Citation: 2011 TCC 6
Date: January 7, 2011
Dockets: 2009-3411(EI)
2009-3637(CPP)
BETWEEN:
ALLEN WILFORD,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
SUSAN BONNAR (GIORDANO),
Intervener.
REASONS FOR JUDGMENT
Weisman, D.J.
[1]
The Intervener, Susan
Bonnar (“Bonnar”) is a law clerk. She worked for the Appellant, Allen Wilford
(“Wilford”), in his Owen Sound law office from the 19th day of November,
2007 to the 7th day of November, 2008, when she was fired. She subsequently
applied for, and received, benefits under the Employment Insurance Act (“the
Act”).
Wilford’s appeal is based on the grounds that she was an independent contractor
during the period under review.
[2]
At her initial
interview, Bonnar held herself out to be experienced and knowledgeable in
family law matters. She was therefore hired and entrusted with interviewing
Wilford’s clients, and preparing the necessary affidavits and forms for filing
in court within the various statutory limitation periods.
[3]
On Bonnar’s first day
of work, Jacqueline Armstrong (“Armstrong”), the firm’s bookkeeper and payroll
officer, requested her social insurance number. Bonnar declined to share it on
the grounds that she was an independent contractor. Armstrong subsequently
requested the number numerous times. She also explained the difference between
an independent contractor and an employee, as well as the benefits Wilford
offered his employees, such as ten sick days per year, birthday days off, and
deductions at source for Canada Pension Plan contributions and income tax
remittances. Each time Armstrong asked her to be part of the payroll system
Bonnar refused, saying that she was well aware of the distinction between a
contractor and an employee, and the income tax ramifications of her chosen
status, as well as the employment insurance benefits she was foregoing in the
event of her illness.
[4]
Wilford recollected
that when he pointed out the benefits available to Bonnar if she joined his
payroll system, he was told that she had incurred losses in a prior business
venture and wanted to remain an independent contractor until such time as her
revenues offset those losses, for income tax purposes. Bonnar testified that
while she had no prior business ventures, she did have outstanding debts, and
did seek independent contractor status so that the usual source deductions
could be applied toward those debts.
[5]
Accordingly, unlike Wilford’s
employees, Bonnar never claimed overtime pay or requested a T-4 slip; did not
participate in the office birthday calendar or group lunches; or share office
routines such as answering the telephone, gathering fax transmissions, and
doing reception duties when the regular receptionist was absent. According to
Armstrong: “She was different. She worked late and came in weekends.”
[6]
Wilford apparently
acquiesced in this arrangement and shared Bonnar’s understanding of their
working relationship. He told Armstrong: “Yes, she is a contractor.” Accordingly,
Bonnar’s pay stubs were endorsed “contract wages”, whereas those of the firm’s
employees bore the designation “payroll”.
[7]
I found Wilford to be a
beneficent person to work for. He continually encouraged Bonnar to join his
payroll system so that she would be entitled to the benefits under the Act
in the event of illness; would not be faced with a large income tax payment
when she filed her return; and could enjoy his largess as an employer, even
though it meant he would have to pay employment insurance premiums and Canada
Pension Plan contributions on her behalf. He paid for her to take a course on
spousal support, gave her a Christmas bonus to cover the income she lost when
the office was closed, and paid her $15.50 per hour instead of his standard
$14.00 to compensate her for the loss of the employer’s portion of her
employment insurance premiums and Canada Pension Plan contributions.
[8]
It is trite law that in
order to ascertain the total working relationship between a payer and a worker,
one must apply the four-in-one test formulated as guidelines in Montreal (City)
v. Montreal Motor Works Ltd. (“Montreal City”); Wiebe Door
Services Ltd. v. M.N.R. (“Wiebe Door”); and 671122
Ontario Limited v. Sagaz Industries Canada Inc.(“Sagaz”). The four facets
of the test are the payer’s right to control the worker; whether the payer or
the worker owns the tools required to perform the worker’s function; and
whether the worker had a chance of profit, or a risk of loss in the working
relationship with the payer.
[9]
There is no question
that Wilford had the right to control Bonnar. She worked in his law office
handling his clients’ affairs, and he was accountable for any errors or
omissions that she made. He had the expertise to tell her what to do and how to
do it. When he found that the language used in her draft affidavits was unduly
aggressive and inflammatory, he made her redo them. When he discovered that she
was ordering expensive and unnecessary transcripts he “took that autonomy away
from her.” When asked what would happen if she refused to work on a particular
file, he answered decisively: “I would terminate her.” Accordingly, I find that
Bonnar was not only under Wilford’s de jure control, but that she
was in a subordinate relationship to him, which indicates that she was an
employee during the entire period under review.
