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Citation: 2004TCC807
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Date: 20041210
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Docket: 2004-2706(EI)
2004-2707(CPP)
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BETWEEN:
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BRANDY LAKE AUTO SERVICE LIMITED,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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REASONS FOR JUDGMENT
Woods J.
[1] These are appeals by Brandy Lake
Auto Service Ltd. from decisions of the Minister of National
Revenue that Kelly Merritt was engaged by the corporation as a
Class A mechanic in insurable and pensionable employment during
the period January 1, 2002 until October 31, 2003. The only
question to be decided in these appeals is whether Mr. Merritt
was an employee of Brandy Lake within the common law meaning of
employment.
[2] There are no bright line tests for
determining whether a person is employed or self-employed and
each case is determined on its own particular facts. The general
principles to be applied are described by Major J. in the leading
case, Sagaz Industries Canada Inc. v. 671122 Ontario
Limited, [2001] 2 S.C.R. 983:
[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.
[3] Subsequent to Sagaz
Industries, Justices Décary and Noël in
Wolf v. The Queen, 2002 D.T.C. 6853 (F.C.A.) suggested
that a clearly expressed common intention should govern unless it
does not reflect the actual relationship. Décary J.A.
stated:
[119] 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.
[4] For most (if not all) of the
relevant period, Brandy Lake Auto Service Ltd. was owned and
operated by David Smith. The corporation was engaged in various
auto-related businesses in Port Carling, Ontario, that included
auto repair, auto sales, trucking and scrap. In October 2003 (the
last month of the relevant period), the business, including the
shares of Brandy Lake, were sold to a third party.
[5] David Smith's brother, Bruce
Smith, represented the corporation at the hearing in London,
Ontario and he provided the only oral evidence. He
indicated that it was too costly for his brother to attend the
hearing. The Crown did not call any witnesses.
[6] Bruce Smith is a business
consultant living in London, Ontario, some distance away from
Port Carling where Brandy Lake carried on business. Although he
has some knowledge of the business affairs of Brandy Lake, his
direct knowledge is very limited. He provided assistance to the
corporation on administrative matters but he was not employed by
the corporation and he was not
a shareholder. He had some additional knowledge from the fact
that a corporation owned by his wife did the bookkeeping for
Brandy Lake and provided financing. Overall, my impression was
that he had very little first-hand knowledge of Kelly
Merritt's relationship with Brandy Lake.
[7] The following is a brief summary
of Bruce Smith's testimony regarding the relationship between
Kelly Merritt and Brandy Lake in regards to intention, control,
potential for profit, and risk of loss.
[8] As to the intention of the
parties, Mr. Smith stated that Kelly Merritt and his brother
intended a self-employment relationship. He stated that Mr.
Merritt suggested this when David Smith told him that he had had
found it uneconomical to hire employees. Bruce Smith testified
that a lawyer had drafted an agreement that reflected
self-employment and he tendered into evidence an unsigned version
of that document. He also noted that the decision of the Minister
that led to these appeals was not initiated by Mr. Merritt and
that Mr. Merritt had not disputed the nature of the relationship
until the Minister had commenced an audit. He also stated that
Mr. Merritt was not treated as an employee for insurance purposes
and that Mr. Merritt did not have to work at the garage
exclusively or perform the work personally.
[9] As for control, Mr. Smith
testified that there was minimal supervision over Mr.
Merritt's work because Mr. Merritt was a Class A mechanic and
David Smith was not. Also, Mr. Merritt was often the only person
in the shop because the garage could only hold one car at a time.
As such, Mr. Merritt had to handle all aspects of the auto repair
side of the business, from booking work, invoicing, collecting
money and closing the shop. He introduced into evidence receipts
showing a circled "K" to corroborate that Mr. Merritt collected
money from customers.
[10] As for the potential for profit, Mr.
Smith suggested that Mr. Merritt was free to determine his own
hours, but within the 8:30 a.m. to 5:00 p.m. business hours of
the garage. The compensation to Mr. Merritt was stated to be
one-third of his billings, which Bruce Smith presumed was a
negotiated rate. This amount hypothetically equals $15 per hour
since the rate charged for repairs was $45 per hour, but Mr.
Smith noted that there was opportunity for profit because the
billings were based on a standard scale that fixed the price
according to the type of repair work that was undertaken.
