Citation: 2009 TCC 476
Date: 20090921
Docket: 2009-1220(EI)
BETWEEN:
GREG KLEM,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
Mr. Klem is a
British Columbia forestry worker who has appealed the characterization by the
Canada Revenue Agency (the “CRA”) of his work in April and May of 2008 for the
Pacheedaht First Nation (the “Band”) as one of independent contractor and not
one of employment.
I. Introduction
[2]
Mr. Klem is a
forestry worker with many years of experience. He has worked as a tree planter
as well as in a number of other silvicultural roles including pruner, spacer
and landslide rehabilitation work. He has held these positions at times as
employee and at times as independent contractor. He had worked as an employed
tree planter for the Band in prior years as well as in the weeks immediately leading
up to the tree clearing work.
[3]
Tree planting is
short-term seasonal work for a period of weeks in the spring and fall. Many
tree planters, including Mr. Klem, are characterized and recognized as
employees for provincial labour law purposes as well as for Employment Insurance
(“EI”) purposes. Indeed, the CRA recognizes that Mr. Klem’s tree planting
work for the Band in April 2008 on the Band’s traditional area was employment.
The issue in this appeal involves Mr. Klem’s work for the Band as a tree
clearer on the 25 kilometres stretch of the West Coast Trail that is on
the Band’s traditional area. At the request of the Band, Mr. Klem had
switched his work from tree planting to tree clearing. At the time there were
only three or four days of tree planting work left whereas there was an
estimated eight to ten days of tree clearing work needed on the West Coast
Trail.
II. Issue
[4]
The only issue in this
case is whether for EI purposes Mr. Klem’s work for the Band changed from
a contract of service, as employee, to a contract for services, as independent
contractor, at the time of the change of his work duties from tree planter to
tree clearer.
III. Law
[5]
As set out by the
Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada
Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, there is no
single conclusive test that can be universally applied to determine whether a
person is an employee or independent contractor. The issue of employee versus
independent contractor for purposes of the definition of insurable employment
is to be resolved by determining whether the individual is truly operating a
business on his 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.,
87 DTC 5025, for purposes of the Canadian definition of insurable
employment, and adopted by the Supreme Court of Canada in Sagaz Industries.
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.
[6]
The decision of the
Federal Court of Appeal in The Royal Winnipeg Ballet v. M.N.R., 2006 FCA 87,
2006 DTC 6323, 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 decision in Combined
Insurance Co. of America v. M.N.R., 2007 FCA 60, as well as its
decision in City Water International Inc. v. M.N.R., 2006 FCA 350.
The Reasons given by the former Bowman C.J. of this Court in Lang et al. v.
M.N.R., 2007 TCC 547, 2007 DTC 1754, are also very
helpful on this point.
[7]
I turn now to address
the circumstances and considerations I find relevant to Mr. Klem’s
particular situation.
IV. Intention
[8]
The intention of the
parties upon making arrangements for Mr. Klem’s tree clearing services is
not significantly helpful in this case. It appears that there was a failure to
communicate clearly and precisely. The use of the word “contract” does not
appear to have helped. Mr. Klem was clear in his testimony that he intended
this to be a continuation of his employment because he needed the additional
hours for EI purposes and neither Mr. Jones on behalf of the Band nor
anyone else suggested anything differently at that time.
[9]
The Band’s Forester, Mr. Jones,
could not recall whether he raised the change from employment to independent
contractor with Mr. Klem at that time. He could only be sure he described
it as a contract or contract work. That is not very clear. Not only are
contracts of service and contracts for services both contracts, but it is
apparent from the witnesses that, in this part of the forestry industry,
contract work was used to describe both work done as employee and as
independent contractor. For example, even Mr. Jones described the piece
rate paid to the Band’s employed tree planters as a contract rate.
[10]
I accept
Mr. Klem’s statement that it was his intention for this to be employment
work. With respect to the Band’s intention, I find only that, at the time
Mr. Klem was offered the tree clearing work, both Ms. Hunt, the Band’s
Administrator, and Mr. Jones were aware that Mr. Klem was looking for
more work and that, in addition to needing the money, he needed additional
employment hours for EI purposes. The evidence is insufficient to satisfy me
that the Band intended at that time to change Mr. Klem’s relationship from
employee to independent contractor and communicated that intention to
Mr. Klem.