[10]
As far as the ownership
of tools is concerned, Wilford supplied Bonnar with a fully‑equipped
office, including a computer with Divorcemate software, all necessary supplies
and forms, a receptionist, and generally all that one would require to handle
legal matters in a law office.
[11]
In this regard, Wilford
was of the opinion that law is a knowledge industry, and that lawyers really
sell their expertise, which is their primary tool. He argued that Bonner
supplied her own knowledge, as well as her network of contacts that she could
resort to for advice and precedents.
[12]
This raises the issue
as to whether skill, knowledge and expertise are included in the Wiebe Door
lexicon of “tools.” There is some support for this position in two decisions
emanating from the Tax Review Board (the “Board”). In Latimer v. M.N.R.,
the umpire held an accountant, who had use of the company offices, equipment
and staff, to be an employee. Then the Board added: “…to the degree the
appellant’s professional skills could be regarded as “tools”, he was in
possession of these.” In 1983, the Board heard Brandes v. M.N.R.
which involved a film director. In finding him to be an independent contractor,
the umpire said: “The appellant’s experience, his intelligence, and his
organizational abilities are his major tools.”
[13]
These are the only
cases of which I am aware that agree with Wilford’s position. There are three
decisions in the Federal Court of Appeal, and one in the Supreme Court of
Canada, that apparently restrict tools to material objects. Hennick v.
M.N.R. (“Hennick”)
concerned a respondent who was a talented piano teacher. The Court found:
With regard to the second part of the test, the ownership of tools,
the trial judge concluded, rightly in our view, that because the respondent was
conducting her classes most of the time at the intervener’s premises, her
status was more likely to be that of an employee.
In Precision Gutters v. M.N.R. (“Precision”), the workers
that installed eaves troughing required a costly piece of machinery that could
form raw aluminium into the required shapes. This was supplied by the payer.
The Court says, at paragraph 25:
It has been held that if the worker owns the tools of the trade
which it is reasonable for him to own, this test will point to the conclusion
that the individual is an independent contractor even though the alleged
employer provides special tools for the particular business. …
Again, Wolf v. The Queen (“Wolf”) dealt with a
highly specialized aerospace consulting engineer. The Court says, at
paragraph 82:
This factor relates to who, of the employer or the worker, owns the
assets or equipment that is necessary to perform the work. Traditionally, if
the worker owns or controls the assets and is responsible for their operation
and maintenance, he would likely be considered an independent contractor. On
the other hand, if the employer owns the equipment, the worker would likely be
characterized as an employee.
Finally, in Sagaz,
the Supreme Court says: “… However, other factors to consider include whether
the worker provides his or her own equipment…”.
[14]
So, in Precision,
and Sagaz, “tools of the trade”, and “equipment” respectively were
considered tools, as was the premises where music was taught in Hennick.
Further, the workers involved in Hennick and Wolf were both
highly skilled individuals, yet their knowledge, expertise, and talents are not
mentioned by the Court in its discussion of tools. I conclude that the “tools”
guideline in Wiebe Door refers to material objects, not personal
capabilities: equipment, not expertise; implements, not ingenuity; supplies,
not skills. This guideline also indicates that Bonnar was an employee during
the period under review.
[15]
So far as the chance of
profit is concerned, it is clear that Bonnar had no chance to profit by sound
management. Since she was paid the hourly rate of $15.50, which was raised to
$17.00 after three months, she could only increase her earnings by working
longer hours. This is not a chance of profit.
While contractors such as electricians, plumbers, and repairmen also normally
quote an hourly figure for their services, their hourly rate is calculated to
cover the costs involved in running their business, and some additional margin
of profit. Their costs typically include fixed or overhead costs such as heat, power,
rent, and business taxes, as well as variable costs, which vary with the level
of production or number of jobs the contractor does, such as wages, gasoline,
parts and supplies. Bonnar had no such fixed or variable costs.
[16]
Wilford reasoned that
she could profit since the better she was at her job, the more clients she
could attract, and the firm’s profits, and her remuneration, would increase
accordingly. Unfortunately, there are authorities, both old and new, that do
not support this proposition. In Montreal (City) Lord Wright says:
… 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. …
As my brother Bowie J. also finds, a contractor works
to build up his own business, not that of his payer. Bonnar’s
efforts served to build up Wilford’s business, not her own. The chance of
profit factor accordingly indicates that she was an employee during the period
under review.
