[OFFICIAL ENGLISH TRANSLATION]
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Citation: 2004TCC528
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Date: 20040901
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Docket: 2004-497(EI)
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BETWEEN:
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JACQUES SAGE
o/a CONSTRUCTIONS JACQUES SAGE ENR.,
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Appellant,
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And
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
AND
2003-4329(EI)
FRANÇOIS LEMIEUX,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
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REASONS FOR JUDGMENT
Paris J.
[1] The Appellant operates a
construction business, mainly in the construction of farm
buildings (barns), in the Eastern Townships, in the Province of
Quebec. A small part of the Appellant's operations were of a
residential or commercial nature.
[2] The Appellant, Jacques Sage,
has appealed from an assessment by the Respondent for 2001 and
2002 respecting employment insurance assessments for 28 of his
Workers (a list of their names is provided in Schedule A of
these Reasons). The Respondent determined that the Workers were
employed by the business under a contract of service. One of the
employees affected by the decision, François Lemieux,
has also appealed from it (assessment), and his appeal was heard
on the same evidence.
[3] With respect to the conclusion
that the Workers were employees of the Appellant, rather than
independent contractors, the Reply to the Notice of Appeal shows
that the Minister relied on the following assumptions of
fact:
[TRANSLATION]
(a)
Jacques Sage registered the trade name "Les
Constructions Jacques Sage Enr." on January 9,
1995;
(b)
Jacques Sage was the sole proprietor of the business;
(c) the business was
engaged in the construction of farm buildings, mainly barns,
which represented 90 percent of its operations, and
residential and commercial construction, which represented
10 percent;
(d) in the barn
construction field, the work was not under the jurisdiction of
the Commission de la construction du Québec (CCQ);
(e) the Appellant
hired Workers who were cabinet-makers, cement finishers,
ventilation installers, aluminium installers and labourers;
(f) the
Appellant employed seven or eight Workers per construction
site;
(g) when the Workers
were on a residential or commercial site, subject to the CCQ, the
Appellant made the employer and employees deductions from the
Workers' remuneration;
(h) when the Workers
were on a farm site, not subject to the CCQ, the Appellant did
not make the employer and employee deductions from the
Workers' remuneration;
(i) the
Appellant assigned the Workers to a specific site;
(j) the
Appellant visited the sites two or three times a week;
(k) the Workers
received their remuneration by cheque in the week following the
week worked;
(l) the
Appellant or the site foreman told the Workers what work to
do;
(m) the Workers were
remunerated at an hourly rate;
(n) the Workers were
paid by cheque every week;
(o) the Workers
submitted weekly time sheets showing the hours worked, which were
checked by the foreman;
(p) the Workers
usually worked from 7:00 a.m. to 4:30 p.m., Monday to
Friday;
(q) the Workers had
to inform the Appellant in advance of any absences;
(r) the Appellant
supplied the Workers with all the necessary materials, large
tools and scaffolding to perform their duties;
(s) the Workers
supplied their own small tools;
(t) the
Workers had no chance of profit or risk of loss in the
performance of their duties for the Appellant;
(u) the customers
were the Appellant's customers;
(v) the Workers'
duties were integrated into the Appellant's operations.
Evidence
[4] The Appellant called two of the
28 Workers, Mathieu Houle and Mr. Lemieux, as
witnesses. Both were carpenters and cabinet makers. They stated
that, for each job assigned to them, they had entered into an
agreement in advance with Mr. Sage on the total cost they
would request in payment of the work to be done and on the
deadline for performing the work. Once the agreement was reached,
they started the work and were paid in weekly instalments. The
amounts of those instalments were calculated based on the total
cost of the job, divided by the number of weeks scheduled for it
to be done.
[5] Sage went to the job site two or
three times a week to check work progress and quality. If the
Workers experienced problems on the site, they telephoned him. If
they were unable to work, they notified Sage or a coworker by
telephone.
[6] Each Worker supplied his own
manual or electric tools, and Sage supplied the necessary large
equipment. Sage also supplied the materials.
[7] Each Worker stated that he had not
been required to work a fixed schedule but that they had
generally worked from 7:00 a.m. to 4:00 or 4:30 p.m.,
Monday to Friday. Lemieux further stated that those hours were
the normal hours of work in the construction industry. Lemieux
added that he had had to report his hours of work but that that
had had no impact on his pay and that Sage had gathered that
information for bids on other jobs.
[8] Mathieu Houle stated that, if
he thought he could not complete the job within the scheduled
time, he worked overtime in order to be sure to complete the work
on time. Lemieux said that, if he had needed help to do a job, he
would have been responsible for hiring someone, but that that had
never happened to him when he worked for Sage. He also said that,
if his work was not well done, he had to redo it at his own
expense.
[9] Neither of the Workers billed Sage
GST for their work, but it was not established in evidence that
they were registered suppliers under the Excise Tax Act or
what their annual billings were.
[10] Mr. Sage also testified and
confirmed what the two Workers had said. He added that the
working conditions in the residential and commercial fields were
different from those of the agricultural field because
residential and commercial work was governed by the CCQ
(Commission de la construction du Québec), which meant
that the Workers in those fields had to be paid by the hour and
had to be considered as working under a contract of service.
[11] The Respondent, for his part, called
the Appeals Officer of the Canada Revenue Agency as a witness so
that she would explain the basis of her conclusion that the
Workers were Sage's employees rather than independent
contractors. A report prepared by the Appeals Officer was filed
in evidence as Exhibit I-1. She stated that she had
communicated with Sage and 12 of the 28 Workers to determine
their conditions of employment. The report detailed the
conversations she had had with them.
