Citation: 2010 TCC 405
Date: 20100728
Dockets: 2009-192(EI)
2009-193(CPP)
BETWEEN:
ROBERT JOHNSON,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] For
several years, James Dunn worked on a farm belonging to the appellant, Robert
Johnson. The question in this appeal is
whether Mr. Dunn was engaged by the appellant as an employee or independent
contractor for purposes of the Employment Insurance Act and the Canada
Pension Plan. The appellant submits that Mr. Dunn was an independent
contractor.
[2] The periods at issue are: (1) 2005 and 2006 for the
appeal under the Employment Insurance Act, and (2) 2004, 2005 and 2006
for the appeal under the Canada Pension Plan.
[3] The procedural history is somewhat unusual in that the
appeal relates to both a ruling and assessments. In all of the determinations,
the Minister of National Revenue concluded that Mr. Dunn was an employee.
[4] Mr.
Johnson and Mr. Dunn each provided extensive testimony as to the nature of the
engagement. Although both appeared to be credible witnesses, Mr. Johnson’s
testimony was not as detailed as I would have liked in some areas. As an
example, the circumstances that led to the creation of the written agreement
that retroactively governed their relationship was not fully explained.
[5] My findings of fact are set out below.
[6] Mr. Dunn was hired by Mr. Johnson in 1997 to work mainly
in his cattle transportation business. Mr. Dunn also assisted in setting up a
hog raising business that was in its formative stages around that time.
[7] As things turned out, the cattle transportation
business was not sustainable and after a relatively short period of time Mr.
Dunn ended up working in the hog raising operation. This required a variety of
skills, all of which Mr. Dunn handled very competently. Mr. Johnson worked in
the other farming operations.
[8] The period at issue begins in 2004. At this time, Mr.
Dunn was managing the hog raising side of the farming operation, and he
occasionally helped out in other areas when he had time.
[9] A written agreement, called “Service Contract,” was
entered into evidence by counsel for Mr. Johnson. It was prepared by Mr. Dunn
at Mr. Johnson’s request. There is no execution date on the agreement and I
accept Mr. Dunn’s testimony that it was prepared around the time that it was
forwarded to the Canada Revenue Agency in November 2001.
[10] Mr. Johnson believed that this agreement satisfied the
CRA that Mr. Dunn was engaged as an independent contractor. That may be so because
it appears that the Minister did not determine otherwise until 2004.
[11] The written agreement accurately reflects the
relationship both during and after its stated term. The agreement is effective
from January 1, 1997 to December 31, 2001. It continued to govern the
relationship, subject to increases in the hourly fee.
[12] In general, the agreement
provides:
-
Mr. Dunn is to manage the hog
breeding operation;
-
Mr. Dunn is to be paid on an
hourly basis and has no set hours;
-
two days off are provided every
two weeks; two weeks paid holidays are also provided; and
-
a performance bonus is to be paid
if the number of hogs sold exceeds a specified amount.
[13] The usual type of employee benefits were not provided,
and Mr. Dunn arranged his own disability insurance.
[14] Occasionally, when additional help was required Mr.
Dunn arranged for his children and Mr. Johnson’s son to help out. These
occurrences were approved by Mr. Johnson, and he paid for the children’s
services.
[15] No source deductions were made in respect of the
hourly fees paid to Mr. Dunn.
[16] Mr. Johnson suggested that he was not able to be
involved in the farm business during significant portions of time in the relevant
period because he was suffering from the effects of cancer treatment. I accept
this testimony, but I tend to agree with Mr. Dunn’s testimony that there was
not a significant impact on the hog business in the sense that Mr. Johnson
would usually have been available for consultation. In any event, I find that
the fundamental nature of the relationship did not change as a result of Mr.
Johnson’s illness.
Analysis
[17] The legal principles to be applied in a case such as
this are well known. At their core, it is necessary to determine whether Mr.
Dunn was in business for himself. The Wiebe Door factors of control,
chance of profit, risk of loss, and ownership of tools should be among the
factors considered. Further, if the parties have a mutual intention that their
relationship be one of independent contractor or employment, this will govern
provided that the relationship is consistent with this intent.
