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Citation: 2007TCC627
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Date: 20071018
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Dockets: 2006-2409(EI)
2006-2410(CPP)
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BETWEEN:
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NORTHTOWN MOTORS LTD.,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
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and
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DANIEL M. BORDEN
and BUSINESS CHECK SASKATOON LTD.,
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Interveners,
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AND
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Docket: 2006-3356(EI)
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BETWEEN:
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DANIEL M. BORDEN,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
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and
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NORTHTOWN MOTORS LTD.
and BUSINESS CHECK SASKATOON LTD.,
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Interveners.
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REASONS FOR JUDGMENT
Bowman,
C.J.
[1] These appeals were heard together. The
manner whereby they come before the court is a little complicated but the issue
is whether Daniel Borden was a deemed employee of Northtown Motors Ltd. (“Northtown”)
and an employee of Business Check Saskatoon Ltd. (“Business Check”). In file
2006‑2409(EI), Northtown appeals a determination that Daniel Borden
was a deemed employee of Northtown. In fact the ruling of September 28,
2006 by the Minister of National Revenue was that Mr. Borden was employed
in pensionable employment under the Canada Pension Plan (“CPP”) by
Business Check and that since Northtown paid his remuneration it was his deemed
employer. The same letter goes on to say that this employment was not insurable
under the Employment Insurance Act (the “EI Act”) because Mr.
Borden was not dealing at arm’s length as a matter of fact with Business Check.
[2] In fact, Northtown
appeals the determination on both insurability and pensionability. The Crown
takes the position that Northtown’s appeal under the EI Act should
be quashed because the determination was that Mr. Borden’s employment was not
insurable.
[3] Mr. Borden has
intervened in these appeals in support of the position of the Minister that he
was an employee of Business Check and Northtown. Mr. Borden has appealed
from the ruling addressed to him of May 30, 2006.
[4] The letter
reproduced below was sent to Northtown and Business Check on May 30, 2006
and a similar letter was sent to Mr. Borden with changes only to reflect the
fact that he was referred to in the second person singular as opposed to the
third person. One other difference in that the letter to Northtown in paragraph 4,
stated “Mackenzie Daniel Borden’s was insurable for the following reason”. In
the letter to Business Check the words were “. . . Mackenzie Daniel Borden’s
employment was not insurable . . .”. In the letter to Mr. Borden the words
were “your employment was not insurable . . .”. I am assuming that in the
letter to Northtown after “Mackenzie Daniel Borden’s” the words “employment was
not” were omitted and instead the words “was insurable” were inadvertently
written. Otherwise the sentence in the letter to Northtown makes no sense.
[5] The letter reads as
follows:
This letter concerns
your appeal of the ruling dated August 25, 2005, regarding the pensionability
and insurability of Mackenzie Daniel Borden’s employment with you during the
period of November 15, 2004 to June 27, 2005.
It has been decided that
Mackenzie Daniel Borden’s employment was pensionable for the following reason:
Mackenzie Daniel Borden
was engaged under a contract of service and therefore he was an employee of
Business Check Saskatoon Ltd. Furthermore, you are considered Mackenzie Daniel
Borden’s deemed employer as you paid his remuneration.
It has also been decided
that Mackenzie Daniel Borden’s was insurable for the following reason:
Mackenzie Daniel Borden
was not dealing at arm’s length, as a matter of fact, with Business Check
Saskatoon Ltd and was therefore excluded from insurable employment.
The decision in this
letter is issued in accordance with subsection 27.2(3) of the Canada Pension
Plan and subsection 93(3) of the Employment Insurance Act and is based on
paragraph 6(1)(a) of the Canada Pension Plan, subsection 8.1(1) of the
Canada Pension Plan Regulations and on paragraphs 5(2)(i) and 5(3)(a) of
the Employment Insurance Act.
If you disagree with
this decision, you can appeal to the Tax Court of Canada within 90 days of the
date of this letter. Information on how to proceed with an appeal is enclosed.
[6] Several more
technical points before I get on with the merits of the case.
(a) On
November 6, 2006, Business Check filed a Certificate of Dissolution under the Saskatchewan
Business Corporation Act.