[12] However, the report on the
conversations between the Appeals Officer and the Workers who did
not testify constitutes hearsay and is thus not admissible for
the purpose of proving that what the officer said was true.
Counsel for the Respondent relied on the reasons given by Deputy
Judge Somers in the Court's decision in
Vézina v. Canada (Minister of National Revenue -
M.N.R.), [2001] T.C.J. No. 564, in stating that the
evidence in question was admissible. Although it is correct that
the Court held in that case that a report of conversations
between an Appeals Officer and third parties who had not been
called as witnesses was admissible, that finding, in my humble
view, was based on an incorrect analysis of two other decisions
that the Court had previously rendered, in Duquette v.
Her Majesty the Queen, 93 DTC 833, and Violi v.
The Minister of National Revenue,
80 DTC 1191.
[13] The question raised by Duquette
and Violi was whether the Minister could rely on
statements by third parties in assuming facts on which
assessments were based. In Duquette, the Appellant sought
to strike out the Notice of Appeal that had been filed. The
Appellant alleged in part that the Minister could not rely on
hearsay in assessing and that it was therefore incorrect to argue
facts on the basis of the hearsay contained in the Reply to the
Notice of Appeal. It was in response to that argument that
Judge Garon found that the Minister could base an assessment
on statements by third parties and assume that those statements
were true. In Violi, Judge Cardin also held that the
presumptions of fact on which the Minister relied could be based
on hearsay. The question raised in those cases is clearly
different from the question whether the Minister may file hearsay
in evidence in Court to support his position. I agree with
Judge Bell where, in his reasons in
Nadoryk v. Her Majesty the Queen,
docket 96-4601-IT-G, he stated:
I agree that the tax auditors are, in making assumptions for
the purpose of issuing assessments, not bound by the rules of
evidence applicable to courtroom proceedings. However the
statement of the Respondent's counsel that in this Court,
"the route by which the assumptions were arrived at ought to
be admissible" can have validity only if the rules of
evidence are observed. The auditor can describe the method by
which he concluded what assessment should be made but cannot, in
doing so, produce a document "when the object of the
evidence is to establish the truth of what is contained in the
statement."
[14] In the instant case, in seeking to have
the report admitted in evidence, the Respondent wanted to prove
that what the other Workers had told the Appeals Officer was
true. That constitutes hearsay and is inadmissible in respect of
the Workers who were not called as witnesses.
[15] However, the report contains a summary
of the conversation between the Appeals Officer and
François Lemieux and of that between the Appeals
Officer and Mathieu Houle. That raises another question
concerning the admissibility in evidence of those portions of the
report, a question that is of no importance with respect to
Mathieu Houle's testimony. In essence, his testimony was
consistent with what he purportedly told the Appeals Officer
concerning his work for Sage. However, there are major
differences between what Lemieux told the Court and what he
allegedly told the Appeals Officer. The question of those
differences was not addressed by the Respondent when he
cross-examined Lemieux, and Lemieux did not have a chance to
rebut the statements or to explain the contradictions they
contained. I am therefore not in a position to determine which of
the versions of the facts given by Lemieux is correct, and, for
that reason, I cannot accept this testimony before the Court as
credible evidence.
[16] The evidence brought by the Respondent
shows that he believed that the Appellant's Workers on the
farm building construction sites were subject to the same
conditions of employment as the Workers in the residential and
commercial fields and that, since the Appellant considered that
the Workers in those fields held insurable employment under a
contract of service, the same must be true of the Workers on the
farm sites.
Analysis
[17] To determine whether a person is
working under a contract of service or a contract for services, I
must consider the degree of control exercised by the
"employer" over the work performed, the ownership of
the tools, and the chance of profit or risk of loss of the Worker
performing the work.
[18] In the instant case, the control
exercised by Sage over the Workers was more consistent with the
nature of a contract for services. The evidence showed that the
Workers performed their duties independently and that Sage only
went to the site a few times a week. The assumption that the
Workers were supervised by a foreman was ruled out, as was the
assumption that they had to comply with a strict work
schedule.
[19] The fact that the Workers had supplied
power tools and manual tools also supports the argument that they
were independent contractors. In Precision Gutters Ltd v.
Canada (Minister of National Revenue - M.N.R.), [2002] F.C.J.
No. 771, the Federal Court of Appeal held as follows at
paragraph 25:
It has been held that if the Worker owns the tools of the
trade which it is reasonable for him to own, this test will point
to the conclusion that the individual is an independent
contractor even though the alleged employer provides special
tools for the particular business. See Bradford v.
M.N.R. 88 D.T.C. 1661; Campbell v. M.N.R.
87 D.T.C. 47; Big Pond Publishing v. M.N.R. [1998]
T.C.J. No. 935.
[20] As in Precision Gutters, the
tools that the Workers supplied were as important for the
performance of the work as the equipment supplied by Sage.
[21] I also find that the Workers had a
chance of profit and risk of loss in the work they performed for
Sage. If they worked efficiently, they could complete the work
sooner and, consequently, their remuneration for the time worked
would be that much higher. The Workers were also responsible for
correcting any defect in their work at their own expense.
Conclusion
[22] Consequently, I find on the evidence
brought before me that the Workers were employed by the Appellant
under a contract for services and that they did not hold
insurable employment within the meaning of
paragraph 5(1)(a) of the Employment Insurance
Act, S.C. 1996, c. 23. The appeals are therefore
allowed.
Signed at Ottawa, Canada, this 1st day of September
2004.
Paris J.
Certified true translation
Colette Dupuis-Beaulne
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