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Citation: 2003TCC415
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Date:20030630
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Docket: 2002-1522(EI)
2002-1523(CPP)
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BETWEEN:
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MERIT TRANSPORT INC.,
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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
Porter,
D.J.T.C.C.
[1] These appeals were heard on common evidence
by consent of the parties, at Edmonton, Alberta on the 24th of
February 2003.
[2] The Appellant has appealed from the
decisions of the Minister of National Revenue (hereinafter called the
“Minister”) dated January 17, 2002, that the employment with it of Lavern
Langerud (the “Worker”) for the period April 5 to 14, 2001 was insurable and
pensionable under the Employment Insurance Act (the “EI Act”) and
the Canada Pension Plan (the “CPP”) respectively, for the
following reason:
...Lavern Langerud was employed under a
contract of service, and therefore, he was your employee.
The decisions were said to be issued pursuant to
subsection 27.2(3) of the CPP and subsection 93(3) of the EI Act
respectively and based on subsection 6(1) of the CPP and paragraph 5(1)(a)
of the EI Act.
[3] The established facts reveal that the
Appellant, during the period in question, operated a business of transporting
goods from High River, Alberta to various locations in the U.S.A. and from the
U.S.A. to various locations in Canada. The Worker was engaged to drive one of
its trucks, pursuant to a verbal agreement. The Minister has concluded that
this work was carried out as an employee pursuant to a contract of
service. The Appellant maintains otherwise that the Worker was an independent
contractor working under a contract for services. This is the
issue before the Court.
The
Law
Contracts
Of/For Service
[4] The manner in which the Court should go
about deciding whether any particular working arrangement is a contract of
service and thus an employer/employee relationship or a contract for
services and thus an independent contractor relationship, has long been
guided by the words of MacGuigan J. of the Federal Court of Appeal in the case
of Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025. The reasoning
in that case was amplified and explained further in cases emanating from that
Court, namely in the cases of Moose Jaw Kinsmen Flying Fins Inc. v. M.N.R.,
88 DTC 6099, Charbonneau v. Canada (M.N.R.), [1996] F.C.J.
No. 1337, and Vulcain Alarme Inc. v. The
Minister of National Revenue,
(1999) 249 N.R. 1, all of which provided useful guidance to a trial Court in
deciding these matters.
[5] The Supreme Court of
Canada has now revisited this issue in the case of 671122 Ontario Ltd. v.
Sagaz Industries Canada Inc., [2001] S.C.J. No. 61, 2001 SCC 59, 274 N.R.
366. The issue in that case arose in the context of a vicarious
liability situation. However, the Court recognized that the same criteria
applied in many other situations, including employment legislation. Mr.
Justice Major, speaking for the Court, approved the approach taken by MacGuigan
J. in the Wiebe Door case (above), where he had analyzed Canadian, English and American authorities,
and, in particular, referred to the four tests, for making such a determination
enunciated by Lord Wright in City of Montreal v. Montreal Locomotive
Works Ltd., [1974] 1 D.L.R. 161 at 169-70. MacGuigan J. concluded at page
5028 that:
Taken thus in context, Lord
Wright's fourfold test [control, ownership of tools, chance of profit, risk of
loss] is a general, indeed an overarching test, which involves "examining
the whole of the various elements which constitute the relationship between the
parties". In his own use of the test to determine the character of the
relationship in the Montreal Locomotive Works case itself, Lord Wright
combines and integrates the four tests in order to seek out the meaning of the
whole transaction.
At page 5029 he said:
... I interpret Lord Wright's test not as
the fourfold one it is often described as being but rather as a four-in-one
test, with emphasis always retained on what Lord Wright, supra, calls
"the combined force of the whole scheme of operations," even
while the usefulness of the four subordinate criteria is acknowledged.
(emphasis mine)
At page 5030 he had this to
say:
What must always remain of the essence is
the search for the total relationship of the parties…
He also observed:
There is no escape
for the trial judge, when confronted with such a problem, from carefully
weighing all of the relevant factors…
[6] Mr.
