Citation: 2010 TCC 541
Date: 20101022
Dockets: 2009-3225(EI)
2009-3226(CPP)
BETWEEN:
WELLBUILT GENERAL CONTRACTING LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
TIMOTHY J. BAKLINSKI
Intervenor.
REASONS FOR JUDGMENT
Boyle J.
I. Introduction
[1]
These appeals were
heard in Ottawa in May. The appellant corporation, Wellbuilt General
Contracting Ltd., (“Wellbuilt”), carries on a small construction contracting
business in the Barry’s Bay area of the Ottawa
Valley. It has appealed from rulings made by the Canada
Revenue Agency (“CRA”) that three of its workers were engaged throughout 2007
in insurable employment for purposes of the Employment Insurance (“EI”)
legislation and in pensionable employment for purposes of the Canada Pension
Plan (“CPP”).
[2]
The owner‑manager
of Wellbuilt is Andrew Haden‑Pawlowski. Wellbuilt has a number of
employees and, in addition, has a number of trades or subcontractors. Wellbuilt
employed a number of employees and used 30 or more subcontractors in the period
in question. Wellbuilt’s business is primarily new residential construction and
residential additions and improvements; it also does some institutional and
other construction projects. The three workers are Tim Baklinski,
Joseph Baklinski and Edward Thompson. Each of these workers did what
could best be described as general construction labour and carpentry work. Tim
and Joseph Baklinski are brothers. Joseph Baklinski and Edward Thompson
jointly formed a new business after they stopped working for Wellbuilt. Their
new business is StoneView Masonry and Landscaping (“StoneView”) which also does
small construction and other work. Tim Baklinski also went to work for
StoneView after he left Wellbuilt.
[3]
Each of the workers
left Wellbuilt on his own. (There is no issue of any of the workers needing
their Wellbuilt work to be insurable employment in order to qualify for EI
benefits.) Joseph Baklinski left and was fully paid in 2006 and did not
work at all for Wellbuilt in 2007. One is therefore immediately doubtful of
both the CRA ruling that he was a Wellbuilt employee in 2007 and the quality of
the CRA Appeal’s review of that ruling. Surprisingly, the end result of the
ruling and appeal process was to have the CRA issue a T4 indicating that
Joseph Baklinski earned $1,734 from Wellbuilt in 2007. The appeal with
respect to Joseph Baklinski is allowed.
[4]
Similar T4s were issued
by the CRA in respect of the other two workers’ 2007 income.
[5]
Tim Baklinski’s T4,
as finally issued by the CRA indicates he earned almost $20,000 from Wellbuilt,
a number which far exceeds the amount that he says he was paid. Tim Baklinski
believes the CRA’s T4 includes his self‑employment income from two other
jobs of his in 2007.
[6]
No one from the CRA was
called to testify in this case to explain the state of the file presented to
the Court.
[7]
Edward Thompson
left Wellbuilt in January 2007 having earned about $1,000 for about
70 hours of work in 2007. Tim Baklinski left Wellbuilt in June 2007
having earned about $11,000 for about 575 hours of work in 2007. The timesheets,
invoices and cancelled cheques confirm this and were made available to the CRA.
The payor and the worker agree on these amounts of time worked and wages paid. Nonetheless,
at the conclusion of the CRA rulings and appeal process, a Wellbuilt T4 was issued
by the CRA to Mr. Thompson for $8,149 and to Tim Baklinski for
$19,868.
[8]
It appears quite
inappropriate that Wellbuilt and Mr. Haden‑Pawlowski should have to
bring the government to court to challenge such shoddy work, analysis and
review. Mr. Haden‑Pawlowski could not be faulted for thinking
Wellbuilt’s file suffered from too much civil service and not enough public
service. It is no less unfair to Tim Baklinski to leave him trying to
defend the indefensible conclusion of the CRA review.
[9]
The CRA owes everyone
involved in this file an apology. Granted the CRA is a large organization and
it is unrealistic to expect it to do everything perfectly. Things will fall
through cracks. However, it should be able to do the exceedingly simple things
very well. A review of what was done and what went wrong at CRA Appeals is
clearly warranted lest individual Canadians and Canadian businesses be
similarly dragged into court and Canadians as a whole have to pay for valuable
and scarce court resources being used so wastefully.
