Citation: 2011 TCC 216
Date: 20110419
Docket: 2008-2935(EI),
2008-2936(CPP)
BETWEEN:
VLACHESLAV LEBOV,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
C. Miller J.
[1]
This is an Employment
Insurance/Canada Pension Plan informal procedure case dealing with whether
Mr. Lebov, the Appellant, was required to make the necessary source deductions
pursuant to the application of Reg. 6(g) of the Employment Insurance
Regulations (the "EIR") and section 34 of Canada
Pension Plan Regulations (the "CPPR"). Both these
provisions deal with the obligation of an employment agency to make source
deductions under certain circumstances.
[2]
In 2006, Mr. Lebov ran
a placement agency as a sole proprietor under the operating name of TOPS. He
would advertise for workers, and those who responded to his advertisements would
be put in contact with his clients, who included production factories,
recycling plants or construction companies. The worker would then go to the
client where he or she was provided with work, normally on an hourly wage
basis. The client would, at the end of the pay period, provide timesheets to
the Appellant, who would invoice the client for the remuneration owed to the
worker plus an amount for a referral fee. The Appellant would keep the fee and
in turn write a cheque to the worker. At year end, the Appellant provided the
worker with T4A slips.
[3]
As well as hearing Mr.
Lebov’s description of the arrangement, I also heard the evidence of two
workers: one, Mr. Zubarev, who worked as a machine operator at a recycling
plant at $10 dollars an hour; and two, Ms. Heridia who worked as a receptionist
for a company called Rainbow at $9 dollars an hour. While I did not receive
extensive evidence of the working arrangement, I heard enough to satisfy myself
that the workers were certainly under the direction and control of the client,
or were in a contract analogous to a contract of service. I heard no
evidence to suggest otherwise or to rebut the Respondent’s assumptions in this
regard.
[4]
Under these
circumstances, do Reg. 6(g) of the EIR, section 7 of the Insurable
Earnings and Collection of Premiums Regulations, and section 34 of the CPPR
come into play? Those provisions read as follows:
From EIR:
6. Employment in any of the following
employments, unless it is excluded from insurable employment by any provision
of these Regulations, is included in insurable employment:
…
(g) employment of a person who is
placed in that employment by a placement or employment agency to perform
services for and under the direction and control of a client of the agency,
where that person is remunerated by the agency for the performance of those
services.
From Insurable Earnings and Collection
of Premiums Regulations:
7. Where a person is placed in insurance
employment by a placement or employment agency under an arrangement whereby the
earnings of the person are paid by the agency, the agency shall, for the
purposes of maintaining records, calculating the person’s insurable earnings
and paying, deducting and remitting the premiums payable on those insurable
earnings under the Act and these Regulations, be deemed to be the employer of
the person.
From CPPR:
34.(1) Where any individual is placed by a placement or employment
agency in employment with or for performance of services for a client of the
agency and the terms or conditions on which the employment or services are
performed and the remuneration thereof is paid constitute a contract of service
or are analogous to a contract of service, the employment or performance of
services is included in pensionable employment and the agency or the client,
whichever pays the remuneration to the individual, shall, for the purposes of
maintaining records and filing returns and paying, deducting and remitting
contributions payable by and in respect of the individual under the Act and these
Regulations, be deemed to be the employer of the individual.
(2) For
the purposes of subsection (1), “placement or employment agency” includes any
person or organization that is engaged in the business of placing individuals
in employment or for performance of services or of securing employment for
individuals for a fee, reward or other remuneration.
[5]
These regulations come
into play if certain conditions are satisfied:
1. Did Mr. Lebov operate a placement agency? Yes
he did.
2. Were the workers
placed by Mr. Lebov with a client to perform services under the direction and
control of the client or in a contract analogous to a contract of service? The
workers were so placed.
3. Were the workers
remunerated by Mr. Lebov, the placement agency? This is where the dispute lies.
[6]
The Appellant, relying
on Justice Woods decision in Wegener and Emmerson O/A Director’s Choice v.
The Minister of National Revenue,
("Director’s Choice") argues the workers were not remunerated
by Mr. Lebov but, though he wrote the cheques, he did so solely as a conduit
for the source of the remuneration, being the client. With respect, I disagree.