Justice MacGuigan also said this:
Perhaps the best synthesis found in the
authorities is that of Cooke J. in Market Investigations, Ltd. v. Minister
of Social Security, [1968] 3 All E.R. 732, 738-9:
The observations of Lord Wright, of Denning
L.J., and of the judges of the Supreme Court in the U.S.A. suggest that the
fundamental test to be applied is this: "Is the person who has engaged
himself to perform these services performing them as a person in business on
his own account?" If the answer to that question is "yes", then
the contract is a contract for services. If the answer is "no" then
the contract is a contract of service. No exhaustive list has been compiled
and perhaps no exhaustive list can be compiled of considerations which are
relevant in determining that question, nor can strict rules be laid down as to
the relative weight which the various considerations should carry in particular
cases. The most that can be said is that control will no doubt always have to
be considered, although it can no longer be regarded as the sole determining
factor; and that factors, which may be of importance, are such matters as
whether the man performing the services provides his own equipment, whether he
hires his own helpers, what degree of financial risk be taken, what degree of
responsibility for investment and management he has, and whether and how far he
has an opportunity of profiting from sound management in the performance of his
task. The application of the general test may be easier in a case where the
person who engages himself to perform the services does so in the course of an
already established business of his own; but this factor is not decisive, and a
person who engages himself to perform services for another may well be an
independent contractor even though he has not entered into the contract in the
course of an existing business carried on by him.
[7] In the case of Kinsmen Flying Fins Inc. case, above, the Federal Court of
Appeal said this:
... like MacGuigan J. we view the tests as
being useful subordinates in weighing all of the facts relating to the
operations of the Applicant. That is now the preferable and proper approach
for the very good reason that in a given case, and this may well be one of
them, one or more of the tests can have little or no applicability. To
formulate a decision then, the overall evidence must be considered taking into
account those of the tests which may be applicable and giving to all the
evidence the weight which the circumstances may dictate.
[8] The nature of the tests referred to by the
Federal Court of Appeal can be summarized as:
a) The degree or absence of control
exercised by the alleged employer;
b) Ownership of tools;
c) Chance of profit
d) Risk of loss.
In addition, the Court must consider the question of the
integration, if any, of the alleged employee's work into the alleged employer's
business.
[9] In the Sagaz decision (above) Major
J. said this:
…control is not the only factor to consider
in determining if a worker is an employee or an independent contractor…
[10] He dealt with the inadequacy of the
‘control test’ by again approving the words of MacGuigan J. in the Wiebe Door
case (above) as follows:
...A principal inadequacy [with the control
test] is its apparent dependence on the exact terms in which the task in
question is contracted for: where the contract contains detailed specifications
and conditions, which would be the normal expectation in a contract with an
independent contractor, the control may even be greater than where it is to be
exercised by direction on the job, as would be the normal expectation in a
contract with a servant, but a literal application of the test might find the
actual control to be less. In addition, the test has broken down completely in
relation to highly skilled and professional workers, who possess skills far
beyond the ability of their employers to direct.
[11] He went on to say this:
In my opinion, there is no one conclusive
test which can be universally applied to determine whether a person is an
employee or an independent contractor. Lord Denning stated in Stevenson
Jordan, …([1952] 1 The Times L.R. 101) that it may be impossible to give a
precise definition of the distinction (p.111) and, similarly, Fleming observed
that “no single test seems to yield an invariably clear and acceptable answer
to the many variables of ever changing employment relations …” (p. 416).
Further, I agree with MacGuigan J.A. in Wiebe Door, at p. 563, citing Atiyah, …
(Vicarious Liability in the Law of Torts. London: Butterworths, 1967), at p.
38, that what must always occur is a search for the total relationship of the
parties:
[I]t is exceedingly doubtful
whether the search for a formula in the nature of a single test for identifying
a contract of service any longer serves a useful purpose…. The most that can
profitably be done is to examine all the possible factors which have been
referred to in these cases as bearing on the nature of the relationship between
the parties concerned. Clearly not all of these factors will be relevant in
all cases, or have the same weight in all cases. Equally clearly no magic
formula can be propounded for determining which factors should, in any given case,
be treated as the determining ones.
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.
[12] I also find guidance in the words of Décary
J.A. in the Charbonneau case (above) when speaking for the Federal Court
of Appeal he said this:
The tests laid down
by this Court ... are not the ingredients of a magic formula. They are
guidelines which it will generally be useful to consider, but not to the point
of jeopardizing the ultimate objective of the exercise, which is to determine
the overall relationship between the parties. The issue is always, once it has
been determined that there is a genuine contract, whether there is a
relationship of subordination between the parties such that there is a contract
of employment ... or, whether there is ... such a degree of autonomy that there
is a contract of enterprise or for services. ... In other words, we must not
pay so much attention to the trees that we lose sight of the forest. ... The
parts must give way to the whole. (emphasis mine)
[13] I
also refer to the words of Létourneau J.A. in the Vulcain Alarme case
(above), where he said this:
… These tests derived
from case law are important, but it should be remembered that they cannot be
allowed to compromise the ultimate purpose of the exercise, to establish in
general the relationship between the parties. This exercise involves
determining whether a relationship of subordination exists between the parties
such that the Court must conclude that there was a contract of employment
within the meaning of art. 2085 of the Civil Code of Quebec, or whether
instead there was between them the degree of independence which characterises a
contract of enterprise or for services….
