Toronto, Ontario
--- Upon commencing the Decision with Reasons on
Monday, November 24, 2008.
JUSTICE WEISMAN: These were two appeals
against decisions by the respondent Minister of National Revenue that the
appellant, 1478339 Ontario Incorporated, was a deemed employer of Michael
Gotkin from the 4th of March, 2003, to the 4th of March, 2005, while he was
working as site manager on the project known as the Wallace Street
Lofts. The Minister based his decision on regulation 10(1) of the
insurable earnings and collection of premiums which is passed under the Employment
Insurance Act, and regulation 8.1(1) passed under the Canada Pension
Plan, both of which, in short, provide that if someone pays an employee
they are a deemed employer and are responsible for deducting and remitting
Canada pension contributions and Unemployment Insurance premiums.
There are two prongs to the appellant's
appeal. First is that Terradigm Developments Incorporated merely
hired Mr. Gotkin as agent for the developer 1317621 Ontario Incorporated. That
is relevant because when we come to decide control, which is one of the
four-in-one guidelines under Wiebe Door Services Ltd. v. M.N.R. (1986), 87
DTC 5025, the question arises, whose control; if it is control of 1317621, the
control of Terradigm, the control of 1478399. Who actually retained
Mr. Gotkin?
The second prong of the appellant's
argument is that Mr. Gotkin was an independent contractor, in any event,
and therefore not covered by the aforementioned two regulations.
After considering all the evidence that I
have heard, I find that Mr. Gotkin was retained by Terradigm Developments
Incorporated as site manager of the project. It was Terradigm that
advertised for a site manager, which advertisement was successfully replied to
Mr. Gotkin. It also makes sense to me that a project manager with no
experience in renovating and refitting an existing facility would need someone
with Mr. Gotkin's qualifications to serve as site manager.
Over and above that, in his testimony and
in his submissions, Mr. Krauss kept referring to "our relationship
with him", and I could not construe that as Mr. Krauss referring to
131's relationship with Mr. Gotkin, nor could I construe it as the
relationship that consists merely, in one 1478339 issuing cheques to Mr. Gotkin.
Mr. Gotkin was clearly paid by the
appellant, so the sole remaining issue is whether he was an employee under a
contract of service or was an independent contractor under a contract for
services. In order to resolve this question, which has been variously
characterized 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. et al,
which is cited at [1947] 1 D.L.R. 161, which guidelines were adopted by Justice MacGuigan in Wiebe Door
Services, which is cited at (1986), 87 DTC 5025, in the Federal
Court of Appeal. The four guidelines consist of control over the worker;
whether the worker or the payer owns the tools required to fulfill the worker's
function; and the worker's chance of profit and risk of loss in his or her
dealings with the payer.
I think Mr. Krauss misconstrued the
jurisprudence that he read, because the Wiebe Door and Montreal City
guidelines are not in pursuit of the intention of the parties, it is in pursuit
of the total relationship between the parties.
Adverting first to the control guideline,
the law differentiates between those in standard employment and those who are
highly skilled and have expertise beyond the ability of their supervisors to
tell them how to perform their functions. So in the case of a worker who
is in standard employment, control necessitates that the supervisor have the
right to tell a worker not only what to do but how to do it. In the latter
case, when you are dealing with someone whose expertise exceeds that of a
supervisor, it is sufficient if the supervisor has the right to tell the worker
what to do, although he lacks the skill to tell him how to do it.
The evidence was clear that Mr. Larry
Spring was an employee of the project manager, Terradigm, and he had the right
to tell Mr. Gotkin what to do, which was to manage the project. This
indicates that Mr. Gotkin was an employee of Terradigm. But the
evidence also indicates that there was little control exercised over
Mr. Gotkin, above and beyond the aforementioned; he came and went as he
pleased; he theoretically was obliged to report to Mr. Spring, but
Mr. Spring was rarely at the job, the evidence being that he was there
some two times a month.
Aside from there being little actual
control over Mr. Gotkin, I note that Mr. Gotkin negotiated his
remuneration rather than it being set by Terradigm, which indicates that he was
an independent contractor.
Then in trying to resolve which way the
scales should tilt when it comes to control, I agreed with Mr. Krauss that
quite significant was the confrontation between Mr. Gotkin and
Mr. Krauss about Mr. Gotkin's being aware of the conspiracy between
Mr. Spring and Mr. Van Den Burg to defraud 131 out of money by
accepting $20,000 honorariums from potential clients in exchange for a $50,000
reduction in the cost of the loft.
