Citation: 2007TCC490
Date: 20071113
Dockets: 2006-3241(EI) and
2006-3289(CPP)
BETWEEN:
MICHAEL CALUORI O/A CALUORI PROPWERKS,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
KANNAN PAGALAM,
Intervener.
AMENDED REASONS FOR JUDGMENT
O'Connor, J.
[1] The issue in this appeal is whether the Intervener
(“Pagalam”) was employed by the Appellant (“Caluori”) during the period from
December 1, 2005 to January 19, 2006 (the “Period”) under a contract of
service (i.e. an employee relationship) within the meaning of paragraph 5(1)(a)
of the Employment Insurance Act, S.C. 1996, c-23 (“Act”).
[2] The following is the background to this matter. In
response to a request for a ruling from Human Resources Skills and Development
Canada the Canada Revenue Agency (“CRA”) Rulings Division issued a decision
dated April 21, 2006 that Pagalam was not employed by Caluori under a contract
of service. By letter dated June 28, 2006 Pagalam appealed that decision to the
Minister pursuant to section 91 of the Act. By letter dated
September 15, 2006 the Minister decided that Caluori employed Pagalam under a
contract of service during the Period. Caluori now appeals that decision to
this Court.
[3] It should be noted that the CRA’s Ruling Division
also issued a decision dated October 18, 2006 to the effect that Pagalam’s
employment with Caluori from August 25, 2003 to November 30, 2005 was insurable
employment. Caluori filed an appeal of the October 18, 2006 decision to the
Minister but the Minister has not yet made a decision in respect of that appeal.
Consequently any appeal to the Tax Court in respect of the October 18, 2006 decision
is premature. Moreover, although Caluori purported to appeal a Canada Pension
Plan decision, the Minister has not made any such decision. Therefore, that
appeal is also premature and has been discontinued by Caluori. Consequently,
the appeals in respect of the October 18, 2006 decision and the Canada Pension
Plan are dismissed, leaving however to the parties their respective rights in
respect of any decisions that may be made by the Minister.
Facts
[4] Some of the facts are stated in the Reply to the
Notice of Appeal (“Reply”) either as assertions or assumptions and the
substance of those that were not refuted are mentioned below. Other facts were
established by the evidence, oral and written, and are also mentioned below to
the extent they are relevant.
[5] During the Period Caluori operated a business that
manufactured props for the movie industry. Caluori hired Pagalam to do
bookkeeping and administrative duties. The arrangement between them was oral
and they agreed that Pagalam would be paid on the basis of an hourly rate.
[6] Caluori was in effect a proprietorship and had
commenced business in 1993. Caluori did much of the prop work himself and from
time to time engaged the services of other prop builders.
[7] Caluori had no full-time employees treating all
workers as independent contractors, including Pagalam.
[8] The business was conducted out of rented premises on Parker Street in Vancouver,
British Columbia.
[9] Pagalam had skills in the bookkeeping, financial and
administrative areas and was retained mainly in these functions. He also did
casual services of a general and administrative nature and sometimes attended
to various menial tasks such as obtaining lunches.
[10] During the Period Pagalam also carried on other
business activities. He was a teacher of English as a second language, was an
organizer of teen dances and was involved with a magazine called “Point
Magazine”. He registered as a proprietorship in British Columbia in February, 2003, named AYK Marketing, describing
the business as a Marketing Agency.
[11] He did not have fixed hours of work throughout the
Period, although when prop work got heavy he was ordered to start at certain
hours.
[12] In his bookkeeping and administrative functions he
looked after the pay and time sheets of himself and other workers and issued
cheques in payment both of his own wage and those of the other workers. He had
no benefits or vacation time. Pagalam mentioned to Caluori on several occasions
that the independent contractor relationships between Caluori and the various
workers, including himself, were not correct and that matters should be based
upon an employee-employer relationship. However in arranging payment of the
various wages including, his own, Pagalam never made any deductions for taxes,
EI premiums or CPP premiums. He did not issue any T4 slips. His work also
involved recording expenses incurred by the business, creating invoices,
preparing cheques for signature and making entries in journals. Pagalam did
most of his work at the premises of the business (Studio) and also did some of
the work at his home.
[13] There is some disagreement on the ownership of some
tools such as computers, calculators, supplies and writing materials. Caluori
indicated that some of the calculators, etc. were provided by Pagalam and
Pagalam is essentially denying this. The Studio belonged to Caluori under
lease.
[14] Caluori did not exercise any significant control or supervision
over Pagalam. Pagalam was told what needed to be done but not how to do it.
[15] Pagalam invoiced the Appellant periodically for his
services, typically bi‑weekly, at the agreed rate of $18.00 per hour, and
prepared the cheques in payment thereof simultaneously with payment of other
invoices received by the Appellant from other workers and suppliers.
[16] Pagalam’s hourly rate was subsequently raised to
$20.00 on his request.
[17] Pagalam kept a record in the Studio of his hours of
service for Caluori.
[18] On or about December 17, 2005 Pagalam, as a result of
an incident with a female prop maker within the Studio, was asked to leave and
not to return until he could conduct himself professionally. He did not return
until the first week of January 2006.
