Citation: 2008TCC6
Date: 20080122
Docket: 2007-1601(EI)
BETWEEN:
ARKADILY LISOVENKO,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1] The Appellant is
appealing from a decision of the Minister of National Revenue
("the Minister") that he was not employed in insurable
employment in 2005 when he was rendering services to 9088-4453 Québec Inc.
because the employment did not meet the requirements of a contract of service
within the meaning of the Employment Insurance Act ("the Act").
[2] 9088-4453 Québec
Inc. was incorporated on March 8, 2000, and operates a forestry
business in Quebec that is primarily engaged in brush cutting and
reforestation. The business is known as Florexpert.
[3] In 2005, 75% of Florexpert's
workers were considered employees, and 25% of them were considered independent
contractors. The distinction that the appeals officer drew between the employees
and the independent contractors was that the employees were new employees,
trained by Florexpert, who planted new trees in addition to cutting brush. They
were paid on an hourly basis, their work tools were supplied to them, and they
were transported by Florexpert to the work sites. As for the independent
contractors, they were experienced, and were paid to clear parcels of land in
accordance with a five-tier fee scale that is based on the parcel of land to be
cleared. In order to get paid what they were due, the independent contractors
had to do their work to Florexpert's satisfaction. They also had to use
their own tools. All the workers got their room and board from
Florexpert, but this expense was deducted from their pay.
[4] The Appellant
worked for Florexpert from August 6 to late October 2005 as a brush
cutter. This was not his first experience in this field, because he had already
worked as a brush cutter for another company named Reboitech in May and
June 2005.
[5] The Appellant was
hired by Reboitech as an employee. In order to do the work, he had to live in
camps set up by his employer in the woods. The employer deducted from his
salary the costs associated with his camp, including meals and lodging. He
also purchased the tools necessary to do his work, as well as the fuel for those
tools and the parts to repair them, from the employer. All of these amounts
were withheld from his pay. He got to the camp on his own or used the
transportation made available by the employer.
[6] A forestry pay
statement for a week's work with Reboitech states that the Appellant
cleared roughly one and a half hectares of land at a rate of $350 per hectare.
After certain adjustments, including 4% vacation pay, Reboitech made the
customary source deductions and then deducted the costs associated with the
camp and with equipment purchases. The remaining balance was deposited into his
account. The gross taxable income was converted into 45 hours of insurable
employment for the week.
[7] Reboitech suspended
its forestry operations because of forest fires. Therefore, Reboitech offered
the Appellant a job which was similar, but in which he would be doing work
for Florexpert. Consequently, the Appellant went to the work site, which was
located near the Gouin dam. The Appellant filled out a job application,
and he claims that he was hired under the same terms and conditions that
Reboitech had offered. He says that there was no discussion of the fact that
there were two categories of employees.
[8] He started work the
next day and was told what land to clear. The land was marked out with flags,
and if the work was not done well, he had to redo it. Thus, there was a
supervisor who checked his work. He understood that he needed to make $700 a
week in order to get employment insurance benefits. Meals and lodging were
provided by Florexpert, but his expenses were deducted from his pay. There were
roughly 15 to 20 occupants in each camp, and everyone had the same
schedule. According to the Appellant, no one at his camp was paid on an hourly basis. There was
a set time for the meal break. He worked 10 to 12 hours a day, starting
very early in the morning, and ending at approximately 4 p.m.
[9] The land was owned
by Florexpert, which determined what would be paid for each parcel of land
based on the category to which it belonged. Florexpert chose the land that
the Appellant would have to clear, and told him which trees not to cut. When Florexpert
determined that the terrain was very rugged and that he should not work alone,
it required hum to work with someone else. However, the Appellant could
choose who that co-worker would be. Workers were prohibited from working more
than fifteen days in a row; if they did, they risked being penalized. The Florexpert
supervisor carried replacement parts and fuel for the Appellant's tools. All
purchases made by the Appellant were deducted from his income.
[10] Despite the requests
that he made while working for Florexpert, the Appellant received no pay
stub, explanations or other information, except at the very end, when
everything was deposited into his account. Exhibit A‑4 shows that,
for the year 2005, Florexpert deducted tool, fuel and lodging costs from the
Appellant's income. It is also interesting to note that the Appellant is
identified in the [TRANSLATION] "Detailed Report of Purchases
from Suppliers" as an employee on the first page, but that the second page
refers to the Appellant, the amount of land cleared, and the fee per
parcel of land. The Appellant, for his part, says that he does not know if he
was paid properly. However, he knew the fee per parcel, and knew that, if he
worked quickly, he could increase his income. According to the Appellant, all
of Florexpert's workers used their own tools and no one at his camp was paid by
the hour. The planting of new trees was done by students, not by brush
cutters.