(b) Section
8.1 of the Regulations made under the CPP provide that if someone
pays remuneration to an employee in pensionable employment with an “actual”
employer, the person paying the remuneration is deemed, in addition to the
“actual employer”, to be the employer of the employee. The significance of this
is that if Mr. Borden was employed by Business Check but was paid
remuneration by Northtown, Northtown is Mr. Borden’s “deemed” employer.
(c) There
is no provision in the EI Act or Regulations that is similar to
section 8.1 of the CPP Regulations.
(d) While
the EI Act excludes from insurable employment employees who do not deal
at arm’s length with the employer no similar exclusion exists under the CPP
or CPP Regulations.
(e) Leaving
aside the apparent misprint in the letter of May 30, 2006 to Northtown,
Northtown was never alleged by the Minister of National Revenue to be an
employer of Mr. Borden for the purposes of the EI Act and nothing in the
EI Act permits Northtown to be treated as a “deemed” employer of
Mr. Borden. Therefore the arm’s length or non-arm’s length nature of the
relationship between Mr. Borden and Business Check has nothing to do with
Northtown for the purposes of the appeal under the EI Act. Conversely,
whether Mr. Borden was or was not at arm’s length with Northtown or
Business Check is irrelevant to the CPP appeal.
[7] Although files were
opened up by the Registry of this Court in the name of Northtown Motors Ltd.,
Mr. Bradley’s letter of August 11, 2006 can reasonably be read as an appeal by
both Northtown and Business Check. His letter reads:
This letter
is to notify you that I disagree with the Canada Revenue Agency’s decision
dated May 30, 2006. The ruling concerns the pensionability and insurability of
Mr. Daniel Borden during the period of November 15, 2004 to June 27, 2005.
Mr. Borden
was not engaged under a contract of service and was not an employee of Business
Check Saskatoon Ltd. or Northtown Motors Ltd. Mr. Borden and I were, in
fact, business partners entering into a new business venture together. We were
not on an employer/employee relationship as Mr. Borden indicated or as the
appeal ruling has stated. It for these reasons I am appealing this decision.
Please find
enclosed a copy of a June 29, 2006 ruling from the Provincial Labour Standards
Board that further explains my position in regards to Mr. Borden.
[8] To summarize the
matters before the court then, we have the following:
(a) A
decision by the Minister that Mr. Borden was employed in pensionable employment
by Business Check and that Northtown was his deemed employer for CPP
purposes because it paid his remuneration.
(b) A
decision by the Minister that Mr. Borden’s employment was not insurable for EI purposes
because he was not dealing at arm’s length with Business Check (unless I am
wrong in reading into Canada Revenue Agency’s letter to Northtown of May 30,
2006, the words in the other two letters).
(c) An
appeal by Mr. Borden generally against the Minister’s decisions under both the CPP
and the EI Act.
(d) An
appeal by Northtown against both decisions (including the one that says that
Mr. Borden’s employment is not insurable).
(e) An
intervention by Business Check in both Mr. Borden’s and Northtown’s appeal and
an intervention by Mr. Borden in Northtown’s appeals.
[9] I think it is a
fair conclusion that all issues under the EI Act and the CPP are
on the table for all three litigants, Northtown, Mr. Borden and Business Check.
[10] The central issue is
this: was Daniel Mackenzie Borden employed in pensionable and/or insurable
employment with Business Check? If he was employed by Business Check in pensionable
employment it follows that Northtown was his deemed employer for CPP
purposes under section 8.1 of the CPP Regulations.
[11] It has never been
suggested that he was actually employed by Northtown for EI purposes. The
decision was based on the view that he was employed by Business Check but was
excluded from insurable employment because Mr. Borden was not at arm’s
length with Business Check. Mr. Bradley acknowledges that although he has
essentially won the employment insurance appeal because the Minister has
decided that Mr. Borden, although an employee of Business Check, was not
employed in insurable employment because he was not at arm’s length with
Business Check, he does not want to abandon his appeal because this might be an
admission that Mr. Borden was an employee, a position that Mr. Bradley
contests. Mr. Borden is not bound by the Minister’s finding that he was not at
arm’s length with Business Check and he contests it.
[12] Mr. Bradley
started Northtown in Hague, Saskatchewan in 1979 and moved the operation to Saskatoon in 1997 where it
carries on the business of automobile and truck sales.
