Citation: 2006TCC242
Date: 20060419
Docket: 2005-3175(EI)
BETWEEN:
MICHEL DRAPEAU,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
MÉDIA-FX INC.,
Intervener.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] The Appellant is
appealing the decision of the Minister of National Revenue (the "Minister")
that he was not employed in insurable employment by Média‑FX Inc.
("Média‑FX") during
the 2002 and 2003 taxation years.
[2] The facts of this
appeal are set out as follows at paragraphs 2 to 5 of the Reply to the Notice
of Appeal (the "Reply"):
[TRANSLATION]
2. By Notices of Assessment dated
November 6, 2004, the Respondent assessed Média‑FX Inc. (the
payer) for unpaid Employment Insurance (EI) premiums in respect of the
Appellant for 2002 and 2003.
3. By letter dated August 3, 2005,
the Respondent notified the payer and the Appellant that it had decided to
cancel the assessments in issue on the basis that the Appellant's employment
was not insurable.
4. The Appellant is appealing from this
decision by the Minister concerning the insurability of his employment during
2002 and 2003.
5. In making his decision, the Minister
determined, based on the following assumptions of fact, that the Appellant was
not employed under a contract of service:
(a) The payer incorporated in 1997.
(b) The payer specializes in the production of
multimedia shows (software for museums and others).
(c) The payer’s main client was Idées au Cube,
which received orders from museums for the production of multimedia shows.
(d) The payer’s sole shareholder was Paul Ahad.
(e) The payer employed two to four people.
(f) The Appellant rendered services to the
payer in 2000 and came back to work for the payer in 2001 and during the years
in issue.
(g) The Appellant is a composer, musician and
performer, and he worked for the payer as a musical director.
(h) The Appellant looked after the entire
musical environment, and, as a sound technician, he did the sound design.
(i) The Appellant rented a studio on the
payer’s premises for $350 per month.
(j) The Appellant did not need to keep
specific work hours and could take vacations without notifying the payer in
advance.
(k) The only thing required by the payer was
compliance with the client's schedule for the production entrusted to the
Appellant.
(l) The Appellant supplied his own equipment
and had to assume certain expenses that were not reimbursed by the payer.
(m) During the years in issue, the Appellant
generally received $1,000 per week regardless of the hours actually worked.
(n) Although the payer issued T4 slips in the
Appellant's name for the years in issue, they were not sent to the appropriate
tax centre.
[3] The grounds of the
appeal are set out as follows in the Notice of Appeal:
[TRANSLATION]
On the contrary, in this appeal, it will be established that there
was indeed a relationship of subordination between the Appellant and his
employer, that his employer voluntarily gave him T-4 slips as an employee at
the end of each fiscal year, and that Média-FX negotiated all its turnkey
contracts directly with third parties without his interference.
Lastly, it will be shown that the Appellant had two roles within the
business. The first role was that of musical director responsible for
sound design and musical composition under his employer's supervision. The
second role — a role that he played for several weeks during which the first role
was unnecessary due to a lack of demand — was that of
production casting director. In both cases, the employer always had the last
word. Ultimately, all completed work was subject to the employer's approval.
[4] The grounds of the
Notice of Intervention are as follows:
[TRANSLATION]
1. Michel Drapeau only worked as an
employee of Média‑FX on a sporadic basis. Média‑FX always made the
source deductions when required, and then declared them and paid them to the
governments concerned. The cheques issued to Michel Drapeau over a
three-year period were verified in 2004 and 2005 by Revenue Canada and Revenu
Québec auditors. . . . These cheques clearly showed and delineated the
periods during which Michel Drapeau was an employee and the periods during
which he was a contractor.
2. It has already been shown and documented
that Michel Drapeau's work on the Zoo de St‑Félicien project in his
capacity as musical director responsible for sound design and musical
composition was a genuine one-year contract which he had to perform for the
fixed amount of $25,000, and that this contract was terminated by our own
client, Idées au cube (the general contractor) because it was dissatisfied with
the work done by Michel Drapeau.
3. It has already been shown, and has already
been documented by cheques issued to Michel Drapeau as well as other
supporting documents, that when Média-FX's contract was terminated, it advanced
$7,000 more to Michel Drapeau than the production schedule provided for.
