Citation: 2005TCC361
Date: 20050620
Docket: 2004-3606(EI)
BETWEEN:
GILLES PELLERIN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Dussault J.
[1] This is an appeal from a decision of the Minister of National Revenue (the "Minister") according to which Toni Marcotte (the "Worker") held insurable employment with the Appellant from January 1 to December 31, 2003.
[2] At the outset, counsel for the Respondent admitted that the Minister's decision should have concerned the period from March 27, 2003 to October 17, 2003, which is the only period in issue.
[3] In establishing that the Worker was bound to the Appellant by a contract of service during the period in issue, the Minister relied on the assumptions of fact stated in subparagraphs 5(a) to (u) of the Reply to the Notice of Appeal. Those subparagraphs read as follows:
[TRANSLATION]
(a) the Appellant had been doing business under the trade name "Les entreprises Gilles Pellerin enr." since June 16, 2000;
(b) the Appellant operated an excavation and logging business;
(c) the Appellant was the sole proprietor of the business;
(d) the Worker had been hired by the Appellant as a mechanic and equipment operator;
(e) in the spring of 2003, the Worker devoted approximately 80 percent of his time to equipment mechanics and maintenance, and the remaining 20 percent to excavation; in the summer of 2003, the Worker's work time was divided equally between the two activities;
(f) the Worker performed his mechanical duties at the Appellant's garage;
(g) the Worker performed his excavation duties on the premises of the Appellant's clients;
(h) the Worker had no fixed work schedule;
(i) the Worker's schedule varied with the Appellant's maintenance needs and excavation contracts;
(j) the Worker submitted his time sheets to the Appellant on a daily basis;
(k) the Worker worked for the Appellant from March 27, 2003 to October 17, 2003;
(l) from March 27, 2003 to October 17, 2003, the Worker rendered services to the Appellant every week;
(m) the Appellant paid the Worker an hourly wage of $15, then $16;
(n) from March 27, 2003 to October 17, 2003, the Worker worked 1,449 hours, an average of 51.75 hours a week;
(o) from March 27, 2003 to October 17, 2003, the Worker received $22,951.00 from the Appellant, that is average weekly remuneration of $819.68;
(p) the Worker was always paid;
(q) the Appellant had the power to control the Worker's work;
(r) the Worker supplied his welding tools, valued at $6,000, in order to perform his duties;
(s) the Appellant supplied the trucks and excavation equipment, valued at $300,000, to the Worker;
(t) apart from breakdowns of his welding tools, the Worker incurred no financial risk in performing his duties for the Payor;
(u) the Worker's duties were integrated into the Payor's activities;
[4] Subparagraphs (a), (c), (d), (q), (r), and (t) were denied, subparagraphs (i) and (u) were admitted in part, and the other subparagraphs were admitted.
[5] Only the Appellant testified.
[6] The Appellant has operated his business with his spouse since 1980.[1] He explained that Mr. Marcotte was the new spouse of his cousin Nancy, that he had previously worked as a self-employed Worker with a number of contractors and that he had found himself unemployed in the spring of 2003. It was Mr. Marcotte himself who had offered his services to the Appellant as a self-employed Worker, with the idea of eventually being able to become a partner with him in the operation of his business.
[7] According to the Appellant, when Mr. Marcotte approached him about work, he had his own welding and mechanical tools, worth approximately $12,000 new, his truck, a mobile phone, a pager and his work clothing. The Appellant also admitted that he himself owned equipment and machinery worth $300,000 for the operation of the business.
[8] At the outset, Mr. Marcotte offered his services to do mechanical, welding and painting work on the equipment used by the Appellant in this business, at an hourly rate of $15, then $16, which he himself had established. The Appellant stated that, at first, Mr. Marcotte was not necessarily the kind of person he would have hired, but that he assigned him equipment repair work that he had previously had done at high cost outside. Mr. Marcotte began his work in a garage belonging to the Appellant. He subsequently found another garage, then a second, in order to more effectively perform the equipment maintenance and repair work and the painting of one of the trucks of the business. Although the Appellant himself paid the rent for the premises and for the required material, he said that Mr. Marcotte had made all the necessary arrangements.