[14] I am further mindful that as a result of
the recent decisions of the Federal Court of Appeal in Wolf v. Canada,
[2002] F.C.J. No. 375, and Precision Gutters Ltd. v. Canada (Minister of
National Revenue-M.N.R.), [2002] F.C.J. No. 771, a considerable degree of
latitude seems now to have been allowed to creep into the jurisprudence
enabling consultants to be engaged in a manner in which they are not deemed to
be employees as they might formerly been. I am particularly mindful of the
words of Mr. Justice Décary in the Wolf decision (above) where he said:
In our day and age,
when a worker decides to keep his freedom to come in and out of a contract
almost at will, when the hiring person wants to have no liability towards a
worker other than the price of work and when the terms of the contract and
its performance reflect those intentions, the contract should generally be
characterised as a contract for services. If specific factors have to be
identified, I would name lack of job security, disregard for employee-type
benefits, freedom of choice and mobility concerns. (my emphasis)
[15] Thus, it seems to this
Court that the pendulum has started to swing, so as to enable parties to govern
their affairs more easily in relation to consulting work and so that they may
more readily be able to categorize themselves, without interference by the
Courts or the Minister, as independent contractors rather than employees
working under contracts of service.
[16] In conclusion, there is no set formula. All these
factors bear consideration and as Major J. said in the Sagaz case
(above), the weight of each will depend upon the particular facts and
circumstances of the case. Many of the tests can be quite neutral and can
apply equally to both types of situation. In such case, serious consideration
has to be given to the intent of the parties. Thus is the task of the trial
Judge.
The
Facts
[17] The Minister, in the Replies to the Notices of Appeal
signed on his behalf, were said to have relied upon the following assumptions
of fact (I have set out in parenthesis the agreement or disagreement of the
Appellant):
(a) The
Appellant is in the business of transporting goods from High Prairie,
Alberta to various locations in the U.S.A. and from the U.S.A. to various
locations in Canada. (Disagreed. It provided trucks and drivers to Excel
Transportation Inc. who were in that business.)
(b) Randy
Jones and Nancy Jones each own 50% of the voting shares of the Appellant.
(Agreed)
(c) During
the period in issue, the Appellant entered into a contract with Excel
Transportation Inc. (“Excel”) under which the Appellant agreed to provide
trucking services, including drivers and equipment for transporting
commodities, to Excel. (Agreed – subject to clarification)
(d) The
Appellant hired the Worker to drive one of its trucks. (Agreed)
(e) The
Worker’s duties were performed pursuant to a verbal agreement with the
Appellant. (Agreed)
(f) At
no time did the Worker enter into a written contract with the Appellant.
(Agreed)
(g) During
the period in question, the Worker transported goods from High Prairie, Alberta
to Fort Mill, South Carolina and then he travelled to Newport, Tennessee where
he picked up goods which he transported to Calgary, Alberta. (Agreed – High
River, not High Prairie)
(h) The
Appellant paid the Worker at the rate of $.33 per mile. (Agreed)
(i) The
Worker’s rate of pay was set by the Appellant. (Disagreed – it was negotiated
between them.)
(j) The
Appellant paid the Worker weekly by cheque. (Disagreed – it paid the Worker one
week after it was paid by Excel.)
(k) The
Appellant required the Worker to submit the Worker’s logbook in order to be
paid. (Disagreed)
(l) The
Worker was required to follow the policies and procedures of the Appellant and
of the Appellant’s client. (Agreed)
(m) The
Appellant gave the Worker pick up and delivery instructions. (Disagreed – these
instructions were given by Excel.)
