Citation: 2007TCC362
Date: 20070910
Dockets: 2006-3714(EI)
2007-457(EI)
2006-3715(CPP)
2007-459(CPP)
BETWEEN:
ROBERT DEMPSEY,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Hershfield J.
[1] The Appellant
appeals the Minister’s determination that he was not engaged in a contract of
service with either Western Economic Diversification (“WD”) or Consulting and
Audit Canada (now Audit Services Canada) (“CAC”) for the period from October 5,
2003 to September 30, 2004.
[2] CAC was engaged by
WD under a Memorandum of Agreement (the “MOA”) to perform audit services for
WD. To assist in the performance of its audit responsibilities under the MOA,
CAC engaged the Appellant under a written agreement to perform services for WD
on behalf of CAC. The first contract between the Appellant and CAC was entered
into in January 1992. That agreement was for three months and under it the
Appellant was to perform duties as assigned by the portfolio manager of WD, B.C.
region.
[3] As a result of a
series of new agreements, renewals and extensions, the Appellant was
continuously engaged by CAC to perform services for WD from January 1992 until
September 30, 2004.
[4] The Appellant is
and was throughout the engagement period a chartered accountant performing what
in general terms might be referred to as auditing services for WD.
[5] CAC was an agency
of Public Works Canada operating on a cost plus formula so as to be
self-funded. CAC had full-time employees that could be used to perform CAC
contracts and as well entered into contracts with independent contractors who
would be contracted to perform services that CAC had contracted to provide. The
Appellant was in the latter group and was paid at all times by CAC for his work
for WD under the MOA.
[6] It is clear, and it
is not in dispute, that the contractual status imposed on the Appellant under
the written agreements with CAC was that of an independent contractor.
[7] Notwithstanding
such contractual labelling, the Appellant asserts that in reality he was
engaged in a contract of service with WD and that CAC was a deemed employer pursuant
to paragraph 10(1)(a) of the Insurable Earnings and Collection of
Premiums Regulations (the “EI Regulations”) and subsection 8.1(1) of
the Canada Pension Plan Regulations (the “CPP Regulations”). As
such, the Appellant asserts that his earnings during the subject period were
pensionable earnings under the Canada Pension Plan (“CPP”) and that
his employment was insurable employment under the Employment Insurance Act
(“EIA”).
[8] The Appellant’s
testimony at the hearing, although not disinterested, was candid and credible
and I accept his evidence where it differed from that of the Respondent’s
witnesses. The Director General of Operations of WD and the Regional Director
of CAC testified for the Respondent. Both were credible witnesses although
somewhat defensive and less informed by personal experience with the
Appellant’s situation than others might have been, such as his portfolio
manager at WD. His designated Project Authority at CAC would have been better
informed as well although the Appellant’s contact with CAC was minimal being
limited to contract renewal discussions and submitting monthly invoices.
Neither of the Respondent’s witnesses worked directly with the Appellant and
neither had been with their respective organizations as long as the Appellant.
The CAC Director had only been there since July 2000 and the WD Director
General had only been there since April 2003.
CONTRACTUAL BACKGROUND
CAC – WD
[9] CAC was retained
under the MOA to perform auditing and professional services in relation to
loans and grants made by WD to small businesses in Western Canada (called
contribution arrangements). The objectives of the MOA and the responsibilities
of the CAC under it, were broadly stated so as to encompass almost anything and
everything that a worker might do in relation to WD’s contribution arrangement
activities. More specific duties in respect of the Appellant’s duties were set
out separately in other documents or letters or terms of reference, copies of
which were not put in evidence.
[10] Generally, however,
it is not in dispute that it was under the MOA that CAC personnel came to work
on various aspects of WD’s contribution arrangements including and in particular
in the case of the Appellant, monitoring accounts receivable in respect of
repayable loans made by WD.
