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Citation: 2003TCC709
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Date: 20031009
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Dockets:
2002-3189(CPP)
2002-3190(EI)
2002-3859(EI)
2002-3860(CPP)
2002-3867(EI)
2002-3868(CPP)
2002-3869(EI)
2002-3870(CPP)
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BETWEEN:
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OVERHEAD DOOR OF PRINCE ALBERT 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
Porter,
D.J.
Introduction
[1] These appeals were heard on common evidence
by consent of the parties, on the 7th day of August 2003, at Prince
Albert, Saskatchewan. They relate to four different workers engaged by the
Appellant to provide services at varying times. The issues and evidence are the
same in each case.
[2] The Appellant has appealed from the various
decisions of the Minister of National Revenue (hereinafter called the
"Minister") all dated the 3rd of June 2002 that the
following workers were in both insurable and pensionable employment during the
respective periods of time, namely:
Danny Castle - October 1, 2000 to April 30,
2001
Ronald Thorimbert - May 1, 2000 to November
30, 2001
David Anderson - April 1, 2000 to June 9,
2001
Sidney Harris - October 1, 2000 to November
30, 2001
The reasons given
for the said decisions, which were the same in each case, were:
[Worker's name] was engaged under a
contract of service and therefore he was an employee of yours.
The decisions were said to be issued in accordance
with subsection 27.2(3) of the Canada Pension Plan (the "CPP")
and subsection 93(3) of the Employment Insurance Act (the "EI
Act"), and were respectively based on paragraphs 6(1)(a) 5(1)(a)
thereof.
[3] The established facts reveal that the
Appellant at all relevant times, was in the business of selling and installing
overhead doors as well as servicing the same. The Workers were engaged to
install, repair and service the overhead doors. The Appellant maintains that
they were engaged as independent contractors operating under contracts for
services. The Minister, on the other hand, has decided that they were engaged
as employees under contracts of service. That is the issue in these
appeals.
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 Weibe 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 was said in the Replies to the
Notices of Appeal signed on his behalf, to have relied upon the following
assumptions of fact, along side of which I have indicated the agreement or
disagreement of the Appellant.
(a) the Appellant is
in the business of sales, installation and service of overhead doors; (Agreed)
(b) the Worker was
hired as an installer and his duties included installing, repairing and
servicing overhead doors; (Basically agreed, but hired not meaning
"employed as employee")
(c) normally the
Worker spent 20% of his time installing doors and the remaining time was spent
on repairs and service; (Agreed)
(d) the Appellant
obtained the clients and the work; (Agreed)
(e) the Worker earned
a set wage per service perform; (Agreed)
(f) the Worker was
also paid an hourly wage for some services; (Agreed)
(g) the
Appellant set the Worker's rates of pay; (Agreed)
(h) the Appellant set
the prices charged to its clients; (Agreed)
(i) the Appellant
paid the Worker on a weekly basis; (Agreed)
(j) the Worker
normally worked regular business hours; (Disagreed)
(k) the Worker's
hours were controlled by the Appellant's client; (Disagreed)
(l) the time frames,
deadlines and priorities were set by the Appellant's clients; (Disagreed)
(m) the Appellant
assigned the work and instructed the Worker; (Disagreed)
(n) the Appellant
provided the Worker with work orders; (Agreed)
(o) the Appellant
provided training for the Worker; (Disagreed)
(p) the Worker worked
along side a qualified installer; (Disagreed)
(q) the Worker
reported to the Appellant's premises on a daily basis; (Disagreed)
(r) the Worker
submitted work reports to the Appellant; (Agreed)
(s) the Appellant
inspected the Worker's work; (Disagreed)
(t) the Worker did
not replace himself or hire his own helpers; (Disagreed)
(u) the Worker did
not perform services for others while working for the Appellant; (Disagreed)
(v) the Worker
provided his own hand tools and vehicle; (Agreed)
(w) the Appellant
provided the specialty tools including scaffolding, ladders and scissor lifts;
(Agreed)
(x) the Worker
performed his services in the field and at the Appellant's premises;
(Disagreed)
(y) the Appellant
provided the doors and all of the accessories and materials required; (Agreed)
(z) the Worker did
not have a chance of profit; (Disagreed)
(aa) the Appellant
provided the Worker with a mileage allowance and a per diem amount to cover
out-of-town travel costs; (Agreed for out of town work only)
(bb) the Worker was not
liable for any losses or damage; (Disagreed)
(cc) the Appellant
provided the Worker with liability insurance; (Disagreed)
(dd) the Worker was not
in business for himself; (Disagreed)
(ee) the Worker did not
charge the Appellant G.S.T., and (Agreed)
(ff) the Worker was
employed under a contract of service with the Appellant. (Disagreed – the
issue in this appeal)
[18] Evidence was given by Michael Fisher
("Fisher"), the sole shareholder and director of the Appellant. I
found him to be an extremely honest and reliable witness and I have no
difficulty in accepting his evidence in its entirety.
