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Citation: 2004TCC208
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Date: 20040309
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Docket: 2002-2689(EI), 2002-2690(CPP),
2002-3218(EI), 2002-3219(CPP)
2002-3223(EI), 2002-3224(CPP), 2002-3225(EI),
2002-3226(CPP)
2002-3227(EI), 2002-3228(CPP), 2002-3230(EI),
2002-3231(CPP)
2002-3232(EI), 2002-3234(CPP), 2002-3238(EI),
2002-3239(CPP)
2002-3240(EI), 2002-3241(CPP), 2002-3242(EI),
2002-3243(CPP)
2002-3245(EI), 2002-3246(CPP), 2002-3248(EI),
2002-3249(CPP)
2002-3251(EI), 2002-3252(CPP), 2002-3253(EI),
2002-3254(CPP)
2002-3255(EI), 2002-3256(CPP), 2002-3258(EI),
2002-3259(CPP)
2002-3261(EI), 2002-3262(CPP), 2002-3263(EI),
2002-3264(CPP)
and 2002-3276(EI), 2002-3278(CPP)
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BETWEEN:
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C-MAR SERVICES (CANADA) LTD.,
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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
Mogan J.
[1] The
issues in these appeals are whether two individuals, Kevin Walsh and Jeffrey
Langille, were engaged in insurable employment under the Employment
Insurance Act ("EI Act") and engaged in pensionable
employment under the Canada Pension Plan ("CPP"). The
Appellant has commenced 19 appeals under the EI Act with respect to 19
individuals, and 19 appeals under the CPP with respect to the same 19
individuals. Kevin Walsh and Jeffrey Langille are two of those 19 individuals.
At the beginning of the hearing, counsel for both parties agreed that we would
proceed with only the appeals concerning Kevin Walsh and Jeffrey Langille; and
that all appeals concerning the other 17 individuals would abide the result of
the Walsh and Langille appeals.
[2] The
Appellant is part of an organization centred in the United Kingdom and known as
the C-Mar Group, formed around 1987 to provide services to the North Sea
offshore oil industry. It later expanded into Canada and, by 2003, had offices
in six or seven different countries with about 100 shore staff and 500 seagoing
staff. The only witness to testify was Denis Mair who is president and a
director and a shareholder of the Appellant. Mr. Mair's background is
seafaring. He was raised in the U.K. and apprenticed to an international
shipping company. He qualified as a third officer; climbed the ranks to
captain; and holds a Master's licence. He served as a ship's Master for
approximately eight years until the mid‑1990s. He worked on the
Northumberland Bridge joining Prince Edward Island and New Brunswick until 1996
when the Appellant corporation was formed as the Canadian arm of the C‑Mar
Group (U.K.).
[3] The
Appellant offers a range of marine services to clients who would likely be a
ship owner, charterer or manager; or an oil company. Mr. Mair stated that, in a
negative sense, the Appellant will do anything to or for a ship except own it.
In a positive sense, the Appellant can provide management, crewing, consultancy
and repairs. It will broker the sale of a ship; charter it but not own it. In
Canada, the Appellant has been particularly successful in providing marine
personnel, audits, surveys and dynamic positioning (a relatively new
technology). The Appellant established the first dynamic positioning training
centre in Canada. The Appellant has a pool of personnel who have trained and
qualified in Canada and who reside here. Mr. Mair quickly learned that, on the
international market, Canadian officers are well respected and in demand as
long as they are cost effective vis à vis other nationalities.
[4] In
a typical scenario, the Appellant would receive a request from a client (ship
owner, ship manager or oil company) by telephone or email for an individual
with specific qualifications (e.g. a second engineer officer or third
navigating officer) needed on short notice – perhaps 24 hours. If the need is
short notice, there has likely been an illness, injury or sudden termination of
a similarly qualified person on the ship. If the client needs a warm body
quickly, Mr. Mair will go to his database of available personnel and start
calling to see who is available for this particular request. The search for a
worker may take up to half a day. He then offers a potential candidate the
terms and conditions of the job plus any other information he may have from the
client: how long is the job; where is it; what is the ship. If the potential
candidate says "Yes", Mr. Mair will promise to call him back within
the hour to provide flight details, final airport destination, and the name of
the ship's agent who will meet the worker at the airport and take him to the
ship. If time permits, Mr. Mair will discuss a contract and try to fax a
contract for the worker to sign if he has a fax machine at home. Otherwise, the
worker verbally accepts the contract and they tidy up the paperwork at a later
date. The paperwork is a "Contract of Employment" between the
Appellant and the worker.
