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Citation: 2003TCC714
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Date: 20031009
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Dockets: 2003-1122(EI)
2003-1123(CPP)
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BETWEEN:
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MARATHON ELECTRIC 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
Rowe, D.J.
[1] The appellant -
Marathon Electric Ltd. - (Marathon or payor) appeals from two decisions – both
dated December 19, 2002 - issued by the Minister of National Revenue (the
"Minister") wherein the Minister – in each instance – confirmed
earlier assessments issued to Marathon in respect of premiums owing pursuant to
the Employment Insurance Act (the "Act") and contributions due
under the Canada Pension Plan (the "Plan") in the 2000 and
2001 taxation years on the basis certain named workers were employed in both
insurable and pensionable employment pursuant to the relevant provisions of the
Act and the Plan. Counsel for the parties agreed both appeals
could be heard together.
[2] The workers
named in both decisions were:
Rob
Hoy
Christos
Belos – 2000 only
Nikolai
Pinkovski
Peter
Reinhardt
Marty
Donaldson
[3] Rob Hoy testified he is a qualified electrician
residing in Port Coquitlam, British Columbia. He holds a Contractor’s License -
issued by the Province of British Columbia - in 1979 - which entitles him to
work on jobs involving up to 750 watts and unlimited amperage. The
significance of the license is that it covers nearly all applications and
installations within the industry - except for work in relation to sub-stations
– and he can apply for permits in his own name and obtain inspections directly
from the relevant supervising authority whether municipal or provincial. A
qualified electrical contractor is responsible for ensuring electrical
installations conform with applicable codes and regulations. An annual fee must
be paid in order to maintain the license if the holder wishes to obtain
permits. In 2000 and 2001, Hoy provided his services – as a supervising
electrician – to Marathon in respect of certain electrical work undertaken by
that company. Hoy stated that the named workers except for Marty Donaldson -
since deceased – were qualified journeymen electricians able to perform
electrical work even without having the extra ability to “draw” permits in
their own names directly from an issuing authority. Hoy stated he obtained jobs
from Perry Tsakalos - President of Marathon – and carried out the duties of a
site foreman, communicating with Tsakalos only as circumstances required from
time to time. Tsakalos contacted Hoy concerning a certain job and, if Hoy was
interested in the work, they would meet and discuss the appropriate rate to be
paid for Hoy’s services as an electrician/supervisor. Hoy stated he was content
to work for Marathon and did not provide his services to any other person or business
entity during the relevant period, although he had submitted some bids on some
residential work which were not accepted probably because his prices – based on
his qualifications as a commercial electrician – were too high. Hoy identified
a file folder – Exhibit A-1 – containing several documents each entitled
Independent Contractor (Non-Employee) Agreement which he had entered into – at
different times – with Marathon. The agreement – dated December 1, 2001 –
on an attached page –provided for an applicable rate of $20 per hour and
referred to an anticipated completion date – April 1, 2002 – in respect of the
particular project. Hoy stated the variation in rates – from $17 to $20 per
hour – used in different contracts over the course of the relevant period was
due to representations – by Tsakalos – that on certain jobs Marathon’s bid was
too low and the company had to save money. Hoy stated he would identify himself
as a representative of Marathon whenever he was acting as a supervisor on a job
site and would coordinate a work schedule with the Site Supervisor/General
Foreman representing the General Contractor. Marathon delivered materials to
the site, as needed. Even though Hoy declined work from other sources during
2000 and 2001, he regarded himself as an independent contractor in the course
of providing his services – exclusively - to Marathon. He preferred to work on
commercial and industrial installations as opposed to undertaking residential
wiring which he categorized as being more suited to younger workers due to the
physical demands of that work. On any particular job, Hoy did not report to the
Marathon office except if required in order to carry out some aspect of that
project. He owned his owned personal tools – both hand and power – but the larger
tools and equipment were provided by Marathon, as required. Hoy explained that
commercial projects such as a major renovation of a large warehouse are often
complex and, even though the job may occupy six months or more, his attendance
at the site may not be required on a daily basis and, when on-site, he may not
have to remain there more than a few hours, depending on the circumstances. Hoy
considered the ability of Marathon to bid on jobs was superior to his own due