(n) The
Worker had no control over what loads he was given to haul. (Disagreed)
(o) The
Worker could not refuse a trip. (Disagreed)
(p) The
Appellant determined the route that the Worker was to follow. (Disagreed)
(q) The
Worker was required to report to the Appellant on a daily basis. (Disagreed)
(r) The
Appellant required the personal service of the Worker. (Disagreed)
(s) The
Worker did not have any helpers. (Agreed)
(t) If
the Worker was not available to take a trip, the Appellant was responsible for
finding a replacement. (Agreed)
(u) The
Worker could not, nor did he, provide services to others while working for the
Appellant. (Disagreed)
(v) The
truck driven by the Worker was owned by the Appellant. (Agreed)
(w) At
no time was there any lease agreement made between the Appellant and the Worker
with respect to the use of the truck by the Worker. (Agreed)
(x) The
Appellant paid for all of the operating expenses of the truck driven by the
Worker including, but not limited to the license, insurance, fuel, washes, oil
and maintenance and repairs. (Agreed)
(y) The
Appellant provided the Worker with a fuel credit card. (Agreed – it was a
‘debit’ card, not a credit card)
(z) The
Appellant provided the Worker with a cellular phone at no cost to the Worker.
(Disagreed)
(aa) Excel
paid the Appellant for the trucking services that were provided to it. (Agreed)
(bb) The
Worker did not charge the Appellant goods or services tax in respect of the
service he performed for the Appellant. (Agreed)
[18] Evidence was given on
behalf of the Appellant by Randolph W. Jones, owner of 50% of the shares in the
Appellant, and Chief Operating Officer of the company. The Worker gave
evidence on behalf of the Minister.
[19] Mr. Jones put in
evidence the contract between the Appellant and Excel Transportation Inc.,
the carrier. This required the Appellant to furnish the tractor plus
"driver personnel and all other necessary labour …." The contract
gave Excel the "sole possession and custody and control" of the
tractor. The Appellant assumed responsibility for training employees, as well
as "hiring, setting the wages, hours and working conditions, and adjusting
the grievances of, supervising, training, disciplining and firing all drivers,
driver’s helpers and other workers". The drivers had to be the owner or
the employees of the owner and the Appellant warranted that they were properly
qualified to drive the equipment.
[20] Mr. Jones described
how he had been originally a contract driver himself and finally in 1992,
incorporated his own company. In 1999, he obtained the contract with Excel and
purchased two more trucks. He leased them to Excel. He had to provide
qualified drivers. Excel provided the trailers. The drivers would be cleared
by Excel. They then reported to dispatch operated by Excel and accepted
loads. They could decline a load, but could not take the truck and work for
someone else. They worked out their own best routes. Some were paid a
percentage of the take for the trip; others so much a mile. The Worker
negotiated $0.33 per mile. It was what was offered to him by Mr. Jones. If he
took 30 hours, for example, to get to South Carolina instead of 20 hours, he
did not do as well as he might have done.
[21] The Worker had
approached Mr. Jones for the work, having heard that the latter was looking for
a driver. He took a trip to South Carolina. He wanted to use a different
truck, which was not available. Mr. Jones promised him that other truck for
the next trip. However, there seemed to be some type of altercation between
the two men as to where the truck eventually was dropped off upon its return.
Three hundred dollars was deducted arbitrarily by Mr. Jones from the payment to
the Worker and the latter terminated the contract.
[22] It was said by Mr.
Jones that the Worker could have found his own replacement. However, I gleaned
that this would have been a substitute who would have to be approved by Excel
and paid by the Appellant, which is not the same thing as the Worker replacing
himself and paying the replacement driver out of his own pocket.
[23] It is clear from the
evidence that all running, repair and maintenance costs were paid by the
Appellant. The Worker had no liability in this respect. He carried with him
his own small set of hand-tools.
[24] With respect to item
(k), the Worker had to submit his receipted bills of lading in order to be
paid. He also was to keep a logbook to satisfy Excel’s requirements.
[25] With respect to items
(m) to (p) inclusive, the Appellant relinquished to Excel the day-to-day
control of the truck. The Worker had some discretion to refuse trips, although
I gleaned that if he did not keep the truck running, he would not have lasted long.
He was required to report to Excel daily, and this was done mostly through the
satellite system operated in the truck. He could not, in my view, have
replaced himself and thus his personal service was required (item (r)).
[26] With respect to item
(z), I accept that the Appellant did not provide a cell phone to the Worker.
[27] The driver himself
certainly considered himself to be an employee of the Appellant, although he
may well have been told by Mr. Jones that he would be responsible for his own
statutory deductions.