[7]
I will go through the Director’s
Choice case to illustrate how different the circumstances in that case are
from the case before me, and how it led to Justice Woods’ conclusion that
"both the form and substance of this arrangement is that the production
companies, and not Director’s Choice, remunerates the performance".
I cannot reach the same conclusion as to the role of the placement agency in
the circumstances before me.
[8]
The differences from
the circumstances in Director’s Choice are as follows:
1. The production
companies in Director’s Choice, clients of the placement agency who
hired the workers, took care of all payroll matters. In the case before me, the
clients did not do that: Mr. Lebov acknowledged he looked after all the
paperwork, that is part of what he did for the client to earn his fee.
2. In Director’s
Choice, the workers paid the agency a fee. There was no such payment in the
case before me.
3. In Director’s
Choice, the workers entered a written agreement with the agency which
authorized Director’s Choice to withhold 15% of the earnings. Director’s
Choice ensured payment of the fee by requiring the client to send their
cheques to both Director’s Choice and to the workers. There is no
such arrangement in the case before me. Mr. Lebov invoiced the client and
simply turned around and paid the workers from the payment he received.
4. In Director’s
Choice, the client hired a payroll services company to issue T4A forms. In
the case before me, Mr. Lebov issued the T4A forms. In Director’s Choice,
Justice Woods indicated: "…
By issuing tax slips, the
production companies acknowledged that they are paying remuneration…". There was no such implicit
acknowledgment from Mr. Lebov’s clients.
5. In Director’s
Choice, the workers signed a form that gave Director’s Choice address
instead of their own, effectively giving a direction for the remuneration to be
mailed to Director’s Choice. Again, no such direction was made by the
workers in the case before me. It was always intended they would be paid by
cheque from Mr. Lebov.
6. In Director’s
Choice, Justice Woods concluded "…the client is obligated to pay, deduct and remit premiums if the individual
is engaged as an employee."
She concluded the agency could not have remunerated the workers as effectively
the remuneration had already been paid. No such obligation existed in the case
before me and no remuneration could be found to have been paid to workers prior
to Mr. Lebov writing the cheques.
[9]
I conclude the
circumstances are significantly different in Director’s Choice than
before me.
[10]
The more recent case
of Graphic Assistants Inc. v. Canada,
which also dealt with the application of Reg. 6(g) of the EIR, addressed
the issue of what "remuneration" means in the context of payments
made by a placement agency, concluding prima facie the person who
actually pays the worker remunerates the worker. I would go further and suggest
that to displace that prima facie conclusion requires evidence, as found
in Director’s Choice, that proves contractually someone other than the
payor "remunerates" the worker.
[11]
Section 34 of the CPPR
is more detailed than the EIR, making it clear that either the
employment agency or the client, "whichever pays the remuneration to the
individual" shall be deemed to be the employer. The intent is clear. The
provision is there to avoid workers slipping between the cracks. If the payment
is made directly by the client to the employee, then these employment agency
provisions do not come into play. However, if the client pays the employment
agency, which in turn pays the worker, then these provisions make it clear that
the employment agency is to make the necessary source deductions. On balance,
I conclude that Mr. Lebov did not act simply as a conduit of the
remuneration from the client to the worker, but in fact received payment from
the client and himself turned around and paid the worker. This is
"remuneration" as contemplated by the regulations in issue. To find
otherwise would render these regulations meaningless, as ultimately the source
of money for the payment to the workers will always be the client. Only in
circumstances such as in Director’s Choice, where the contract points
clearly to a more direct connection between the client and the worker, can the
employment agency avoid the obligation imposed on it by the regulations. I do
not find such a direct link between the source of funds and the payment to the
worker in this case. Here the payment came from the employment agency directly,
not as any form of conduit of the client’s payment.
[12]
I conclude the arrangement
falls squarely within the parameters of the EIR and CPPR and,
therefore, I dismiss Mr. Lebov’s appeals.
Signed at Ottawa, Canada, this 19th
day of April 2011.
"Campbell J. Miller"
Email this Content