[11] The MOA was a
contract for a fixed term of two years having a maximum authorized expenditure
or contract fee cap for the two year term. By virtue of renewals it was in
place throughout the time that the Appellant was engaged by CAC. The MOA
recognized and accommodated the uncertainty of WD’s funding. Given such
uncertainty, WD was unable to commit to hiring audit personnel in employment
positions. Services of monitoring loan repayments for example would only be
required as long as government provided funding for loans. Since funding was
uncertain, employment commitments were not possible. Indeed, the MOA was in
place for two year periods to permit periodic reconsideration of WD’s need to
engage workers through CAC depending on its funding commitments.
[12] Under the MOA, WD
paid CAC fees based on the actual hours spent by CAC auditors in the
performance of services for WD. As well, actual travel expenses incurred by CAC
workers in the performance of services for WD were charged to WD. There was a maximum total fee
stipulated in the MOA in respect of each term.
CAC –
Appellant
[13] While the agreements
varied somewhat over the years, the principal terms were substantially
unchanged.
[14] Each contract
provided a rate of pay for each full working day of 7.5 hours at a stipulated
daily rate with a contract maximum based on a maximum number of days. The daily
rate was pro-rated on an hourly basis for less than a full day’s work. The
maximum number of days (with a minor exception) was the number of actual working
days in the stipulated contract period. For example, the first contract
starting January 20, 1992 and ending March 31, 1992 (i.e. 70 days or ten full weeks)
was for a maximum of 50 days (i.e. 5 working days a week). In each year the
maximum allowed was worked and paid for.
[15] The Appellant was
required to submit invoices each month for the number of hours worked each day of
the month and same had to be approved by WD.
[16] Each contract
stipulated that GST was payable on services invoiced and the Appellant was
required to be a GST registrant providing his number on each invoice.
[17] Each contract had a
schedule of work to be performed. The first contract simply said that duties
were as assigned by the WD portfolio manager in the office to which the
Appellant was assigned (“WD, B.C. Region”). Later, work to be performed was
described in considerable detail in an appendix to the contract.
The Appellant’s Retention and Work Responsibilities
[18] Prior to his
engagement with CAC, the Appellant worked in industry in Canada and in the United
States and as well owned his own business in Canada.
[19] In 1992 he was
looking for work and was eventually referred to CAC. His business venture had
failed and he was under considerable pressure to find work.
[20] After one meeting with
CAC, he was referred to WD, B.C. Region where he had two interviews and was
found suitable to be engaged in the position to review and monitor the repayment
of WD loans. In this way, the Appellant’s services would be included under the
then existing two year MOA and under its fee cap.
[21] As noted, the first
contractual engagement by CAC was for ten weeks and the work to be performed
was as assigned by WD’s portfolio manager in the B.C. Region. The portfolio
manager assigned files to the Appellant to review and monitor repayments. This
was the primary role the Appellant served for twelve and one-half years.
[22] He was given initial
training in Edmonton at a two day session which was paid for by WD. As well, WD paid for two
additional training courses. He was paid for time spent on training. He was
supplied with and worked with operating manuals setting out WD’s prescribed
procedures.
Working Conditions and Responsibilities
[23] The Appellant worked
regular hours at WD’s office in Vancouver on files housed there. He could not do his work away from
his office at WD as files and the data bases he worked with were locked away and
inaccessible except at WD’s offices during normal office hours. During the
almost thirteen years of his working relationship with WD he performed
virtually no services away from that office except when visiting WD clients in
the course of his duties.
[24] His major tool was
his computer which was supplied by WD along with an office and office supplies.
He occasionally had secretarial help although for the most part he did not
require such help. He had use of the office fax and copier as any employee
would.
[25] He dealt directly
with WD clients in this role and was held out as a senior business officer of
WD. He visited clients and made reports to his manager on files which were his
responsibility to monitor. He made recommendations as to collection
arrangements, write-offs and possible legal actions. His reports were received
by his manager, the WD regional Director General and then by the Edmonton head office and were
subject to edits and revisions at each of these levels and at times were sent
back for him to revise as directed by one or more of these persons at higher
levels. He was paid for time spent revising his own work.
[26] He had a staff title
(Senior Business Officer) and was listed in the WD directories and on the WD website.