[28] Those are the salient
facts as I find them.
Application
of the Law to the Evidence
[29] Title: It must still be clearly understood that even where
the parties choose to put a title on their relationship, if the true nature and
substance of the arrangement does not accord with that title, it is the
substance to which the Court must have regard. That legal principle has not
changed (see Shell Canada Ltd. v. Canada (1999) S.C.J. No. 30). Having
said that, it is also fair to say that where the parties genuinely choose a
particular method of setting up their working arrangement, it is not for the
Minister or this Court to disregard that choice. Due deference must be given to
the method chosen by the parties and if on the evidence as a whole there is no
substantial reason to derogate from the title chosen by the parties, then it
should be left untouched. The Wolf and Precision Gutters cases
very much substantiate that proposition.
[30] Control: As this aspect of the test has been traditionally
applied, it has been consistently pointed out that it is not the actual control
so much as the right to control that is important for the Court to consider.
The more professional and competent a person is or the more experience they have
in their field, the less likely there is to be any actual control, which
creates difficulty in applying this test. Indeed as Major, J. pointed out in
the Sagaz case (above), there may be less control exercised in the case
of a competent professional employee than in the case of an independent
contractor. Nonetheless, it is another factor to be weighed in the balance.
[31] The Worker was
clearly assigned to drive a particular truck for Excel. He took his directions
from Excel as to the load he would take. However, the contract between Excel
and the Appellant placed the Worker under the control of the Appellant. I have
no doubt in my mind that the Appellant could have given him direction as to how
or where he went with the truck at any particular time, or whether he drove it
at all. It was an expensive piece of equipment and the Appellant did not just
abandon it. Right up to which repairs would be carried and when and how, the
Appellant had control. This aspect of the test, in my view, favours a finding
of an employee working under a contract of service.
[32] Tools and Equipment: The Worker had only
minimal tools. The major piece of equipment was clearly the tractor. This was
indeed major. This aspect of the test clearly favours a finding of an employee
not an independent contractor. The tools, in my view, were relatively
insignificant in the total order of things. They were not tools in the order
of those discussed in the Precision Gutters case (above).
[33] Profit and Loss: The Worker had no
investment. The better he arranged his routes, the more he made on the time
available to him. There was an element of profit available to him (as per the Precision
Gutters case (above)). However, he did not stand to lose money. There was
no real gain or loss available to him in the entrepreneurial sense. He might
have made more or less money, but he had no stake invested that he was
susceptible to losing if things did not work out right. On balance, this
factor also points to an employee working under a contract of
service.
[34] Integration: This again has been found by the Courts to
be a difficult test to apply. The question frequently asked is “whose business
is it?”. Clearly, that has to be asked from the point of view of the worker
and not the payor, as from the latter’s point of view it is always in
business. The context in which the question must be asked is whether there are
one or two businesses. In other words, is the person who has engaged himself
or herself to perform these services, performing them as a person in business
on his or her own account. If the answer to that question is yes, then the
contract is a contract for services. If the answer is no, then
it is a contract of service.
[35] The Worker did
nothing to indicate he was in business for himself. He considered himself an
employee. There was no entrepreneurial element to his work. He did not
invoice the Appellant or collect his own payments.
[36] When I consider the words of Major, J. in
the Sagaz case (above), that the central question is whether the person,
engaged to perform services, is performing them as a person in business on his
or her own account, particularly when I look at the factors outlined above, I
am overwhelmingly of the view that there was only one business here, namely
that of the Appellant. There is nothing to indicate that the Worker was in
business for himself. True the amount of work he undertook was under his
control, and how he did it, but everything else points to his working in and
for the business of the Appellant. In my view, there was only one business and
the services performed by the Worker were fully integrated into it. To be told
that he was being paid on a contract basis and would have no statutory
deductions was not sufficient to change that.
Conclusion
[37] When I look at the forest as a whole and
not just at the individual trees, I am well satisfied on the evidence that the
Worker was an employee working under a contract of service. I see
a considerable distinction in this case from the Wolf case (above).
Whilst the principles enunciated in that case may now well lead to a greater
number of consultants being engaged as independent contractors rather than as
employees, the situation at hand has nonetheless left me with the overall
impression that the Worker in this case was, in reality, an employee.
[38] Accordingly, the decisions of the Minister
are confirmed and the appeals are dismissed.
Signed at Calgary, Alberta, this 30th day of
June 2003.
D.J.T.C.C.
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