Toronto,
Ontario
--- Upon commencing the Oral Reasons on
Tuesday,
August 25, 2009 at 4:28 p.m.
THE REGISTRAR: The Court is
now resumed.
JUSTICE WEISMAN: I have
heard four appeals, two by Mr. Esan Ince-Mercer and two by Counsel, Mr. Allan
Blott, against determinations by the Respondent Minister of National Revenue
that the Appellant-Intervener, Esan Ince-Mercer, was employed under a contract
of service while engaged by or in Mr. Blott's law office during the period
under review, which is January 1, 2006 to May 16, 2007 and that, accordingly,
Mr. Blott was liable for Employment Insurance premiums and Canada Pension Plan
contributions with reference to that employment.
Each Appellant has
intervened in the other Appellant's proceedings. They mutually agree that the
Minister was wrong because, in their view, Mr. Esan Ince-Mercer was a
subcontractor or independent contractor of Mr. Blott's during the period under
review.
In order to resolve this
question, which has been variously characterized in the jurisprudence as ‘fundamental’,
‘central’ and ‘key’, the total relationship of the parties and the combined
force of the whole scheme of operations must be considered. To this end, the
evidence in this matter is to be subjected to the four-in-one test laid down as
guidelines by Lord Wright in Montreal (City) v. Montreal Locomotive Works
Ltd., [1947] 1 Dominion Law Reports 161, which was adopted by
Justice MacGuigan in Wiebe Door Services Ltd. v. The Minister of National
Revenue, [1986] 87 Dominion Tax Cases 5025.
The four guidelines are: the
payer's control over the worker; whether the worker or the payer owns the tools
required to fulfill the worker's function; the worker's chance of profit; and
finally, the worker's risk of loss in his or her dealings with the payer.
While there are four
guidelines involved in the four-in-one Wiebe Door test, I ran into a
complication because, upon reading the Minister's Reply to the Notice of
Appeal, I had a question as to whether the assumptions therein set out in
paragraph 7 were sufficiently clear so that the Appellants were aware of the
case that they had to meet.
There are cases saying that
the day of trial by ambush and surprise are long over and that the Appellant or
the taxpayer has the right to know the case that he has to meet. That was an
issue that concerned me in this case to which I will subsequently allude.
Specifically, as I put it to
Counsel for the Minister, the simple statements in paragraph or assumption 7(e)
and 7(m), the former being that there was a fixed salary earned by Mr.
Ince-Mercer and the latter being that he had expenses, raised the question in
my mind as to their sufficiency.
I drew Counsel's attention
to Justice L'Heureux-Dubé's decision in Hickman Motors Ltd. v. The Queen,
[1997] 2 S.C.R. 336, that the burden was upon the Appellant
to rebut the assumptions contained in the Appellants' Notices of Appeal, but no
more.
Adverting first to the
element of control, Counsel for the Appellants, who is obviously well aware of
the law in this area on his own, talked about subordination, which I thought
was excellent because, personally, I find the concept of subordination a useful
tool that we in the common-law jurisdictions have started to import from the
Quebec Civil Code, specifically Article 2099, which defines independent
contractors as those who have no subordinate relationship with their payers.
The converse of that
proposition is that, if one is to be an employee, then there must be a
relationship of subordination between the payer and worker.
I have found it useful in
all cases that I have heard, including today's, to think not only in terms of
control but in terms of subordination. I do appreciate Counsel's raising of
that concept.
The evidence is that during
the period under review, January 1, 2006 to May 16, 2007, Mr. Ince-Mercer was a
person who was freshly called to the Bar after completing his articles with Mr. Blott's
firm. There, he decided to specialize in personal injury matters. The evidence
is that he did that work primarily in Mr. Blott's office but also at home,
where he had an office and would work late at night.
Sometimes he would come in to
Mr. Blott's office at noon, which satisfies me that Mr. Blott did not have
Mr. Ince-Mercer punching a clock and he did not have strict control over his
comings and goings. This particular factor tends to indicate that he did not
have strict control over Mr. Ince-Mercer.
As I understand it, Mr.
Blott's clients would see Mr. Blott. He would sign the retainer and then the
file would be turned over to Mr. Ince-Mercer to do the paperwork such as the
issuing of process and preparation of pleadings. I accept that Mr. Ince‑Mercer's
work on the file would constitute 80 per cent of the time and effort required.
On the other hand, it was
Mr. Blott's firm and Mr. Blott's clients that Mr. Ince-Mercer was
working on. The big decisions were deferred to Mr. Blott as well as the all‑important
procedures at the end of a lawsuit or potential lawsuit, such as mediation and
settlement conferences and, in the rare case, an actual trial.