V. Characterization by the Parties
[11]
Immediately prior to
commencing his tree clearing work, Mr. Klem was an employed tree planter
for the Band. (While Mr. Jones mentioned that technically the employer was
an ordinary business corporation owned by the Band, that is not how either
party pleaded its case, and is inconsistent with the Minister’s position and
assumptions throughout, and I do not therefor regard the distinction as
significant.) As an employee, Mr. Klem had completed for the Band the
appropriate employee withholding forms.
[12]
The West Coast Trail
tree clearing was work that Parks Canada had contracted with the Band to
complete. Ms. Hunt said that Parks Canada advised her it should take two experienced
workers eight to ten days to complete the work and that $2,000 would be
reasonable pay for each worker.
[13]
Mr. Jones and
Mr. Klem each testified that Mr. Klem was to be paid $2,000 for the
work, whether it took him ten days as expected or eight or fewer days.
Mr. Klem said he was to do what he could in ten days, whereas
Mr. Jones said he expected the work to be completed in any event.
[14]
When it came time to
make payments to Mr. Klem for work done before the work was completed, the
Band was clearly paying $200 per day worked. Significantly, they had
Mr. Klem fill out forms showing his hours and days worked in detail for
this purpose on a Band form for employees. While they had struck out some parts
of the form as not applicable to this contract, they did not strike out the
employment-related language. Similarly when it came to pay Mr. Klem for
the use of his truck to access the West Coast Trail remote work area via
unmarked logging rods when the Band’s contracted ferry could not take
Mr. Klem and his co-worker there, that too was done on an employee expense
reimbursement form.
[15]
I note that the Band
had a number of employees as well as a number of independent contractors
working for it in numerous positions. I note also that Mr. Klem did other
work for others as an independent contractor and also ran a seasonal tour guide
business as a proprietorship. Nonetheless, both parties used the Band’s
employee forms for monitoring Mr. Klem’s days and hours worked and the
days he used his own truck.
[16]
The Band also paid
Workers Compensation Board (“WCB”) assessments in respect of Mr. Klem and
it was aware that he did not have his own WCB coverage. On the Band’s accounts
payable voucher form, the Band has added to the amount payable to Mr. Klem
the WCB assessment payable and then has shown the same amount as a deduction
with the result that Mr. Klem’s pay was unaffected and the WCB amount was
borne by the Band.
[17]
Portions of the Band’s
contract with Parks Canada were put in evidence by Mr. Klem. He had made
an Access to Information request for the Band’s contract with Parks Canada for
the relevant period in respect of the West Coast Trail maintenance, etc.
Ms. Hunt in her testimony referred to and produced two of these pages
herself and said they were part of the contract. I am satisfied on the evidence
before me that the page headed General Terms and Conditions Appendix “A” formed
part of that contract.
[18]
Clause 3 of the
General Terms and Conditions headed Assignment and Subcontracting provides that
“The contract shall not be assigned in whole or in part, nor shall the work
under the contract be subcontracted in whole or in part, without the written
consent of the Minister . . .” (emphasis added). If the Band intended
Mr. Klem to be a subcontractor, there was no evidence this requirement was
complied with.
[19]
In addition the Parks
Canada contract bidding process included provisions for a so-called Set-Aside Program
for Aboriginal Business referred to as the SAP. As part of that process and
program the Band agreed “to ensure that any subcontractor it engages with
respect to the contract shall, if required, satisfy the requirements set out in
“Requirements for the Set-Aside Program for Aboriginal Business” attached as
Appendix 2 to Annex E”. Mr. Klem was not such a qualifying
aboriginal person. However, it was not clear on the evidence whether or not
compliance with this provision was required.
[20]
The lack of communication
by the Band to Mr. Klem that he had ceased to be in employment, the use by
the Band and Mr. Klem of the Band’s employment‑related forms, the
Band paying the WCB in respect of Mr. Klem’s work, and the apparent
failure by the Band to seek Parks Canada authorization for Mr. Klem to be
approved as a subcontractor as the Band was contractually required to do, all
incline in favour of the work relationship having been intended during its
course to be one of employment.