[13] One problem he found
when he moved to Saskatoon was that the business was constantly being broken into. Insurance became
prohibitively expensive or impossible to obtain. He talked to Mr. Borden
and they discussed the possibility of checking vehicles that came to their gate
using a GPS (Global Positioning Sensor). He discussed the proposition with a
number of businesses owners who liked the idea of having their premises checked
at night.
[14] Mr. Bradley
started Business Check and is the sole shareholder and director. He had at the
start about a dozen good clients, mainly automobile or machinery dealerships,
who were interested in the kind of surveillance that Business Check was
offering. He ended up with 40 to 50 clients and charged about $3.00 per call. On
average each client had two calls per night. Mr. Bradley provided Mr. Borden
with a van with the Business Check logo and a uniform. Mr. Borden was a retired
policeman and he performed the duties of watchman and visited the premises of
the clients as directed. Northtown paid Mr. Borden $1,500 — $1,000 in the
fall of 2004 and $500 in January 2005. It also paid about $3,500 to Mr. Borden’s
lady friend for her efforts to expand the business.
[15] The business started
in the fall of 2004 and lasted until May or June of 2005 — about eight or nine
months. Things did not work out and in about June of 2005 the relationship with
Mr. Borden came to an end. The business was transferred to someone else,
Warren Paul who ran it for about a year.
[16] The question is
whether the relationship between Mr. Borden and Business Check was that of
employee-employer or whether, as Mr. Bradley contends, he and Mr. Borden
were partners in a business. There was obviously some sort of relationship.
There are only a few possibilities, employee, independent contractor, partner,
joint venturer, shareholder or nothing.
[17] In a number of cases
in the Federal Court of Appeal, which I discussed in a recent decision Lang
v. M.N.R., 2007TCC547, the intent of the parties has been considered a
factor of varying significance in determining whether a worker is an employee
or an independent contractor. I do not think it can be a factor here where one
party says he is an employee and one says he is a partner. If intent is a
factor it must be one that is shared by both parties.
[18] Mr. Bradley contends
that he and Mr. Borden were partners but I can see nothing to warrant that
conclusion during this period in question. It may well be that Mr. Borden
had in mind that at some point, if the business turned out the way they hoped,
he would become a part owner of Business Check. However in the period in which
Mr. Borden was working as a watchman, there are none of the usual indicia of
partnership (“. . . the relationship that subsists between persons carrying on
business in common with a view to profit”). There was no sharing of expenses,
revenues or profits between Mr. Borden and Mr. Bradley. The business was that
of Business Check. It bore the expenses, supplied the tools and had the chance
of profit or risk of loss.
[19] A declared intention
of parties that there be no partnership does not in itself prevent a
relationship from being a partnership, (Rezek et al. v. The Queen et al.,
2005 DTC 5373 at 5384; Weiner v. Harris, [1910] 1 K.B. 285), nor does a
signed partnership agreement of itself create a partnership (Backman v.
Canada, [2001] 1 S.C.R. 367 at paragraph 27). A fortiori a statement
by one party that he believed that he and the other party were partners can,
standing alone, have no probative value particularly in the face of a forceful
denial by the other party coupled with a complete absence of the usual indicia
of partnership.
[20] I think the term
that most accurately describes the relationship with Mr. Borden was that
of employee. Mr. Bradley, or one of his two companies, paid the expenses,
supplied the van and the uniform and told Mr. Borden what clients to go to. The
concept of “chance of profit, risk of loss”, which is one of the aspects of a
relationship of independent contractor does not extend to the situation where an
employee might hope, if the employer’s business succeeded, that he might be
made a part owner. In determining the nature of a relationship one must look at
the situation as it exists at the relevant time, not the situation that one or
more parties think might develop at some unspecified date in the future if
certain contingences occurred.
[21] There is one other
matter to which I should refer. Mr. Borden obtained a wage assessment made
by the Director of Labour Standards under the Labour Standards Act of Saskatchewan directing Mr. Bradley
and Business Check to pay Mr. Borden wages of $12,998.19. This was appealed to
an adjudicator who set the assessment aside on the basis of a finding that Mr.
Borden was not an employee of Business Check. The adjudicator accepted Mr.
