Citation: 2005TCC401
Date: 20050728
Dockets: 2004-3436(EI)
2004-3438(EI)
BETWEEN:
AGNEAU DE L'EST
INC.,
and
LUCIENNE
LÉVESQUE,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] The two appeals in
the instant case pertain to the performance of the same work; the first appeal
is by Agneau de l'Est Inc., and the second is by Lucienne Lévesque.
The parties agreed that both appeals would proceed on common evidence.
[2] The issue is
whether the work of the Appellant Lucienne Lévesque, during the period of
January 1, 2002, to October 7, 2003, was performed under a contract of service
or as a self-employed worker.
[3] At the outset, counsel
for the Appellants explained that the vast majority of the facts were not in
dispute and that the issue turned essentially on the evaluation and
characterization of the nature of the contractual relationship between the parties.
[4] The determinations
were based on several assumptions of fact, but, among them, only two identical
paragraphs — paragraph 22(n) of the Reply to the Notice of Appeal in
Docket No. 2004‑3436(EI) (Agneau de l'Est Inc.) and paragraph 25(n)
in Docket No. 2004‑3438(EI) (Lucienne Lévesque) — were
denied. Both paragraphs state as follows:
[TRANSLATION]
The worker almost always worked in the
presence of Marielle C. Deschênes, from whom she received
instructions and advice.
[5] All the other facts
were admitted. Since the facts in both cases are the same, I will reproduce
only the facts in the matter of Lucienne Lévesque (2004‑3438(EI)):
[TRANSLATION]
(a) The payor,
incorporated on February 14, 2001, is a lamb marketing agent for more than 100
sheep producers.
(b) The payor liaises
between lamb producers and buyers (wholesalers and grocery stores).
(c) The payor sold
lambs outside the Rimouski area, mainly in Québec and Montréal.
(d) The lambs
delivered by the payor were slaughtered at the Luceville slaughterhouse,
located roughly 15 km from Rimouski.
(e) The
slaughterhouse is not related to the payor.
(f) Marielle C.
Deschênes was the payor's sole shareholder.
(g) In 2002, the
payor's sales were more than $2,500,000, and in 2003, its sales were
approximately $2,000,000.
(h) The payor
operates throughout the year and generally has three peak periods: Christmas,
Easter, and late June to early August.
(i) During the
period in issue, the Appellant was an office worker.
(j) The Appellant
worked mainly at the payor's office, which was located in the home of Marielle
C. Deschênes.
(k) Occasionally,
the Appellant worked from home.
(l) When doing so,
the Appellant used the payor's calling card for her long-distance calls.
(m) The Appellant's
principal duties can be summarized as follows:
- filing;
- taking care of the mail and paying
accounts;
- invoicing customers; and
- making deposits and preparing account
statements.
(n) The Appellant
almost always worked in the presence of Marielle C. Deschênes, from
whom she received instructions and advice.
(o) The Appellant
used the payor's materials and equipment to carry out her duties.
(p) The Appellant
was paid a percentage of the payor's sales.
(q) She was paid by
cheque weekly.
(r) The Appellant's
employment was completely integrated into the payor's everyday operations.
[6] In support of their
appeals, the Appellants called Marie‑Josée Deschênes, her mother,
Marielle C. Deschênes (the sole shareholder of Agneau de l'Est Inc.) and the
Appellant Lucienne Lévesque as witnesses.
[7] The evidence
reveals that all three people had previously worked for the Noblesse
cooperative. Marielle C. Deschênes started her business in October 1999. It was
initially a registered business but was incorporated as Agneau de l'Est Inc. on
February 14, 2001.
[8] The business was a
lamb‑marketing agency. It purchased sheep directly from producers,
arranged for slaughtering and then sold the meat to the network of customers
that it had developed.
[9] The owner,
Marielle C. Deschênes, was the directing mind of the business. She
participated in sheep producers' meetings and forums on sheep production. She
had agreements with roughly 100 lamb producers, which sold her all or part of
their production at prices that were generally determined at auctions.
