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Citation: 2003TCC382
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Date: 20030620
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Dockets: 2000-523(EI)
2000-525(CPP)
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BETWEEN:
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BUDGET PROPANE CORPORATION,
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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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and
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MORLEY RAYMER,
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Intervenor.
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REASONS FOR JUDGMENT
Weisman, D.J.T.C.C.
[1] The
Intervenor Morley Raymer ("Raymer") was engaged by the appellant as
General Manager of the Beaverton branch of its business which distributed
propane gas and sold and serviced propane heating equipment. The respondent
determined that during the period under review, November 19, 1996 to
August 31, 1998, Raymer was employed under a contract of service and was
therefore in insurable and pensionable employment within the meaning of
paragraph 5(1)(a) of the Employment Insurance Act; and paragraph 6(1)(a) of the Canada
Pension Plan.
The appellant now appeals those decisions.
[2] To
resolve this matter, the total relationship between the parties and the
combined force of the whole scheme of operations must be considered in order to
determine the central or fundamental question as to whether Raymer was
performing his services for the appellant as a person in business on his own
account or was performing them in the capacity of an employee.
[3] To
this end, the evidence must be subjected to the fourfold test laid down as
guidelines in
Wiebe Door Services Ltd. v. the Minister of National Revenue, as confirmed in 671122
Ontario Ltd. v. Sagaz Industries Canada Inc., and Precision
Gutters Ltd. v. Canada (Minister of National Revenue - M.N.R.) The four components of the test are control, ownership of tools,
chance of profit, and risk of loss.
Control:
[4] It
was the original intention of the parties that Raymer work as an independent
contractor under a contract for services during the period under review. An
agreement to that effect was executed on the 19th day of November 1996, and was
filed as Exhibit R-1 in these proceedings. Raymer was to receive a
"retainer" of $50,000.00 per annum in addition to ten percent of
profits before taxes. He was also to be reimbursed all appropriate expenses for
company business, and was entitled to a vehicle allowance of $500.00 per month.
He submitted bi-monthly invoices upon which he collected and remitted Goods and
Services Tax (GST).
[5] He
moved the branch to new premises, and ran the company's operations, which
included procuring office staff, propane delivery personnel, and heating and
plumbing contractors. He also co-ordinated collections, the trucking and
delivery of propane, and plumbing and heating installation, and repair. As a
licensed technician, he inspected installations and dealt with customers as
well. He had pricing discretion within minimum and maximum guidelines
established by the appellant. There were no set hours of work, and he was free
to come and go as he pleased, save that his services were required when the
servicemen and bulk drivers reported in to work at 7‑8:30 a.m. The
bulk drivers could be expected to return with their trucks through the day and
as late as midnight.
[6] For
the first twelve to fourteen months of the period under review, de facto
control over him was minimal. Mr. William Callow, the President of the
appellant, ("Callow") visited the branch site only once every
three months, and conversations by telephone occurred only every other
week. In Raymer's words "I'd run the operation with little input from the
owner".
[7] Matters
changed in the last seven to nine months of the relationship, when Callow heard
rumours that Raymer was "tarnishing our reputation", and his
inordinate absences from the business premises. Callow therefore hired an
accountant to oversee the operation, held meetings from which Raymer was excluded,
and became more and more involved in the daily operations of the business.
Raymer testified that he started receiving increasingly frequent calls from
Callow on his cellular telephone and that "He demanded and wanted to be
heard when he called".
[8] There
was consensus that Raymer had to perform his services personally. This is
usually an indication that the worker is an employee unless he is possessed of
highly specialized skills and expertise in which case the personal services
requirement is not determinative of the issue. Raymer had no such specialized
skills and expertise.
[9] It
was Raymer's evidence, which I accept, that for the $50,000.00 retainer, the
appellant acquired the right to control him throughout the period under review.
In this regard, the law is 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.
This test is difficult to apply in the case of highly skilled and professional
workers who possess skills far beyond the ability of their supervisors to
direct.
In the matter before me the usual control test is applicable. Again, Raymer was
not a highly skilled or professional worker.
[10] I find that Callow had the power to control Raymer throughout the
period under review and exercised de facto control as well during the
last seven to nine months thereof. The control factor accordingly
indicates that Raymer was an employee.
Ownership of Tools:
[11] It is common ground that Raymer worked at the appellant's premises
except when inspecting installations, or seeing customers. All necessary tools,
supplies, equipment, offices and furnishings were supplied to him by the
appellant. The tools factor accordingly also indicates that he was an employee.