The counsel for the Minister is quite
correct; there is no jurisprudence saying that an employee has to be loyal, but
an important element of control that has been imported from the Québec Civil
Code is the concept of subordination. Employees are subordinate to their
employers. Independent contractors are independent of those who retain them.
In my view, this failure of
Mr. Gotkin to forewarn Mr. Krauss of this conspiracy indicates to me
that there was no relationship of subordination between him and Terradigm. I
would quote for the record page 129 of the transcript, line 10. The
exchange starts by Mr. Krauss saying:
"When met in February 2005, you may recall that you
advised me that Harold Spring and Gerard Van Den Burg had both been involved in
purchasers paying George and Harold some cash up front and reducing the
purchase price under the agreement of purchase and sale." (as read)
Mr. Gotkin's answer was:
"There were rumours.
"Question: You brought
that to my attention.
"Answer: Yes.
"Question: Was there a reason for waiting until
that meeting to tell me?
"Answer: You never came to the site. I
never saw you.
"Question: But you did come to my office on a
number of occasions to pick up cheques.
"Yes.
"Did you ever ask to see me?
"I never asked to see anyone.
"That wasn't my question. Did you ever ask to see me?
"No.
"You had this relevant
information.
"I didn't know it was
relevant. I didn't know how it was relevant.
"Question: That George might be receiving money
on the side, outside the terms of the agreement of purchase and sale? You
didn't see the relevance of that?" (as read)
On balance, few things in this world are
completely black and completely white. There are elements in the relationship
that indicate that Mr. Gotkin was an employee, but on balance, most of the
indicia are that he was an independent contractor, and I so find that is the
way the control factor indicates.
So far as tools are concerned, there were not
many involved in Mr. Gotkin's duties. He was provided with a
workplace, being a vacant loft, but that was provided by the developer, 131,
not by Terradigm. But Terradigm did equip that office with a fax machine
and a telephone that Mr. Gotkin and others could avail themselves
of. On the other hand, Mr. Gotkin provided his own hard hat and
construction boots, and we have the Federal Court of Appeal in Precision
Gutters Ltd. v. M.N.R., [2002] F.C.J.
No. 771, in paragraph 25 saying:
"It has been held that if the worker owns the tools of
the trade which it is reasonable for him to own, this test will point to the
conclusion that the individual is an independent contractor even though the
alleged employer provides special tools for the particular
business."
Here we have Mr. Gotkin supplying the
tools that it is normal for him to supply. On the other hand, we do not
have any very expensive special tools for this particular business that are
being provided by the person that retained Mr. Gotkin. In the case of
Precision Gutters, there was a very expensive machine that would take
raw strips of aluminum and form them into eavestroughing.
So I cannot see this particular factor
leaning in either direction, and I declare and I find that the tools factor is
equivocal and neutral.
Chance of profit. Mr. Krauss on
behalf of the appellant argues that yes, there was a chance of profit in two
different ways. First, there was no restriction in the oral agreement
between Mr. Krauss and Terradigm barring him from working for others, and
therefore he could profit by working elsewhere in the 18-month hiatus that the
project suffered while dealings were ongoing with CNR over whether there could
be a berm or a crash wall. And according to Mr. Krauss, the second
opportunity for Mr. Gotkin's profit was that he originally expected to
earn $49,000 over seven months at the rate of $7,000 a month, but because the
project took four years, he wound up grossing some $336,000, which in
Mr. Krauss's view is a significant profit.
On this particular point, I found
Mr. Gotkin credible as to his -- as to the first branch of
Mr. Krauss's argument that he could work elsewhere in the 18-month
hiatus. Mr. Gotkin said the company expected him to be on the job
site for tenants and trades and building inspectors. Mr. Krauss tried to
advance the argument that two of the trades that worked on the job resided in
lofts and were on site to look after whatever little had to be done during the
18 months, but I did not find that a realistic argument, to expect trades who
had no responsibility whatsoever aside from their own jobs to take over
Mr. Gotkin's duties if he was elsewhere.
And then the second branch of the argument
that a $7,000 earning turned into a $336,000 profit, I also reject agreeing
with counsel for the Minister that this ongoing salary does not constitute
profit. He was restricted to a fixed monthly income, and just because the
income went on for considerably longer than it was supposed to, that is not
profit, and I am sure that Mr. Krauss well knows what the definition of
profit is in the business sense. It is business revenues exceeding
business expenses, and that does not fit Mr. Gotkin's situation at all.