to the corporation’s greater financial resources and its ability to purchase
large quantities of material and supplies - on account - from suppliers at a
commercial rate and its ability to obtain larger equipment, if needed. Hoy
stated he delivered invoices to Marathon and received payment by cheque. A
bundle of invoices was filed as Exhibit A-2. During the relevant period, Hoy
was having financial problems and Tsakalos – on request – agreed to provide
advances on future pay. Payment of a subsequent invoice to Marathon – based on
a certain number of billable hours - would reflect the advance but none of the
usual deductions were taken from his pay nor was any Goods and Services Tax
(GST) added because Hoy was not registered and did not have a GST number. He
did not receive any holiday pay nor participate in any benefits that may have
been available to Marathon employees. Hoy stated "because I did not have
the money to carry a payroll due to my poor financial situation", that if
he required assistance on a particular job, an apprentice/helper was provided
by Marathon. He was required to correct deficiencies in his own work but they
were rare - and minor - and never required more than one day to correct. The
only circumstance under which he would invoice Marathon for time spent was if
he was correcting defects that were not his own or otherwise performing certain
work that had been categorized as an "extra" to the original
contract. Hoy owned his own truck on which the following invitation was
printed: Need an Electrician? Call Rob. Hoy stated that although he worked a
40-hour week, he had some flexibility in working hours and days which enabled
him to care for his special-needs child, an opportunity that would not have
been available had he chosen to pursue regular full-time employment. In addition
to providing his services to Marathon and caring for his child, he was working
on a novel. Hoy was referred to an invoice – within Exhibit A-2 – dated
November 30/01 – in the sum of $5,820. He agreed that sum represented a
considerable number of hours and stated it was probably due to having worked
additional hours – at his discretion – on either Saturday or Sunday during that
month.
[4] In cross-examination, Rob Hoy agreed that
electricians can undertake minor work without having to obtain a permit. Marathon
had electricians working on a job site and Hoy stated he could issue
instructions by telephone during his absence so there was no need for Marathon
to retain the services of any substitute supervisor. On occasion, Marathon had
two jobs running at the same time and Hoy would travel between them and billed
his time - at a rate sufficient to absorb the cost of operating his vehicle -
in lieu of charging any specific amount attributable to travel. Hoy stated the
supervising representative named by the General Contractor does not inspect the
work performed by electricians supplied by Marathon as that function is carried
out by electrical inspectors employed by either the Province of British
Columbia or the relevant municipality. Hoy stated he had been an electrician
for 25 years, did not require any supervision, and sometimes did not see
Tsakalos for a week or more. At the outset, Hoy would obtain a set of
blueprints for the job in order to become familiar with the mechanical layout
and the general nature of the intended construction. The usual working hours
for most sites were between 7:00 a.m. and 3:30 p.m. and had to conform with the
by-laws of the municipality. Hoy stated he might work 16 hours over the course
of a weekend and then not work for two or three days. No overtime rate had ever
been discussed with Tsakalos and Hoy maintained his own timesheet. If needed,
he would obtain an advance against a future invoice and received a
"draw" twice per month. Hoy was referred to a bundle of photocopied
cheques – Exhibit R-1 – and agreed that in some months – such as March, 2001 -
he received several cheques – in small amounts – on a frequent basis. When
counsel for the respondent suggested to Hoy there did not seem to be a
correlation between the amount of the various payments and an invoice
purportedly covering the same period, Hoy stated he was satisfied he had been
paid in full for his work within the context of a working relationship with
Tsakalos/Marathon in which his billable hours were submitted and accepted on
the basis of trust. Hoy described his tools as consisting of the usual hand
tools together with battery-powered drills and saws. Special saws and hydraulic
lifts ‑ costing up to $5,000 – were supplied by Marathon. Hourly
rates charged by Hoy on any job located in a non-metropolitan municipality,
always reflected the need to travel and billable time started to run as soon as
he left his residence. Any amount of premiums to the Workers’ Compensation
Board (WCB) - paid by Marathon – for Hoy’s protection on a job were deducted
from a subsequent invoice payment. In the event a client complained about some
aspect of the work on a job site, Hoy stated he would handle the situation if
the subject matter was within his field of expertise. He stated that when on
job sites he had always informed other workers and/or contractors that he was a
sub-contractor of Marathon.