He had WD business cards and a name plate on his door. He had a WD office email
address which he used in communications with WD clients and personnel. He was
to a large extent integrated as part of the office personnel for almost
thirteen years. He was part of the social network in the office, participated
in at least one event to showcase and promote WD services and on occasion was assigned and did
work that fell outside his specified duties. For example, on a few occasions, he
worked on loan proposals.
[27] As part of his
collection monitoring role, he had to prepare collection forecasts that were
subject to deadlines and, as well, there were deadlines for meetings with his
manager.
[28] While he was allowed
to take time off and work his hours as he pleased, practically speaking his
work could only be performed at WD offices and he could only take time away for
holidays and the like if, based on discussions with his manager, his absence
would not create operational problems. As well, the existence of deadlines from
time to time would limit his ability to simply select his own working times. He
was in daily contact with his manager who was just two offices down the hall
and attended staff meetings and annual planning workshops.
[29] He was not included
in staff review meetings and was not subject to the same performance reviews or
evaluation procedures as employees. He was not part of a buddy system where WD
employees teamed up on files.
[30] The Appellant was
not included in an employee benefit plan or pension plan, was not entitled to
vacation or sick pay or leave and was not a member of the employees’ union as
were employees of WD and CAC. He saved for his retirement by making
contributions to an RRSP and subscribed for a private health plan.
Contract Extensions and
Termination
[31] At the end of each
contract with the Appellant, CAC would tender the contract utilizing a
competitive process. Having heard all three witnesses describe their view of
this "competitive" process, I am of the view that it was pretty much
a foregone conclusion that the Appellant’s contract would be renewed as long as
the job existed. I appreciate the evidence given by the Regional Director of CAC that every attempt should
have been made to follow Agency guidelines to ensure that the process was
competitive so that there would be a level playing field for outside
contractors to make competitive bids for the contract. If the contract was for
over $89,000 it would have been posted on GETS (the Government Electronic
Tendering System). Otherwise, CAC might use Contract Canada’s data base or its own data to
solicit bids. Practically speaking, however, it appears that contract renewal
options could keep the Appellant engaged for extended periods without new bids
being sought and
in any event, again practically speaking, I am satisfied based on the evidence
before me that in all probability no other bidder would have a fair chance to
replace the Appellant. He was located in Vancouver.
WD was happy with his work. They had trained him and he was experienced in the
very work that was being contracted out. He knew the staff, the clients and the
active contribution arrangements needing attention. Renewing the Appellant’s contract
afforded WD an uninterrupted service without any of the growing pains
associated with introducing new personnel.
[32] As well, the
Appellant knew when his position was being posted and there was communication to
him by CAC as to acceptable bid rates. Indeed, at one point the Appellant
lowered his daily (hourly) rate after being made aware of some budget
restraints.
This may or may not have been possible to impose had the Appellant been
employed by WD but it was certainly possible given the contractual format under
which the Appellant was engaged. Indeed, not only was it possible, it serves perhaps
to illustrate the very reason for the existence of the MOA. Budget
uncertainties were better controlled under the MOA than under direct employment
engagements in terms of personnel contracts. The Regional Director of CAC
acknowledged however that typically CAC contracts were not for long terms. They
might more typically be seasonal work or work that had a completion date. The
situation with the Appellant was not the norm and at least some of the contract
provisions did not suit the Appellant’s situation such as being required to
have his own office to perform the contracted services. The growing list of
specified duties to reflect the Appellant’s subordinate role would also be the
result of this atypical situation. The Regional Director of CAC all but
acknowledged that CAC’s services may have been abused in this case.
[33] While the budgetary
need to contract with CAC to provide some of its staffing needs continued
through this twelve and one-half year period, by the summer of 2004, WD had a
more solid funding commitment from the government of the day. There were then three
individuals that worked at WD that were provided through WD's contract with
CAC. One was an employee of CAC and the other two were independent contractors
of CAC. Both independent contractors including the Appellant were offered full‑time
employment positions with WD during the summer of 2004. The other independent
contractor accepted the employment position. The Appellant did not.