[10] She had the lambs in
question slaughtered and sold to various buyers, mainly in Québec and Montréal.
[11] Thus, there were two
components to the business. The first was purchasing from producers. This work
was done primarily by Ms. Deschênes' daughter Marie‑Josée, who not only
looked after payments to producers, but also ensured that each producer got
what it was due when the animals were slaughtered.
[12] After the
slaughtering process, the meat was sold to different customers. This second
component, which required very close monitoring and rigorous administrative
organization, was the Appellant Lucienne Lévesque's responsibility.
[13] The Appellant
Lucienne Lévesque said that she had no background in lamb sales and learned
from Ms. Deschênes and her daughter, notably by visiting slaughterhouses.
[14] With her knowledge
of organization, controls and administrative management, and with the
confidence of Marielle C. Deschênes, whom she knew well, Ms. Lévesque entered
into an oral contract of self-employment with Marielle C. Deschênes.
[15] Both were aware of
the effects and various implications of such a status; in fact, they bore all
the consequences of it. The company did not issue any T4 slips and, her annual
income tax return, the Appellant reported, as business income, the amounts that
she received as sales commissions from Agneau de l'Est Inc.
[16] The Appellant had no
benefits, vacation or health insurance, and no workers' compensation or EI
premiums were paid. She was paid a commission equal to 0.45% of sales, which
she declared as business income.
[17] The Appellant
stopped working on account of illness, and, consistent with the way in which
the work had been assessed, she made no health insurance or EI claims following
her recovery.
[18] Her work schedules
were organized based on slaughter days. In other words, the producers delivered
the lamb when the slaughterhouse was free, generally on Mondays and Tuesdays.
[19] After the slaughter,
Marielle Deschênes' daughter, Marie‑Josée, ensured that the
producers concerned were paid promptly in accordance with the quality and
quantity of the livestock delivered to the slaughterhouse.
[20] Secondly, the meat
obtained from the slaughter was delivered to the various customers. This was
done very quickly with the Appellant's specific involvement.
[21] Thus, the work
schedule was directly tied to the slaughtering. The hours of work were not
calculated or recorded and could vary based on the quantity of meat, the number
of customers, and customers' requirements.
[22] The Appellant said
that if she had to be absent, she did not need to ask Marielle C. Deschênes; it
was sufficient for her to come to an agreement with her daughter Marie-Josée,
who would replace her. Marie-Josée had her mother's total confidence, to the
point that she was authorized to sign cheques in her mother's absence.
[23] The non-exclusive
nature of the Appellant's services was also raised. In this regard, the
Appellant stated that she looked after the accounting for her husband's farm,
which was once a dairy farm but later became a lamb production farm.
[24] The Appellant worked
mainly at the company's place of business, a former school purchased from
Marielle C. Deschênes' son. One classroom was used as an office, and the
remainder of the school was used as a home.
[25] The Appellant said
that she did work at her own home a few times. Everything she needed to do her
work was supplied by the company.
[26] Marielle C.
Deschênes stated that she trusted Ms. Lévesque totally and had asked for her
services because of her knowledge of filing and records management. As far as
her work description is concerned, she was responsible for invoicing, receiving
payments, preparing deposits, paying invoices and mail. In other words, she
ensured that all the operations and activities related to sales were monitored
and followed up appropriately to allow for a quick response, notably in the
event of payment problem.
[27] The system that the
Appellant put in place also enabled the company's manager to check on the
status of sales. In addition, the filing implemented by the Appellant made it
possible to quickly and easily verify any problem raised by customers and
therefore make corrections just as quickly.
[28] What was the nature
of the work done by the Appellant Lucienne Lévesque? Since the issue of
the relationship of subordination and the power to control is fundamental in
determining the nature of the legal relationship between Agneau de l'Est Inc.
and Lucienne Lévesque, I have given special attention to certain telling
aspects of the testimony on this factor.
[29] For example, I
noticed that Lucienne Lévesque's services were retained because she
enjoyed the complete trust of the person who ran the company.
[30] Marielle C.
