Citation: 2011TCC265
Date: 20110518
Dockets: 2010-3070(EI)
2010-3071(CPP)
BETWEEN:
JONATHAN KOWALCHUK,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Jonathan Kowalchuk,
is appealing the assessment of the Minister of National Revenue for Employment
Insurance Act premiums and Canada Pension Plan contributions in
respect of certain workers who performed services for his concrete business in
2007, 2008 and 2009.
[2]
In those years, the Appellant was
a sole proprietor engaged in installing concrete for both residential and
commercial purposes. The workers assisted him in the work which included such
things as preparing and cleaning up the work site, digging trenches, building
forms, tying rebar and leveling the poured concrete.
[3]
The Minister’s position is that
the workers were hired as labourer-employees working under a contract of
service.
[4]
The Appellant denies this saying
that most of the workers were fellow tradesmen of long acquaintance, each
engaged in their own businesses and with whom he had an arrangement that when
and if available, they would provide their services as independent contractors.
While they did not reduce this agreement to writing, the Appellant’s uncontradicted
evidence was that this was their clear intention when negotiating the terms of
the performance of their services and undertaking the work.
[5]
To determine whether the workers
were employees or independent contractors, the Court must be guided by the
principles in 671122 Ontario Ltd. v. Sagaz Industries Canada
Inc., [2001] 4 C.T.C. 139, (S.C.C):
…The central
question is whether the person who has been engaged to perform the services is
performing them as a person in business on his own account. In making this
determination, the level of control the employer has over the worker's
activities will always be a factor. However, other factors to consider include
whether the worker provides his or her own equipment, whether the worker hires
his or her own helpers, the degree of financial risk taken by the worker, the
degree of responsibility for investment and management held by the worker, and
the worker's opportunity for profit in the performance of his or her tasks.
It bears
repeating that the above factors constitute a non-exhaustive list, and there is
no set formula as to their application. The relative weight of each will depend
on the particular facts and circumstances of the case.
[6]
More recently, the question of the
intention of the parties has come into the equation. In Royal Winnipeg
Ballet v. Minister of National Revenue, [2008] 1 C.T.C. 220, the
Federal Court of Appeal considered Wolf v. Canada, 2002 FCA 96 in which
Décary, J.A. recognized the realities of the modern workplace:
In our day and age, when a worker decides to keep his freedom to come
in and out of a contract almost at will, when the hiring person wants to have
no liability towards a worker other than the price of work and when the terms
of the contract and its performance reflect those intentions, the contract
should generally be characterised as a contract for services. If specific
factors have to be identified, I would name lack of job security, disregard for
employee-type benefits, freedom of choice and mobility concerns.
[7]
Concurring with the result in Wolf,
Noël, J.A. added the following qualifications to Justice Décary’s reasons:
… I
acknowledge that the manner in which parties choose to describe their
relationship is not usually determinative particularly where the applicable
legal tests point in the other direction. But in a close case such as the
present one, where the relevant factors point in both directions with equal
force, the parties’ contractual intent, and in particular their mutual
understanding of the relationship cannot be disregarded.
…
This is not a
case where the parties labelled their relationship in a certain way with a view
of achieving a tax benefit. No sham or window dressing of any sort is
suggested. It follows that the manner in which the parties viewed their
agreement must prevail unless they can be shown to have been mistaken as to the
true nature of their relationship. In this respect, the evidence when assessed
in the light of the relevant legal tests is at best neutral. As the parties
considered that they were engaged in an independent contractor relationship and
as they acted in a manner that was consistent with this relationship, I do not
believe that it was open to the Tax Court Judge to disregard their
understanding … .
[Emphasis added.]
[8]
After considering Wolf and
the related jurisprudence in some detail, Sharlow, J.A. went on, in Royal
Winnipeg Ballet, to summarize the emerging principles and their application
to determining whether a worker is an employee or an independent contractor:
… One
principle is that in interpreting a contract, what is sought is the common
intention of the parties rather than the adherence to the literal meaning of
the words. Another principle is that in interpreting a contract, the
circumstances in which it was formed, the interpretation which has already been
given to it by the parties or which it may have received, and usage, are all
taken into account. The inescapable conclusion is that the evidence of the
parties’ understanding of their contract must always be examined and given
appropriate weight.
[Emphasis added.]
[9]
In the present case, as the
Appellant was the only witness to testify, the determination of the workers’
status depends on the credibility of his evidence. I found him to be
straight-forward in presenting his testimony and his evidence, generally
persuasive. I am satisfied on a balance of probabilities that the workers were
performing their services as independent contractors.
