Fleetway Consulting Services Inc. v. M.N.R., docket 97-1457-UI

Date: 19980401

Docket: 97-1457-UI

BETWEEN:

FLEETWAY CONSULTING SERVICES INC.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Lamarre Proulx, J.T.C.C.

[1] This is an appeal from a determination by the Minister of National Revenue (the "Minister") that Mr. Hung Tong was employed by the Appellant in insurable employment within the meaning of paragraph 3(1)(a) of the Unemployment Insurance Act (the "Act") during the period from April 15, 1996 to August 30, 1996.

[2] In making his determination, the Minister relied on the facts set out in paragraph 6 of the Reply to the Notice of Appeal (the "Reply") as follows:

(a) the Appellant operates a consulting engineering company providing services to private companies and governments;

(b) the Appellant also won a number of contracts to develop, design and implement computer software programs;

(c) the Appellant also has Help Desk contracts with the Department of National Defence ("DND");

(d) the Worker was hired by the Appellant as a help desk operator to provide direct support to DND for various users and computer system problems;

(e) there was a written agreement (the "agreement") signed between the Appellant and the Worker;

(f) services were performed by the Worker on DND premises;

(g) the Appellant billed DND for services rendered and in turn the Worker was paid by the Appellant at the rate of $18.10 per hour for services rendered;

(h) the Worker was paid on a regular bi-weekly basis;

(i) the Worker performed the services on a repetitive and recurring basis during the period under review;

(j) the Worker was also required to report to the Appellant's offices from time to time;

(k) the Worker was required to work seven and one half hours per day;

(l) the Worker was required to work regular hours;

(m) the Worker's work was monitored and supervised by Mr. D. Topp whose role was primarily to define priority of assignments with regard to the urgency of the calls that came into the Help Desk;

(n) the Worker was required to perform the services personally and could not hire or sub-contract the work to someone else;

(o) the Appellant covered the Worker under the provincial Worker's Compensation Program;

(p) DND provided the necessary facilities and equipment to the Worker to perform the services;

(q) any travel expenses incurred by the Worker were refunded to him by the Appellant;

(r) the Worker could not realise a profit or a loss as a result of performing the services for the Appellant;

(s) the Appellant's business is to develop, design and implement computer software programs and the Worker was hired as a help desk operator, therefore the Worker was an integral part of the Appellant's operation;

(t) the Appellant could terminate the agreement with the Worker at any time for unsatisfactory performance;

(u) there was a contract of service between the Worker and the Appellant;

[3] The facts upon which the Appellant relied in appealing the Minister’s decision are set out in paragraphs 1 to 4 and 14 to 16 of the Notice of Appeal as follows:

1. The Appellant, Fleetway Consulting Services Inc., is a consulting engineering company providing technical services to, inter alia the Department of National Defence ("DND").

2. Pursuant to contract no. W8462-5-FJ2Y/01-ER between the Appellant and Supply and Services Canada with respect to work to be performed at DND, the Appellant provided Help Desk services to DND, which consisted of technical support in relation to the software and hardware used by DND.

3. On March 28, 1996, a contract was entered into between the Appellant and Mr. Tong. Pursuant to that contract, invoices were rendered by, and payment was made to, KT Computer Consulting Services for the period commencing April 1996 and terminating August 1996.

4. Mr. Tong, at all relevant times, did not report for work at the premises of the Appellant, but rather attended and worked at the premises of DND, although he was not party to the Agreement between the Appellant and DND.

...

14. The Appellant submits that its contract with Mr. Tong was a contract for service, not a contract of service. Mr. Tong performed all services under this contract at DND.

15. The Appellant submits that in applying the test for determining the nature of the relationship between a payor and a payee, the whole of the relationship between itself and Mr. Tong must be considered.

16. The Appellant submits that on examination of the whole of the relationship, Mr. Tong was not an employee of the Appellant.