[5] In response to questions from the Bench, Hoy
stated that on some jobs Marathon provided its own employees – perhaps, several
people - depending on the circumstances. As a matter of course, electricians
are the first trades on the job and the last ones out because matters of
electrical installation have to be resolved prior to preparing the ground for
construction. Hoy stated that if a municipality did not have its own electrical
inspection branch, then the required inspection would be undertaken by an
employee of the province.
[6] Perry Tsakalos
testified he is the President of Marathon and is a journeyman electrician
holding a B license. In 1981, he started operating Marathon as a commercial,
industrial and residential electrical contractor, although Marathon has since
opted out of residential work in order to concentrate on commercial buildings
such as warehouses or institutions like schools and hospitals. His son and
daughter are employed by Marathon and estimates used for bidding on jobs are
either done by him or by freelance estimators retained by Marathon. Tsakalos
deals with suppliers, obtains permits for projects and supervises and coordinates
work done on a project. Marathon bids on certain jobs and - if successful –
Tsakalos obtains a work schedule from the General Contractor in order to
arrange for workers and also the necessary materials. Marathon had its own
employees but also relied on certain independent contractors who were contacted
in order to determine whether they were interested in working on a project. If
those persons were willing to consider working on the project, Tsakalos
provided them with the relevant drawings. When Marathon’s bid was accepted by a
General Contractor, Tsakalos would contact Rob Hoy in order to advise him the
job was expected to be of a certain duration – usually between two and six
months – and would invite him to bid on a certain aspect of the project on
either an hourly basis or a fixed sum. Tsakalos recalled that Belos had only
provided services to Marathon during 2000 and had been paid a relatively small
amount in relation to a small, one-person, electrical installation in a
warehouse. Tsakalos followed the same method when contacting Donaldson,
Pinkovski and Reinhardt in order to invite them to participate in a job
Marathon had obtained. Tsakalos considered all his sub‑contractors –
except Donaldson – to have been qualified electricians capable of supervising
others on the job site, if necessary. Donaldson had experience in the
electrical trade but was not a qualified electrician. He was an experienced
worker within the labourer category and assisted others who – like Hoy – were
fully qualified. None of the workers had any expectation of receiving future
contracts from Marathon as the availability of work depended on Marathon being
able to bid successfully on certain projects. Tsakalos was referred to a file
folder ‑ Exhibit A‑3 – containing a series of
agreements entered into between Marathon and Donaldson. The rate of
remuneration – depending on the individual contract –ranged between $10 and
$12.50 per hour. The folder containing contracts applicable to Peter Reinhardt
was filed as Exhibit A-4. During 2000 and 2001, the remuneration for Reinhardt
- set out in various agreements - ranged between $22 and $24 per hour. Although
not available, Tsakalos stated similar agreements were entered into by Belos
during 2000 since Marathon used a standard agreement wherein the blank spaces
were completed by inserting details pertaining to a specific project. In the
event one of the named workers was already working on a job, Tsakalos stated he
would proceed to contact others on his list in order to determine whether they
were willing to accept work from Marathon. Tsakalos agreed that Marathon paid
workers on the basis of time sheets submitted but also paid some advances upon
request, particularly in the case of Rob Hoy who was an honest, hard-working
man who had to purchase medicine for his son. Hoy was able to obtain payments
in advance and repay them later by providing his services at a specified rate.