Michel Drapeau could not reimburse Média‑FX for the amounts overpaid
. . . . In order to recoup our losses and avoid legal proceedings which
Michel Drapeau was threatening to commence against us and our client and
which could seriously harm our reputation as well as our client and all the
project's stakeholders, we at Média‑FX had no choice but to assign him to
similar duties on other projects of ours. Otherwise, we would have
suffered a net loss of $12,000, plus our costs if Michel Drapeau had
decided to sue, since it was clear that he was impecunious.
. . .
5. Média‑FX could neither manage nor
coordinate Michel Drapeau's day‑to‑day activities as an employer
would. There are various reasons for this:
a. Although Michel Drapeau always rented a
room on Média‑FX premises for use as a composition studio during the
period in issue, he temporarily moved his equipment to a summer cottage that he
rented in the Laurentians for several months, and only came back to Montréal on
weekends when there was no one at the office. It was obviously impossible to
exercise control over his work schedule. In fact, the client complained
several times about this, because Mr. Drapeau was not available on short
notice for last-minute production meetings, and it was hard to reach him by
telephone or e‑mail because he had no cable or telephone service in his
cottage and the cellular phone signal did not reach his cottage.
b. During the period concerned,
Michel Drapeau often left on vacations for North Carolina and Mexico
without consulting us or asking us for permission. On one such occasion, we
were notified only a few hours prior to his departure.
c. During the period concerned, Michel Drapeau had other contracts with other clients, and Média‑FX
was neither concerned nor bound in any way by these contracts, even through he
was renting a studio on our business premises.
d. No employer in an arm's length
employer-employee relationship would have agreed to or tolerated the situations
and events referred to above.
[5] In his testimony,
the Appellant explained that he is a composer and audio editor. He said that Média‑FX hired him in
these capacities. He tendered Exhibit A‑1, the Records of Employment
issued to him by Média‑FX for three periods of employment: January 31,
2000, to July 28, 2000, October 1, 2001, to March 29,
2002, and September 16, 2002, to April 18, 2003.
[6] In his testimony, Mr. Ahad, the sole director of payer
Média-FX, did not dispute the fact that Mr. Drapeau was an employee of
Média‑FX during the first two periods of employment. He disputed the
third period. He stressed that it was not he, but rather, the accountant of
Média‑FX Inc., who signed that Record of Employment. The accountant
was not called as a witness. It should be noted that he is a chartered
accountant.
[7] Exhibit A‑2 is a draft tax
assessment dated December 20, 2004, which was sent to the Appellant by the
Canada Customs and Revenue Agency (CCRA) and which pertains to the 2002 and
2003 taxation years. Upon reading the document, one can see that the Appellant
reported his income as employment income. The CCRA does not contest this. The
factors raised in the Reply, such as the studio and home office, are not
contested in the draft assessment as being inconsistent with employee status.
The only limitations imposed in respect of these factors pertain to the amounts
deductible from employment income.
[8] Exhibit A‑3 is a Quebec
employment assistance subsidy granted to Média‑FX in connection with the
Appellant for the period from October 1, 2001, to
April 26, 2002. Mr. Ahad confirmed that Mr. Drapeau was an
employee of Média‑FX at that time. As mentioned, Mr. Ahad claims
that Mr. Drapeau was not an employee from September 16, 2002, to
April 18, 2003.
[9] Exhibit A‑4 is a copy of an
e-mail message sent by the producer of Idées au cube to Paul Ahad on
September 2, 2002. Mr. Ahad forwarded the message to the
Appellant. The team list, attached to the message, includes Paul Ahad, who
is listed as artistic director and set design creator. This document was
adduced to show that Idées au cube did indeed grant the Zoo de St‑Félicien
contract to Média‑FX, not to the Appellant.
[10] Mr. Ahad confirmed this in his
testimony and his Notice of Intervention. Média‑FX paid the Appellant.
[11] The Appellant tendered the T4 slips
(Exhibits A‑6 and A‑7) that Média‑FX issued to him for
2002 and 2003. The slip for 2002 states that the Appellant was paid $24,800 in
employment income, that $2,848 in income tax was withheld, that the employee
contributions to the Québec Pension Plan amounted to $1,069.91, and that the Employment
Insurance premiums totalled $545.60. In 2003, the amounts for the same items
were $16,000, $2,028, $738.72 and $336.
[12] Later on, T4A slips (Exhibit A‑6) were
issued for the years 2002 and 2003. The income is no longer entered as
employment income on those slips. Rather, it is characterized as other income.