II. The Witnesses
[10]
Each of Mr. Haden‑Pawlowski
and the three workers testified. Mr. Haden‑Pawlowski represented
Wellbuilt in this appeal and Tim Baklinski intervened in the appeal. I
must observe that, while there is a commercial/business dispute between them,
each testified in what appeared to be a forthright and honest manner as to
their recollection and interpretation of the events relating to the work for
Wellbuilt. While there are some inconsistencies in their testimony, I believe
that they were each telling their story truthfully as they recalled it. Further,
they remained polite and respectful with each other in their written
communications and when cross‑examining each other. For this they are
each to be highly commended.
III. Applicable Law
[11]
The tests for a
contract of service/employment versus a contract for services/independent
contractor are well settled. The issue of employee versus independent
contractor for purposes of the definitions of pensionable employment and
insurable employment are to be resolved by determining whether the individual
is truly operating a business on his or her own account. This is the question
set out by the British courts in Market Investigations, Ltd. v. Minister of
Social Security, [1968] 3 All E.R. 732 (Q.B.D.), approved by the
Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553,
for purposes of the Canadian definitions of insurable employment and pensionable
employment, and adopted by the Supreme Court of Canada in 671122 Ontario
Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001]
2 S.C.R. 983. This question is to be decided having regard to all of
the relevant circumstances and having regard to a number of criteria or useful
guidelines including: 1) the intent of the parties; 2) control over
the work; 3) ownership of tools; 4) chance of profit/risk of loss and
5) what has been referred to as the business integration, association or
entrepreneur criteria. There is no predetermined way of applying the relevant
factors and their relative importance and their relevance will depend upon the
particular facts and circumstances of each case.
[12]
The decision of the
Federal Court of Appeal in Royal Winnipeg Ballet v. M.N.R.,
2006 FCA 87, [2007] 1 F.C.R. 35, highlights the
particular importance of the parties’ intentions and the control criterion in
these determinations. This is consistent with the Federal Court of Appeal’s
later decisions in such cases as National Capital Outaouais Ski Team v.
Canada (The Minister of National Revenue), 2008 FCA 132, Combined
Insurance Company of America v. Canada (The Minister of National Revenue),
2007 FCA 60, and City Water International Inc. v. Canada (The Minister
of National Revenue), 2006 FCA 350.
IV. Intention
[13]
In this case the
intention of the parties at the time the workers were hired and worked is
significant. It is clear that Mr. Haden‑Pawlowski and Wellbuilt
intended these three workers to be subcontractors and not employees. He told
each of them this when they were hired. With limited exceptions mentioned
below, Wellbuilt behaved entirely consistently with that intention and
Wellbuilt accounted for their work accordingly. Wellbuilt’s employees were
those persons to whom Wellbuilt committed to provide work on a consistent daily
basis and who, in turn, committed to work daily for Wellbuilt. Wellbuilt’s
contractors on the other hand were persons to whom Wellbuilt offered work when
it was available if they were free to, and chose to, take it. While that was
Wellbuilt’s approach to the two categories of workers, it is not necessarily
determinative since it does not seem to account for part‑time employees,
casual employees and similar employment arrangements. Using Wellbuilt’s
distinction between its employees and its contractors, both workers’ 2007 work
hours would be consistent with being Wellbuilt’s contractors and not employees.
[14]
Tim Baklinski
indicated to the CRA in his interview after the fact and in his written Worker
Questionnaire that, at the time he was hired, he had intended to be self‑employed.
He reported his Wellbuilt income as business income and, according to the CRA
report, claimed business expenses. Tim Baklinski testified that he perhaps
did not understand the significance of the distinction between employment and
self‑employment at the time.
[15]
It appears from his
evidence that he only really understood the difference once he reported
business revenues in excess of the small supplier goods and services tax (“GST”)
threshold and was assessed a significant amount of GST by the CRA. I think it
is fair to conclude from his testimony that, once he realized the significant
differing treatment of employees and contractors for GST purposes, he was able
to see that he should have been characterized as an employee at the outset. If
the ruling is upheld, presumably Tim Baklinski’s GST problem will go away.