[9] The Appellant described Mr. Marcotte as someone who had a mechanical bent and who constantly put forward new ideas for improving the operation of the equipment and machinery.
[10] According to him, Mr. Marcotte had a lot of ideas and plans and constantly strove through his many contacts to create new opportunities for the business. For example, Mr. Marcotte wanted to buy a power shovel and become a partner with the Appellant, in particular to develop Mont Sévigny, the property of the Rameys, the grandparents of his spouse's children. That project would have enabled the business to do excavation work for septic tanks, water mains, artificial lakes and the general landscaping of lots for sale. However, the most promising part of the Rameys' land in this regard was in a green zone, and three applications for amendments made to the Commission de la protection du territoire agricole were unsuccessful. Thus, even though the Rameys said they were prepared to finance the project, it could not be carried out.
[11] According to the Appellant, Mr. Marcotte wanted to become a power-shovel operator, which required 2,000 hours of work to earn the necessary licence. In addition to painting and mechanical work, Mr. Marcotte thus began doing excavation work, in particular for the installation of septic tanks and septic fields. However, he himself found other contracts for the business, among other things with a farmer for loading manure. In addition, Mr. Marcotte apparently secured another contract with a club of all-terrain vehicle (ATV) owners to remove stumps and develop ATV trails. The Appellant testified that Mr. Marcotte had continued to perform some of those contracts after he left in October 2003, when he began to work with another contractor.
[12] In addition, Mr. Marcotte apparently made one trip with the Appellant to Toronto, then another to Montréal, to acquire a new power shovel for the business, without billing the Appellant for his time. Ultimately, the purchase was apparently made by the Appellant from a company in Sainte-Hyacinthe, and it was Mr. Marcotte who afterwards negotiated additional specifications with the vendor based on what he thought would be the needs for the many projects he had in mind. He also apparently proposed that the Appellant equip his trucks for snow removal and try to win a contract from the municipality for that purpose. The Appellant stated that he had not been interested in that project. Mr. Marcotte also had him buy a special piece of logging equipment. However, the use of that equipment, according to the Appellant, would have required him to hire woodcutters, which he was not prepared to do at that time.
[13] The Appellant also stated that, not really knowing how their business relationship would evolve, Mr. Marcotte also had other goals, including that of becoming a road transport controller. He also pointed out that he was the municipality's fire chief and that he was absent four or five times when he had had to work as a fireman the previous night or had to check or manage the fire-fighters' equipment. Despite the Appellant's request that he leave that position, Mr. Marcotte refused to do so. He also apparently refused to engage in bulk hauling for the business.
[14] According to the Appellant, the many projects put forward by Mr. Marcotte meant that the business was becoming, or would have become, "too big to manage". It also appears that Mr. Marcotte did not have the means to achieve his ambitions and that the Appellant alone had to finance more than 80 percent of the costs. These are the reasons that apparently led him to terminate their business relationship in October 2003.
[15] The Appellant confirmed that his relationship with Mr. Marcotte had evolved over the period in issue and that, although his image of Mr. Marcotte was negative at first, he increasingly came to trust him as the work was performed. Although the Appellant recognized his skill at truck-painting work and his talents as a mechanic, he nevertheless stated that, in excavation and the installation of septic tanks and septic fields, it was he, the Appellant, who was the specialist and who held the required licence. In that respect, the Appellant said that he considered Mr. Marcotte as a contractor in training, as a partner or associate, even though the latter did not have a contractor's or power shovel operator's licence at the time. According to the Appellant, the aim was to operate the business together, but Mr. Marcotte would have had to pay for his share of the business. During the period in issue, then, it was the Appellant who signed all the contracts, including those that Mr. Marcotte had secured through his contacts. In addition, he was the only person responsible for them.
