Citation: 2007TCC585
Date: 20071002
Dockets: 2006-13(EI)
2006-17(CPP)
BETWEEN:
DOMART ENERGY SERVICES LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1] The Appellant
Domart Energy Services Ltd. is appealing rulings made under the Employment
Insurance Act and the Canada Pension Plan Act that Mr. Wilfrid Flanagan
was engaged by Domart Energy in insurable employment for EI purposes and in
pensionable employment for CPP purposes.
[2] Domart Energy is in
the trucking and oilfield rental business. Mr. Brian Pavlis is an
owner and the General Manager of Domart Energy and testified on its behalf.
[3] Wilfrid Flanagan
carried on business under the name Grubbs Oilfield Services.
[4] In servicing its
oilfield rental business’ clients, Domart Energy uses two picker trucks. Picker
trucks are large, expensive trucks that have a boom crane mounted on them
suitable for delivering and picking up machinery and equipment of the type and
size that it rents out. One of Domart Energy’s picker trucks is owned by it and
the other is retained by it from an arm’s length third party, McCallum Trucking
Ltd. McCallum Trucking provides to Domart Energy the operator of the picker
truck which it provides. Picker trucks are expensive pieces of equipment
costing in the $400,000 range.
[5] Prior to the period
in question, Domart Energy employed a private operator for the picker truck
that is owned by it. However, when its employed picker operator left, Domart
Energy had difficulty finding a new employee to take the job despite its
advertising and recruiting efforts.
[6] Mr. Wilfrid Flanagan
approached Mr. Pavlis to offer the services of Mr. Flanagan’s
business, Grubbs Oilfield Services, to operate Domart Energy’s picker truck.
Mr. Pavlis was familiar with Grubbs Oilfield Services and with
Mr. Flanagan’s predecessor business Skookum Inc. through which
Mr. Flanagan had operated previously. Domart Energy had been a client of
both Skookum and Grubbs Oilfield.
[7] Grubbs Oilfield
Services carried on a number of transport-related services for businesses in
the oilfield exploration and development sector. In addition to operating
picker trucks, Grubbs Oilfield Services provided pilot trucking services or piloting
as well as hotshotting services. Pilot trucking, or piloting, involves
providing the lead small truck and driver or the rear small truck and driver
that accompany large, slow or dangerous transports. Grubbs Oilfield Services
provided pilot trucking services to Domart Energy regularly, about twice a
month, during the relevant period. When providing piloting services, Grubbs
Oilfield Services provided both the pilot truck and operator. Hotshotting
involves making small trucks available to make immediate deliveries to the
oilfield of replacement parts and accessories needed for the leased equipment.
Domart Energy did not use Grubbs Oilfield for hotshotting as it had other
arrangements in place. Grubbs Oilfield had a rate sheet that set out the rates
and terms for its piloting, hotshotting and picker operating activities.
Mr. Flanagan made a copy of this available to Mr. Pavlis for purposes
of their discussion. Mr. Flanagan was insistent to that he was not
interested in being Domart Energy’s employee but that Grubbs Oilfield was
willing to provide the services as a contractor. Grubbs had its GST number, clearance
letter for workers’ compensation, and its own liability insurance and provided
these documents to Domart Energy.
[8] Domart Energy was
aware that Grubbs Oilfield had other clients and that Grubbs would not be able
to take each picker operator job offered. Grubbs had the option to refuse work
when called and Mr. Flanagan did.
[9] Domart Energy has
been able to replace Grubbs Oilfield Services and Mr. Flanagan with an employed
picker operator since the period in question.
[10] Mr. Flanagan
obtained and maintained his own Class 1 driver’s license required to operate a
picker truck. Mr. Flanagan was a Certified Journeyman Crane and Hoisting
Equipment Operator which means he had the required provincial operator license
permitting him to operate the picker. These credentials were maintained by
Mr. Flanagan on his time and at his expense. In addition, Grubbs
Oilfield/Flanagan maintained the statutory log books for the picker truck and
for the crane.
[11] Grubbs
Oilfield/Flanagan also bore the cost of highway traffic infractions. It was not
standard in the industry for a driver to be responsible for tickets and fines
in the way that Grubbs Oilfield Services had agreed to be.
[12] Domart Energy agreed
to pay Grubbs Oilfield Services $45 per hour for Mr. Flanagan’s picker
operator time. This significantly exceeded the hourly rate of $35 it had
previously paid its employed picker operators and that it was offering to
potential employee candidates. There was no written contract. Mr. Pavlis
was clear that, from their discussions, the increased rate reflected the fact
this was a contract rate and there would be no overtime, etc. paid. While
Domart Energy’s strong preference was for an employed picker truck operator,
Mr. Pavlis on behalf of Domart Energy did expressly agree with
Mr. Flanagan that this picker truck operating would be done as part of Grubbs
Oilfield Services business.