[19] Fisher said there were simply two employees
of the company, namely himself and a secretary. The remaining workers, he said,
were engaged as independent contractors. He provided a standard form of
contract (Exhibit A-1) entered into with the Workers. This was, I understand, a
form provided by the franchise company and he simply filled in the blanks. The
signed originals were not produced.
[20] The contract contains the following
relevant terms:
The sub-contractor is totally responsible
for the supply of necessary tools and equipment and the tools and equipment
leased, rented or borrowed from others whether they are lost, damaged, stolen
or subject to mysterious disappearance wherever the event may happen.
...
We understand that by the terms of this
agreement, every attempt has been made to make this an agreement between a
contractor and a sub-contractor. For example, it is understood that the company
does not have exclusive command over or control of the sub‑contractors
services. However, the workmanship must meet or exceed the standards of the
industry and the sub-contractor realizes that they do not have the benefits
that may be associated between an employer/employee relationship. For example,
the fee schedule as amended periodically, is all inclusive and the
sub-contractor becomes obligated to self fund for annual vacation, public
holidays, leaves for maternity/paternity, bereavements etc., liability for
Canada Pension Plan, Income tax and employment insurance, if applicable and any
other tax or deduction associated with an employee, except for assessments
under the Worker’s Compensation Board, which the company will pay and not
deduct from payments under the fee schedule.
As a sub-contractor, services can be
provided to others without the risk of losing assignments from the company
except for the possibility of not being available within the time frame of the
customers' requirements.
As a sub-contractor, you assume and accept
full responsibilities for your actions and agree to carry sufficient liability
and general insurance to protect yourself and the company from liability claims,
arising from your actions, and losses or damages to tools and equipment.
[21] The allocation of work, according to
Fisher, was on a first-come-first-serve basis. The Appellant would take in the
orders. They would be written up on forms which were then placed in a central
point in the office. The Workers could then come into the office, if and when
they chose, and select a work order. If a work order was beyond the competence
or experience of a worker, he could just select the next one. If he did not come
in at any time, that was up to him. Work was just there when he chose to come
in and pick it up.
[22] At the end of the project, the Worker would
complete the form and return it to the office. He would, subject to a holdback,
be paid one week later.
[23] There were no restrictions on a Worker
undertaking other work either in his own right or as an employee, at any time.
[24] Similarly, although it did not tend to
happen, a Worker could hire a sub‑worker out of his own resources.
[25] It was clear that generally speaking, the
Workers used their own tools. If they lost or forgot their own, they could
borrow those of the Appellant. Specialty tools belonged to the Appellant or
were rented and the cost passed on to the customer.
[26] The Workers used their own vehicles and
paid for their own fuel. The contractual stipulation for white vehicles was
never enforced. If the Workers went out of town, they were reimbursed for
mileage, meals and hotel accommodation, which I understand was passed onto the
customer.
[27] When the Minister made his rulings, the
Workers quit working for the Appellant, as they did not wish to be treated as
employees.
[28] The Workers received on-the-job training in
that at the outset, those who did not have any experience went with an
experienced Worker to learn the work.
[29] The Workers were requested to do the work
within normal business hours unless a customer wanted the work done at a
special time, and the Worker was requested to accommodate that request. Thus,
the Workers' hours were not controlled by the Appellant (items (j), (k) and
(l)). Further, the work was not assigned by the Appellant (item (m)); it was
posted and the Workers could select work as they saw fit.
[30] Items (o) and (p) are, to some extent,
correct. Some Workers obviously had sufficient experience whilst others had
none.
[31] Item (s) is incorrect, as Fisher did not
inspect the work unless there was a complaint. In that case, the Worker had to
fix it at his own expense (item (bb)).
[32] The Workers did not in fact replace
themselves, but Fisher maintained they could have done so if they wished (item
(t)). Generally speaking, the economics would probably not have allowed for it.
[33] With respect to item (x), the Workers
performed all the work in the field.
[34] With respect to item (z), the Worker did
have a chance of profit in the sense referred to in the Precision Gutters
case (above).