[16] With respect to the septic field installation work, the Appellant stated that he had provided Mr. Marcotte with the necessary information. He had, as it were, trained him in the requirements of the work to be done based on the plans submitted, the performance of which moreover was subject to municipal inspection. The Appellant admitted that he could have checked the work performed by Mr. Marcotte, but that he had trusted him and that Mr. Marcotte would not have liked his work being checked. He added that, if Mr. Marcotte had been unable to find a replacement for himself, he could have gotten help for some jobs and billed the cost to him. He also mentioned that, if the work had not been satisfactory, Mr. Marcotte would have had to redo it at his own expense.
[17] The Appellant said that Mr. Marcotte had had no fixed schedule, that he had usually started early in the morning and stopped late in the evening, although he could occasionally be absent during the day, when he had other activities, particularly relating to his position as municipal fire chief. The Appellant admitted that those absences had troubled him on four or five occasions, but that he had been unable to convince Mr. Marcotte to give up his position. Moreover, he said, Mr. Marcotte's position had enabled him to win a contract to remove debris from a house that had burned down.
[18] As to remuneration, the Appellant stated that he had paid Mr. Marcotte every week, based on the number of hours the latter billed daily on an attendance sheet that Mr. Marcotte himself had devised and that showed the details of the work performed (see Exhibit I-2). This attendance sheet had also been prepared by Mr. Marcotte to enable road transport controllers to do checks for licence issuing purposes.
[19] Under the agreement, the Appellant paid Mr. Marcotte based solely on hours billed, which he "more or less" checked, and did not pay any other benefits of any kind. For example, he never paid for vacation, contrary to what he did for all the other individuals hired as employees in the business. The Appellant moreover confirmed that he had had a number of employees and that Mr. Marcotte was the only person who had presented himself as a self-employed Worker and with whom he had done business on that basis since his business had started up.
[20] Counsel for the Respondent contended that Mr. Marcotte was bound to the Appellant by a contract of service during the period in issue. He recalled that it was the Appellant who had operated the business and that all the painting, repair and maintenance work performed by Mr. Marcotte was done in the garage belonging to the Appellant or in garages for which he had paid rent. Mr. Marcotte performed the excavation and other work on customers' premises using machinery and heavy equipment belonging to the Appellant. Counsel pointed out that that machinery and equipment was worth $300,000, whereas Mr. Marcotte's tools were worth only $12,000 new.
[21] He also emphasized that the Appellant was the excavation specialist and that he had trained Mr. Marcotte to perform that work.
[22] Counsel for the Respondent also noted that it was always the Appellant who had signed the contracts, billed customers for the work and assumed responsibility for it, even though Mr. Marcotte himself had obtained certain contracts or recruited some clients.
[23] He emphasized that, although the Appellant stated that, at first, Mr. Marcotte was not the kind of person he would have hired for his business, as a result of the trust that, subsequently, he had gradually placed in him, the need for supervision declined without the power to supervise disappearing. The Appellant stated that Mr. Marcotte's absences had troubled him and that he had asked him to stop his other activities, particularly those related to his position as fire chief. He noted that the Appellant had apparently not tolerated absences on the job and that he thus had always retained a certain power of control.
[24] Counsel for the Respondent recalled that Mr. Marcotte had billed his hours of work using detailed daily attendance sheets, that he had been paid regularly, every week, based solely on his hours of work and that he had thus incurred no financial risk related to the business. Indeed, the Appellant himself had borne all the expenses and costs, including those related to the purchase of new equipment.
[25] In support of his conclusion that Mr. Marcotte was bound to the Appellant by a contract of service, counsel for the Respondent referred to the decision in Lévesque v. M.N.R., T.C.C., No. 2004-4444(EI), April 18, 2005, [2005] T.C.J. No. 183, and the decision of the Quebec Court of Appeal in 97980 Canada Inc. c. Québec (Sous-ministre du Revenu), C.A.Q., No. 500-09-011220-019, February 10, 2005, [2005] J.Q. No. 995.
[26] The Appellant considered Mr. Marcotte a self-employed Worker, a contractor who moreover had introduced himself to him as such, not as an ordinary Worker, like the employees he had hired in his business. The Appellant emphasized the fact that he himself had been a self-employed Worker in a number of jobs performed in the past for which the work providers bore the cost of part of the equipment and remained responsible for the work.