[13] Domart Energy did
not pay Grubbs anything additional for meal or hotel expenses, holiday pay,
sick leave or any other benefits. Domart Energy’s employees, including its
employed picker operators, did enjoy a benefits package. Domart Energy paid the
invoice received monthly from Grubbs Oilfield at the agreed rate together with
GST.
[14] Domart Energy paid McCallum
Trucking a single hourly rate for its picker truck and operator of $220 an hour
which also included the swamper. Domart Energy paid more than $45 per hour for
Grubbs Oilfield’s piloting services.
[15] There was no set
schedule for the work. Domart Energy would call Flanagan for same-day work.
Occasionally, work was previously arranged in advance. Domart Energy would call
Mr. Flanagan on Mr. Flanagan’s cell phone. At times,
Mr. Flanagan took the initiative and called Domart Energy in the morning
to see if there was work. Grubbs Oilfield was not required to report to work
everyday and did not work if there was no picker truck job on a particular day.
In contrast, Domart Energy’s employees come in at 8 a.m. and are required to
stay until at least lunch time even if there is no work for them that day.
[16] The times for
picking jobs were largely set by Domart Energy’s clients. If there was no set
pick-up or drop-off time, Grubbs Oilfield did it on its own time, selected the
routes, and took breaks, stops and meals at times of Flanagan’s choosing.
[17] The operation of a picker
mounted on a picker truck effectively requires that the operator be assisted by
another person to help to locate the truck and the load safely. This person is
known in the oilfield industry as a swamper. The swamper accompanying Flanagan
when he was operating Domart Energy’s picker truck was an employee of Domart
Energy. As a practical matter, the operator is required to supervise and direct
the swamper.
[18] In the period in
question, Domart Energy was very busy and used Grubbs/Flanagan as picker
operator extensively. There was no guarantee of any work to Grubbs Oilfield
although it seemed to be understood that Grubbs would get Domart Energy’s first
call for picker truck jobs for this picker truck. Even though Domart Energy was
probably Grubbs Oilfield’s largest client, it could not require or expect
Grubbs to accept all picker jobs offered.
[19] While Grubbs
Oilfield maintained its own liability insurance, the one time there was a
liability claim in respect of Mr. Flanagan’s operation of the picker
truck, the insurance company denied the claim on the basis that it believed
Mr. Flanagan was one of Domart Energy’s employees. Thereafter, these EI
and CPP rulings were issued that Mr. Flanagan was an employee and, as a
result of these rulings, Mr. Flanagan refused to discuss his potential
liability any further. Domart Energy paid the claims, which were modest, did
not claim them on its own insurance, and moved on with its business having kept
its customers making the claims satisfied.
Analysis
[20] The issue of
employee versus independent contractor for purposes of the definitions of
pensionable employment and insurable employment are to be resolved by
determining whether the individual, in this case Mr. Flanagan, 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. The Minister of National Revenue, 87 DTC 5025 for
purposes of the Canadian definitions of insurable employment and pensionable
employment, and adopted by the Supreme Court of Canada in 671122 Ontario
Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983. 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.
[21] Before turning to
these criteria and considering them in the facts of this case, I should note
that it is both abundantly clear and conceded by the Crown that
Mr. Flanagan does indeed carry on a business under the name Grubbs
Oilfield Services. The Crown’s position is that the work Mr. Flanagan does
as picker operator for Domart Energy is within the context of a separate employment
relationship. They do not dispute that the piloting work Mr. Flanagan’s
business does for Domart Energy is done in the context of the Grubbs Oilfield
Services business Mr. Flanagan carries on. Nor does the Crown dispute that
Mr. Flanagan’s Grubbs Oilfield Services does piloting and hotshotting
work, and perhaps other picker operator work, for persons other than Domart
Energy as part of its business. This aspect makes this particular case quite
different from many of the reported cases in this area and from most of the
authorities referred to by the Crown. In essence, the Crown’s position is that
Mr. Flanagan’s picker operator work constituted a separate employment
activity from his piloting work performed for Domart Energy in the same period
and from his services provided to others in the period. The contra view to the
Crown’s position would be that Domart Energy was merely one of Grubbs Oilfield
Services’ best and largest customers in the period in question.
