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Citation: 2003TCC565
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Date: 20030814
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Docket: 2003-117(CPP)
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BETWEEN:
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DIANNE STOJAK,
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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
Bonner, J.
[1] Faxit
Communications Inc. (Faxit) appealed under s. 27.1 of the Canada Pension Plan to the
Minister of National Revenue (the "Minister") from an assessment made
on the basis that Dianne Stojak was employed by Faxit under a contract of
service during 2000, 2001 and 2002. The Minister confirmed the assessment. The
Appellant then brought the present appeal under s. 28 of the Canada Pension
Plan as a person affected by the Minister's decision. The sole issue is whether
the Appellant was employed by Faxit under a contract of service or whether, as
she contends, she worked for Faxit as a consultant under a contract for services.
[2] The position of the Appellant as set out in her
Notice of Appeal is:
"I have never been an
employee of Faxit Communications Inc. and have never worked under a contract
for services (sic) with that organization. I have conducted invoiced work for
Faxit Communications under a contract for hire through my educational and
management consulting company, DS Educational Services. Thus I have reported
this income as self-employed income.
Since 1999 I have operated an
educational and management consulting company and have done invoiced work under
contract for hire with numerous firms, agencies and professional organizations.
The income generated from this work has been reported as self-employed income
and all subsequent monies owing to CCRA have been submitted annually with
completed tax returns. I am in full control of my work, I set the hours and
days of operation and conduct my work unsupervised. I own all my equipment and
technology required to operate as a consultant and am solely responsible for profit
and loss. The educational and management consulting business of DS Educational
Services is solely my business and I operate this business completely from my
home office."
[3] The
Respondent's position is that the Appellant was employed by Faxit in pensionable
employment under a contract of service. It was based on the following findings
of assumptions of fact:
a) Faxit was incorporated in
October, 1997 and operated an advertising business;
b) 100% of the shares of Faxit are
owned by Pat Stojak;
c) Pat Stojak held the position of
President of Faxit;
d) Pat Stojak is the Appellant's
spouse;
e) Pat Stojak performed management
and financial administration duties for Faxit;
f) the Appellant performed
management and financial administration duties for Faxit when needed or when
Pat Stojak was absent;
g) in addition to her management
duties, the Appellant trained new employees of Faxit;
h) Faxit sold advertising services
to customers;
i) Faxit broadcast its customers
advertising via a fax modem to a database of fax numbers;
j) Faxit established the rates
that it charged its customers;
k) Faxit hired other workers to
sell advertising to prospective customers and to load the customer's ad into
Faxit's computer database for broadcasting;
l) Faxit paid the Appellant a flat
monthly fee;
m) the Appellant performed her
duties for Faxit from Faxit's business location and from an office located in
her home;
n) the Appellant had signing
authority on Faxit's bank account;
o) the Appellant was required to
report to Faxit in the performance of her management duties;
p) the Appellant did not incur any
expenses in the performance of her duties for Faxit; and
q) Faxit was required to withhold
Contributions from the remuneration paid to the Appellant.
There was no
serious challenge to the assumptions set out in paragraphs a) to d) and h) to
k). I note that the relevance of j) is not clear and that paragraph q) is
based on a conclusion which is very much in issue.
[4] Evidence
was given at the hearing of the appeal by the Appellant and by her husband,
Patrick Thomas Stojak.
[5] The
Appellant's evidence was that she operates a business, DS Educational Services,
providing management and consulting services to a number of clients one of
which was Faxit. She produced statements of income and expense for the years
1999, 2000 and 2001. The revenues reported on those statements were said to be
entirely from consulting. They were respectively, $6,560.60, $15,055.00 and
$19,580.00. The Appellant produced a bundle of documents which appear to be
invoices and records of payment generated by activity carried on under the name
DS Educational Services. Payments to DS Educational Services were made by
clients including the College of Dental Hygienists of British Columbia, the
University of British Columbia and the Dental Hygienists Association. The
invoices were on the letterhead of DS Educational Services and were issued to
Faxit Communications Ltd. They claim payment for administrative, technical and
training services which were billed at the rate of $50, $75 and $35 per hour
respectively.