[11] The Appellant
obtained a T4 from Reboitech, but Florexpert did not give him one. He did not
get vacation pay from Florexpert. He retained the servies of a professional to
prepare his income tax return, and deducted his expenses from his income.
His return was later changed when the Canada Revenue Agency prepared a T4
concerning his job with Florexpert, but everything was put on hold pending this
decision.
[12] The issue for
determination, then, is whether the services that the Appellant rendered to
Florexpert were services under a contract of employment, or under a contract of
enterprise or for services. In 9041‑6868 Québec Inc. v. Canada, [2005] F.C.J.
No. 1720, Décary J.A. of the Federal Court of Appeal determined the
parameters of the analysis that must be applied in cases such as this:
In other words, it is the Civil Code
of Québec that determines what rules apply to a contract entered into in
Quebec. Those rules are found in, inter alia, the provisions of the
Code dealing with contracts in general (arts. 1377 C.C.Q. et seq.)
and the provisions dealing with the "contract of employment" (arts.
2085 to 2097 C.C.Q.) and the "contract of enterprise or for services"
(arts. 2098 to 2129 C.C.Q.). Articles 1378, 1425, 1426, 2085, 2098 and
2099 C.C.Q. are of most relevance for the purposes of this case:
1378. A contract is an
agreement of wills by which one or several persons obligate themselves to one
or several other persons to perform a prestation.
1425. The common
intention of the parties rather than adherence to the literal meaning of the
words shall be sought in interpreting a contract.
1426. In interpreting a
contract, the nature of the contract, the circumstances in which it was formed,
the interpretation which has already been given to it by the parties or which
it may have received, and usage, are all taken into account.
1440. A contract has
effect only between the contracting parties; it does not affect third persons,
except where provided by law.
2085. A contract of
employment is a contract by which a person, the employee, undertakes for a
limited period to do work for remuneration, according to the instructions and
under the direction or control of another person, the employer.
2098. A
contract of enterprise or for services is a contract by which a person, the
contractor or the provider of services, as the case may be, undertakes to carry
out physical or intellectual work for another person, the client or to provide
a service, for a price which the client binds himself to pay.
2099. The contractor and
the provider of services is free to choose the means of performing the contract
and no relationship of subordination exists between the contractor or the
provider of services and the client in respect of such performance.
He continues by defining the role
of the Tax Court of Canada, and notes the three constituent elements of a
contract of employment.
8 We must keep in mind that the role of the Tax Court of
Canada judge is to determine, from the facts, whether the allegations relied on
by the Minister are correct, and if so, whether the true nature of the
contractual arrangement between the parties can be characterized, in law, as
employment. The proceedings before the Tax Court of Canada are not, properly
speaking, a contractual dispute between the two parties to a contract. They are
administrative proceedings between a third party, the Minister of National
Revenue, and one of the parties, even if one of those parties may ultimately
wish to adopt the Minister's position. .
9 The contract on which the Minister
relies, or which a party seeks to set up against the Minister, is indeed a
juridical fact that the Minister may not ignore, even if the contract does not
affect the Minister (art. 1440 C.C.Q.; Baudouin and Jobin, Les Obligations,
Éditions Yvon Blais 1998, 5th edition, p. 377). However, this does not mean
that the Minister may not argue that, on the facts, the contract is not what it
seems to be, was not performed as provided by its terms or does not reflect the
true relationship created between the parties. The Minister, and the Tax Court
of Canada in turn, may, as provided by articles 1425 and 1426 of the Civil
Code of Québec, look for that true relationship in the nature of the
contract, the circumstances in which it was formed, the interpretation which
has already been given to it by the parties or which it may have received, and
usage. The circumstances in which the contract was formed include the
legitimate stated intention of the parties, an important factor that has been
cited by this Court in numerous decisions (see Wolf v. Canada (C.A.),
[2002] 4 FC 396, paras. 119 and 122; A.G.
Canada v. Les Productions Bibi et Zoé Inc., 2004 FCA 54; Le Livreur Plus
Inc. v. M.N.R., 2004 FCA 68; Poulin v. Canada (M.N.R.), 2003 FCA 50;
Tremblay v. Canada (M.N.R.), 2004 FCA 175).
10 The expression "contract of
service", which has been used in the Employment Insurance Act since
its origin and which was the same as the expression used in article 1667 of the
Civil Code of Lower Canada, is outdated. The Civil Code of Québec
in fact now uses the expression "contract of employment", in article
2085, which it distinguishes from the "contract of enterprise or for
services" provided for in article 2098.