[13] Exhibit A‑8 consists of two documents
entitled "Declaration of Conditions of Employment". The first
declaration covers the periods from January 1 to March 30, 2002,
and September 15 to December 31, 2002. The second declaration covers
the period from January 1 to May 16, 2003. The first declaration is
dated October 7, 2003. The second is not dated. These declarations,
which were completed for income tax purposes, were signed by Mr. Ahad
personally.
[14] Boxes 2, 6, 8 and 9
of the declarations read as follows:
|
2. a) Did you normally require this employee to
work away from your place of business or in different places?
|
|
X yes
|
no
|
|
b) If yes, what was the employee's area
of travel?
|
Upper
Laurentians
|
X yes
|
no
|
|
6. a) Did you require this employee to pay other
expenses for which the employee did not receive any allowance or repayment?
|
|
X yes
|
no
|
|
b) If yes, indicate the type(s) of
expense(s).
|
Studio
Rental
|
|
|
|
8. Did you require this employee to be away for at
least 12 hours from the municipality and metropolitan area (if there is one)
of your business where the employee normally reported for work?
|
|
X yes
|
no
|
|
9. a) Did you require the employee under a
contract of employment to:
· rent an office away from your place of
business
· pay for a substitute or assistant
· pay for supplies that the employee used directly in
his or her work
|
|
X yes
yes
yes
|
no
X no
X no
|
|
b) Did you or will you
repaid the employee for any of the expenses?
|
|
X yes
|
no
|
|
c) If yes, indicate the type of expense
and amount you did or will repay.
|
|
yes
|
X no
|
[15] Exhibit A‑9 is a certification
by Mr. Ahad dated January 15, 2003, and addressed to the Caisse
populaire Desjardins. It confirms that Mr. Drapeau was an employee of
Média‑FX. It states that his monthly gross salary was $4,000.
[16] Mr. Ahad's explanation for this
document was that Mr. Drapeau wished to purchase a car and that the
certification was merely prepared as a favour to him.
[17] In essence, the
Appellant is saying that Média‑FX
obtained and signed the contracts, and that he performed the contracts as an
employee and was accountable to Mr. Ahad for his progress. He says that he
was frequently in contact with Mr. Ahad when Mr. Ahad was at his
office. Every project had a schedule, and he knew that Média‑FX, which
paid him, considered it important that he comply with the schedules. He had no
fixed schedule, but claims that he worked very regular hours. He says that he
was generally the first to arrive and the last to leave.
[18] Mr. Ahad, the Intervener's sole director,
describes himself as a computerized special effects producer. He admits that
the Appellant was his employee, except during the second part of 2002, which is
the period of the contract concerning the Zoo de St-Félicien. When
Mr. Ahad returned from a trip to Greece, the working relationship between
Idées au cube and Mr. Drapeau deteriorated, and Idées au cube terminated
its agreement with Média‑FX. Mr. Ahad explained that he had already
paid Mr. Drapeau $12,000, and that Idées au cube did not want to pay him
more than $5,000 for Mr. Drapeau's composition or sound editing services.
To offset the shortfall, he asked Mr. Drapeau to work on
the "Quebec All Dressed" project under the direction of
Gregory Parks. Mr. Parks frequently did business with Média‑FX
and even managed its affairs when Mr. Ahad was absent.
[19] Exhibit I‑1 includes an estimate
by the Appellant with respect to the work done for Idées au cube before it
terminated its contract.
Arguments
[20] Counsel for the Appellant submits that
there is no difference between the description of the working relationship at
Média‑FX when the Appellant was its employee, and the description of that
relationship when Média‑FX claims he was not its employee. The working
conditions were essentially the same. In all the documents that Mr. Ahad
wrote or filled out before the CCRA auditors arrived and asked him to pay the
amounts deducted at the source, Mr. Ahad asserted that Mr. Drapeau
was an employee of Média‑FX.
[21] Counsel for the Respondent referred to the
decision of Dussault J. of this Court in Lévesque v. Canada, [2005]
T.C.J. No. 183 (QL), and in particular paragraph 25, where he sets out, as
follows, the indicia of control identified by a Court of Québec judge:
25 In the case at bar, was there a
relationship of subordination between Ms. St‑Jules and
Mr. Lévesque based on which it can be concluded that a contract of
employment exists? Several indicia can be taken into account in ascertaining
whether or not a relationship of subordination exists. In Seitz v. Entraide
populaire de Lanaudière inc., Court of Québec (Civil Division), No. 705‑22‑002935-003,
November 16, 2001, [2001] Q.J. No. 7635 (QL), Judge Monique Fradette
provided a series of indicia that can help determine whether or not
subordination exists. She discussed this as follows at paragraphs 60-62 of the
judgment:
60 In order for there to be an
employment contract, the jurisprudence requires the existence of a right of
supervision and immediate direction. The mere fact that a person provides
general instructions about the way in which the work is performed, or reserves
the right to supervise or inspect the work, is not sufficient to convert the
agreement into an employment contract.