It is the Appellants’
position that Mr. Blott subcontracted 80 per cent of the work to Mr.
Ince-Mercer under a contract for services, as distinct from a contract of
service.
There was evidence that the
two of them talked about an ultimate plan, which was not reduced to writing,
but that the ultimate plan was that Mr. Blott, with some 30 years' experience,
was looking to retire, actually for a second time, and that Mr. Ince-Mercer
would take over the practice.
I was interested in that
particular piece of evidence because of a case called Woodland Insurance
Ltd. v. The Minister of National Revenue, [2005] T.C.J. No. 276, a decision
of my Brother Justice Bowie. That was a very interesting case because it was a
case of a salesperson who was working very hard to build up the clientele and
the business of the person for whom he worked. Because he was building up a
business, the issue was whether he was or was not an independent contractor.
Justice Bowie said something
that I find very sensible. He said if someone is building up a business and is
therefore to be held as an independent contractor, he has to be building up his
own business, not somebody else's. Of course, it is obvious why that would be
of interest to me in this case, because Mr. Ince-Mercer was clearly building up
Mr. Blott's clientele and his business. There is no evidence that he had any
clients of his own. As a matter of fact, he said in the witness box that these
were Mr. Blott's clients, and it was his office and he had the ultimate
authority over the big decisions.
That detracts, I would say,
from the argument that Mr. Ince-Mercer was an independent contractor but, in
these cases, there is always evidence going both ways. As we all recognize, it
is a matter of deciding on which side the matter falls on the balance of
probabilities.
I did have trouble giving a
great deal of credibility to the argument that a neophyte in the practice of
law, working for a man with 30 years' experience, was not in a subordinate
relationship with him, but an independent one.
While I was impressed by
Counsel for the Appellants, there was one area in which my view of the law
differed from his. The argument of Counsel was that Mr. Blott did not have de
facto control over 80 per cent of the work done on the files. But the law
is not that de facto control is what is important. The law is, it is the
right to control that is important; de jure rather than de facto.
You will find that in a
number of cases. If you want to read a summary of those cases, you can consult Logitek
Technology Ltd. v. The Minister of National Revenue, 2008 TCC 331. It is a
decision of my own on May 6, 2008, Court Docket 2006‑2748(CPP).
I was interested in Mr.
Blott's right to control Mr. Ince-Mercer. We have a situation where it is Mr.
Blott's firm, Mr. Blott's clients, where he has the whole financial investment,
where his reputation is at stake and he has responsibility and risk. Surely in
those circumstances he has a right to control. In fact, when asked, he admitted
that he had the right to control and to dictate to Mr. Ince-Mercer not only
what he did but how he did it.
I might interject
parenthetically that the law is so technical and deals with such subtle
distinctions that there are cases where it makes a difference whether the payer
has the right to dictate what to do but not how to do it. But, in this case,
once it is established that Mr. Blott had the right to dictate to Mr.
Ince-Mercer both what to do and how to do it, that clearly points to a great
deal of the right to control, which indicates that the worker is an employee.
Adverting to Counsel's
interest in subordination, again, I would find it very difficult to believe
that Mr. Ince-Mercer, fresh out of school, would not be subordinate to a man of
30 years' experience, and is working in his firm with all the aforementioned
responsibilities. It being his investment and his clientele, I really was not
satisfied they are in any way dealing as equals or on an even plane. It is
clearly a situation of a subordinate dealing with a principal.
The control factor indicates
that, during the period under review, Mr. Ince-Mercer was an employee.
Adverting to tools, the
conclusion in my view is equally clear in the same direction. Employees have
home offices and home computers and do some work at home. They have vehicles in
order to get to work, they have computers. But in this case, there were so many
of the tools required by Mr. Ince‑Mercer to do his job and that were
provided by Mr. Blott that the tools factor, it was very clear that it
indicates that the tools were supplied by the payer, indicating that the worker
was an employee.
In case you are interested,
the reason the law has developed an interest in ownership of tools, according
to the American Re-statement, is that he who owns the tools, controls how those
tools are used.
In case I have not been
sufficiently particular in the sort of things that were supplied by Mr. Blott,
we have everything from an office, paralegals, law clerks, students, a library,
receptionist, forms; the list is quite long.