[4] Paragraphs 1, 2 and 4 and the first sentence of paragraph 3 of the Notice of Appeal (above) were admitted in the Reply. There were no formal admissions or denials of the facts set out in paragraph 6 of the Reply. My view, after having reviewed the evidence, is that the truth of all the facts stated in the Reply has been confirmed. The only paragraphs on which there was no evidence are 6(b) and 6(j). Regarding paragraph 6(j), as will be seen later, it was not agreed that Mr. Tong was supervised. However, it was stated that he was monitored by a senior help desk operator. Respecting the statements contained in paragraphs 6(r) to 6(u), they are conclusions of law and therefore no comment need be made at this stage on whether they are true or not.

[5] Mr. John Fleck, an engineer and president of the Appellant (whose name is now Fleetway Inc.), and Mr. Timothy Bradley, an employee of the Department of National Defence (hereinafter sometimes referred to as "DND"), who was the project officer for the contract in question in the instant case, testified at the request of counsel for the Appellant. Ms. Patricia Gendron, an appeals officer at Revenue Canada, testified at the request of counsel for the Respondent.

[6] The first witness, Mr. Fleck, explained that the Appellant was an engineering and consulting business that provided support staff services to both federal and commercial clients. For example, if the Department of National Defence was short of staff with particular expertise in some field of engineering, a contract might be entered into with the Appellant for the provision of the necessary support staff. Fleetway has approximately 45 employees and these employees are used to provide the above-mentioned support staff services. Mr. Fleck stated that none of the Appellant’s employees had expertise in the field relating to the contract with DND.

[7] Exhibit A-1 is a DND Request for Proposal originating from Supply and Services Canada. It is dated May 23, 1995. Clause 4 of this document describes the nature of the services required:

4.0 REQUIREMENT:

. (hereinafter called the "Contractor") shall provide Informatics Professional Services to the Department of National Defence - Director General Maritime Equipment Program Management (DGMEPM) for a Local Area Network (LAN) Help Desk to provide support to approximately 370 users in Lan troubleshooting, PC troubleshooting and applications support, in accordance to Appendix A Statement of Work.

...

The proposal must include the commitment of specific individuals to be assigned throughout the project. The candidates designated must be willing to commit themselves for the complete duration of the contract. The candidates being assigned on another contract is not deemed as a satisfactory excuse for replacement. A replacement cannot be permitted without the expressed consent of the Project/Worksite Authority.

[8] Clause 5.0 of the same proposal (page 12 of 30) stated that the contract period was from August 28, 1995 to August 27, 1996 with the possibility of extensions to August 27, 1997 and to August 27, 1998.

[9] A contract ensued and this contract has been filed as Exhibit A-2. Except for the cost quotations and the inclusion of the names of the individuals who were to be the help desk operators, the provisions of the contract are similar to those contained in the Request for Proposal. The name of Mr. Hung Tong was not included in the contract. He replaced one of the named individuals as of March 1996, in accordance with the procedure provided for in the contract, which was the same as that described in clause 4.0 of the Request for Proposal (Exhibit A-1), reproduced in paragraph 7 of these Reasons.

[10] Clause 7.0 of the contract (Exhibit A-2) provided that the contractor was to be paid a set per diem and no travel or parking expenses were to be reimbursed.

[11] Clause 7.5 of the same contract defined a day as 7.5 hours of work. That clause reads as follows:

7.5 DEFINITION OF A DAY/PRORATION:

A day is defined as 7.5 consecutive hours exclusive of meal breaks. Payment shall be for days actually worked with no provision for annual leave, statutory holidays and sick leave. Time worked which is more or less than a day shall be prorated to reflect actual time worked in accordance with the following formula:

Hours worked X per diem rate

7.5

[12] Clause 7.6 of the same contract did not allow overtime, except if formally authorized by the Minister’s representative. Work was to be performed on a DND location within the National Capital Region.

[13] In clause 4.0 of Exhibit A-2, at page 4, under the heading “Requirement”,the names of four individuals were given as those whose services the contractor was expected to provide. (This clause is the same as that reproduced at paragraph 7 of these reasons.) Mr Fleet said that three of the four individuals were independent contractors and one was an employee of the Appellant. One of the individuals named became unavailable for work and Mr. Tong was substituted in accordance with the substitution procedure provided for in the contract. The project worksite authority whose consent was required at the time in question was Mr. Timothy Bradley, who was a witness in this appeal.