[6] According
to the Appellant, Faxit was in the business of broadcasting advertising on
behalf of its customers. It did so by loading the customers' advertisements
into its computers and broadcasting the advertisements to fax numbers contained
in its database.
[7] The
Appellant testified that her work for Faxit involved establishing
administrative communication systems and organizational analysis. The work was
done pursuant to an oral contract between the Appellant and Faxit. The
Appellant did not indicate when the contract was made nor did she furnish any
details with regard to what was negotiated and when. The work for Faxit
generated between $20,000 and $24,000 over a period of two to two and a half
years. The Appellant said the fees charged to Faxit varied from month to month
depending on the number of hours of work done. She did not, she said, receive
any benefits from Faxit such as sick leave, vacation time or insurance
coverage.
[8] The
Appellant stated that she had received a degree of Master of Education from the
University of Victoria in November of 2000. Her specialty was leadership and
administration. She regarded her education as a "tool" supplied by
her in the performance of the contract with Faxit.
[9] The
Appellant stated that she hired and fired employees in the operation of the DS
business. She said she operated the business from an office located in her
home. She said that she performed 90% of the Faxit work from that home office.
She claimed that she paid for supplies used in conducting the business and
produced cash register tapes and other material indicating that payments were
made for office supplies.
[10] The Appellant asserted that she did her work for Faxit at times of her
own choosing. The Appellant said that the number of hours worked per week
varied from 2 to 20. She produced a schedule indicating that her attendance at
school did not leave her with time to work for DS on any sort of regular
predetermined basis.
[11] The Appellant also produced invoices indicating that she purchased
office equipment which she said was used in the operation of her business.
[12] The nature of the work which the Appellant was engaged to do for Faxit
was described in rather ambiguous terms. The Appellant said she was involved in
organizational analysis and assessment and that she established administrative
communication systems. She looked into what could be done to improve the manner
in which the company operated. The description of the work on the invoices sent
by DS to Faxit is also couched in enigmatic terms. The Appellant stated that
she had "some involvement" in ensuring that employees understood the
recommendations which she had made. She claimed that she was not otherwise
involved in employee training. Further she said that she implemented systems to
manage the collection of receivables. The Appellant's recommendations, none of
which was produced, constituted the product which she was apparently expected
to generate for Faxit. She pointed out that Faxit was not involved in the
generation of the reports because it was she, not Faxit, who possessed
expertise in organisational analysis. The Appellant denied that she was
involved in the management of the business of Faxit.
[13] Evidence was also given by the Appellant's spouse Patrick Thomas
Stojak. He confirmed that the Appellant was retained by Faxit under an oral
contract. He indicated that the contract called upon the Appellant to perform
certain duties. Mr. Stojak described the nature of the work as structuring
the organization and training and he added that she helped with the better
collection of the receivables. He indicated that although he was out of town he
continued to manage Faxit business by telephone and e-mail.
[14] Mr. Stojak stated that the Appellant was not obliged to punch a
clock and that she was entitled to work for others. He insisted that she was
never offered employment by Faxit.
[15] Mr. Stojak was somewhat vague regarding the manner in which the
Appellant was obliged to provide her recommendations to Faxit. He said that the
recommendations were "mostly verbal".
[16] Mr. Stojak indicated that billing was discussed between himself
and the Appellant and that once an amount was approved the Appellant was
obliged to send an invoice to the company. He stated that the Appellant billed
for hours spent working.
[17] I have concluded, not without hesitation, that the evidence of the
Appellant and Patrick Stojak was substantially truthful. Although the manner in
which the Appellant gave her evidence seemed at times to be evasive, I have
concluded that the Appellant's apparent reluctance to answer questions resulted
from a desire to reiterate her position as often as possible and not from a
reluctance to tell the truth.
[18] The general description of contracts of service and contracts for
services found in the reasons of Jackett, P. in Alexander v. M.N.R., 70
DTC 6006 at 6011 offers an insight which is helpful here:
"... On the one hand, a contract of service is a
contract under which one party, the servant or employee, agrees, for either a
period of time or indefinitely, and either full time or part time, to work for
the other party, the master or the employer. On the other hand, a contract for
services is a contract under which the one party agrees that certain specified
work will be done for the other. A contract of service does not normally
envisage the accomplishment of a specified amount of work but does normally
contemplate the servant putting his personal services at the disposal of the
master during some period of time. A contract for services does normally
envisage the accomplishment of a specified job or task and normally does not
require that the contractor do anything personally. ..."