Analysis
[27] The distinction between a contract of employment or of service and a contract of enterprise or for services is established in the definitions given in articles 2085, 2098 and 2099 of the Civil Code of Quebec ("C.C.Q."):
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 for 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.
[28] As may be seen, the decisive element of a contract of employment or of service is a relationship of subordination, which is non-existent in the case of a contract of enterprise or for services. The Federal Court of Appeal recalled in Gallant v. M.N.R., F.C.A., No. A-1421-84, May 22, 1986, [1986] F.C.J. No. 330 (Q.L.), that "the distinguishing feature of a contract of service is not the control actually exercised by the employer over his employee but the power the employer has to control the way the employee performs his duties."
[29] The importance that should be attached to the parties' intentions must also be emphasized. In Wolf v. Canada, [2002] 4 F.C. 396, [2002] F.C.J. No. 375 (Q.L.), Décary J.A. wrote as follows at paragraphs 119 and 120 of his decision:
[119] Taxpayers may arrange their affairs in such a lawful way as they wish. No one has suggested that Mr. Wolf or Canadair or Kirk-Mayer are not what they say they are or have arranged their affairs in such a way as to deceive the taxing authorities or anybody else. When a contract is genuinely entered into as a contract for services and is performed as such, the common intention of the parties is clear and that should be the end of the search. [...]
[120] In our day and age, when a Worker decides to keep his freedom to come in and out of a contract almost at will, when the hiring person wants to have no liability towards a Worker other than the price of work and when the terms of the contract and its performance reflect those intentions, the contract should generally be characterized as a contract for services. If specific factors have to be identified, I would name lack of job security, disregard for employee-type benefits, freedom of choice and mobility concerns.
[Emphasis added]
[30] However, in D & J Driveway Inc. v. Canada, F.C.A., No. A-512-02, November 27, 2003, 322 N.R. 381, [2003] F.C.J. No. 1784 (Q.L.), Létourneau J.A. of the Federal Court of Appeal held that it is not because a work provider can monitor the result of the work that there necessarily exists an employer-employee relationship. On this point, he wrote as follows at paragraph 9 of the judgment:
9 A contract of employment requires the existence of a relationship of subordination between the payer and the employees. The concept of control is the key test used in measuring the extent of the relationship. However, as our brother Décary J.A. said in Charbonneau v. Canada (Minister of National Revenue - M.N.R.),[1996], F.C.J. No. 1337, [1996] 207 N.R. 299, followed in Jaillet v. Canada(Minister of National Revenue - M.N.R.), 2002 FCA 394, control of the result and control of the Worker should not be confused. At paragraph 10 of the decision, he wrote:
It is indeed rate for a person to give out work and not to ensure that the work is performed in accordance with his or her requirements and at the locations agreed upon. Monitoring the result must not be confused with controlling the Worker.
[31] Furthermore, in its decision in 97980 Canada Inc. c. Québec (Sous-ministre du Revenu), supra, to which counsel for the Respondent referred, the Quebec Court of Appeal relied on the decision of the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983, in recalling that other factors must be considered, depending on the specific circumstances and facts of each case. The Quebec Court of Appeal cited the following passages from paragraphs 47 and 48 of the decision by the Supreme Court of Canada:
[47] [...] The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the Worker's activities will always be a factor. However, other factors to consider include whether the Worker provides his or her own equipment, whether the Worker hires his or her own helpers, the degree of financial risk taken by the Worker, the degree of responsibility for investment and management held by the Worker, and the Worker's opportunity for profit in the performance of his or her tasks.
[48] It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case.
[32] It is not easy to determine the nature of the relationship between the Appellant and Mr. Marcotte, since some factors tend to show that the latter was a self-employed Worker, while others indicate instead that he was an employee.