Deschênes repeated several times and in various ways that she was particularly
concerned about efficiency. In other words, almost everything was running
perfectly, and she had no need to intervene; she was totally satisfied with the
quality of the Appellant's work. This was, without a shadow of doubt, an intuitu
personae relationship, i.e. one that is grounded in and fashioned on trust.
[31] Marielle C.
Deschênes stated that she did not have to intervene because the work met her
expectations. It is just as clear that she always had the authority and the
power to intervene so that changes could be made, work could be done
differently, new journals could be prepared, a job or task could be done more
quickly, and so on. Nor can there be any doubt that Marielle C. Deschênes had,
and continues to have, the power to reprimand.
[32] The Appellants' good
faith regarding the characterization of the legal relationship is not in doubt
at all. Indeed, the Appellants not only knew their rights and obligations but
also bore the consequences, even though the existence of a contract of service
undoubtedly favoured the company in that it simplified management considerably
and possibly saved it money because the contributions associated with an
employment contract did not have to be paid, source deductions and remittances
did not have to be made, and so forth.
[33] As for the Appellant
Lucienne Lévesque, the only advantage for her was that she could avail herself
of certain benefits available to any business, namely the ability to deduct all
expenses incurred to earn income. Of course, the major burden was that she
could not get EI benefits, a burden that she accepted in its entirety because
she did not claim such benefits when the legal relationship terminated.
[34] If the
characterization of the legal relationship entered into by the parties were
essentially a function of the parties' intent, I would have to end this
analysis immediately and conclude that a contract of service or a contract for
services existed. However, the parties' intent is not sufficient to
determine whether the contract is a contract of service or a contract for
services.
[35] The question as to
whether or not an employment is insurable must be established based on the
provisions of the Employment Insurance Act; however, the provisions of
the Civil Code of Québec cannot be disregarded. The Quebec legislature
expressly defined the two possible contracts involving the performance of work.
[36] Firstly,
article 2085 reads 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.
[37] Secondly,
article 2098 reads as follows:
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.
[38] Although the
definitions are very precise, it is not necessarily easy to conclude that a
contract of employment, as opposed to a contract of enterprise, exists; the
fundamental distinction turns on the concept of whether one party has the right
to control the other during the performance of the work.
[39] This is a complex
concept, especially since one should always bear in mind the explanation given
by the Honourable Justice Décary of the Federal Court of Appeal at paragraph 10
of Charbonneau v. Canada (Minister of National Revenue – M.N.R.),
[1996] F.C.J. No. 1337 (QL), 207 N.R. 299, and followed in Jaillet v. Canada
(Minister of National Revenue – M.N.R.), 2002 FCA 394:
It is indeed
rare 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.
[40] The parties in the
case at bar agreed on the terms and conditions of the legal relationship that
they wanted. These terms and conditions were followed and complied with. In
other words, the parties acted consistently with the agreement governing the
performance of the work. Can such an agreement or contract be set up against
the Respondent? Can the Respondent question the parties' agreement and come to
a different determination?
[41] Although the
parties' intent in the case at bar is clear, is it sufficient in order for us
to conclude that the contract does not meet the conditions of paragraph 5(1)(a)
of the Employment Insurance Act (the Act), which reads as follows?
5. (1) Subject to subsection (2),
insurable employment is
(a) employment
in Canada by one or more employers, under any express or implied contract of
service or apprenticeship, written or oral, whether the earnings of the
employed person are received from the employer or some other person and whether
the earnings are calculated by time or by the piece, or partly by time and
partly by the piece, or otherwise;
[42] The concept of
control is absolutely essential and determinative in distinguishing a contract
of enterprise, or for services, from a contract of employment, or of services.
[43] In the case at bar,
there is no doubt that the work performed by the Appellant, as described by the
evidence, was not easily compatible with a contract for services. It was
certainly important work, but it had to be carried out within precise
parameters, and the widespread usages and customs in the business field suggest
that this work is performed under a contract of employment.
[44] But there can be
exceptions, such as the numerous people who provide bookkeeping and accounting
services on an itinerant basis, calling on their clients periodically and
charging a flat rate. Those people are clearly contractors who are independent
of the businesses for which they work.