I should also note that, at this time, the CRA has ruled that
Tim Baklinski was an employee and has also assessed him for not collecting
and remitting GST for his work as employee. This is a remarkably inconsistent
position for the CRA to be taking. Further, Tim Baklinski has sent
Wellbuilt a bill for the GST the CRA says he should have collected, resulting
in Tim Baklinski also taking an inconsistent position vis‑à‑vis
Wellbuilt for GST purposes from his position that he was its employee.
[16]
These inconsistencies,
combined with the ruling that Joseph Baklinski was an employee in 2007
when, by his own records and testimony, he never worked for Wellbuilt after
November 2006 and he had relayed this to the CRA at the outset, and
combined with the outrageously incorrect 2007 employment income numbers finally
determined for each of the three workers, demonstrate that the respondent’s
files were nowhere close to be ready for trial. This should have been apparent
to the CRA and the Department of Justice. Wellbuilt and Mr. Haden‑Pawlowski
would be correct to think they were not being listened to or understood since
the respondent was not even listening to the information or looking at the
documentation provided by the workers themselves.
[17]
Mr. Thompson
similarly testified that, at the time he was hired and worked, he had intended
to be self‑employed and not an employee. He understood that meant he was
to be responsible for his own tax reporting, etc. He indicated the same in his
2009 CRA interview. According to the CRA report, he reported the Wellbuilt
income as business income and deducted business expenses. He maintains he reported
it as “Other Employment Income” in his tax return. In any event,
Mr. Thompson now says he probably did not fully understand the distinction
between employee and independent contractor at the time.
[18]
I am entirely satisfied
that each of Wellbuilt, Tim Baklinski and Edward Thompson intended
the workers’ status to be independent contractors from the outset and
throughout their time working for Wellbuilt. While Tim Baklinski may now
wish that he had been an employee and, therefore, not facing a significant GST
bill, that is not sufficient to negate his intention at the time not to be an
employee.
[19]
Overall, a
consideration of the parties’ intentions is consistent with the workers not
being employees of Wellbuilt.
[20]
Before leaving a
discussion of the intention of the parties, I must return to the CRA’s report
on appeal. In its analysis of the relationship, the CRA considers 1) level
of control, 2) ownership of tools and equipment, 3) subcontracting
work or hiring assistants, 4) financial risk, 5) responsibility for
investment and management, and 6) opportunity for profit. The CRA
concludes that, having weighed these considerations, there was an employment
relationship. Only then does the CRA consider the intention of the parties. The
CRA makes it clear that the payor and the workers intended that they were self‑employed
and that there was a common intention in this regard. However the CRA dismisses
this consideration with the following statement: “The payer stated the workers
were self‑employed, employed under contracts for service. The workers
also intended to be self‑employed. Therefore, it is clear that Wellbuilt
Contracting Ltd. and the workers were incorrect on the true nature of their
relationship.” So much for considering the intention of the parties. This approach,
in effect negating the relevance of the parties’ common intention, was entirely
wrong by the CRA. The intention of the parties is a significant and material
guideline or criteria to be considered along with all of the other
considerations. Just as none of the guidelines developed by Canadian courts are
determinative, none are to be dismissed with barely an acknowledgement. Indeed,
in many cases, including this one, intention may well be one of the prevalent
considerations.
V. Control
[21]
A consideration of the
extent of Wellbuilt’s control over the work done by the workers, how and when
it was to be done, and when the workers were required to work, is consistent
with the workers’ intended status as independent contractors not employees.
According to the testimony of the intervenor Tim Baklinski, he was not
supervised in his work and there was no direct control over his work by
Wellbuilt or Mr. Haden‑Pawlowski or other senior staff members. He
was told what needed doing and felt Wellbuilt and Mr. Haden‑Pawlowski
assumed from his background and experience that he would do it or know when to
call Mr. Haden‑Pawlowski or a Wellbuilt senior staff member for
guidance or instruction. That description is generally consistent with
Mr. Haden‑Pawlowski’s testimony of work arrangements and typical
work days and tasks. It is not inconsistent with the evidence of the other two
workers. Tim Baklinski worked for Wellbuilt the longest in 2007 and
received significantly more income from Wellbuilt in 2007 than Mr. Thompson.
His brother Joseph did not work for Wellbuilt at all in 2007.
Tim Baklinski was the only worker who intervened in the proceedings. I
accept his specific testimony on this point as representative of how the work
was assigned and carried out by the workers.