Chance of Profit:
[12] With a contractual right to ten percent of the branch profits before
taxes per annum, one would have thought that Raymer had a clear chance of
profit through the exercise of enterprise and initiative. This, however, is
illusory. Callow wrote off all the expenses of starting up the business in the
first year, thereby obviating any chance of profit. In fact, Callow admitted
that the business did not record a profit until the 2001 fiscal year. As
compensation, Raymer was orally promised a guaranteed bonus of $10,000.00 at
year's end. The $10,000.00 was in fact withheld and paid only when Raymer
executed the Mutual Release filed as Exhibit A-3 in these proceedings, upon
termination of the relationship on the 31st day of August 1998.
[13] The evidence diverged as to whether Raymer was encouraged or forbidden
to seek outside sources of income. Raymer's evidence was that he had to hold
himself available any time in case delivery or installation problems arose.
This seems the more credible view. I am satisfied that he was normally on the
job from 7:00 a.m. when the servicemen reported in and there is no evidence of
his neglecting his duties thereafter in order to work elsewhere. There were
three occasions on which Raymer did earn extra income with Callow's prior
permission. He taught a one-week course at Georgian College for which he was
paid $400.00 as an employee. One day he trained Callow's son Jamie and several
others on the appellant's premises for which the appellant paid him an
additional $1,000.00. Finally, he performed similar training services at the
premises of one of the appellant's bulk distributors who paid him for his time.
I do not therefore find that Raymer had a chance of profit in his relationship
with the appellant. This factor also indicates that he was an employee.
Risk of Loss:
[14] With all business expenses being assumed by the
appellant, including a $500.00 per month vehicle allowance, it is clear that
Raymer bore no risk of pecuniary loss in the traditional sense.
[15] In Wolf the Court found it helpful to elaborate upon the
traditional concept to determine whether the worker in that case was performing
his services as a person in business on his own account, or in the capacity of
an employee. The Court distinguishes between independent contractors who choose
to accept the risks associated with business in exchange for mobility,
independence, and higher pay, and presumably the opportunity to deduct
from income allowable expenses under the Income Tax Act. Employees, on the other hand, are not
risk-takers, and opt in favour of the safety net provided by legislation such
as the Employment Insurance Act,
as well as health insurance, pension plans, job security, union
protection, educational courses, and job promotion.
[16] In the matter before me, it is clear that Raymer was not a risk-taker.
He sought the security of a retainer of $50,000.00 per annum, and a guaranteed
bonus of $10,000.00 as well. All his expenses were underwritten by the
appellant including $500.00 per month toward his vehicle expenses. He took no
financial risks. This factor, accordingly, also indicates that he was an
employee.
[17] While all four guidelines indicate that Raymer was an employee during
the period in question there are other relevant considerations in assessing the
total relationship between the parties.
[18] The original intention was clearly that Raymer was to be an
independent contractor under a contract for services. The law is clear,
however, that this is not determinative of the issue. The characterization of the
relationship is a matter of law because other interests are involved, such as
vicarious liability, employment legislation, the availability of an action for
wrongful dismissal, the assessment of business and income taxes, the priority
taken upon an employer's insolvency, and contractual rights. The terms of the contract will be
given weight only if they properly reflect the relationship between the
parties, or in a close case where application of the fourfold test produces
neutral results.
In the matter before me, the contract does not properly reflect the
relationship between the parties.
[19] In Wolf, the worker was granted four percent of his earnings in
lieu of vacation because the time demands of the project upon which he was then
engaged afforded him no opportunity for a vacation. This was accordingly held
to be a neutral factor in the particular circumstances of that case. This is
distinguishable from the present case where Raymer took a two week vacation
with his family, invoiced the appellant for the time away, and was paid. This
is consistent with his being an employee.
[20] Raymer possessed a GST number, and charged and remitted GST on his
bi-monthly invoices. This is consistent with his being an independent
contractor. However, in my view it merely reflects the original intention of
the parties and is not determinative. The same reasoning applies to the
garnishee which was served upon the appellant but was not honoured because the
parties considered Raymer an independent contractor.
[21] Upon examining the total relationship between the parties I do not
find that Raymer was performing his services as the General Manager of the
appellant's business as a person in business on his own account. He performed
them in the capacity of an employee. The appellant has failed to discharge the
burden of demolishing the assumptions contained in the respondent's Reply to
the Notice of Appeal.
[22] The appeals are dismissed and the decisions of the Minister of
National Revenue are confirmed accordingly.
Signed at
Toronto, Ontario, this 20th day of June 2003.
D.J.T.C.C.
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