The four-in-one guidelines
set out in Montreal Locomotive and in Wiebe Door were only in
service of ascertaining the total relationship between the parties in law. The
evidence that there was a plan that someday Mr. Ince-Mercer would be owner was
vague. It might be a hope, but it was not reduced to writing and it was not
something that I could take as a serious piece of evidence that Mr. Ince-Mercer
had really in any way any proprietary ownership in this business of Mr.
Blott's, even in the near future. Again, I have referred to Justice Bowie's
decision as to why that was relevant.
Again, we have Mr.
Ince-Mercer telling us very clearly that these were Mr. Blott's clients. It
really was not his own clientele he was building up; he was working on Mr.
Blott's clients.
The evidence led me to a
very clear picture of an actuality that what we have here when one looks at it
objectively, which is my role, is a person whose job and whose specialty is to
work on pleadings in the area of personal injury. He is a neophyte, fresh out
of law school. While he might have done 80 per cent of the work on the file or
consumed 80 per cent of the time – I am really not clear, which are necessary
to close a file – but it was Mr. Blott who was seized of the client and of the
retainer and came into the picture when it came to settlement, mediation and
carriage of the trial.
I found myself wondering if
it could be argued that a certain percent of the file was subcontracted to the
paralegal. You do get to a point where the argument that is really the one that
the Appellants are relying upon, begins to lose some force and effect.
The indications so far as
tools and control are concerned are clear; they both indicate that Mr.
Ince-Mercer was an employee in the period under review.
I have saved profit and loss
for the last, and really I am talking about them out of order because the
evidence is clear that, with a fixed salary of a thousand dollars a month, Mr.
Ince-Mercer had no chance of profit. Again, it was not his business he was
building, it was Mr. Blott's.
Similarly, with expenses, I
accept that he did have Law Society dues and errors and omissions insurance,
and his home office and his home computer and his vehicle, but there is no
evidence that constitutes a risk of loss in the sense of business expenses
exceeding business income.
I get back to this issue as
to whether those two Wiebe Door factors, chance of profit and risk of
loss, were sufficiently clearly pleaded in the assumptions so that both Appellants
knew the cases they had to meet.
I decided that, yes, they
were sufficiently clearly pleaded in the assumptions for a number of reasons; the
first of which is that both Appellants were represented by very able Counsel
who knew quite well the law in this area and that there was no complaint that
they did not know the case they had to meet so far as chance of profit and risk
of loss is concerned. As a matter of fact, it was me who raised the issue and
nobody else.
At the risk of being
redundant, there was no argument that the Appellants were not prepared to face
those issues.
The total relationship between
the parties is clear; it points to Mr. Ince-Mercer being an employee under a
contract of service. All four Wiebe Door factors point in that
direction.
Counsel has raised the Royal
Winnipeg Ballet v. The Minister of National Revenue case, 2004 TCC 390, which does stress the
importance of the mutual intention of the parties, which I am prepared to
accept for argument purposes that it was mutually intended that Mr. Ince-Mercer
would be an independent contractor. But if you read Wolf v. The Minister of
National Revenue, 92 D.T.C. 1858, together with Royal Winnipeg Ballet,
it becomes clear that, although there are various statements by various judges,
the intent of the parties as articulated in Royal Winnipeg Ballet is
only relevant if the Wiebe Door four criteria produce inconclusive
results. The results are so conclusive in this case that the mutual intent does
not carry the day.
It is trite law that the
burden is upon the Appellants to rebut the presumptions contained in the
Minister's Reply to their Notices of Appeal, which are to be found in
paragraphs 7. Counsel, very fairly, agreed with most of them, with the
exception of 7(b), (c), (k), (n), (o), (q), (r), (s) and (v).
Starting with 7(b), I have
found that the worker was indeed hired. Under 7(c), I acknowledge that the
evidence indicates that both worked on the personal injury files. But of
importance is that the 20 per cent worked on by Mr. Blott was what I would
call the key 20 per cent because it involved the major responsibility areas
such as settlements, mediations and trials. I would say that Mr. Ince-Mercer,
who did the paperwork, had a subordinate role in those areas of responsibility.
Paragraph 7(k) was true, but
as I have already said, this factor of the worker having his own home office
and expenses is not unusual among employees.
Paragraph 7(n), I accept the
position of the Appellant that the files were not assigned, and that the
worker, Mr. Ince-Mercer, had the right to refuse. That is quite interesting
because there are a number of cases, one of which is Precision Gutters Ltd.
v. The Minister of National Revenue, which is cited at [2002] Federal Court
Judgments No. 771, at paragraph 27. They say, and I will quote:
"… In my view, the ability
to negotiate the terms of a contract entails a chance of profit and risk of
loss in the same way that allowing an individual the right to accept or decline
to take a job entails a chance of profit and risk of loss.”