Accordingly, Mr. Merritt could earn more than $15 per hour by
completing the work in less time than the standard scale.
[11] Mr. Smith also suggested that Mr.
Merritt would largely be responsible for obtaining business
because customers tend to select a garage based on their
satisfaction with the mechanic doing the work.
[12] As for tools, Mr. Smith suggested that
Mr. Merritt had his own hand tools that Mr. Merritt claimed were
worth about $25,000. He suggested that Mr. Merritt's tools were
in fact worth more than the equipment that Brandy Lake owned.
[13] As for risk of loss, Mr. Smith
suggested that Mr. Merritt was presumably at risk of having to
undertake work without pay, for example, if there was a problem
with a repair job that had to be redone. He also suggested that
Mr. Merritt would have taken out insurance on the hand tools and
perhaps would have borne the cost of a home office.
[14] Mr. Smith introduced into evidence a
questionnaire obtained from the website of the Canada Revenue
Agency(RC4110E) that is designed to assist persons in determining
if a worker is an employee or self-employed. He had completed the
questionnaire and, of the 46 questions, he stated that 25 pointed
to self-employment, 14 to employment and 7 were not applicable in
the circumstances. Accordingly, the overwhelming majority of the
answers pointed to self-employment, he stated.
[15] Mr. Smith also introduced a number of
other documents, many of which were obtained from the Agency
through an access to information request. Included in the
Agency's package was the report of the appeals officer and
questionnaires filled out by David Smith and Kelly Merritt.
[16] The concern that I have with the
position of the appellant is that the only person who had an
in-depth knowledge of the relevant facts from the perspective of
Brandy Lake was David Smith and he did not testify.
[17] In a case of this nature, the judge
must base the determination on the totality of the circumstances
of the relationship. It is critical in these circumstances that a
person with in-depth knowledge testify and be cross-examined.
That person in this case was David Smith. He
is the one who established the relationship with Mr. Merritt and
he was the one who would have signed any contract. He was also
the one who dealt with Mr. Merritt on a regular basis.
[18] Bruce Smith, David's brother, had very
little first-hand knowledge and most of his testimony was based
on supposition, documents containing information not within his
personal knowledge and, I presume, information given to him by
his brother. Accordingly, I have not been able to conclude that
Bruce Smith's testimony represented either an accurate or
complete statement of the relevant facts. On cross-examination,
he admitted that he had no knowledge of the basis on which Mr.
Merritt was paid and what hours he worked. Bruce Smith had access
to the financial records through his wife's corporation that did
the bookkeeping for Brandy Lake. At most, the financial records
would show what was paid to Mr. Merritt but they would not
establish the basis on which the payments were calculated.
[19] As for the documentation that Bruce
Smith introduced, I find that it alone was insufficient to
establish that Kelly Merritt was self-employed. The questionnaire
from the website that Bruce Smith filled out suffered the same
problem as his oral testimony in that he did not have the
requisite first-hand knowledge of the circumstances in order to
accurately complete the questionnaire.
[20] As for the purported written contract,
the document that was introduced was an unsigned version of an
agreement. Bruce Smith testified that many of Brandy Lake's
documents were destroyed when the business was sold. Based on the
evidence before me, it is not possible for me to conclude that
this document was ever executed. I note that Kelly Merritt's
questionnaire states that there was no written contract.
[21] As for the questionnaires completed by
David Smith and Kelly Merritt, it is not possible for me to give
either of these documents any weight because neither gentleman
testified and accordingly neither was available for
cross-examination.
[22] One document that was of some
assistance was a photocopy of an excerpt from Brandy Lake's
general ledger that listed payments to subtrades. Although Kelly
Merritt's name was only mentioned three times on this sheet of
paper, the document tends to suggest that Kelly Merritt did not
earn a flat weekly wage. However, the general ledger does not
reveal how the compensation was determined.
[23] In this case, a decision was made not
to incur the expense of having David Smith testify. That is
unfortunate. Based on Bruce Smith's lack of first-hand
knowledge about Mr. Merritt's relationship with Brandy Lake,
I would conclude that the appellant has not satisfied the onus of
establishing that Mr. Merritt was self-employed.
[24] The appeals are
dismissed.
Signed at Ottawa, Canada this 10th day of December, 2004.
Woods J.
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