[34] The Appellant's
contract with CAC ended at the end of September 2004 and was not renewed. The
Appellant applied for unemployment insurance.
Incidental Facts
[35] The Appellant filed
income tax returns reporting his income from CAC as an independent contractor,
and claimed expenses not available to employees for each year except 2004. For
2004 he reported his income as an employment income.
[36] The Appellant had no
home office and had no work other than that with WD during the twelve and one-half
years he was contracted to work there. He subscribed to GETS and was on Contract
Canada’s data base and WD’s
data base. He made bids as required to secure the original and subsequent
contracts with WD. There is no evidence that he sought to compete for contracts
other than making bids to CAC to provide services to WD.
[37] The Appellant had
asked prior to the employment offer in 2004 why he was not recognized as an
employee as his readings on the subject had alerted him to the likelihood that
at law he would be considered one in any event. He did nothing more to change
or clarify his position.
[38] The Appellant did
not accept the employment offer made near the end of the term of his last
contract (ending September 30, 2004) believing his independent contractor
contract would be renewed. He felt the employment contract offer was inadequate.
The offer was for one year only, was at a reduced rate of pay and came to him
at the age of sixty-five when he would no longer be eligible to participate in
the employee pension plan. The independent contractor contract was preferable
to him. In a sense, and he admitted this, he gambled that his independent contractor
contract would be renewed and he lost.
Analysis
[39] If intentions were
determinative of the status of the Appellant's engagement, there would be no
doubt that his engagement would be that of an independent contractor. The
Appellant not only accepted the status imposed by circumstance and
organizational structure but played out the role of an independent contractor until
it was no longer to his benefit to do so. He honoured the contract which
defined his status by becoming a GST registrant, invoicing his time with GST
set out and bidding on new contracts as existing contracts expired. He claimed
business expenses on his income tax return and paid no union dues as a public
servant. He had no benefits and was not part of the public service pension
plan. These were all contractually established, understood and accepted by the
Appellant. At the end of the day, he preferred the independent status that this
contractual arrangement gave rise to, although when he lost it he seized on the
opportunity to deny that which he had accepted for almost 13 years.
[40] However, it has long
been accepted that the terms of a contract dictating whether an engagement is
one of employment or independent contractor are not determinative of the
relationship for the purposes of the EIA and the CPP even if
outside of the four corners of the actual working relationship both parties
treat such dictated term as definitive of their relationship. Mutuality
of intention as to the status of an engagement, even coupled with conduct
outside the working relationship that recognizes that intended contractual
status, is not determinative of that status. While recent authorities have recognized
the potential importance of intentions in so called close cases, this is not a close case. The test to
be applied in this case is clearly that set down by the Supreme Court of Canada
in 2001 in Sagaz Industries Canada
Inc. v. 671122 Ontario Limited which in large measure
accepted the tests applied in Wiebe Door Services Ltd. v. Canada (Minister of National Revenue).
[41] Applying the Wiebe
Door tests the Appellant is clearly an employee. He was engaged in a wholly
subordinate position as subject as any professional employee would be to do
what his manager required of him. He had no freedom as to how, when or where he
performed his services. In virtually every sense he was subject to the control
of his manager at WD. He was treated in almost every respect as an employee and
held out as one. He did what was asked of him in the context of his position.
He had to correct reports as dictated by persons above him and was subject to
deadlines. The specific list of duties that the Appellant was contracted to do
for WD was an expanding list that covered everything that WD might require of
an employee in the position occupied by the Appellant and even then at the
direction of his manager, the Appellant did more than the specified duties that
he was contracted to perform and he was paid in the normal course for such services.
The reason for that is that he was under the complete control of his manager in
WD as any employee would be. If control over the worker is the relevant test,
the Appellant’s engagement status is employment.
[42] The Appellant
provided no tools in respect of the performance of his duties. All of the tools
were provided by WD. If the provision of tools is the relevant test, the
Appellant’s engagement status is employment.