There is authority for the proposition
that if one works harder and longer or is on piece work and puts out more
pieces and earns more money, that is not profit, and that is Hennick v. M.N.R.,
[1995] F.C.J. No. 294, in the Federal Court of Appeal.
There being, in my view, no chance of
profit for Mr. Gotkin, that indicates that he was an employee during the period
under review.
The risk of loss revealed an interesting
tension between Mr. Gotkin and Mr. Krauss in their attitudes, because
Mr. Gotkin says words to the effect that I have been on unemployment
insurance, and so I am risk averse. I was out of business and did not want
to be in business, so I answered the Star ad and went to work with Terradigm.
A completely contrary attitude and
expressed by Mr. Krauss, who says we would not hire an employee who had
more expertise than we did, because we needed recourse in the case that he
fouled up. We could not be exposed to third party claims without having an
expert third party who we could recourse.
In this regard, I prefer the evidence and
the attitude of Mr. Krauss, because it makes more business sense, that as
he explained on a number of occasions, they are into some endeavour that was
new to them, meaning Terradigm, and they needed someone's expertise and they
needed that person to be accountable and they needed him to be an independent
contractor and not an employee.
What detracts from Mr. Gotkin's
argument is that he agreed to be an independent contractor, at least for the
first seven months, which is directly contrary to his aforementioned quoted
attitude. Not only that, Exhibit A-6 is an agreement drawn up by his
counsel, which I understand was executed by him, although not by anybody
representing the other side, being Terradigm, 131, or 147, in which he refers
to himself as an independent contractor, still, and here we are in 2005.
So that is one reason that I prefer
Mr. Krauss's understanding of the relationship. Another is that throughout
the period Mr. Gotkin collected and presumably remitted GST, which is
nothing that employees do. Next, he filed his income tax returns
throughout the period in question as an independent contractor, deducting from
income allowable expenses under the Income Tax Act. There is
jurisprudence that if someone does that, that is evidence of their intent to be
an independent contractor and the case in support of that proposition is Combined
Insurance Co. of America v. M.N.R., [2007] F.C.J. No. 124, in the
Federal Court of Appeal.
Finally, I heard no evidence that there
was ever any change in the relationship between Mr. Gotkin and his
employer over the entire period as he claims there was, so his working
conditions did not change. His manner of remuneration did not
change. There was no T4. There were no source deductions. I
think that he was an independent contractor. He bore a great risk of loss
if he misread the architect's drawings or if he misdirected the trades, and the
risk of loss factor indicates, accordingly, that he was an independent
contractor.
If I may summarize, the control factor
indicates that he was an independent contractor. The tools factor is
neutral. The chance of profit factor indicates that he was an employee;
the risk of loss factor that he was an independent contractor.
Out of the three relevant -- out of
the three probative considerations, two indicate that he is an independent
contractor.
Which brings me to the intention of the
parties, which gains in weight as the four Wiebe Door criteria
become less convincing, or predominant, or conclusive. The Royal
Winnipeg Ballet v. M.N.R.,
2006 FCA 87, says that in these circumstances, the intention of the parties is
not to be ignored. I have already said that ab initio it was clear
that the mutual intent of the parties was that Mr. Gotkin be an
independent contractor, and nothing that I can see changed thereafter,
particularly in view of Exhibit A-6, wherein that independent contractor agreement
is extended right on through March of 2005.
If I had to highlight the most important
considerations under the heading of the relationship of the parties, I would
point to the lack of subordination and to that 2005 contract, which designates
Mr. Gotkin as an independent contractor.
The law is that the burden is upon the
appellant to demolish the assumptions set out in the Minister's reply to the
notice of appeal, and in this case, there is an amended reply to the notice of
appeal. The assumptions are to be found in paragraph 15. There
is always a problem in demolishing assumptions which are not controversial, or
are not probative, or do not point to the worker being either an independent
contractor or an employee.
In circumstances such as these, I am more
than happy to go over the assumptions that the Minister makes. You will
see that they are not determinative, like 15(a): "the owner of the
project was 1317621." That is true. There is no way the
appellant can demolish that, but it does not help me in any way decide the
status of Mr. Gotkin. Similarly with (b): "the owner of the
project hired the Appellant to provide “project management”." True.
(c): "the Appellant was established to provide project management
for one specific construction project ‘The Wallace Station Lofts’"; true.
What we have here is a collection of history, but nothing that follows the Wiebe
Door guidelines that help a court determine the status of a worker.
