada v.
Rousselle et al.[6] and upheld in Attorney General of Canada v.
Vaillancourt."[7]
[20] The element of control appeared clearly to rest with
Dwayne Fraser, who did the books prior to 1994 and who
appeared to be the lead person from then on. He did say that he
"checked on the Appellant". The Appellant was therefore
supervised in the sense required in this type of situation. The
Appellant was trusted to do his job without the necessity of
continual supervision which, according to the evidence, was not
required. He could not go and come as he pleased. He could not be
replaced by someone else. It is accepted however that the
Appellant did have a replacement on one single occasion when he
was so sick he could not work.
[21] The Appellant had no opportunity for profit. It was
admitted that he could lose some pay if one of the fishermen did
not pay but this was not of any great significance. The evidence
did not show that he actually lost any money.
[22] The Appellant used his car to go and come from work and
as a shelter at night. This element was not disputed.
[23] The last element is integration. The work was not
integrated into the Payor’s work as fisherman but was
incidental to it in that it worked in conjunction with the
fishing season while the boats were left unattended during the
night time.
[24] This evidence did demonstrate the existence of a
contract. What must be analyzed further is whether there was a
relationship of subordination between the parties such that there
is a contract of employment or whether there is not rather, such
a degree of autonomy that there is a contract of enterprise or
services.
[25] The only evidence before the Court was that of the
Appellant and his witnesses. It did show a sufficient degree of
subordination and from seeing and hearing the Appellant and his
witnesses, whose credit was not impeached, I did not feel that
there existed a degree of autonomy sufficient to conclude to a
contract of enterprise or for services.
[26] The Minister alleged that what was done was a sham
arrangement whereby there was an attempt to give the appearance
of an employment relationship which did not exist.
[27] The evidence showed under what circumstances Revenue
Canada permitted Dwayne Fraser to obtain a taxation account
under the name "Fishermen's Association". As a
result, remittances were made to the Respondent, as explained,
for not only the Appellant but other workers over the years even
before the Appellant was hired. No evidence was put forward by
the Respondent as to what rules govern the issuing of an account
number. One must also accept that when an account number is
issued by the Respondent he does not act without making some sort
of inquiry to ascertain the purpose and the need of the request.
The Court cannot conclude on the evidence heard that this
procedure was illegal or inappropriate or part of a sham between
the Appellant and the Payor. The procedure was already in place
before the Appellant was hired. Unless some other evidence exists
which was not heard, it would follow that the procedure followed
was accepted by the Respondent.
[28] It is accepted that the manner that the money was paid
and the remittances made was rather unusual. However, I cannot
conclude that the Appellant did not work and that the contract
was a sham. The Appellant was receiving his pay from each
fisherman acting as a group and the money remitted to the
Appellant included the employer portion of payroll source
deductions, which he caused to be remitted to Mary Neville,
who kept the payroll and was the responsible person for seeing
that the remittances to Revenue Canada were made.
[29] The manner by which the Appellant was paid and the
procedure followed to make the remittances to Revenue Canada do
not lead conclusively to the inexistence of a contract of
service. Furthermore, nothing was heard on behalf of the
Respondent that could lead the Court not to accept the evidence
of the Appellant and his witnesses.
[30] I am thus satisfied that the Appellant has proven on a
balance of probabilities the existence of a contract of
service.
[31] I do not consider this decision to be a precedent for any
other past or future periods of employment of the Appellant or
other workers with the Payor or anyone else, the Minister
maintaining the right to investigate any other periods of
employment of workers for unemployment insurance purposes.
[32] This decision applies to the Appellant for the periods of
employment under review only, because these are the only periods
of work that may be considered by this Court.
IV- Decision
[33] The appeal is allowed and the Minister’s decision
is vacated.
Signed at Dorval, Quebec, this 16th day of October 1998.
"S. Cuddihy"
D.J.T.C.C.
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