[43] The Appellant worked
at a fixed rate for fixed hours and had no expenses in respect of the
performance of his duties. There is no more entrepreneurial risk of loss or
opportunity for profit than any employee working on a fixed term employment
contract basis has. That he had no job security at the end of the term of each
contract and that he had to bid on each contract are compatible with a series
of negotiated term employment contracts. During the term of each contract, work
was done for a wage. If this is the relevant test, the Appellant’s engagement
status is employment.
[44] All the Wiebe
Door factors point to the Appellant being an employee. This is not a close
case where the intentions of the parties can impact the status of the
engagement.
[45] Before concluding
these Reasons, however, it is important to return to the analysis engaged in by
the Supreme Court in Sagaz. While the tests considered above were
effectively endorsed in that case, they were applied to what was referred to as
the central question in making the required determination which was whether the
worker was working as a person in business on his own account. In addressing
this question of the degree of control by the engaging party over the worker,
the provision of tools and the entrepreneurship of the worker become factors.
Assessing the last factor requires more than an examination of risk of loss and
chance of profit. It also requires examining whether the worker can be said to
have a business that he is engaged in. Here, there are some indices of the
Appellant having a business. He was a GST registrant, he invoiced his time, he
listed himself on data bases used for engaging contractor services and engaged
in a contract proposal or bidding system.
These indicia however are insufficient in this case to support a finding that
the Appellant had a business that he was engaged in for his own account in
performing services for WD.
[46] The Appellant was not
engaged in any real sense in a government contract seeking business. He had a job
that was only secure for a fixed term and he had to re-apply for that job
periodically. The way in which the re-application was submitted and handled however
was hardly entrepreneurial. It was essentially admitted that the contracting
system in this case was abused. Even if that were not the case, it is hard to
imagine that someone without a substantive business of his own (no office, no
tools) who has worked for one “client” for almost 13 years in a subordinate
position, can be said to be in business for his own account because he could
“negotiate” his contract rate. Indeed, in general terms, the enduring long term
nature of the relationship between the Appellant and WD as a full-time worker
is not consistent with viewing the Appellant as an independent contractor
carrying on business for his own account.
[47] As well, on the
facts of this case, I am not impressed with the model employed here under the
MOA. Many businesses have budget uncertainties. Many can accommodate such
uncertainties by engaging staff in short term employment contracts. That some
cannot, say because of union issues, does not enable them to use their budget
uncertainties to dictate the status of a worker for the purposes of the EIA
and the CPP by employing a particular contractual model designed to do
just that. These are not in the normal course elective regimes. The needs of WD
were not for a specific audit project where an independent contractor might be
parachuted in on the basis generally contemplated by the CAC. WD had an ongoing
need for a full-time employment position to be filled and used the MOA and CAC
as a means to fill that position. That CAC used an independent contractor
contract did not, in this case at least, cause a change in the nature of the
engagement for the purposes of the EIA and the CPP. The nature of
the engagement was a contract of service.
[48] I have not reached
this conclusion easily in spite of it being the obvious one as dictated
applying the traditional tests. There is a strong attraction to the argument
that I should accept, looking at each contract separately and the adherence of
the parties to the contractual model employed, even to the point where the Appellant
anticipating another contract chose that model, that the Appellant was engaged
in a business of his own. He used that status to get tax deductions and invoiced
his fee and collected and remitted GST. He had his own health benefit
insurance. He bid for contracts in a business like manner even though the
absence of competitive neutrality gave him a form of engagement security. His
conduct almost begs me to say he should be estopped from denying his
contractual independent contractor status. However, such view of this appeal
comes down to my accepting (or not) that the intentions of the parties must
govern the nature of the relationship in this case. Clearly, it is a result of
the common understanding of the nature of the relationship that dictated the
“business-like” conduct that reflects that understanding. Such “business-like”
conduct arises solely from that understanding and to put emphasis on it in this
context would just put determinative weight on the importance of the intentions
of the parties. The question then is whether, considering recent authorities,
placing such weight on the intentions of the parties is warranted in this case.