[14] The Appellant has three types of contract, one for full-time employment, one for part-time employment and another for term employment. There is also a form for independent contractors. Mr. Fleet stated that it was Mr. Tong who desired that he have the status of independent contractor. Exhibit A-3 is the contract between the Appellant and Mr. Tong. It is dated March 28, 1996 and says that the latter was to begin work as soon as possible and that the termination date would be August 27, 1996 but with possible extensions.

[15] Mr. Tong was hired as a help desk operator. His rate of remuneration was $18.00 per hour. Clauses 5 and 7 of Exhibit A-3, respectively entitled "Place of work" and "Supervision", read as follows:

5. PLACE OF WORK:

Work will normally be carried out on your own premises. However, from time to time it may be necessary for you to work in the offices of Fleetway or within the offices of Fleetway's customers. Notwithstanding the foregoing, you will be required to come into the Fleetway offices at least three times per week to hand in completed work for each task under contract, and to pick up new tasks as required.

...

7. SUPERVISION:

You will receive no supervision during the term of the task, but are required to accept complete responsibility for the correctness and accuracy of your work.

[16] Mr. Fleck stated that the clause concerning the place of work was not accurate because the work was done entirely on DND’s premises. Insofar as supervision is concerned, Mr. Fleck stated that Mr. Tong, as an independent contractor, received no direct supervision. He was totally responsible for the correctness and accuracy of his work. He was not integrated into the Appellant’s workforce. He did not receive a bonus as some employees of the Appellant did. Mr. Tong was not entitled to sick leave or to holidays.

[17] It is some time after the signing of his contract with the Appellant that Mr. Tong operated under the firm name of KT Computer Consulting Services. Exhibit A-5 is a series of cheques made out by the Appellant, for the first weeks, to Mr. Tong personally, and thereafter, to Mr. Tong’s company. When Mr. Tong first offered his services he was not yet incorporated. Mr. Tong did not have the power to substitute another person for himself.

[18] Clause 15.0 of the contract (Exhibit A-2) reads as follows at page 9 :

15.0 INSPECTION/ACCEPTANCE:

All the work performed under the contract shall be subject to inspection by the Project Authority or its delegated representative, prior to acceptance. Should the work or any portion thereof not be in accordance with the requirements of the Contract, the Project Authority shall have the right to reject it or require its correction at the sole expense of the Contractor. Any communication with the Contractor regarding the quality of work performed on this Contract shall be undertaken by official correspondence through the Project Authority and Contract Authority.

[19] Mr. Fleck explained that this clause meant that if the work was not acceptable the Appellant had to rectify the situation at its own cost.

[20] Clause 19.0 of the contract (Exhibit A-2) reads as follows:

19.0 PERSONNEL QUALIFICATIONS AND BACKUP (In addition to General Terms and Conditions 9676);

The Contractor shall provide the services of specified employees to perform the work required unless it is impossible to do so for reasons which are beyond its control (for example; leaves company, sick leave, vacation leave, etc) and it shall be responsible for providing replacement(s) who shall be of similar ability and attainment.

The Contractor is to supply backup personnel so that in the event of unforeseen sickness, accident, or any cause which renders a specific individual unavailable, he/she can be replaced within a response time of maximum twenty-four (24) hours.

The Contractor is to monitor its employees to ensure satisfactory performance and that progress of the work is maintained to the satisfaction of the Project/Worksite Authority. The Contractor representative will meet with the Project/Worksite Authority on a regular basis (once a month) to discuss the performance of the programmer/analyst(s) and to resolve any issues at hand.

The Contractor undertakes to provide competent backup so that in the event of any cause (other than force majeure as set out in the terms and conditions of the resulting contract) which renders specific individuals unavailable to the assignments for which service was called. Backup and support personnel availability must be adequately defined.