Marathon made deductions to recover the advances and, even though it might
extend to work done by Hoy on a future project, it eventually worked out so
that the total of Marathon payments ultimately matched the number of billable
hours performed by Hoy. Tsakalos stated there were never any cash payments to
Hoy and no discrepancies - between work done by Hoy and payments made by
Marathon - were ever carried forward into another business year. Advances to
other workers – although made – were not as common. Tsakalos stated he
understood Hoy had been an independent contractor throughout his long career.
In the course of carrying out business, Marathon preferred to enter into
written contracts with service providers - possessing specialized skills - in
relation to a particular project. As an example, Tsakalos referred to an
instance where Marathon had needed to retain the services of an expert to
install a complicated sound system in a school. Typically, in the course of
completing a project, Tsakalos met with the owner of the property and/or the
General Contractor as well as engineers, architects and other professionals or tradesmen
on a regular basis in accordance with a schedule. During the summer, work began
between 7:00 a.m. and 7:30 a.m. and the representative of the General
Contractor wanted to have electricians on site at that time. Tsakalos stated he
understood each of the workers named in the assessments issued to Marathon for
2000 and 2001, had – at some point – attempted to operate as an electrical
contractor but encountered difficulties when attempting to purchase materials
necessary to complete a project in accordance with bid specifications. Usually,
projects undertaken by Marathon involved an expenditure representing between
65% and 68% of the total bid while labour is only approximately 30% of the
overall contract. Currently, Marathon operates with $100,000 in working capital
but in the late 1980’s, the company had undertaken projects requiring the
purchase of materials and supplies in excess of $400,000. Tsakalos stated the
workers did not attend at the Marathon office on any regular basis and –
otherwise - there was no requirement for them to report. The larger pieces of
equipment – costing as much as $300 per week – when required on a job, were
rented by Marathon and it obtained all necessary permits pertaining to the
electrical work. A worker could request that an electrical inspector attend the
site at a particular stage of the installation. Tsakalos identified two bundles
of invoices – Exhibit A-5 – submitted to Marathon, one by Donaldson and the
other by Reinhardt. During the course of a construction project, Marathon would
obtain progress payments from the General Contractor based on invoices for work
done to a certain date. In terms of providing instructions – on site – to the
Marathon electricians, Tsakalos stated that if the matter involved something
relatively minor, the workers would carry out the instructions issued by the
representative of the General Contractor without the matter ever coming to his
attention. Any deficiencies - for which a worker was responsible - had to be
corrected by that individual. On one occasion, Hoy had telephoned the Marathon
office to advise he needed more electricians on the job and Marathon provided
the extra help. Tsakalos stated that, as far as he was concerned, the workers
were free to hire their own qualified help to assist them but none of them had
ever chosen to do so and had relied on Marathon to send extra electricians to a
site. None of the named workers charged GST on their invoices to Marathon and
no deductions were taken from their pay. The WCB premiums attributable to all
workers – except Hoy – were paid by Marathon. In the case of Hoy, Marathon paid
the premiums to WCB and deducted 2% from future invoiced amounts in order to
recover that cost. During the relevant period, Marathon had regular employees
on the payroll and made the usual deductions. The other workers – considered to
be independent contractors were issued Summary of Contract Payments forms
(T5018s), filed as Exhibit A-6.
[7] In
cross-examination, Perry Tsakalos stated discussions had been held with the
named workers during which they had been advised of their right to hire other
workers. During the relevant period, Marathon had two or three electricians on
the payroll as employees. The qualifications of these employees were the same
as the named workers – except Donaldson – but the named workers were hired only
on a per project basis. The employee electricians were paid by the hour and
submitted time sheets – rather than invoices - to Marathon. They owned their
own hand tools and usually worked a 35-40 hour week. Even if deficiencies had
to be repaired by one of the named workers – considered by Marathon to have
been independent contractors – the material required was provided by Marathon
in the same manner as if the correction was done by a Marathon employee/electrician.