[17]
Bonnar also bore no
risk of loss in her working relationship with Wilford. She incurred no
work-related expenses that were not reimbursed by the Appellant. He even
provided her with a parking pass and paid her mileage for the use of her
personal vehicle. Also, Wilford bore the expense of rectifying any errors that
she made. He discovered that she would spend numerous hours on a client’s file
for which she was paid, but contrary to instructions, she neglected to docket
her time so that the client could be charged accordingly. When this was drawn
to her attention she went to the opposite extreme and billed clients
excessively for simple tasks, or charged them for unbillable services, both of
which resulted in complaints by the clients and rebates by Wilford. She ordered
expensive and unnecessary transcripts when there were no funds in the client’s
trust account to pay for them. She incorporated a company with three directors
and charitable objects, when the client wanted but one director, with a view to
profit. It cost Wilford considerable time and expense to rectify these errors,
yet no deductions were made from Bonnar’s pay. Since independent contractors
have to rectify their mistakes on their own time and expense, this facet of
the working relationship of the parties leads to the conclusion that Bonnar was
an employee.
[18]
If one files an income
tax return as a self-employed worker, and deducts from their income any
expenses incurred, this is indicative of their understanding of the contract
they have concluded with the payer.
Accordingly, Wilford sought an order requiring Bonnar to produce her 2008
income tax return. Since interveners are not parties to the proceedings,
however, such an order could not issue.
Notwithstanding this, Bonnar agreed to produce the desired return, and executed
such releases as were required for the Respondent to furnish it. Surprisingly,
in the 2008 taxation year, while she reported no business income, she claimed
business expenses of $12,819.00. She also showed the income derived from
Wilford in 2008 as employment income, against which she claimed another
$13,982.00 in expenses. Upon further inquiry, it was ascertained that both
expenses related almost entirely to her use of the same leased motor vehicle.
It is clear from this that Bonnar wished to be classified as an independent
contractor, both to apply the saved source deductions to her outstanding debts,
and to deduct the costs associated with the use of her motor vehicle from her
taxable income.
[19]
Looking at the total
relationship between the parties, one sees uncontradicted evidence of a mutual
agreement and clear understanding that the legal relationship of the parties
during the period under review was that of principal and agent, with Bonnar’s
status being that of an independent contractor under a contract for services.
This mutual agreement is not determinative of the issue, however, because a
worker’s status in a working relationship is a matter of law and not of private
agreement.
Such understandings will be given weight only if the terms and conditions of
the parties’ working relationship are congruent with their common intention,
according to the Wiebe Door factors examined above.
[20]
As I have determined,
all four guidelines indicate that Bonnar was an employee of Wilford’s, even
though she chose not to integrate herself into the culture of his firm, and did
not charge him for her overtime hours; while he paid for her gasoline, parking,
and her course on spousal support.
[21]
Wilford complains that
Bonnar was incompetent in doing her job. An incompetent employee, however, is
nonetheless an employee, just as an insubordinate worker can still be in a
subordinate working relationship with his or her payer.
[22]
In view of my finding
that that Bonnar was an employee of Wilford’s during the entire period under
review, the Minister of National Revenue (the “Minister”) may want to
re-examine the duplicitous deductions from income claimed on her 2008 income
tax return.
[23]
In these matters, the
burden lies upon the Appellant to refute or demolish the assumptions set out in
the Minister’s Reply to his Notice of Appeal. He has failed to do so. The only
assumptions he was able to refute were 12(g) “the Worker reported to the
Appellant on a daily basis in person and by telephone or email”; 12(u) “ the Worker
normally worked from 8:15 a.m. to 6:00 p.m. Monday to Friday …”; 12(bb) “the
Appellant paid the Worker for Statutory Holidays”; 12(ee) “the Worker was
required to complete bi-weekly time sheets”; and 12(jj) “there were other
workers performing the same services as the Worker”. The remaining assumptions
are to be taken as true, and are sufficient to support the Minister’s
determinations.
[24]
I have investigated all
the facts with the parties and the witnesses called on behalf of the Appellant
and the Intervener to testify under oath for the first time, and while I have
found new facts, such as Bonnar’s working without overtime pay, and Wilford’s
taking away her power to order transcripts, and his paying to rectify her
errors, I found nothing to indicate that the facts inferred or relied upon by
the Minister were unreal, or were incorrectly assessed or misunderstood. I can
find no business that Bonnar was in on her own account. The Minister’s
conclusions are accordingly objectively reasonable.
[25]
In the result, the
decisions of the Minister are confirmed, and the appeals are dismissed.
Signed at Toronto, Canada, this
7th day of January 2011.
"N. Weisman"