[5] Exhibit
A-1 is a binder of documents comprising 19 contracts of employment or
employer/employee agreements between the Appellant and the 19 respective
workers who are the subject of 19 double (EI and CPP) appeals to
this Court. Exhibit A-1, Tab 2 is the agreement with Kevin Walsh which was put
forward as a typical agreement. The basic document is six pages with space to
sign on page six. It is too long to set out in full but the first three
paragraphs are:
1. NATURE OF EMPLOYMENT:
The employer shall employ the
Employee as set out in this contract and the latest Appendix I hereto. The
Employee further agrees to comply with the Employer's Safety and Drugs and
Alcohol Policies as attached hereto or as amended by the Employer form time to
time.
2. REMOTE WORK LOCATIOIN:
Employment requires the Employee to
travel to employment for six week intervals or such other periods as may be
notified to the Employee from time to time. The location of the employment will
be determined by the employer and set down in the latest Appendix I hereto or
be at such site as the Employer may notify to the Employee from time to time.
3. DURATION OF EMPLOYMENT:
The Employee's employment with the
Employer shall be deemed to have commenced on the date set out in the latest
Appendix I hereto and will continue until the date specified in the latest
appendix hereto or in the event that no date for the termination of employment
is set out in the latest appendix hereto will continue until the Employee's
service is no longer required on the project on which the Employee's services
have been utilized, subject to a notice period of three days.
[6] The
above three paragraphs from the Kevin Walsh contract all refer to "the
latest Appendix I" because there is a fresh Appendix I prepared and
initialled each time a particular worker is assigned to a new ship. At Tab 2,
Appendix I, Kevin Walsh has been assigned to the ship "DSV Balmoral
Sea" and the following particulars are set out in Appendix I:
APPENDIX I
This Appendix will form part of the
Contract of Employment between the Employee name hereunder and C-MAR Services
(Canada) Limited.
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Employment Agreement
for:
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Kevin Walsh
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Position
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3rd Marine Engineer
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Location:
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* DSV Balmoral Sea
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Start Date:
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September 17th, 1998
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Duration
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6 weeks on / 6 weeks
off
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Termination of
Contact:
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At client's discretion
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Day Rate:
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$315.00 Per Day
Worked, Paid on a Door to Door Basis
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The Employee agrees that if the
vessel is to work in Norwegian Waters, Norwegian taxes will be deducted
according to Norwegian tax laws.
Initial here for C-MAR __"D.M."__
Initial here for Employee __________
* DSV –
Diving Support Vessel
[7] Mr.
Mair explained that the phrase "paid on a door to door basis" was an
industry standard. It meant that the worker was paid a day rate from the time
he left his home (usually on the Atlantic coast of Canada) until he returned to
his home after a four or six or eight week term aboard the ship. Each worker
was paid by the Appellant but the worker performed his services on a ship
owned, managed or chartered by the Appellant's client; and the worker received
his daily instructions directly or indirectly from the Master of the ship. The
general policy was that for every day that a person worked, he would have a day
off. In a typical situation, if a six-week contract had developed into a
full-time position, a person would work for six weeks and then come home for
six weeks. Mr. Mair said that some of the Appellant's workers had been on the
same ship for two or three years doing a six-week rotation. In
cross-examination, Mr. Mair was asked about the period of employment and his
response is at pages 67-68 of the transcript:
Q. Now, you
mentioned this morning that these contracts were for a period of – in
particular ones for a period of six weeks. Is that right?
A. Well,
basically the contracts are open ended. The period of duty that could be quoted
in any particular contract could be six weeks, it could be eight weeks, but at
the same time you must understand that during that period if the client
determines that after four weeks he doesn't require this gentleman's duties any
more he can send the gentleman home.
[8] Having
regard to the 19 workers who are the subject of the appeals involved herein,
the ships to which they were assigned were not located in Canadian waters and
did not operate in Canadian waters at any time in the workers' respective pay
periods. Also, those ships were not Canadian owned or Canadian registered or
controlled by persons resident in Canada at any relevant time. It is the
worker's responsibility to obtain his required certification and keep it
up-to-date but the Appellant will, on occasion, with some long-term workers,
provide financial assistance to upgrade or renew a particular certificate.
[9] Mr.
Mair was asked by counsel for the Appellant if any of the 19 workers would have
to sign an agreement with the ship as to working on the ship. The following
exchange took place at pages 52-53 of the transcript:
Q. Now, sir, just
getting back to when these individuals travel out to the ship to which they've
been assigned by C-MAR, okay, is there any time during that period or otherwise,
just before or just after, when these individuals would have to sign an
agreement with the ship or with the crew, an agreement with the ship as to
working on the ship?
A. Yes.
Q. Explain.
A. Ship's crew
per se, officers and ratings who are an integral part of manning the vessel or
ship, sign what is called articles of agreement with the Master.
Q. When does that
occur in relation to the sequence you've described that C‑MAR follows?