Tsakalos stated it is usual for a Site Supervisor – also known as General
Superintendent - to be on site as the representative of the General
Contractor/owner. The individual exercising that supervisory function is
experienced in nearly all aspects of construction and is – usually - the first
person on site each day. Tsakalos agreed Donaldson had to work with qualified
electricians and could only assist them rather than perform tasks requiring
appropriate trade certification. In the event Hoy was required to attend on
site, the Site Supervisor would usually telephone Hoy directly and Marathon
would be contacted only if that method was unsuccessful. Tsakalos stated he
satisfied himself that the hours billed by workers were justified by examining
the progress of work done on the site. An electrical permit – posted on the
site – listed the telephone numbers of electrical inspectors so the
electricians could make direct contact and arrange for inspections. Prior to
the period relevant to the within appeals, Hoy had provided his services to
Marathon and Pinkovski had done work for Marathon in 1999, prior to becoming
qualified as an electrician on December 13, 2000. Tsakalos agreed Marathon
had the ultimate responsibility for ensuring compliance with the applicable
electrical code. Certain workers on a project would be provided with keys – by
the Site Supervisor or his agent – in order to access the premises apart from
normal working hours. A particular clause - #4 - within the standard contract
utilized by Marathon recognized the need of Marathon to coordinate working
hours on a project in order to integrate with the needs of the client or other
sub-contractors on site. Tsakalos identified a bundle of invoices together with
copies of cancelled cheques – Exhibit R-2 – pertaining to invoices submitted by
Reinhardt and payment – by Marathon - for services performed. Counsel referred
Tsakalos to three cheques dated January 14, 2000, January 14, 2000 and January
28, 2000, in the respective sums of $1,066, $100, and $1,825, totalling $2,991,
the same amount as the invoice issued by Reinhardt on January 31, 2000.
Reinhardt received a cheque – in the sum of $1,804 – on February 25, 2000, but
the invoice – dated February 28, 2000 - is in the sum of $3,375. In March,
2000, Reinhardt was issued 3 cheques prior to submitting an invoice. Tsakalos
stated he was able to determine the probable amount of a worker’s earning at
the end of the month and would issue advances on that basis. He also expressed
surprise that Reinhardt had received so many advances as his earlier
recollection was that multiple advances had been give only to Hoy for special
reasons. Employees were paid every two weeks - with a holdback of one week -
while the named workers were paid for all work already performed. The payroll
was handled by Tsakalos’ daughter and the time sheets submitted by workers were
also used for purposes of cost analysis. Tsakalos stated the hourly rate paid
to Donaldson rose from $10 in January, 2000, to $12.50 by May, 2001, in order
to account for increased costs of living. Over the course of two years, the
hourly rate paid to Reinhardt increased from $22 to $24. None of the workers
relevant to the within appeals had any authority to sign cheques or issue
documents on behalf of Marathon and their services could be terminated in
accordance with the terms of the written contract they had signed. Most work
sites were within 30 kilometers of the workers’ homes. The workers had
authority to telephone a Marathon supplier - directly - to order supplies to be
delivered to a job site. In the event they were required to purchase some
items, they would be reimbursed upon production of receipts. In relation to the
client, Marathon guaranteed the quality of the work and Tsakalos stated the
workers would always be paid even if the client defaulted in a payment due to
Marathon. Generally, work-related complaints were rare and could be resolved by
the workers on site. Tsakalos stated the Site Supervisor on each job would be
aware that certain workers were sub‑contractors of Marathon. Throughout
the relevant period, Tsakalos stated he understood the named workers performed
small jobs for other people.