Bradley’s testimony that the relationship with Mr. Borden was not one of
employment. He does not specifically find that he was a partner. Since I have
found no evidence to support the view that he was a partner it is appropriate
to ask “If he was not a partner and if, as the adjudicator held, he was not an
employee, then what was he?” It was not argued (and in any event the evidence
does not support the conclusion) that he was an independent contractor.
[22] Mr. Borden appealed
to the Saskatchewan Queen’s Bench. Justice Foley dismissed Mr. Borden’s appeal
and stated:
[11] In concluding
that Mr. Borden was not an employee the adjudicator considered the testimony of
both Mr. Bradley and Mr. Borden and held that the relationship between the
parties was not one of employer/employee but rather one of partnership.
[12] It is evident
that where there was a conflict of evidence between that of Mr. Bradley and
that of Mr. Borden, the adjudicator chose to accept, as was his right, the
evidence of Mr. Bradley. He concluded that Mr. Borden’s contribution could be
characterized as sweat equity in the partnership whereas Mr. Bradley invested
cash, but that each stood to lose what they had invested and each stood to
profit if the business was successful.
[13] These findings
provide an appropriate factual foundation for him to conclude as a matter of
law that Mr. Borden was not an employee.
[14] This is not to
say that some of the facts presented to the adjudicator did not support Mr.
Borden’s position. Rather the adjudicator was persuaded that the weight of the
evidence supported a partnership relationship rather than an employer/employee
relationship.
[15] The appeal is
dismissed as the adjudicator has not been shown to have committed an error of
law. There shall be no order as to costs.
[23] While I mean no
disrespect to the adjudicator or Mr. Justice Foley, I have to decide
this case on the basis of the evidence before me. Mr. Justice Foley was
faced with a very different issue and that was whether the adjudicator had before
him evidence that justified his conclusion. The adjudicator seems to have
preferred the evidence of Mr. Bradley over that of Mr. Borden. Even
assuming that Mr. Bradley’s evidence was the same before the adjudicator
as before this Court, I do not think it supports a partnership between
Mr. Bradley and Mr. Borden or between Mr. Borden and Business
Check.
[24] On the evidence
before me I have seen nothing that would justify the conclusion that Mr. Borden
was a partner. Rather I think the view that is most consistent with all of the
evidence and applying the usual tests of employment that have been developed in
this court and the Federal Court of Appeal, is that he was an employee of
Business Check. I have no reason not to accept Mr. Borden’s version of the
facts.
[25] There is absolutely
no basis for concluding that Mr. Borden was not at arm’s length with Business
Check. I should however expand somewhat on this arm’s length point which seems
to have been the source of some confusion. In the Reply to Mr. Borden’s Notice
of Appeal, it is not specifically stated that the Minister assumed that Mr.
Borden was not at arm’s length with Business Check, although that seems to be
the basis of the ruling that he was not engaged in insurable employment. There
are however a number of allegations that the arrangements between Mr. Borden
and Business Check were not those that would have existed between arm’s length
parties. These allegations, even if substantiated, do not prove that the
parties were not at arm’s length. If the parties were related the allegations
would be relevant if there were an issue under paragraph 5(3)(b) of the EI
Act. That is not, however, the issue before me. As stated above, however,
nothing justifies the conclusion that Mr. Borden and Business Check were not at
arm’s length. I think they were.
[26] The appeals of
Northtown and Business Check are dismissed and the appeals of Mr. Borden are
allowed and the matter is referred back to the Minister of National Revenue to
vary the determination on the basis that during the period in question Mr.
Borden was employed by Business Check in insurable employment for the purposes
of the EI Act and Northtown was a deemed employer of Mr. Borden for
the purposes of the CPP. Since the Minister based his determination on
the view that Mr. Borden was not at arm’s length with Business Check, I do not
think that, whatever effect my decision that Mr. Borden was employed in
insurable employment with Business Check may have on his position personally
under the EI Act, I can increase the obligation that Business Check may
have with respect to Mr. Borden (cf. Harris v. M.N.R., 64 DTC 5332
at 5337, per Thurlow J.). Since Business Check has been dissolved the point is
somewhat academic.
Signed at Ottawa,
Canada, this 18th
day of October 2007.
Bowman, C.J.
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