61 A series of indicia developed by the
jurisprudence enables courts to determine whether there is a relationship of
subordination between the parties.
62 The indicia of control include:
- mandatory presence at a workplace
- compliance with the work schedule
- control over the employee's absences on
vacations
- submission of activity reports
- control over the quantity and quality
of work
- imposition of the methods for
performing the work
- power to sanction the employee's
performance
- source deductions
- benefits
- employee status on income tax returns
- exclusivity of services for the
employer
[22] In fact, the
questions that she asked the Appellant on cross‑examination were of this
nature; they pertained to activity reports, fixed schedule, and mandatory
presence at a workplace.
Analysis and conclusion
[23] Articles 2085, 2098
and 2099 of the Civil Code of Québec read as follows:
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 or 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.
[24] I refer to the first
paragraph of the decision of the Federal
Court of Appeal in D & J Driveway Inc. v. Canada (Minister of National
Revenue – M.N.R.), [2003] F.C.J. No. 1784 (QL):
The Court once again has to consider the difficult and elusive
question of the insurability of employment. As is often the case, the question
arises in a situation where the parties' intention is not set down in writing,
and where it has not been determined, or was not the subject of questions to
witnesses, at the hearing in the Tax Court of Canada.
[25] The principle
recently laid down by the Federal Court of Appeal is that the common intention
of the parties is an important factor in determining the nature of a contract.
See Wolf v. Canada, [2002] 4 F.C. 396 and Royal Winnipeg
Ballet v. M.N.R., 2006 FCA 87. At the same time, the Federal
Court of Appeal has always specified the aim of this intention must not be to
unlawfully circumvent the law. The Respondent is not alleging this here.
[26] The intention of the
parties, expressed clearly in the various documents adduced in support of this
appeal, is obvious: they wished to have a contract of employment.
The assertion by one party that the relationship during the last period
was a contract of enterprise is contradicted by the documents signed by that
very party.
[27] The indicia of
control, which counsel for the Respondent referred to in order to determine
whether a contract of employment is involved, are valid. However, in cases where an employee's
creativity is required, these indicia cannot be the only consideration. As the
Appellant stated, creativity is not necessarily turned on exclusively from
8:00 a.m. to 5:00 p.m. Nonetheless, the Appellant worked long
hours in a room that was located on the same premises as Média‑FX's
offices, and he met with Mr. Ahad daily when Mr. Ahad was at the
office. As stated in the Declarations of Conditions of Employment issued by the
payer for income tax purposes, Média-FX gave Mr. Drapeau permission to
work elsewhere.
[28] The source of the
Appellant's income was Média‑FX,
not Média-FX's clients. Média‑FX negotiated the contracts and had them
performed by its employee, Mr. Drapeau. Clients paid Média‑FX in
accordance with certain terms and conditions. Média‑FX paid
Mr. Drapeau in accordance with other terms and conditions. The cost
overruns that Mr. Ahad experienced clearly show that these different terms
and conditions existed. Média-FX received fees and other payments from its
clients for services rendered. Mr. Drapeau received a salary from Média‑FX.
[29] Mr. Ahad had the ability to control
the work performed by Mr. Drapeau. In fact, when the working
relationship with his client Idées au cube soured, he was the one who steered
Mr. Drapeau toward other work, namely the "Quebec All
Dressed" project. This working relationship was based on Média‑FX's trust in an employee who
worked in a creative field.
[30] Remuneration was in the form of a salary.
The payer directed the Appellant. The payer exercised control over the
Appellant or had the power to exercise such control. The Appellant's conditions
of employment were those of an employee under a contract of employment within
the meaning of article 2085 of the Civil Code of Québec.
[31] Consequently, the
appeal must be allowed.
Signed at Ottawa, Canada, this 19th day of April 2006.
"Louise Lamarre Proulx"
Translation certified
true
on this 18th day
of July 2007
Monica F.
Chamberlain, Reviser
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