I was, of course, very
interested when I heard that Mr. Ince-Mercer had the right to decline to take
on files. I was even more interested to hear the reason. His reasons, without
exception, had really nothing to do with independence as opposed to subordination.
It is not a case of - you can pick any trade - a plumber, saying, "I
refuse to work on this house." That is independence. But in Mr. Ince‑Mercer's
case, I found that, congruent with the highest standards of the legal
profession, his reasons were that, "I already have so much on my plate
that I can’t really do the best possible job," or, "This is not in my
area of expertise, and therefore I decline to take it." I found a
distinction between Mr. Ince-Mercer's right of refusal and the sort of right of
refusal to be found in cases such as Precision Gutters, and it did not
lead to the inference that he was an independent contractor.
Assumption 7(o) was clearly
demolished. The things that motivated Mr. Ince‑Mercer were legal
limitation periods, the rules and regulations of the Law Society of Upper
Canada, the client's needs, and the exigencies of each case. Those are what
determined his priorities and his deadlines, not the payer.
Paragraph 7(q) is true, and
I accept that the form that Mr. Blott put his name on was pro forma. But
the form that that form was attached to, namely the pleadings, certainly was
not. I am quite satisfied that anyone with 30 years' experience would very
carefully peruse any document of importance going out of his office,
particularly one that he had to certify for court purposes, just as a matter of
the caution of good counsel, and also being the person who owns the business
and values the client.
Paragraph 7(r), as to who is
responsible for resolving customer complaints, we are getting into things that
really do not pertain to the legal industry; we are not talking about someone
who is manufacturing door handles. As Mr. Blott said, he had trouble
identifying with it in his context, and so I put no real weight on it.
The same is with 7(s),
talking about work having to be redone. I know why it is there; it is there
because if somebody is painting a wall and they do a bad job and they have to
repaint the wall, if they are an independent contractor they have to do it on
their own time and at their own expense. If they are an employee, their salary
goes right on while they are repainting the wall. That is not pertinent to the
topic before us, and I do not really know why it is in these assumptions.
This brings me to 7(v),
personal services. I also found this one not probative. It is there because of
cases like Ready Mixed Concrete v. the Minister of Pensions, 1968 1
All-England Reports 443 in the Queen's Bench Division. The Court says that:
"Freedom to do a job
either by one's own hands or by another's is inconsistent with a contract of
service …"
That is usually quite
helpful in deciding who is an employee and who is an independent contractor.
Unfortunately, nothing in law is entirely simple because, if I quote the
example of a physician, surely you want your physician to be the one to do the
operation on you and yet he is still clearly an independent contractor. I would
equate someone with the expertise of Mr. Ince-Mercer to a physician in that,
even though you would like him to do his work personally, that does not detract
from the fact that he could be an independent contractor.
But in this case, it was not
probative because it is accepted by anybody who resorts to legal services that
there are paralegals, there are title searchers, there are other people who
will be involved in managing your file. The evidence does not substantiate that
Mr. Ince-Mercer had to perform his services personally and, even if it did, it
is not necessarily probative.
The burden, as I have said,
is upon the Appellant to rebut the assumptions contained in the Minister's
Reply to the Appellants' Notices of Appeal, and there were some assumptions
successfully rebutted. But the law according to the Federal Court of Appeal in Jencan
Ltd. v. The Minister of National Revenue, [1997] Federal Court Judgments
No. 876, is that if the remaining assumptions that have not been rebutted are
sufficient to support the Minister's determination, that suffices. They do not
have to rebut all the assumptions.
In this case, it is quite
clear that there are sufficient assumptions remaining to support the Minister's
determinations.
I have investigated all the
facts with the parties and the witnesses called on both Appellants' behalf,
none being called by the Minister, to testify under oath for the first time. I
found no new facts and nothing to indicate that the facts inferred or relied
upon by the Minister were unreal or incorrectly assessed or misunderstood. I
can find no business that Mr. Ince-Mercer was in on his own account.
The Minister's conclusions
are objectively reasonable. In the result, the appeals, all four, will be
dismissed and all four determinations of the Minister will be confirmed.
Gentlemen, I thank you both
for your assistance. I shall appear again at 9:30 tomorrow morning.
THE REGISTRAR: Thank you,
sir. Court is closed for the day.
--- Whereupon the excerpt concluded at 5:09
p.m.
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