If the Contractor wishes to make a substitution, the contractor shall provide the Design Authority, four weeks in advance of the intended date of substitution, with the intended new individual's resume, two references and documentary evidence demonstrating compliance with all mandatory and rated requirements of the evaluation criteria outlined in this SOW.

[21] In addition to the three help desk operators, among whom was Mr. Tong, there was a senior help desk operator whose functions were to monitor the other operators and to act himself as a help desk operator. There was also a customer support representative who would take calls from persons at DND requiring assistance. The senior help desk operator would determine the priority of the calls. The services of these five persons were provided by the Appellant under its contract.

[22] Mr. Fleck made a distinction between supervision and monitoring. He stated that Mr. Tong did not need to be told how to do the work but had to be told what work to do.

[23] DND provided all the necessary tools or equipment.

[24] Mr. Timothy Bradley, a manager for DND, testified. In the years in question he was managing a computer network for DND. He was the project authority for the contract in question. The whole team worked close to his office. The calls received would be from DND employees experiencing problems with their computers. He would ensure that the repairs were processed correctly through his liaison with the senior help desk operator or coordinator who managed the team members under him and monitored day-to-day operations. The project authority signed the weekly time sheets. When the help desk operators arrived in the morning they would be assigned call sheets prepared by the customer service representative.

[25] Ms. Patricia Gendron testified for the Respondent. She is an appeals officer for the Minister. She said that she examined the manner in which Mr. Tong had reported his income for the previous years. Mr. Tong in 1994 and 1995 had reported his income as employment income. She had asked the Appellant and Mr. Tong to each fill out a questionnaire concerning the terms and conditions of employment. She stated that when she reached Mr. Tong, who was then residing in Vancouver, he told her that he was not that concerned anymore with the outcome of this matter as he had found other employment. She also stated that there were no significant differences in the answers given regarding work conditions except as to supervision. The worker said that he was supervised by a superior and that superior was the coordinator.

[26] Counsel for the Appellant referred to the decision of the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025, and more particularly to the following excerpts from the reasons of MacGuigan, J., at pages 5026, 5027 and 5028:

... Such an agreement is not of itself determinative of the relationship between the parties, and a Court must carefully examine the facts in order to come to its own conclusion:

...

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.

...

... 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.

[27] Counsel for the Appellant submitted that Mr. Tong’s work was not integrated into the Appellant’s business because the work he was doing was for DND. It should also be taken into consideration that Mr. Tong was autonomous in not being supervised. The answer to the question whose business it is, should then be that it was Mr. Tong’s business.

[28] Counsel for the Appellant submitted also that in the other decisions to which he referred there is a connecting thread, which is that when the facts are neutral it is the agreement that prevails. Those decisions are the following: Parent (c.o.b. Brian's Towing) v. Canada (Minister of National Revenue - M.N.R., [1997] T.C.J. No. 144 (T.C.C.); Royal Realty Services Ltd. v. Canada (Minister of National Revenue - M.N.R.), [1997] T.C.J. No. 236 (T.C.C.); Valley General Hospital v. Canada (Minister of National Revenue - M.N.R.), [1996] T.C.J. No. 710 (T.C.C.); 918855 Ontario Ltd. v. Canada (Minister of National Revenue - M.N.R.), [1997] T.C.J. No. 664 (T.C.C.); Fransen Engineering Ltd. v. Canada (Minister of National Revenue - M.N.R.), [1997] T.C.J. No. 1265 (T.C.C.).

[29] Counsel for the Appellant also referred to my decision in Giroux v. R., [1996] E.T.C. 613. In that case, I found to be an independent contractor a management consultant paid on a weekly basis for contracts of 16 weeks duration in one year and 38 weeks duration in the other. The work was done on the premises of the payor’s clients.

[30] Counsel for the Respondent referred to the decision of the Federal Court of Appeal in M.N.R. v. Standing, (1992) 147 N.R. 238, in which it was stated that the Court cannot simply rely on the parties’ characterization of the relationship. Counsel referred more particularly to the following excerpt:

... There is no foundation in the case law for the proposition that such a relationship may exist merely because the parties choose to describe it to be so regardless of the surrounding circumstances.