The intent of the parties:
[22] It is clear in this
case that both parties intended the relationship to be that of independent
contractor. Mr. Flanagan carried on business as Grubbs Oilfield Services
and, prior to doing picker operating work for Domart Energy, did other work for
them and did work for other customers. Mr. Pavlis on behalf of Domart
Energy testified that, while he would have preferred to be able to hire
Mr. Flanagan as an employed picker operator, at Mr. Flanagan’s
insistence Domart Energy knowingly and intentionally agreed to enter into an
independent contractor relationship with Mr. Flanagan’s business Grubbs
Oilfield Services instead.
Control:
[23] It is clear that
Domart Energy did not exercise the degree of control over its working
relationship with Mr. Flanagan’s Grubbs Oilfield Services of the type that
an employer might exercise over an employee. Importantly, Domart Energy could
not direct Mr. Flanagan to take any particular Domart Energy job. Domart
Energy offered picker operating jobs to Flanagan that he was free to turn down.
The evidence is that he at times did turn them down and, while Mr. Pavlis
may not always have been aware of the reasons, he could say that at times they
were turned down for personal reasons and at times due to previously scheduled
commitments for other Grubbs Oilfield Services customers. Further, once Grubbs
Oilfield Services agreed to take on a particular Domart Energy job, it was only
responsible to Domart Energy for making sure the equipment was dropped off or
picked up at Domart Energy’s customer’s location at the agreed to or appointed
day or time. Mr. Flanagan decided when to set out, how to proceed, when to
take breaks, etc.
Ownership of tools of the trade:
[24] Grubbs Oilfield
Services did not own a picker truck. However, Grubbs did not hold itself out as
being in the picker truck business in the way that McCallum Trucking, Domart
Energy’s other supplier, was. Grubbs Oilfield Services only offered the
services of providing duly qualified picker truck operators. Mr. Flanagan
was the owner of the necessary credentials and legal qualifications to do that
and for the cost of maintaining those licenses and certificates. In addition, the
cost of the necessary protective equipment, footwear and clothing required to
operate a picker truck was borne by Mr. Flanagan without any reimbursement
or contribution from Domart Energy.
Chance of profit/Risk of loss:
[25] It is clear that the
overall activities of Grubbs Oilfield Services were such that Mr. Flanagan
as owner benefited from the chance of profit and bore the risk of loss from
Grubbs Oilfield Services activities. While the services were performed at an hourly
rate, this is not the simple case of an hourly wage earner. Many skilled
tradesmen and professionals generate their revenue by charging by the hour for
their services. Mr. Flanagan owned at least one truck used in its piloting
and hotshotting business and bore all the costs associated with it as well as
with the promotion of the business. While the risk of loss with respect to the
picker operator services may have been less than in the other areas of Grubbs
Oilfield Services activities, this still bore such risks as liability for
damage and the related insurance costs therefor. Grubbs Oilfield Services bore
the costs of performing to the expectations of its customers or of its
customers’ customers. There was no guarantee of picker operator work from
Domart Energy. Grubbs was responsible for all fines and penalties associated
with highway and transportation infractions as well as out-of-town travel costs
other than the fuel consumed by the picker truck. I do not find that this
lesser degree of economic risk with its picker operator activities inclines
towards an employment relationship between Domart Energy and Flanagan. This is
not a case where there is a virtual absence of such risk. It must be borne in
mind that prudent business persons always seek to structure their business
activities and relationships in such a way as to minimise the bearing of risk
in so far as possible. Indeed, many consider that an indicia of a well-run
business.
[26] The Crown placed
considerable emphasis in argument on the fact that when Mr. Flanagan was
involved in a mishap causing damage to the property of third parties, Grubbs
Oilfield Services’ liability insurer denied coverage promptly on the basis that
Mr. Flanagan was one of Domart Energy’s employees. I am not much
influenced by an insurer denying coverage based on its assessment of the very
legal relationship I am asked to determine. It is not as though the insurance
investigation turned up a written employment contract or so much as a statement
by Mr. Flanagan, much less Domart Energy, that he was an employee. There
is no evidence that Mr. Flanagan ever took the position he was an employee
for purposes of that damage and insurance claim prior to the Canada Revenue Agency
determination in question. I am not influenced by the fact that after finding
out that CRA regarded him as a Domart Energy employee, Mr. Flanagan may
have held that up as a full answer to Domart Energy’s claim for the damage. Nor
do I find it significant in the circumstances that Domart Energy decided to pay
for the property damage for the purpose expressed in evidence of keeping its
customers satisfied and its goodwill intact. The fact that Domart Energy did
not make a claim on its insurance for this damage is not clearly helpful to the
Crown’s position since Domart Energy’s insurance would likely cover damage
caused by the actions of its employees but it may not extend to damage caused
by a third party contractor in the course of providing services to Domart
Energy.