11 There are three characteristic
constituent elements of a "contract of employment" in Quebec law: the performance of work, remuneration and a relationship of
subordination. That last element is the source of the most litigation. For a
comprehensive definition of it, I would refer to what was said by Robert P. Gagnon
in Le droit du travail du Québec, Éditions Yvon Blais, 2003, 5th edition,
at pages 66 and 67:
90 - A distinguishing factor - The most
significant characteristic of an employment contract is the employee's subordination
to the person for whom he or she works. This is the element that distinguishes
a contract of employment from other onerous contracts in which work is
performed for the benefit of another for a price, e.g. a contract of enterprise
or for services governed by articles 2098 et seq. C.C.Q. Thus, while
article 2099 C.C.Q. provides that the contractor or provider of services
remains "free to choose the means of performing the contract" and
that "no relationship of subordination exists between the contractor or
the provider of services and the client in respect of such performance,"
it is a characteristic of an employment contract, subject to its terms, that
the employee personally perform the agreed upon work under the direction of the
employer and within the framework established by the employer.
91 - Factual assessment - Subordination
is ascertained from the facts. In this respect, the courts have always refused
to accept the characterization of the contract by the parties. . . .
92 - Concept - Historically,
the civil law initially developed a "strict" or "classical"
concept of legal subordination that was used for the purpose of applying the
principle that a master is civilly liable for damage caused by his servant in
the performance of his duties (article 1054 C.C.L.C.; article 1463 C.C.Q.).
This classical legal subordination was characterized by the employer's direct
control over the employee's performance of the work, in terms of the work and
the way it was performed. This concept was gradually relaxed, giving rise to
the concept of legal subordination in the broad sense. The reason for this is
that the diversification and specialization of occupations and work methods
often made it unrealistic for an employer to be able to dictate or even directly
supervise the performance of the work. Consequently, subordination came to
include the ability of the person who became recognized as the employer to
determine the work to be performed, and to control and monitor the performance.
Viewed from the reverse perspective, an employee is a person who agrees to
integrate into the operational structure of a business so that the business can
benefit from the employee's work. In practice, one looks for a certain number
of indicia of the ability to control (and these indicia can vary depending on
the context): mandatory presence at a workplace; a somewhat regular assignment
of work; the imposition of rules of conduct or behaviour; an obligation to
provide activity reports; control over the quantity or quality of the services,
etc. The fact that a person works at home does not mean that he or she cannot
be integrated into a business in this way.
12 It is worth noting that in Quebec civil law, the
definition of a contract of employment itself stresses "direction or control"
(art. 2085 C.C.Q.), which makes control the actual purpose of the exercise and
therefore much more than a mere indicator of organization, as Mr. Justice
Archambault observed at page 2:72 of the article cited supra.
[13] As we have seen, the
distinction drawn by the appeals officer between the two groups of workers was
that the employee group consisted of new workers that Florexpert had to train.
These workers did brush cutting and planting, were paid on an hourly basis, and
were provided with tools for their work. As for the independent contractors,
including the Appellant, they were paid a rate that depended on the category of
land to be cleared, and they had to do the work to Florexpert's satisfaction
and supply their own work tools.
[14] The Appellant
submits that all the workers owned their work tools, whether they were paid by
the hour or based on the set fee for land to be cleared. The Appellant
further submits that only the students planted small trees, and that the
workers who stayed at his camp were not paid by the hour.
[15] The documentation that
Florexpert tendered in evidence refers to the Appellant as an employee on the
first page and a supplier from which Florexpert makes purchases on the second
page.
[16] The Appellant claims
that he was hired by Florexpert under the same terms and conditions under which
Reboitech employed him. Under his contract with Reboitech, he was paid by
parcel or hectare of land cleared, not based on the hours that he worked. He
had purchased his work tools from Reboitech, along with the parts to repair
them. He lived in a camp that belonged to Reboitech, and his lodging costs and
source deductions were deducted from his income. His income was converted into
insurable hours. He believed, at least until his job ended, that he was a
Florexpert employee governed by the same terms and conditions that had applied at
Reboitech. In fact, everything except the source deductions was done the
same way.
[17] What was the true relationship
between the Appelant and Florexpert in the case at bar? Was there a prestation
of work, remuneration, and a relationship of subordination between them? The
Minister relied on the information obtained during his investigation to prepare
the Reply to the Notice of Appeal, which was worded as follows:
[TRANSLATION]
1. The brush
cutters, including the Appellant, had to travel to the work sites, supply their
own equipment, and feed and house themselves.