[45] Was the fact that
the work was done in exchange for a percentage of the sales a significant element
indicating that the Appellant was self-employed?
[46] The Appellant's work
had no significant impact on sales growth. In other words, it was the boss,
Marielle C. Deschênes, who was responsible for increasing the sales; the
greater the sales, the more the Appellant worked, and not the reverse. The fact
that her remuneration was a sales commission is not at all determinative. In
fact, the provision contemplates such pay as one form of remuneration under a
contract of employment.
[47] Since the Appellant
was competent and very qualified to do her job, it was normal for her to take
certain initiatives to implement an efficient and reliable system, which was
one of the objectives of the person who ran the business. As long as that
person was satisfied with the work, she did not have to intervene.
[48] Even though she did
not actually intervene, this does not mean that she could not do so, or that
she waived the right to do so. The Appellant had specific and defined work to
do, and she did it in accordance with the employer's expectations within a
genuine framework of control, even though she had some autonomy in managing her
time.
[49] The work was done in
a respectful and harmonious climate. If the Appellant needed to be away, she
made an arrangement with the owner's daughter, whom the owner trusted so
completely that she was authorized to sign cheques without a co-signer. The
daughter knew what work had to be done and was able to replace the Appellant
when she was absent. Would the Appellant have been allowed to select a third
party as a replacement? I do not believe so.
[50] The situation was
very different from that of many small businesses that entrust their accounting
to external people who often do the work off-site and are not the same people
who visit periodically to obtain the documentation needed to fulfill their
contract.
[51] The Appellant also
noted that she did not work exclusively for Agneau de l'Est Inc. The only
other work she did was accounting work for her husband's farming business, and
she was unable to estimate the time required for that work.
[52] I do not believe
that this element is capable of affecting or modifying the nature of the legal
relationship between the Appellants. The work that Ms. Lévesque did for
her husband's business was part of a commonplace and normal situation that had
no effect on the work done for Agneau de l'Est Inc.
[53] On the preponderance
of the evidence, it appears that during the period in issue, the Appellant
performed work for which she was paid a percentage of sales. This form of
remuneration is expressly referred to in paragraph 5(1)(a) of the Act.
The work was done on the company's premises. In the beginning, the boss and her
daughter trained her in the various operations of the company.
[54] Talented and
competent, she implemented various systems and methods that made it possible to
monitor sales very closely. The crucial element of her work was to ensure that
the owner of the business had quick access, at any time, to sales figures,
accounts receivable and so forth.
[55] At the same time,
she performed of office duties and looked after correspondence and preparing
deposits. In short, the Appellant provided administrative support.
[56] Marielle C.
Deschênes could have intervened at any time to impose her authority with regard
to the method of work, and to modify the workload, reprimand the Appellant with
regard to the quantity and quality of the work, and impose new requirements.
These elements point decisively to a true relationship of subordination — an
essential condition of an employment contract, and quite the opposite of a
contract for services.
[57] Even if the parties
to a written and oral agreement have stated their intent, or such intent can be
inferred from their conduct, this does not necessarily mean that the courts
must consider this fact decisive. As Décary J.A. stated in Wolf v. Canada, 2002 FCA
96, 2002 DTC 6853, [2002] 3 C.T.C. 3, 288 N.R. 67, [2002] 4 F.C. 396,
the contract must be performed in accordance with that intent.
[58] Thus, the fact that
the parties called their contract a "contract for services" and
stipulated that the work would be performed by an "independent
contractor" does not necessarily mean that the contract in question is a
contract for services.
[59] It is essential to
seek the true mutual intention of the parties, as opposed to limiting ourselves
to the literal meaning of the terms used in the contract. In Le droit du
travail au Québec, 5th ed. (2003), Robert P. Gagnon writes as follows:
[TRANSLATION]
91 — Assessment
of the facts — Subordination must be verified on the facts. In this
regard, the jurisprudence has always refused to simply defer to the parties'
characterization:
In the contract, the distributor himself recognizes that he is a self-employed
independent contractor. There is no need to come back to this point because it
does nothing to alter the truth of the matter; in fact, people often
claim to be something that they are not.