A. Basically it
should occur as soon as they walk off the gangway or get on board that vessel
and present themselves to the Master.
Q. So does it
occur in Canada, or outside Canada?
A. These – all
these employees are outside Canada, so the vessels are outside Canada, so this
takes place outside Canada. May I just add that certain personnel that we also
provide to vessels are not integral part of a ship's crew. For example,
technicians, company representatives, they're aboard the vessel helping with
the vessel's duty, but they are not part of the ship's crew, hence, they do not
sign articles of agreement.
Q. Very well. And
why aren't they considered part of the ship's crew?
A. Because I
suppose the ship, to sail it from A to B safely and efficiently needs X amount
of crew, but in the offshore industry this vessel may be doing sub-sea
operations where you need additional personnel over and above the ship's crew.
Q. So the ship
that these technicians are assigned to may require an agreement with the crew
for appropriate crew members and officers, but these technicians aren't those –
aren't included in that class of people.
A. They would not
be, no.
The "technicians" and "offshore industry" which Mr.
Mair referred to are persons working in the exploration for oil and gas, and
not directly involved in operating the ship from point A to point B.
[10] Other clauses in the "Contract of Employment" (Exhibit A-1,
Tab 2) which I find relevant are:
5. REMUNERATION
5.3 In the event that the Employee is employed
outside Canada or required for the time being to perform his/her duties at a
place or places other than the Employer's premises and fails to perform his/her
duties by reason of absence for any reason other than sickness or terminates
his employment hereof in circumstances where the Employer owes a contractual
duty to any Third Party then in the event that the Employer incurs a cost in
order to send out a replacement for the Employee to such place as may be
required then it is hereby agreed and declared that without prejudice to any
other rights and remedies of the Employer it shall be lawful for the Employer
to deduct from any monies then owing or outstanding to the Employee the travel
cost of sending out and bringing back such replacement.
11. GROSS
MISCONDUCT AND RELATED MATTERS:
11.1 If the Employee shall:
11.1.7 Be found to be in
possession of or under the influence of drugs or alcohol whilst at the work
site or travelling to or from the work site, or fail to take a drugs or alcohol
test when required to do so by the safety rules currently force at the work
site.
Then the Employer may dismiss the
Employee forthwith without notice or pay in lieu of notice.
Analysis
[11] In the Reply, the Respondent relied on sections
4 and 5 of the EI Regulations but, at the hearing, Respondent's counsel
acknowledged that the Appellant did not come within section 4. Therefore, under
the EI Act, I am concerned only with section 5 of the Regulations
which states:
5. Employment
outside Canada, other than employment on a ship described in section 4, is
included in insurable employment if
(a) the person so employed
ordinarily resides in Canada;
(b) that
employment is outside Canada or partly outside Canada by an employer who is
resident or has a place of business in Canada;
(c) the
employment would be insurable employment if it were in Canada; and
(d) the
employment is not insurable employment under the laws of the country in which
it takes place.
[12] I will consider only the first two conditions of section 5. There is
no question that all of the workers in these appeals ordinarily reside in
Canada. It is the second condition which creates a problem:
(b) that
employment is outside Canada or partly outside Canada by an employer who is
resident or has a place of business in Canada;
Notwithstanding the words used in the 19 agreements contained in Exhibit
A-1, I have concluded that the Appellant was not the employer of the 19 workers
who are the subject of these appeals. The employer of any one of those 19
workers was the owner or operator of the ship to which the worker was assigned.
There is no evidence that any person who owned or operated a ship (to which any
one of the 19 workers was assigned) was resident in Canada or had a place of
business in Canada at any relevant time.
[13] To put the matter simply, the Appellant does not meet the common law
tests for employer status. The basic tests are summarized by the Federal Court
of Appeal in Wiebe Door Services Ltd. v. Minister of National Revenue,
87 DTC 5025 and, more recently, by the Supreme Court of Canada in 671122
Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983. The
Supreme Court stated at paragraph 47 that "control" will always be a
factor. The Appellant had no control over where or when or how the worker
performed his services. The Appellant, in my opinion, is an agent or broker
willing to provide a service for qualified marine workers and persons who
operate ships in international waters.
[14] In the agreements in Exhibit A-1, the Appellant characterized itself
as "Employer" and the worker as "Employee" but it is the
operator of the ship who determines where the worker will report for work; when
the worker will report; and how the worker will perform his services. Mr. Mair
was not examined or cross-examined on the Appellant's attempt to characterize
itself as "Employer" and, therefore, I can only speculate about the
reasons for such nomenclature. I can think of two reasons. First, to protect
the ship operators and its own reputation for reliability, the Appellant wants
the worker to accept a policy of "no drugs or alcohol" (see paragraph
11.1.7 of the standard agreement); and the Appellant wants to review the
worker's certificate of up-to-date qualifications.