Rather than taking everyone's time and
going through all of these assumptions that do not get us anywhere, I will jump
down to (f) as to the worker's duties, which is a very nice summary of his
duties, but again, he could be doing these duties as an employee or independent
contractor. It is not probative. It is not determinative.
Now we get to (g), which is wrong:
"the Worker performed his duties at the job-site location where an office
was provided." An office was provided, but the problem is it was not
provided by the right person or entity in order to establish that that entity
was an employer.
Then they set out the annual salary, and
break it down on a weekly basis.
Then they get to something that is true,
(j) and (k): he did not receive vacation or paid vacation leave. No
employment-related benefit package. Those assumptions are true, but they tend
to indicate exactly what the Minister is arguing against. They indicate
that he is an independent contractor. It would be difficult for the
appellant to rebut or demolish those assumptions.
(l) sets out the job hours.
(m) sets out that the worker was expected
to be at the work site during its working hours, and also be available nights
and weekends. Finally we get to some assumption that tends to indicate that he
is under the control of the project manager and might therefore be an employee.
(n) is another assumption: "the
Worker was not paid for overtime." That indicates an independent
contractor, not an employee, and that is again an assumption that is very
difficult for the appellant to demolish.
(o) "the Worker's hours of work were
not recorded." That is certainly true, but I do not think that
indicates that he was an employee.
(p) "the Worker was supervised by Harold Spring." Well,
as I have said, the evidence is that, in theory, Mr. Spring probably had
the right to supervise him, but in fact he was only on the site a couple of
times a month and he did not really exercise supervision over him. But as
I have said, he did have the right to tell him what to do, and that would indicate
that Mr. Gotkin was an employee.
(q) was demolished: "the Worker
was in constant contact with his supervisor, Harold Spring since the Appellant made the final
decision." The evidence produced by the appellant demolished
that. That was not established.
We are back to the job site office in (r):
"the Appellant provided the job site office." The evidence does not
support that. That was demolished.
(s) is true: "the Worker was
reimbursed for cellular expenses by the Appellant by the way of a monthly allowance." I
do not know about the monthly allowance, but I agree it would be unusual to
reimburse an independent contractor for cellular expense, so you might say that
assumption (s) supports the minister's position that this man was an employee,
and that has not been demolished by the appellant.
(t): "the Appellant did not
provide any training to the Worker." That is true, but it also
indicates that he is an independent contractor. You do not train independent
contractors, you train employees.
(u): "the Appellant covered the
costs of any materials." That is wrong. It was 131 that covered
the cost of materials.
(v): "the Appellant decided if
work had to be redone and was responsible for the related costs." I
have found that the appellant purposely set things up and wanted
Mr. Gotkin to be an independent contractor for the very reason that they
needed someone to be accountable other than themselves, someone who knew this
retrofitting requirement as they did not. So that assumption has been rebutted
and demolished.
(w): "the Appellant was responsible
for the cost of liability insurance." That really does not weigh very
heavily with me one way or another.
(x): "the Worker had no capital
investment in ‘the’ business." That is true. That would tend to
indicate that he was an employee.
(y): "the Worker had to provide
his services personally." That is very true, but that is not
determinative because I am sure we would all like our surgeons to perform their
services personally, but that does not make them employees. So there is
another assumption that cannot be demolished, but it is not determinative.
(z): "the Worker was performing
services exclusively for the Appellant." I find that is true, but I
also find it not determinative because there are many independent contractors
who only have one client.
In (aa), "the Appellant had the right
to terminate the Worker's Services." That statement by itself does not
get one very far. The question is: Do they have the right to
terminate the service without notice, or without pay in lieu of notice? That
statement does not help me decide whether the worker in question,
Mr. Gotkin, was an employee or independent contractor.
I find that the appellant has demolished
sufficient of the controversial or probative assumptions that the remaining
assumptions are not sufficient to support the Minister's determinations, and I
am not sure I can provide you with a reference, but that was decided in Jencan Ltd. v.
M.N.R., [1997] F.C.J. No. 876, where the Federal Court of Appeal holds
that:
"Even though some assumptions are demolished, if the
remaining assumptions are sufficient to support to Minister's determination, it
stands." (as read)
I do not find that that is the case before
me. The Minister's determination, both of them, are objectively
unreasonable because I have heard new evidence at trial or the evidence known
by the Minister has not been correctly assessed. In the result, I am going to
allow both appeals, and vacate both decisions of the Minister.
I am indebted to you for your
assistance. I will close court now until 9:30 tomorrow morning.
--- Whereupon
the Decision with Reasons concluded.
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