VI. Tools
[21]
Both parties agreed that
the ownership by Mr. Klem of the chainsaw he used for work and his safety
clothing and gear is neutral in this case as this would be required of tree
clearers and other forestry workers in this part of British Columbia whether
the worker was an independent contractor or an employee. As Bowie J. said in McPhee v. M.N.R., 2005 TCC 502,
in a case involving a New Brunswick forestry worker, in paragraph 13, “Indeed,
it would not be possible for them to get work if they did not own a saw” and in
paragraph 16:
As to the power saw, it is usual practice in many industries for
employees to own their own tools. Mechanics and carpenters are two examples. It
is an invariable practice in the industry with which we are dealing here, at
least in this location. Anyone who wants to work in the woods in New Brunswick must own his own power saw.
That is simply the way the trade has always operated.
[22]
In this case the
ownership of tools consideration does not point in one direction or the other
but is neutral.
VII. Control
[23]
The Band hired a very
experienced forestry worker whom they knew well from past employment dealings.
The Band dictated a tight and short ten-day work period which effectively
required full-time work by Mr. Klem throughout the period. The work began
in April 27. The Parks Canada’s contract required it be completed by May
15. Access to the work site was weather-dependent.
[24]
The Band controlled
access to the work site whether by water or land. Mr. Klem was told which
ferry service provider to use.
[25]
Parks Canada reported
to the Band on the progress of Mr. Klem’s work.
[26]
The Band told him to
choose a co-worker to be hired and paid by the Band from a list of names given
to him, either by Mr. Jones or at the Band office.
[27]
The Band told
Mr. Klem he was responsible for arranging for transportation by ferry of
himself and his co-worker to the remote work site. The Band told him he would
need to arrange for adequate radio contact at the remote work site. He was told
to do these things and the evidence is he did them. He was not free to pick or
choose to do them as he wished.
[28]
The Band required him
to fill out and sign forms tracking his particular and detailed hours and days
worked when he wished to be paid. Similar forms were required to be paid for
the use of his own truck as transportation.
[29]
While this degree of
control by the Band over Mr. Klem’s work is not necessarily inconsistent
with the relationship being either employment or that of an independent
contractor, when looked at in its totality I find it more consistent with
Mr. Klem being the Band’s employee.
[30]
Moreover, the evidence
did not disclose that Mr. Klem was subject to any greater degree of
control by the Band when he worked the immediately preceding weeks as their
employed tree planter.
VIII. Risk of Loss / Chance for Profit
[31]
The risk of loss
resulting from Mr. Klem’s obligation to provide his own functioning chain
saw and safety gear is insubstantial. His chain saw cost him $450 and was used
by him on any number of other forestry work assignments. His safety gear
consisted primarily of a hard hat, construction boots and safety pants – the
type of rugged, long-lasting clothing suitable for the work involved.
[32]
Similarly I am
satisfied that his chance of enhanced profit if he was able to complete his
work in eight days instead of ten was minimal. The range of time for the work
was established by Parks Canada and accepted by the Band as eight to ten days.
This range was not suggested or established by Mr. Klem. Mr. Klem
could only complete the work early if his co-worker over whom he had no control
was also able to finish his share of the work early. Further, I note the
evidence suggests strongly the Band was really only prepared to pay
Mr. Klem $200 per full day worked regardless of what Mr. Jones and
Mr. Klem may have discussed about getting paid the full $2,000 if the work
was finished early. The fact is the Band paid Mr. Klem $1,800 for nine
days of work. While the Band had to pay someone else to finish the work, I
infer that the person was paid no more than $200 to complete the work as I was
not told otherwise and I would expect I would have been told given the
testimony of all the witnesses.
[33]
For practical purposes,
Mr. Klem was not free to take on work for others during this period given
the work schedule and the fact that the inclement weather of the type that
prevented work on some days could not be planned for or around. His tour guide
business season had not started this early in the season.
[34]
For these reasons, I
find Mr. Klem to have been engaged in insurable employment under a
contract of service for the period in April and May 2008 during which he worked
for the Band as a tree clearer on the West Coast Trail.
[35]
While it may appear to
be unusual to many people that a work contract of ten days would be an
employment contract or an extension of an employment contract otherwise only
lasting several weeks, we are clearly dealing with one of Canada’s industries
in which very short-term recurring seasonal work is set up as employment. That
this may be done in part to ensure access to EI benefits does not negate it
being employment. Indeed, the government recognizes such short-term seasonal
recurring work as employment.
[36]
Mr. Klem’s appeal
is allowed.
Signed at Ottawa, Canada,
this 21st day of September 2009.
"Patrick Boyle"
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