[22]
A consideration of the
extent of control in this case also leans in favour of an independent
contractor characterization and is certainly not inconsistent with the parties’
shared common intention at the time that they be independent contractors.
VI. Ownership of Tools
[23]
Each of the workers was
responsible for providing their own tool belt and small basic hand tools. These
are the tools they were told at the outset they would be responsible for.
Generally, power tools were provided by Wellbuilt but Tim Baklinski said
that at times he would bring his own cordless tools when he anticipated needing
them on days that Wellbuilt’s tools would not already be at the worksite.
[24]
With respect to the
consideration of the ownership of tools in a case such as this, guidance can be
drawn from the Federal Court of Appeal’s decision Precision Gutters Ltd. v.
Canada (The Minister of National Revenue), 2002 FCA 207. In that
case the workers owned their own small hand tools, drills, bits and ladders,
but the substantial and large equipment required for the workers to form the
gutters on site was owned by the payor. The Federal Court of Appeal wrote in
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.
[25]
At the very least, it
is not uncommon in some business sectors and trades, such as auto‑mechanics,
some forestry workers, and some construction workers, to expect or require all
workers, whether employees or independent contractors, to own and supply their
own basic hand tools, blades and bits, etc., and in cases such as those, the
ownership of tools consideration may tip in neither direction in particular.
[26]
Clearly, most of the
substantial tools needed in Wellbuilt’s construction business were owned by
Wellbuilt and provided to the workers, whether employees or independent
contractors. In this segment of the construction industry it does not appear
that the ownership of tools is very telling or particularly helpful since it
would not be inconsistent for an employee to be required to have a significant
investment in basic tools nor would it be inconsistent for an independent
contractor not to be required to provide all the tools needed to do his work.
Each business sector in Canada is free to develop its own practices that make
economic sense and work efficiently in that sector. In this case, a
consideration of the ownership of tools leans slightly in favour of employee
status but is certainly not inconsistent with the shared common intended status
of independent contractors.
VII. Chance of Profit/Risk of Loss
[27]
Each of the workers was
paid on an hourly basis. In addition they were reimbursed mileage on some jobs.
They were responsible for getting themselves to and from either Wellbuilt’s
office or particular jobsites. The financial risk of people earning an hourly
wage, whether employees or independent contractors, is often minimal especially
in the context of independent contractors in businesses that do not require
significant capital investments beyond vehicles and basic tools. This would
include many construction trades.
[28]
In this case, the more
significant financial risk to the workers was that Wellbuilt might not have
enough work each week to keep them busy on a full‑time daily basis. The
timesheets, invoices and pay cheques all confirmed that in fact this was the
case for each of them in 2007. They did not in fact get work from Wellbuilt
from 7:30 a.m. to 4:30 p.m. five days of the week as targeted (or four days a
week in Tim Baklinski’s case once he took Mondays off to start his music
teaching business). The evidence is that each of them was engaged in other
jobs, including so‑called cash weekend jobs, to earn additional income in
these times.
[29]
The evidence is
inconsistent on whether or not the workers worked for others on any or all of
the weekdays where the records clearly indicate they did not work for
Wellbuilt. The workers say they did not, Mr. Haden‑Pawlowski
believes they did. CRA’s documents, such as they are, indicate they each
reported business income in excess of what has been shown and agreed to have been
paid to them by Wellbuilt. I am unable to conclude one way or the other on this
point and it is therefore not a helpful consideration in deciding this
particular case.
[30]
Timothy Baklinski
was aware that he was not receiving vacation days, sick days or parental leave
as employees often expect. He did not at any time raise this with Wellbuilt,
Mr. Haden‑Pawlowski or his co‑workers.
[31]
The pay cheques
consistently referred to sub and sub‑work. Invoices were submitted by the
workers. One of Mr. Thompson’s 2007 invoices described the services as sub‑work.
These invoices were prepared by the workers.
[32]
On the facts of this
case and in the context of the construction business and subcontracted trades
and workers, I do not find the chance of profit/risk of loss analysis pointing
particularly in either direction. I do conclude that a consideration of it does
not identify anything inconsistent from the shared common intention throughout
the hiring and work period that the workers be independent contractors. It is
clear that these references are describing the work as subcontracted work.