[35] Item (cc) is correct in that, although by
the contract the Workers were required to take out their own insurance, they in
practice did not do so. Also, the Appellant covered them for Workers’
Compensation.
[36] Those then, are the salient facts.
Application
of the Factors to the Evidence
[37] Title: It must 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.
[38] 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 it 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.
[39] In this case, it is clear that both the
Appellant and the Workers had a clear understanding that they were working as
independent contractors not employees. They sought neither the benefits of
being employees nor wished to assume the obligations thereof. It is significant
in my mind, that rather than be treated as such, they ceased working for the
Appellant.
[40] In this case, I see very little, if any,
control exercised by the Appellant over the Workers. They basically could come
and go as they pleased and were free to work or not work as they chose, which
is hardly a hallmark of an employee. They chose their own assignments. They
worked when they wanted to. They had to rectify their own work if there were
complaints. This factor clearly points to independent contractors working under
contracts for services.
[41] Tools and Equipment: These were not numerous and such as they
were, the Workers owned their own. As was pointed out by the Federal Court of
Appeal in the Precision Gutters case (above):
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.
I feel that the Tax Court Judge erred in
refusing to place any meaningful emphasis on the importance of the tools owned
by the installers, which were essential to the installation of the gutters.
[42] This factor clearly points to the Workers
working as independent contractors despite the fact that occasionally specialty
tools were provided by the Appellant.
[43] Chance of Profit – Risk of Loss: Quite frankly I am of the view that the circumstances
in the cases at hand are substantially similar to those in the Precision
Gutters case (above) where the Federal Court of Appeal said this:
“The Tax Court Judge concluded, because at
the time the rates were agreed upon between Precision and the installer, that
there was no further opportunity for profit. As a result he concluded that this
criteria favoured characterization of the installers as employees. In my view,
this ignores certain important aspects of the relationship between the installer
and Precision. In particular each installer used his own judgment to decide
when to work and whether to accept or decline any particular job. He was of
course free to take jobs with other gutter manufacturers. The contract price,
although it was not negotiated on all occasions, was nevertheless negotiated
20%-30% of the time. In my view, the ability to negotiate the terms of a
contract entails a chance of profit and risk of loss in the same way that
allowing an individual the right to accept or decline to take a job entails a
chance of profit and risk of loss. The installers were not given any set time
for performance of the contract and hence efficient performance might well lead
to more profits. An installer could choose to work alone or employ others to
help him. Obviously, the more work he could do on his own the more profits he
could make. The installer was responsible for defects in work done and had to
return to repair the defects at his own expense. There was no guarantee of work
from day to day, no guaranteed minimum pay and no fringe benefits. All of these
things have led other courts to conclude that an independent contractor
relationship exists. See
Société de Projets ETPA Inc. v. Minister of National Revenue, 93 D.T.C. 510. I am therefore of the view that the Tax
Court Judge erred in holding that chance of profit and risk of loss criteria
favours characterization of the installers as employees.
[44] I am of the view that there was a
significant entrepreneurial element to the work of the Workers. How they
arranged their affairs and the assignments they chose could unilaterally affect
the amount of profit they made. They also had expenses in the form of their
vehicles and tools. If there were damaged or lost tools they faced substantial
losses.
[45] This factor, in my view, clearly points to
the Workers being independent contractors.
[46] Integration: Lastly, I come to the question of whether the work
the Workers were doing was done as an integral part of the business of the
Appellant, in which case it is said to be integrated into it and done as an
employee working under a contract of service; or whether the work, although
done for the business of the Appellant, was not integrated into it but was only
accessory to it, in which case it is done by an independent contractor working
under a contract for services. In other words, was there one or two (several)
businesses working here.
[47] In my view, there were two (several)
businesses in operation; that of the Appellant and that of each individual
Worker. Each of the Workers had an entrepreneurial element to their working
arrangement. They had freedom from control, they provided their own equipment
which subjected them to financial risk, and they had the opportunity of making
a profit. I do not see this as being an integration into the business of the
Appellant. These factors also, in my view, favour a finding of independent
contractors working under contracts for services.
Conclusion
[48] When I look at the forest as a whole, as
well as the individual trees, I see no reason to derogate from the title put
upon the working arrangement by the parties themselves. Nothing is inconsistent
with that title. In fact, the evidence reveals that the arrangement was
entirely consistent with that title.
[49] In the result, all the appeals are allowed
and the decisions of the Minister vacated.
Signed at Calgary, Alberta, this 9th day of
October 2003.
Porter,
D.J.
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