[19] On his return, Pagalam disclosed that he had raised
his hourly rate to $25.00 and had been billing Caluori at that higher rate for
the preceding 5 months without the knowledge of Caluori. He attempted to
justify his conduct, and demanded a further increase to $40.00 per hour.
Pagalam contended that he deserved a bonus, although no profit sharing had been
discussed or agreed upon at the inception of the contract for services. Caluori
demanded return of the overpayment, but Pagalam refused and left the premises.
Pagalam also removed the file containing his own time sheets. Pagalam has
ignored written demand for repayment of the sum of $1,862.00, which Caluori
claims Pagalam overpaid himself.
Analysis and Decision
[20] The relevant provisions of the Employment Insurance
Act are the following:
…
"employment" means the act of employing or the state of
being employed;
…
"insurable employment" has the meaning assigned by section
5;
…
5. (1) Types of insurable employment - Subject to
subsection (2), insurable employment is
(a) employment in Canada by one or more
employers, under any express or implied contract of service or apprenticeship,
written or oral, whether the earnings of the employed person are received from
the employer or some other person and whether the earnings are calculated by
time or by the piece, or partly by time and partly by the piece, or otherwise;
…
[21] In cases of this nature the whole relationship must be
looked at bearing in mind the well known tests of control, ownership of tools,
chance of profit, risk of loss, the integration test (whose business was it)
and any other relevant factors.
[22] In deciding the issue I am not simply to substitute my opinion for that
of the Minister and I am to give some deference to the decision of the
Minister. These principles have been developed by the Federal Court of Appeal
in various cases. In Légaré v. Canada (Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878, the Court had
occasion to review the issue in question. Paragraph 4 of that decision by
Marceau, Desjardins and Noël, J.J. stated as follows:
The Act requires the
Minister to make a determination based on his own conviction drawn from a
review of the file. The wording used introduces a form of subjective element,
and while this has been called a discretionary power of the Minister, this
characterization should not obscure the fact that the exercise of this power
must clearly be completely and exclusively based on an objective appreciation
of known or inferred facts. And the Minister's determination is subject to
review. In fact, the Act confers the power of review on the Tax Court of
Canada on the basis of what is discovered in an inquiry carried out in the
presence of all interested parties. The Court is not mandated to make the same
kind of determination as the Minister and thus cannot purely and simply
substitute its assessment for that of the Minister: that falls under the
Minister's so-called discretionary power. However, the court must verify
whether the facts inferred or relied on by the Minister are real and were
correctly assessed having regard to the context in which they occurred, and
after doing so, it must decide whether the conclusion with which the
Minister was "satisfied" still seems reasonable.
[23] I have concluded that the following considerations are
most important in the determination of the issue:
1. The degree of control was very limited. Pagalam
could work either at the premises or at his home, where he had an office. There
were no permanently set fixed hours. Also Pagalam had other business interests
which he carried on during the Period. He did the bookkeeping and checked the
hours and made out the cheques in payment of the various workers including himself,
Caluori being very busy with the prop work.
2. As to the ownership of tools, Caluori supplied
the premises but Pagalam also worked from his own home. There was disagreement
as to the ownership of some of the tools such as computers and calculators. In
any event, the question of ownership of tools is not, in my opinion, that
significant.
3. From the point of view of integration, the
services of Pagalam were only accessory to the prop business and not essential
to that business. Those services were, however, necessary as housekeeping, invoicing
and paying salaries are to any business. However, Pagalam, unlike a normal
regular employee, carried on several other businesses and enterprises.
4. The fact that Pagalam attempted to persuade
Caluori to change the relationship of himself and other workers to an employee
relationship is in itself an indication that he realized that his relationship
was that of an independent contractor as opposed to an employee. He may not
have wanted that situation but that was the arrangement between the parties.
5. Although Pagalam had very little chance of
profit or risk of loss as a general rule he did write out his own cheques and
increased them unilaterally. He stated that since he was considered as a
contractor, he could set his own rates and did so.
6. Recent jurisprudence has analyzed the importance
of the intention of the parties as to the nature of their relationships,
concluding, essentially, that if their common intention is an independent
contractor relationship and if the facts can support that position even though
some of the facts may not, intention will be considered. In this case,
Caluori’s intention of independent contractor was clear. Pagalam resisted, but
went along with that position and actually invoked it as an excuse to
unilaterally raise his remuneration. If anything, intention supports a
conclusion of independent contractor.
[24] In conclusion some of the tests point one way and some
of the tests point another, but in my opinion, on a balance of probabilities, I
find that Pagalam was engaged under a contract for services with Caluori that
is to say he was an independent contractor as opposed to an employee.
[25] In arriving at that decision, I have determined that
the testimony of Caluori was more credible than that of Pagalam.
[26] For all the above reasons, the appeal is allowed and
the decision of the Minister is vacated.
This Amended
Judgment and Amended Reasons for Judgment are issued in substitution for the
Judgment and Reasons for Judgment dated August 20, 2007.
Signed at Ottawa, Canada this 13th day of November,
2007.
"T. O'Connor"
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