[19] In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001]
2 S.C.R. 983, the authorities bearing upon the distinction between the two
types of contract were reviewed. Major, J., speaking for the Court, expressed
agreement with the "four-in-one" test set out in the reasons for
judgment of MacGuigan, J.A. in Wiebe Door Services, [1986] 2 C.T.C.
200. At page 1005 of the decision in Sagaz, Major, J. stated:
"Although there is
no universal test to determine whether a person is an employee or an
independent contractor, I agree with MacGuigan J.A. that a persuasive approach
to the issue is that taken by Cooke J. in Market Investigations, supra.
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.
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."
[20] In the present case much of the difficulty stems from the fact that
the work done by the Appellant for Faxit was done under a rather ill-defined
non arm's length oral agreement. The thrust of the Appellant's case is that
Faxit retained her, not to put her services at the disposal of Faxit for any
particular period of time but rather to investigate, analyse and produce a
product in the form of recommendations with regard to various aspects of
Faxit's business operations. I note that analytical work of the nature
undertaken by the Appellant can be done just as readily by a person who has
been engaged as an employee as by an independent contractor.
[21] The Respondent assumed that Faxit paid the Appellant a flat monthly
fee. That was not what happened. The Appellant invoiced Faxit each month. The
invoices specified the number of hours worked in each of three categories and
applied the rates respectively applicable to those categories. Billing on a
time‑spent basis is entirely consistent with the performance of work by
an independent contractor.
[22] The evidence does not suggest that Faxit possessed any sort of control
over the manner in which the Appellant's work was performed. The Appellant held
a degree in a field which appears to have borne some relationship to work of
the sort which she said she was called upon to do for Faxit. The evidence does
not suggest that Mr. Stojak or any one else at Faxit had any expertise in
the field. In such circumstances it seems unlikely that Faxit would have sought
a contractual term retaining control over the manner in which the work was
done. Although the absence of a right to control the manner in which the work
was done is indicative of a contract for services, the test is of diminished
weight in cases such of this where the worker possesses an expertise not shared
by the person who has engaged him or her.
[23] Ownership and use by the worker of tools and equipment required to
carry out his or her work tends to support a conclusion that the worker is an
independent contractor. In the present case, the Appellant produced records
indicating that she bought equipment including a scanner, a CD writer and a
filing cabinet. She performed the work for Faxit primarily from an office in
her home using a computer which she owned either in whole or in part. She used
supplies purchased at her expense. All of this supports the conclusion that she
worked for Faxit as an independent contractor.
[24] I note that the Appellant stated in evidence that she employed a
helper and that she had fired the helper. Unfortunately, the Appellant did not
indicate during her evidence whether the helper played any role in carrying out
the consulting work for Faxit. The ambiguity of the evidence makes it
impossible to apply this branch of the overall test.
[25] The Appellant's position is supported to some extent by the fact that
she did operate a consulting business of her own and invoiced Faxit on the
letterhead of that business. The contract appears to have been formed in the
course of the operation of the consulting business of which the Appellant was
proprietor. There is no apparent reason why a person who operates a consulting
business should accept work as an employee in the same field of endeavour.
[26] The degree of financial risk undertaken by the Appellant in the
circumstances of this case does not appear to have been great. She was after
all compensated at hourly rates for work which does not seem to have entailed
substantial incremental cost. Nevertheless, when the work for Faxit is viewed
as part of the overall consulting activity it is evident that there was at
least some measure of financial risk of the sort not normally encountered by an
employee. When the circumstances are viewed comprehensively, it is, I think,
evident that this is not a case in which the Appellant put her personal
services at Faxit's disposal. Rather it is a case in which the Appellant agreed
to undertake certain tasks for Faxit in the course of carrying on her business
as an independent consultant. To use the language of the Sagaz case the
Appellant performed services for Faxit as a person in business on her own
account.
[27] I have concluded that the appeal must be allowed. The matter will be
referred back to the Minister for reassessment accordingly.
Signed at Ottawa, Canada, this 14th day of August
2003.
Bonner,
J.
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