[10]
Before turning first to the
traditional four-fold test under Sagaz, it is important to consider the
backdrop against which the work was performed. I accept the Appellant’s
evidence that 2007-2009 were busy years in the construction industry in Saskatchewan
and to keep up with the demands imposed by a booming industry, it was not only
practical but necessary for the Appellant and his fellow tradesmen-workers to
operate in the fashion described in paragraph 4 above. Though in less busy
times the Appellant said he usually worked alone, in the years under appeal, most
of his work was done for a general contractor engaged in a large commercial
project; in these circumstances, he needed to sub-contract some of his work to
others.
[11]
In this context, I have no reason
to doubt the Appellant’s evidence that the workers intended to provide their
services on their terms when it suited them. Like the Appellant, they were
engaged in businesses of their own. As it turned out, some of them were not
successful in or exaggerated their commitment to these pursuits; here, I am
thinking of workers Toms and Drever who seem, after the fact, to have decided
it would be more beneficial to their needs to reinvent themselves as employees.
That does not, however, detract from their intention at the time they made
their agreement with the Appellant to provide services as independent
contractors. Nor can it be said that their agreement was a “sham” or that the
parties were “mistaken as to the true nature of their relationship” as
contemplated by Noël, J.A. in Wolf. The Appellant was candid that in
prior years he had run into problems when hiring workers as employees. Like
many others who have faced similar difficulties, he discussed the matter with
Canada Revenue Agency officials, struggling to understand the different
requirements for employees and independent contractors so that he could govern
himself accordingly. As is evident from the number of decisions and range of
outcomes in the jurisprudence, this fact-based distinction is difficult enough
even for the courts; all the more so for the small business owner whose
day-to-day obligations restrict his contemplation of such questions.
[12]
All in all, I accept the
Appellant’s evidence that at the time the workers accepted the work, their
intention was and they agreed to provide their services as independent contractors.
Each negotiated his own rate of pay – by the hour, at a flat fee or on a
percentage of the total contract price - depending on the project contract and
their individual experience. The Appellant paid them daily, weekly or on such
other terms as were agreed upon. While acknowledging that he paid them in cash
for their services, the Appellant’s uncontradicted evidence was that he
obtained receipts for such payments and issued T-5’s for each worker. The
workers were responsible for obtaining and maintaining their own workers’
compensation insurance and for paying any tax on their earnings, a factor in
their having commanded a higher rate of pay than the Appellant had paid to his
employee workers in the past. All of these actions are consistent with the parties’
intentions that the workers were working under a contract for services.
[13]
Turning, then, to the Sagaz factors,
the evidence shows that the workers were not under the control of the
Appellant. When they showed up at the job site to work, the Appellant would
brief them on the specifications of the general contractor. While there was a
range of experience, aptitude and enthusiasm among the workers, all worked
under their own steam; for example, the Appellant described worker McAllister
as a self-starter who knew concrete and worked quickly and efficiently to
maximize the time he would have available to work on other projects.
[14]
The Appellant admitted he provided
the tools, generally small items like trowels. He also leased large equipment,
as required, such as bobcats for work on the site. This factor is not
particularly significant in light of the findings under the other factors of
the test.
[15]
As for chance of profit and risk
of loss, the workers were free to accept the work or not, to work for others and
to complete the work quickly so as to be able to take on other projects. They
could also engage replacement workers to do the work they had contracted to
provide for the Appellant; worker McLean, for example, brought in two workers
to do his work and was responsible for paying them. If the workers did not
perform the work well, it was their responsibility to fix it – although the
Appellant did say that on one occasion, he had had to absorb the loss caused by
worker Toms’ shoddy work because by the time it was discovered, he was nowhere
to be found. While the margin was small on both counts, I am satisfied that the
workers had a chance of profit and a risk of loss in these circumstances.
[16]
Looking finally at integration,
counsel for the Respondent contended that the Appellant’s evidence that there
was too much work for him to have handled on his own showed that the workers
were fully integrated into his business because they were necessary for the
proper operation of the Appellant’s business. While acknowledging that the
integration factor is by far the most difficult to apply, I am not persuaded by
that argument. The same could be said of any sub-contractor on a large general
project: while their services are absolutely required for the general
contractor’s completion of the work, that fact, in itself, does not convert
them into employees.
[17]
For the above reasons, I am
satisfied that the Appellant met his onus of rebutting the Minister’s
assumptions. Having done so, it was for the Respondent to call evidence to
buttress the Minister’s contention that the workers were employees: perhaps the
workers’ testimony would have led to a different conclusion. But based on the
evidence before me, I am satisfied that the workers were independent
contractors and the Minister’s assessments ought to be vacated.
Signed at
Ottawa, Canada, this 18th day of May 2011.
“G. A. Sheridan”
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