2. They did not have a precise work schedule
to comply with.
3. They received no training.
4. The payor assigned them a site, on which
they generally worked alone and unsupervised by the payor.
5. They were remunerated based on the number
of hectares of woods cleared.
6. They had to supply their own work tools
and fuel and look after the maintenance of their own equipment.
7. Their hours of work were not counted,
because the payor was only interested in the results.
8. They got no fringe benefits from the
payor, not even the 4% vacation pay.
9. They had no quotas to meet and were remunerated
solely based on the amount of work done.
[18] The Appellant
admitted to paragraphs 5, 6, 8 and 9. In my opinion, he provided credible,
sincere testimony which, on several points, contradicts the assumptions on
which the Minister relied in making his decision.
[19] The Appellant claims
that he had to go to Florexpert's camp, but that, once there, he was
transported by Florexpert to the work sites at the times that corresponded to
the camp's activities, particularly mealtimes. He got his room and board from Florexpert,
but reimbursed Florexpert for these services. It is true that the Appellant did
not have a precise schedule to keep, but he had to comply with the schedule
that Florexpert had established for the purposes of its forest camp.
The Appellant was required to comply with Florexpert's camp schedule at
the very least.
[20] With respect to the
training, it is true that the Appellant knew what he had to do. However,
he testified that, based on the type of land that he had to clear, he received
instructions on how to perform the work in order to protect certain types of
trees and to comply with Florexpert's requirements. This suggests to me that,
in the instant case, Florexpert had some measure of control and power over the
performance of the work by the Appellant.
[21] The Appellant did
not have the power to choose the type of land that he would work on. The parcel
of land was assigned by Florexpert, and the rate varied depending on the land
involved. In addition, if Florexpert determined that the terrain was too
rugged, it required the Appellant to be accompanied by another worker, whom it
paid. The only thing that the Appellant could choose was who that other
worker would be. This, in my opinion, is an indicia that Florexpert had a power
of direction and control over the worker, which supports the argument that a
relationship of subordination existed.
[22] It is true that the
Appellant had to supply his own tools. However, he depended on Florexpert to
obtain the fuel and parts necessary for his tools to function properly. Florexpert
provided this service through its supervisor, who went from site to site with
the fuel and replacement parts that he sold to the workers. Any delay in this
distribution was detrimental to the workers, not Florexpert. In my
opinion, an independent contractor would have made sure that he was not short
of anything so that he would not have to wait for the supervisor and depend on
the supervisor's comings and goings.
[23] However, there are
indicia that favour the argument that the Appellant was self-employed. The fact
that the hours of work were not recorded, and that the Appellant was paid
solely based on the number of parcels of land that he cleared, suggests that Florexpert
was only interested in the result and the quality of the work that was done. It
is also true that he had no quota to meet because he was paid based on the
quantity of work done. The fact that the Appellant supplied his work tools, and
that he purchased fuel and parts sold by Florexpert, are also indicia that the
Appellant was self-employed.
[24] However, I believe
that, on a balance of probabilities, the Appellant has succeeded in showing
that he had rather little decision-making power and was therefore integrated
into Florexpert's forestry operations. Moreover, Florexpert exercised a power
of direction or control over the Appellant that was sufficient for me to find
that a relationship of subordination existed. The Appellant received specific
instructions regarding the places that he had to clear; he was assigned a
parcel of land, a determination was made concerning the rate and how he would
have to perform his work based on the type of terrain. This amounts mainly to
saying that Florexpert chose the land based on the Appellant's ability to do
the work. He was assigned a co-worker when Florexpert determined that the terrain
was too rugged. He was forbidden from working more than 15 days in a row,
failing which he was penalized. He had to comply with the schedule of the camp
where he was lodged, and the circumstances required him to live at the camp.
For all practical purposes, he had to purchase his fuel and parts from
Florexpert, and, as a result, his power to control the cost of his expenses was
reduced. In my opinion, all of this creates a relationship of subordination and
leads me to the conclusion that the services that the Appelant rendered to
Florexpert were rendered under a contract of employment, and therefore
constituted insurable employment within the meaning of the Act.
[25] The appeal is allowed and the decision rendered by the Minister of
National Revenue is vacated in that the Appellant, Arkadily
Lisovenko, was employed in insurable employment.
Signed at Ottawa, Canada,
this 22nd day of January 2008.
"François Angers"
Translation
certified true
on this 21st day
of April 2008.
Brian McCordick,
Translator
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