VIII. Conclusions
[33]
Given the clear shared
common intention between Wellbuilt and each of Timothy Baklinski and
Edward Thompson, and given the absence of control over whether the workers
would work on any given day and the minimal degree of control over how the
needed work was to be completed beyond being done to a schedule that had to
accommodate all of the workers, trades and others involved in a construction
project, I find that Timothy Baklinski and Edward Thompson were
independent contractors and not employees of Wellbuilt in the period in
question. There was nothing inherent in the actual work arrangements which
would preclude the intended and desired independent contractor relationship or which
would negate it.
[34]
I must acknowledge that
there were two aspects of the evidence that could be considered unusual. First,
Wellbuilt insisted that all persons working on their jobsites be covered by
accidental disability and life insurance. For independent contractors this
meant that they had to arrange such an insurance policy. Wellbuilt agreed that
it would reimburse them on a monthly basis for the cost of the policy premiums.
While this may be unusual, it is an item open to negotiation between
contracting parties just as a mileage, tool, educational or work clothing
allowance might be. In any event, it certainly does not point to an employment
relationship since an employer would be expected to have its employees covered
under its own insurance policy, not to be reimbursing employees the cost of
premiums for insurance arranged by and in the name of the employee.
[35]
Secondly, Mr. Haden‑Pawlowski
gave confirmation of employment and income letters to the financial institution
which made home mortgage loans to each of Timothy Baklinski and
Edward Thompson. Mr. Haden‑Pawlowski testified that he “fudged”
the facts as a personal favour and accommodation to these two regular workers.
Timothy Baklinski and Edward Thompson would have known that at least
the income amounts set out in these letters were not correct. Clearly, this was
wrong on the part of Mr. Haden‑Pawlowski since it was not true.
Equally clear, it was wrong of the workers to knowingly mislead their mortgage
lenders. However, these wrongs and misrepresentations do not have the effect of
turning the relationship into employment status from independent contractor
status anymore that the overstatement of their income became their new wage.
Mr. Haden‑Pawlowski’s fudging of these letters for the benefit of
his workers tells me something about him, just as these workers taking cash
weekend jobs with others that they did not report or did not fully report for
tax purposes tells me something about them. However, in neither case does it
tell me anything about whether they were employees or independent contractors.
[36]
I find that neither
Timothy Baklinski nor Edward Thompson was engaged in insurable
employment or pensionable employment with Wellbuilt in 2007.
[37]
Based on the written
evidence and testimony in this case, this appears to be a case of independent
contractor’s remorse and regret, where a possible recharacterization of the intended,
agreed and acted upon independent contractor status to employee status would
convert one of the workers’ GST problems into an EI and CPP problem for
Wellbuilt. Such a recharacterization would be an odd and inappropriate sort of
retroactive tax planning, would be unfair to Wellbuilt, is inconsistent with
the preponderance of the evidence, finds no support in the legislation, and
will not be sanctioned by the Court.
IX. Costs
[38]
The Tax Court has
inherent jurisdiction and discretion to award costs in informal appeals where
costs are not normally provided for in order to regulate the potential abuse of
the court process. This has been sanctioned by the Federal Court of Appeal in Fournier
v. Canada, 2005 FCA 131, [2006] G.S.T.C. 52, and
applied by this Court in Harold Isaac OP Sunrise Electrical v. M.N.R.,
2010 TCC 225, and Bono v. M.N.R., 2010 TCC 466.
[39]
I have made several
observations and comments above regarding the information available to the CRA,
both at the rulings and appeals stage, and the inappropriate decisions taken by
the CRA. This appeal was an appeal from the CRA Appeals decision following its
administrative review of Wellbuilt’s objection to the rulings. This appeal is
not a review of the process, practices, decision‑making process and
operations of CRA Appeals nor was either the CRA appeals officer or rulings
officer called to testify to explain what the CRA has done. It would therefore
be inappropriate of me to say anything further on the topic. I must add
however that the respondent might want to carefully review how this file has
been handled through every stage lest another appellant in another case argue
that proceeding with a case in a state such as this, to the point of requiring
the payor to appeal to the Court and the Court to decide it, constitutes an
abuse of process warranting an award of costs.
[40]
In this case, the
appeals are allowed without costs having been asked for and none will be
ordered.
Signed at Ottawa, Canada, this 22nd day of October 2010.
"Patrick Boyle"
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