[18] The conclusion that I have reached based on the
evidence as a whole is that Mr. Dunn was engaged as an independent contractor
during the periods at issue.
[19] The factor of control is often a very important
factor, and this case is no exception.
[20] In terms
of the day to day hog operations, I have concluded that Mr. Johnson likely was involved only from a
strategic and high level point of view. He would not have been involved in
ordinary operations, but Mr. Dunn likely kept him well informed as to how the
operation was doing.
[21] It is
likely that there were very few discussions, if any, between Mr. Johnson and
Mr. Dunn as to the amount of control that Mr. Johnson could exercise. It is not
surprising that Mr. Dunn would assume that Mr. Johnson could call the shots,
because he owned the farm. Mr. Johnson, on the other hand, believed that his
control was limited in accordance with the written agreement.
[22] The
written agreement appears to contemplate that Mr. Johnson’s control is limited.
For example, it states that Mr. Dunn will manage the hog breeding operation,
with the exception of renovation expenditures which require Mr. Johnson’s
approval.
[23] I have
concluded on balance that Mr. Johnson was not to have control over how Mr. Dunn
managed the hog operation, except to the extent necessary to protect Mr.
Johnson’s investment. This is consistent with an independent contractor
relationship.
[24] Among the
other factors that point to an independent contractor relationship are that Mr. Dunn’s required services are restricted to
the hog operation. He occasionally helped out in other areas, but he was not
required to do so. In addition, Mr. Dunn could set his own hours, and he had
purchasing authority, except for capital expenditures.
[25] As for the other Wiebe Door factors, I find
that they are not as important in this case, but that they point in the
direction of an independent contractor relationship. In particular, Mr. Dunn
was entitled to a performance bonus, he used his vehicle in the course of his
work without reimbursement, and he had to supply personal items such as boots,
gloves, masks and clothing.
[26] Counsel for the respondent emphasized that the farm
equipment was supplied by Mr. Johnson. With respect, this puts the focus on the
wrong tools.
[27] When
giving consideration to tools, it is
important to identify the business that the contractor operates. In this case,
Mr. Dunn did not own a hog raising business. That business was owned by Mr.
Johnson. Mr. Dunn’s business consisted only of providing management and
operations services. The tools that are relevant for this business are the
tools used specifically to provide these services. The farm property itself is
not a “tool” needed for this purpose.
[28] As for the intention of the parties, this is reflected
in the written agreement. Essentially, this document was a layman’s attempt to
draft a contract evidencing an independent contractor relationship. That
clearly was Mr. Johnson’s intention. Mr. Dunn’s intention is less evident but,
by signing the Service Contract, he implicitly agreed that the relationship was
not employment.
[29] Based on the above factors, I have concluded that Mr.
Dunn was an independent contractor during the periods at issue. The appeal will
be allowed on that basis.
[30] As for
costs, each party will have to bear their own in light of the jurisprudence on
this point: Mid-Canada Rail
Contractors Ltd. v. MNR, [1998] FCJ
No. 344.
[31] Before
concluding, I would comment briefly concerning a question that Mr. Dunn asked
me during the hearing. The question is: Who
has the obligation to determine whether a relationship is employment or not?
[32] For purposes of the Employment Insurance Act
and the Canada Pension Plan, the responsibility is on the worker and the
payor to determine whether the relationship constitutes employment or not. The
system is a self-assessment system similar to the Income Tax Act.
[33] That is
not the end of the matter, however, as the
Canada Revenue Agency may disagree with this determination. For this reason, it
is important that the determination made by the parties be legally supportable.
[34] If it is not feasible for the parties to obtain
professional advice, assistance may be obtained from the CRA website, and a
ruling could be sought from the CRA in cases of doubt.
[35] In this case, there was considerable uncertainty as to
the nature of the relationship. If the written agreement had explicitly stated
that Mr. Dunn was to be an independent contractor, this litigation likely could
have been avoided.
Signed at Toronto, Ontario this
28th day of July 2010.
“J. M. Woods”
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