(Emphasis added.)
2 It should be noted at the outset that the parties'
stipulation as to the nature of their contractual relations is not necessarily
conclusive and the Court which has to consider this matter may arrive at a
contrary conclusion based on the evidence presented to it: Dynamex Canada
Inc. v. Canada, [2003] 305 N.R. 295 (F.C.A.). However, that stipulation or
an examination of the parties on the point may prove to be a helpful tool in
interpreting the nature of the contract concluded between the participants.
(Emphasis added.)
[61] It should be recalled that the hallmark of
an employment contract is not the employer's actual exercise of the power of
direction or control, but the fact that the employer had the ability to
exercise it. In circumstances where the employer did not regularly exercise his
power of direction or control, it is not easy to prove that such a
"power" existed.
[62] The question that must be asked is the following:
do the indicia point to the probability that a power of direction or control
existed, or, rather, to the probability that the worker was performing the
contract on a self-employed basis?
Robert P. Gagnon suggests the following at
paragraph 92 of his treatise, supra:
[translation]
. . . 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.
(Emphasis added.)
There are also indicia
supplied by French authors. Pélissier,
Supiot and Jeammaud write as follows in Le droit du travail, 22d
ed. (2004):
[TRANSLATION]
2. The indicia
In order to identify the combination of
elements that determine the characterization, judges will turn to various
indicia. Some of these indicia are drawn from the stipulations in the
contract. More often, however, they are drawn from the "factual
circumstances in which the workers' activities are carried out";
essentially, this means the terms that have been adopted or accepted as
governing the performance of the contract. The factors examined include
the conduct of the parties, their dealings with each other, the place and time
in which the activity is carried out, whether the person works alone or is
assisted by others, the ownership of the equipment and raw materials, and, of
course, whether or not the beneficiary of the work is exercising direction or
has control, and whether, and on what terms, the worker is remunerated. A contract
of employment exists when a coalescence of indicia points to such
a characterization, and the fact that one or more of these indicia are not
present is not sufficient to change such a characterization.
. . .
128 Place of work ◊
An employee normally carries out the work at the post set aside for him at the
employer's plant or offices. Thus, the existence of a geographical
requirement is one indicia of subordination.
However, the determination of a place of work is clearly not
decisive in itself. The nature of an
independent contractor's activity may cause that contractor to work at the
premises of his client (e.g. an accountant or engineering consultant) or where
the client is holding an event (e.g. a conference interpreter.)
The development of telecommuting, the practice of requiring
workers to be "on call" (remaining at home and available to
the employer) or work on demand are weakening the traditional importance
of the place of work.
129 Work schedule ◊ Employment is a successive
contract, which means that it can only be performed over a period of time. It
does not matter whether the contract is determinate or not, or whether it is
long-term or very short, though regular collaboration over a relatively lengthy
period may, in itself, be an indicia of subordination.
Subordination is concrete where the worker is required to remain
available to the employer in accordance with a schedule established by the
employer. Where services are not delivered on an ongoing basis and in
accordance with a regular schedule, subordination may result from a duty to
report to the creditor of the delivery whenever this is requested.
When a worker is required to report to the assigned location in
accordance with an imposed schedule, it will be
easy for a judge to find that "legal subordination", and thus an
employment contract, exists. This act of submission is significant in itself
and the assignment of a location and time of work appears to constitute an
actual exercise of the employer's power of direction and control. The new
trends in terms of duration of work (personalized schedules, part-time and
intermittent work, variations in schedule depending on the time of year) do
not seem to make these indicia less significant.
130 Personal and exclusive delivery of services ◊ Under an employment contract, the employee must perform the work
personally and is not entitled to be replaced by anyone, including an employee
that he hires.
The direct or indirect imposition of
such personal performance strongly points to the existence of an employment
contract. By contrast, a contractor who hires workers who work under his
exclusive direction and responsibility does not have an employment contract
with the party benefiting from his work.