[31] She submitted that in the instant case, Mr. Tong was hired by Fleetway to work seven and a half hours a day, five days a week, between the hours of 7 a.m. and 4:30 p.m. He was required to work on the premises of DND, DND provided the tools, and he was paid at an hourly rate of $18.10.

[32] As to the control aspect, counsel referred to clause 19.0 of the Appellant’s contract with DND, Exhibit A-2. (This clause appears above at paragraph 20 of these reasons.) There was an on-site coordinator whose function was to monitor and oversee the work of the team members. The help desk operators were required to provide their services personally. Counsel also referred to Clause 15.0 of the same document which stated that the work performed was the responsibility of the contractor. (This clause appears at paragraph 18 of these reasons.)

Conclusions

[33] The duration of the contract, the nature of the work - that is the provision of ongoing assistance to the users of computers - the structured organization within which the services were provided, the hours of work, the site at which the work was performed, and the mode of remuneration appear to be elements normally indicative of the status of employee.

[34] Appellant’s counsel had referred to my decision in Giroux. Although there may appear to be a certain similitude between the two appeals, if one was to consider only the aspect that there was a consultant working on the premises of the payor’s clients for periods of time of a certain duration, in fact the other work circumstances made it quite a different situation. In the Giroux case there were no set hours of work. The consultant could work on the client’s premises or at his hotel room. He owned his computer. He had to prepare reports after having examined the activities of the clients. His work was therefore not integrated into the client's operations. Nor do I think that it could be said that his work was integrated in the payor’s business where the payor’s contracts with the clients was for studies to be completed. Moreover, the worker had represented himself as a self-employed consultant.

[35] In the present matter, on analysis of the usual criteria for determining whether we are dealing here with an employee or self-employed person, I cannot but find that they point only towards the legal status of employee. The above-mentioned usual criteria are the control test, the ownership of the tools, the chance of profit or risk of loss and the integration test.

Control: Mr. Tong had to be present at work every working day, do the work that was assigned to him on a call sheet prepared daily, and obey the senior help desk operator.

Ownership of Tools: There is no issue as to the ownership of the tools: they were provided by DND and not by the worker.

Chance of Profit or Loss: There appears to be none. Mr. Tong was paid for the hours worked on DND’s premises. With respect to the element that the worker could not have substituted another person in his place, I do not attach much weight to this point in the present instance as this could happen with a self-employed consultant as well. This element may have its importance in a situation where who actually does the work should not have any importance. For example, with respect to the delivery of newspapers, if a person delivering them cannot replace himself, chances are he is an employee.

Whose Business Is It (or the integration test)?: The previous and actual conduct of Mr. Tong is not that of an independent contractor advertising or even offering his services as a consultant. Mr. Tong’s corporation was not in existence during the two first months he worked for the Appellant and there is no evidence that Mr Tong is now operating as a corporate entity. Ms. Gendron’s testimony would seem to indicate the contrary. The agreement for the provision of services of an independent contractor which was signed by Mr. Tong, did not express the entire intent of the parties thereto, as many of its clauses were not consistent with Mr. Tong's actual working conditions. His work was integrated into DND’s operations and more so into the Appellant’s business, which consists in providing support staff to federal and commercial clients. That providing the services of desk help operators for computer users was a new field of work for the Appellant does not make it any the less a part of the Appellant’s activities. It also has to be taken into account that this provision of services may have lasted with extensions, for a continuous period of three years.

[36] Mr. Tong's work situation reminds me of that described in Canada (Attorney General) v. P.S.A.C., [1989], 2 F.C. 633, confirmed by [1991] 1 S.C.R. 614. In that case the government contracted with a private firm for the supply of teaching services at the Department of the Solicitor General. The question at issue in that case was not whether they were dealing with employees, because no one disputed that, but rather whose employees they were. It was found that they were the employees of the private firm.

[37] In consequence, the appeal is dismissed.

Signed at Ottawa, Canada, this 1st day of April, 1998.

« Louise Lamarre Proulx »

J.T.C.C.