[33] The Appellant stated that Mr. Marcotte had presented himself as a self-employed Worker, that he had wanted to be paid solely for his hours of work and that he himself was at first not very interested in hiring him. He also said that their relationship had somehow evolved during the period in issue and that Mr. Marcotte had expressed the intention of becoming a partner with him in the operation of the business. Moreover, according to the Appellant, the many steps Mr. Marcotte took to obtain new contracts, to start up new activities and to purchase new equipment for the business were essentially taken for that purpose. The partnership did not come about for a certain number of reasons. On the one hand, some projects, including the Mont Sévigny project, could not be developed, and the Appellant did not seem inclined to pursue certain other projects put forward by Mr. Marcotte. On the other hand, the latter was unable, or did not want, to make a financial investment in the business at that time. At the end of the seven-month period, the parties therefore terminated their business relationship.
[34] Considering the period in issue as a whole, Mr. Marcotte's work first consisted mainly in performing maintenance, mechanical and painting work on the equipment and machinery of the business. He began working in a garage belonging to the Appellant. Then he took the necessary steps to find garages where the work could be more adequately done. In the context of that work, he proposed changes to the equipment to improve its operation. However, it must be admitted that the Appellant retained the power to accept or reject what Mr. Marcotte proposed and also bore all costs.
[35] It is true that Mr. Marcotte supplied his own tools for this work. However, his risk of loss was practically nil, and he could not expect to derive any benefit beyond the agreed-upon remuneration based on his hours of work.
[36] The control that the Appellant was able to exercise over that work is not readily perceptible, since Mr. Marcotte was highly qualified, and, after a certain time, the Appellant appears to have put his trust in him and allowed him all the desired leeway with respect to the means of performing the work. However, I do not believe it can be said that the Appellant had no power of control over Mr. Marcotte.
[37] Moreover, I find the situation regarding the excavation work clearer for a number of reasons. First, the Appellant was the expert, particularly with regard to the installation of septic tanks and septic fields. He had been operating the business for a number of years and owned all the equipment and machinery necessary for its operation. Also, the Appellant was the only person who held the necessary licences. He also remained the only person responsible to customers. It was he who signed the contracts and billed customers. It was also the Appellant, not Mr. Marcotte, who could profit from the work performed.
[38] The Appellant said that he had, as it were, "trained" Mr. Marcotte to perform the work in which he himself was the specialist. In that perspective, it is hard to conceive that he did not have a power of control over the performance of the work, particularly since Mr. Marcotte did not have a licence to operate an excavation business.
[39] In fact, the Appellant admitted that he could have checked Mr. Marcotte's work, even though he increasingly trusted him and Mr. Marcotte would not have liked his work checked. The trust that may be placed in someone in the performance of work does not negate the power of control.
[40] Moreover, I would emphasize the fact that the Appellant said he was "troubled" by Mr. Marcotte's absences, even though they occurred on only four or five occasions. The Appellant even said that he had asked him to stop his activities as municipal fire chief that had resulted in those absences, which Mr. Marcotte had refused to do. One may very definitely consider that those absences undermined the work to be done for the business and see here an indicator that the Appellant thus tried to exercise control over Mr. Marcotte, despite his statements to the contrary.
[41] The Appellant admitted that Mr. Marcotte could not have had himself replaced by someone else to perform the work. However, he said that he could have sought help and billed him its cost. That remark was in reference to a hypothetical situation, as was the statement that Mr. Marcotte would have had to redo the work at his own expense if it had been done poorly. No more detailed explanations were provided. In any case, I do not believe that these simple statements made after the fact constitute decisive evidence that Mr. Marcotte was a self-employed Worker.
[42] All the work performed by Mr. Marcotte was done for the business operated by the Appellant. Despite the expressed intention to enter into a partnership with the Appellant and the numerous steps taken to that end, it must be acknowledged, as the Appellant himself admitted during his testimony, that this did not work.
[43] On the evidence as a whole, I conclude that Mr. Marcotte was not a self-employed Worker, but rather that he was bound to the Appellant by a contract of service or employment during the period in issue.
[44] The appeal is therefore allowed solely in order to vary the Minister's decision concerning the period in issue, which was in fact from March 27, 2003 to October 17, 2003.
Signed at Ottawa, Canada, this 20th day of June 2005.
"P.R. Dussault"
Translation certified true
on this 20th day of February 2006.
Garth McLeod, Translator
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