[15] And second, to protect the worker from an irresponsible or dishonest
ship operator who might leave a worker without pay on a foreign shore, the
Appellant secures payment from the ship operator and then pays the worker at
the agreed daily rate. It is probably easier for the Appellant, as agent or
broker, to perform these services for both of its clients (ship operators and
workers) if it wears the mask of "Employer" even when it is not, in
law, the employer. As a last comment on control, I refer to Mr. Mair's answer
quoted in paragraph 8 above where he states that the ship operator can send the
worker home.
[16] In paragraphs 14 and 15 above, I considered only the test of
"control". The other tests also deny employment of the workers by the
Appellant. With respect to tools, the Appellant in substance provided none. The
worker provided his own certificate of qualification, and the ship operator
provided the ship and all of the equipment aboard. With respect to opportunity
for profit and risk of loss, the worker had none in a business sense because he
had no clients or customers and no overhead. All of his travel expenses were
paid by the Appellant who was reimbursed by the ship operator. I will not
consider the factor of "integration" because this case is not a
choice between employee and independent contractor. The parties acknowledge
that the worker is an employee. The issue as I see it is identifying the
employer. I find that the ship operator is the employer.
[17] The agreements in Exhibit A-1 all identify the Appellant as
"Employer" and a worker as "Employee". Therefore, I will
comment briefly on the recent decision of the Federal Court of Appeal in Wolf v. The Queen, 2002 DTC 6853. Although Wolf is
a case arising under the Income Tax Act, it was important in that case
to determine whether Mr. Wolf was an employee or an independent contractor. In
his 1990 contract with Canadair, Mr. Wolf was described as an "independent
contractor". When allowing Mr. Wolf's appeal and concluding that he was an
independent contractor, the Federal Court of Appeal gave particular weight to
the contractual intent of the parties (i.e. Mr. Wolf and Canadair). It is
important to note, however, that the applicable legal tests in Wolf were
evenly balanced. In my opinion, the following statement by Noël J.A. at
paragraph 122 is essential to understand the result in Wolf:
[122] … I acknowledge that the
manner in which parties choose to describe their relationship is not usually
determinative particularly where the applicable legal tests point in the other
direction. But in a close case such as the present one, where the relevant factors
point in both directions with equal force, the parties' contractual intent,
and in particular their mutual understanding of the relationship cannot be
disregarded. (emphasis added)
[18] When Noël J.A. referred to "applicable legal tests" and
"relevant factors", I think he was referring to the factors recited
in Wiebe Door and confirmed in Sagaz: control, equipment/tools,
chance of profit/risk of loss, management of assets and (possibly) integration.
It is only in circumstances where those factors point in both directions with
equal force that one may look to the contractual intent of the parties.
Otherwise, the parties could always dictate the result.
[19] In these appeals,
the issue was not between employee and independent contractor because all
parties agreed that the workers were employees. The issue was whether the
Appellant was the employer or whether the operator of a foreign ship was the
employer. All of the factors point to the operator of a foreign ship as the
employer.
[20] The CPP legislation is quite different from the EI Act and
Regulations. Set out below are the relevant parts of sections 15 and 16
of the CPP Regulations.
15(1) In
this Part,
"employment
in international transportation" means the employment of a person in a pay period
(a) on a ship,
(b) on an
aircraft used in the operation of a commercial air service by a person who is
classified under the Air Carrier
Regulations as an international air carrier,
(c) on a freight or passenger
train, or
(d) in respect
of a motor vehicle that is licensed to operate in one or more provinces of
Canada and in one or more states of the United States,
where such employment is the employment
primarily engaged in by that person in the pay period and is performed partly
within and partly without Canada;
16(1) Pensionable employment includes employment outside Canada (except
employment in international transportation) that would be pensionable
employment if it were in Canada, if the employee employed therein
(a) ordinarily
reports for work at an establishment in Canada of his employer;
(b) is
resident in Canada and is paid at or from an establishment in Canada of his
employer;
(c) …
[21] The CPP Regulations do not apply to Kevin Walsh or Jeffrey
Langille or any of the other 17 workers for the following reasons. I have
already decided that each worker is employed by the operator of a foreign ship
outside Canada and not by the Appellant. Under paragraph 16(1)(a), the
worker does not ordinarily report for work at his employer's establishment in
Canada because the operator of the foreign ship does not have an establishment
in Canada. Similarly, under paragraph 16(1)(b), the worker is not paid
from his employer's establishment in Canada because the operator of the foreign
ship does not have an establishment in Canada. The appeals are allowed.
Signed at Ottawa, Canada, this 9th day of
March, 2004.
Mogan
J.
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