[49] In considering this
question I have considered the similarity of the facts in this case with those
in Wolf. While an income tax case as opposed to an EI and CPP case, I
find that case worth noting as the analysis there is the one that most invites
me to say that the Appellant in this case should be left with the contractual
deal he signed on to - and lived up to until he saw a window to obtain an
advantage, namely unemployment insurance.
[50] The facts in that
case also involved a professional contracted by a third party to perform
independent contractor services for a company that did not want to engage a
worker under a contract of employment. The contract was initially for one year
with an option to extend a further year. Extensions and renewals resulted in
the engagement lasting some 5 years. Some of the renewals arose from finding
work in other departments. There was an element of control over the work
performed in that the worker was told what projects to work on and he could be
asked to work on many projects at a time each with specific goals to be
addressed. Specialized tools such as a specialized computer were made
available. He was paid essentially by the hour.
[51] While the three
judges of the Federal Court of Appeal wrote different reasons, they concurred
that the worker in that case was an independent contractor. All three judges placed
emphasis on the principle enunciated in Article 1425 of the Quebec Civil
Code that the common intentions of the parties prevail in the
interpretation of contracts. While each judge found the application of each of
the traditional tests inconclusive, their emphasis on letting the taxpayer’s intentions
prevail in light of the employment trends and the business needs of the parties
leads me to emphasize my reasons for not following this approach.
[52] Firstly, of course,
the factual distinctions between the case at bar and those in Wolf
warrant a different conclusion on the application of the traditional tests. The
application of each of the traditional tests in the case at bar are
conclusive. The Appellant was in a subordinate relationship with WD and was not,
over the period of years that he was engaged by WD, engaged in a business being
carried on for his own account. There were no entrepreneurial risks, rewards or
investments - just conduct consistent with the contractual requirements of his
employer. Applying the principles in Royal Winnipeg Ballet and City
Water International in such circumstances, the intentions of the parties
cannot alter the outcome of the conclusion so determined. Indeed Wolf,
like these cases, gives effect to intentions only where the traditional tests
are not conclusive.
[53] Secondly, the
inclination to accept that the interpretation of contracts should rest on
common law or civil law principles of intentions defeats the exercise that the
Supreme Court in Sagaz set down as being required.
[54] Thirdly, and of importance
to me in the context of my struggle not to ignore the Appellant’s self
interested reversal of his contractual standing, I am, unlike the judges in of
the Court of Appeal in Wolf, satisfied on the evidence in this case that
the continuous engagements were not of the general “type” contemplated as
independent contractor engagements in Wolf. The needs of WD were not for
the type of specific audit projects that an independent contractor might be
parachuted in to perform. As stated above, WD had an ongoing need for a
full-time employment position to be filled and used the MOA and CAC as a means
to fill that position. That was not the setting envisioned either by CAC or by
the Court of Appeal in Wolf.
[55] The setting
envisioned in and responded to in Wolf was the type of work that
contractors could be parachuted in to perform to permit the engaging company
flexibility and cost saving in addressing fluctuations in activity. In Wolf,
the worker was doing just that even though he found new jobs in different
departments that allowed for contract extensions. He was identified as a
contractor in each assignment and was never integrated as part of the staff. He
had no office. He did not even have a computer assigned to him – he had to find
an available work station as and when required. He was identified and treated
as an outsider parachuted in to do project consulting work. That was not the
setting in the case at bar. In the case at bar, we have a worker who formed
part of the daily work force of WD performing subordinate services. In such a
case, it is no surprise that applying the traditional tests results in a
finding that the engagement is one of employment. That a worker may be able to gain
a social welfare advantage as a result, only confirms that that is what was
intended by that regime regardless of the terms agreed to by, and performed by,
the contracting parties.
[56] Accordingly, I find
that the appeals must be allowed. The Appellant’s earnings during the subject
period were pensionable earnings under the CPP and that his employment
was insurable employment under the EIA. CAC having paid the Appellant
for his services was the deemed employer pursuant to paragraph 10(1)(a) of the EI
Regulations and subsection 8.1(1) of the CPP Regulations.
Signed at Winnipeg, Manitoba, this 10th day of September, 2007.
"J.E. Hershfield"
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