The problem has arisen in cases involving sales representatives, and
the legislator has solved the problem by deeming the existence of an employment
contract in certain cases.
In addition, by giving up his freedom and agreeing to work for a
single employer, an employee is submitting to the employer's authority.
While exclusivity normally triggers a presumption of subordination,
the opposite is not true: non‑exclusive
activity for the benefit of several employers or customers is not necessarily
inconsistent with employee status. One can be an employed independent
professional, just as one can hold several employment contracts with
different employers (in principle, in order to comply with regulations
regarding hours of work, the contracts must be part-time). It is becoming
increasingly common for one person to have several different occupations.
This practice of multiple jobholding carries no stigma and is only rarely
prohibited.
131 Supply of equipment, raw materials or products An employer normally provides his employees with the tools and
materials necessary for the performance of his work. This is a reflection of workers' dependence on employers, who own
the means of production in capitalist economies.
In terms of subordination, the authority of the party benefiting
from the work fades when the worker owns the equipment and can dispose of it as
he sees fit because the worker thereby ceases to be a mere lessor of
services.
132 Direction and control over the work This is a decisive factor. Judges have held that the following
persons were employees:
. . .
Thus, an analysis of the jurisprudence shows that, among the various
indicia of subordination, the worker's integration into an organized
department is significant, though it remains only an indicia,
not a possible and sufficient condition of subordination.
If the worker is integrated into an organized department within the
enterprise, it does not matter that he carries out his occupation elsewhere, or is only involved in the business as a term employee and has the
freedom inherent in the activity of a researcher.
The decisive point appears to be control over the activity. One possible manifestation of this control is an obligation of
accountability. This obligation is a particularly helpful and significant
indicator when one is faced with management methods which employ
objective-driven agreements that give workers a great deal of autonomy in
exchange for an obligation to account for the way in which that autonomy is
used. These agreements, far from sounding the death-knell of
subordination, are actually its new face.
(Emphasis added.)
[65] Another indicia of a
worker's integration into the payor's business, and, consequently, of the
existence of a power of direction or control, is the fact that the customers
served by the worker are the payor's customers.
[66] In the case at bar,
the Appellant was very competent; the quality of her work was beyond reproach.
In fact, the employer was so satisfied with the work that she did not need to
intervene at all, except to express her appreciation.
[67] However, it is
absolutely clear that the Appellant would have been disciplined if she had
refused to perform any of the functions that were part of her job description.
She had no risk of loss or chance of profit from the performance of the work.
All the materials necessary for the performance of the work were supplied by
the payor company. At all times during the performance of the work, the
Appellant, acting through its manager, could intervene and demand any change.
The fact that she never manifested this authority does not mean that she did
not have this control and this right to intervene.
[68] For these reasons,
the appeals are dismissed on the basis that the work done by the Appellant
Lucienne Lévesque during the period commencing January 1, 2002, and ending
October 7, 2003, was under a true contract of service.
Signed at Ottawa, Canada, this 28th day of July 2005.
"Alain Tardif"
Certified true translation
On this 31st day of January, 2006.
Garth McLeod, Translator
CITATION: 2005TCC401
COURT DOCKET NOS.: 2004-3436(EI), 2004-3438(EI)
STYLES OF CAUSE: Agneau
de l'Est Inc. and M.N.R.
Lucienne
Lévesque and M.N.R.
PLACE OF HEARING: Matane, Quebec
DATE OF HEARING: June
7, 2005
REASONS FOR
JUDGMENT BY: The Honourable Justice Alain Tardif
DATE OF JUDGMENT: July 28, 2005
APPEARANCES:
|
Counsel for the Appellants:
|
Gaétan Gauthier
|
|
Counsel for the Respondent:
|
Marie-Claude
Landry
|
COUNSEL OF RECORD:
For the
Appellants:
Name: Frédéric St-Jean
Firm: Avocats,
Sainte-Foy, Quebec
For the Respondent: John H.
Sims, Q.C.
Deputy
Attorney General of Canada
Ottawa,
Canada
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