Integration/Association/Entrepreneur:
[27] I am mindful of the
fact that the integration, association or entrepreneur criteria should be used
very cautiously if at all. I do not believe that the picker operator services
in question were so integrated into Domart Energy’s business as to be Domart
Energy carrying on its business through Mr. Flanagan as employee. There
was no evidence to suggest that Domart Energy’s customers would not have
regarded Grubbs Oilfield Services and Mr. Flanagan as an independent
subcontractor involved in getting Domart Energy’s equipment to and from their
worksite. Clearly Domart Energy’s customers would have thought so had McCallum
Trucking’s picker and operator been used for the delivery or pick up.
[28] I do not accept that
the supervision and direction that a picker truck operator has over the accompanying
swamper provided by Domart Energy for the trips is of the nature that
constitutes management or supervision of Domart Energy’s employees for purposes
of determining whether Flanagan is an integral part of Domart Energy’s business.
Conclusions
[29] Based on the
evidence in this case I am satisfied that the provision of picker truck
operator services was an integral part of the Grubbs Oilfield Services business
carried on by Mr. Flanagan. There is no factual or legal basis to justify
treating those services used by Domart Energy as separate from Grubbs
Oilfield’s overall business activities and characterizing them as being in the
nature of the employment of Mr. Flanagan by Domart Energy. This is a case
of Mr. Flanagan providing the services to Domart Energy in the course of
an already established business of his own. As set out in Market
Investigations, this makes it an easier case in which to apply the relevant
tests.
[30] Counsel for the
Crown referred to a considerable number of earlier decisions of this Court
involving truck drivers. Virtually, all of those cases preceded the decision of
the Federal Court of Appeal in Royal Winnipeg Ballet v. The Minister
of National Revenue, 2006 DTC 6323. Domart Energy’s counsel referred to the Reasons
in A.L.D. Enterprises Inc. v. The Minister of National revenue, 2007 TCC
71 decided by this Court after Royal Winnipeg Ballet. The Reasons in A.L.D.
were written by the judge who had decided many of the earlier transport cases
relied upon by the Crown. In A.L.D., the Court decided in favour of
independent contractor status noting the particular importance of the parties’
intention and the control test. The A.L.D. analysis and decision is
consistent with the Federal Court of Appeal’s decision in Royal Winnipeg Ballet
as well as its more recent decision in Combined Insurance Co. of America v. Canada
( Minister of National Revenue), 2007 FCA 60. The Reasons of this Court in Vida
Wellness Corp. v. Canada (The Minister of National Revenue), 2006 TCC 534
also provide a helpful summary of the significance of the Federal Court of
Appeal’s decision in Royal Winnipeg Ballet. Most recently, the Chief
Justice’s Reasons in Lang v. Canada (The Minister of
National Revenue), 2007 TCC 547 are also very helpful on this
point.
[31] Domart Energy’s
position is very straightforward and persuasive. Domart Energy used the
services of Grubbs Oilfield Services to operate its picker truck just as it
used Grubbs Oilfield Services for piloting and had used Skookum Inc.’s services
previously. Grubbs Oilfield Services was comprised of the business of providing
picker truck operating services, pilot trucking services and hotshot car
services. Since Mr. Flanagan was the owner and operator of Grubbs Oilfield
Services when these services were provided, and since they were provided as
part of the Grubbs Oilfield Services business, Mr. Flanagan could not be
considered to be an employee of Domart Energy.
[32] In short, Grubbs
Oilfield Services was an independent business operated by Mr. Flanagan which
had customers other than Domart Energy and offered services that Domart Energy
did not avail itself of. Domart Energy and Mr. Flanagan intended their
relationship from the outset to be one of contract for services not one of
employment. Indeed, Mr. Flanagan refused Domart Energy’s preference for an
employment relationship. The parties did not do anything inconsistent with the
relationship being an independent contractor relationship. Domart Energy’s
employees who worked as picker truck operators prior to the use of Grubbs
Oilfield Services and after the Grubbs Oilfield Services relationship ended were
paid differently than Grubbs was. Those employees received the lesser hourly
rate, received over time, were guaranteed work, were required to report to work
at 8 a.m. and could not leave before 1 p.m. even if there was no work to be
done. They were not responsible for their own traffic or transport infractions.
They were subject to a greater degree of control than Mr. Flanagan was.
[33] For these reasons I find
Mr. Flanagan was not in insurable employment or pensionable employment
with Domart Energy. I will be allowing these appeals and vacating the
Minister’s decision.
Signed at Ottawa, Canada, this 2nd
day of October 2007.
"Patrick Boyle"
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