[8] In
re-examination, Perry Tsakalos stated the electricians on the regular employee
payroll were hired - as needed - for periods of one month or less and then laid
off when the work was completed. These individuals were added to the regular
payroll in response to their expressed wish to be accorded the status of
employee whereby the usual deductions were taken from their cheques. As for
Hoy, if he was not needed at a specific job site – or at another Marathon
project – he was free to use his time as he chose. Tsakalos stated he saw no
real distinction between the working conditions of those electricians he had
placed on the payroll as Marathon employees and the workers named in the
assessments relevant to the within appeals. During the course of many years in
the construction industry, Tsakalos stated it is normal – on job sites - to
find some workers who are employees and others who are independent contractors
even though they are carrying out the same work.
[9] Christos Belos
testified he is the person described – incorrectly - as Chris Bilos in the
Replies to the Notices of Appeal - and attached schedules - relevant to the
within appeals. He provided his services to Marathon in 1999 and during 2000.
He stated that when he was offered work by Tsakalos, it was always on the basis
he would be an independent contractor. While working for Marathon, he did some
small jobs for other people and submitted invoices – Exhibit A-7 - based on the
cost of materials and an amount representing his labour. He received a T5018
form – included in Exhibit A-6 – indicating he had received – from Marathon -
the sum of $3,765 - in 2000, in return for providing his services for a period
of approximately 6 weeks. In 2000, Belos worked for Alpha Neon as an
employee because he wanted to learn about the installation of neon signs. He is
a qualified electrician in Greece but had not performed work in respect of that
form of illuminated signage. Belos stated that when Tsalakos would telephone to
inquire whether he was interested in doing some work, Tsakalos would describe
the job and they would meet at the site in order to discuss the nature of the
project and the working schedule as Belos did not accept jobs involving
night-time work. Belos stated there are some jobs that can be performed by one
electrician and explained it is normal for work to be interrupted while other trades
provide their services to the job. As a result, an electrician might work to a
certain point and then not return for any requisite future phase of the
electrical work. Belos stated his contract with Marathon was based on an hourly
rate of $18 over a certain period of time, as estimated by Tsakalos. Marathon
provided all materials and heavy tools and equipment. Belos stated he had
intended to provide his services to Marathon on the basis he was an independent
contractor. He stated he did not earn sufficient annual income to require
registration for purposes of GST. Belos stated he would telephone Tsakalos to
request that an electrical inspector attend a job site to examine the quality
of the work done up to a particular stage.
[10] In
cross-examination, Christos Belos stated he had signed a contract with Marathon
in relation to services provided in 1999 but there had been no similar written
contracts entered into during 2000. He had considered the 1999 contract would
continue to govern their working relationship even though the specific project
named therein had been completed. In his view, Marathon did not care whether he
hired others to assist him but the situation never arose. Prior to accepting
any work from Marathon, Belos stated he would check out the nature of the job
and its location. On a job site, while the representative of the
General Contractor is responsible for the overall project, the electrical
engineers responsible for preparation of the electrical plans verify that the
installation had been done properly. Belos stated he deferred to Tsakalos when
on-site problems ‑ usually arising from revisions to construction
plans - had to be resolved with the representative of the General Contractor.
Belos stated he began his apprenticeship as an electrician in Greece when he
was only 13. Although familiar with the nature of an electrician’s work in
British Columbia, because of some difficulty in reading English, he would– on
occasion – telephone Tsakalos to obtain an explanation about some matter. Belos
stated he preferred a flexible work schedule because his wife was ill and,
while he was aware he had to adhere to the hours applicable to the job site,
was able to obtain permission from the Site Supervisor to work on a weekend. He
did not bill Marathon for time spent during a lunch break and only issued an
invoice after receiving cheques in payment for his services rendered during the
preceding period. He stated he required money every two weeks and was paid on
that basis in accordance with submitted time sheets and a corresponding
invoice. On one job, Belos accepted the sum of $17 per hour as it seemed to be
a fair wage for the nature of the work required to be done. Although all
materials were supplied by Marathon, Belos stated he did not expect to be paid
to repair deficiencies arising from his own work. Other than purchasing his own
hand tools, Belos had no work-related expenses and there was no advertising or
other signage on his van to indicate he was seeking customers for any business
carried on by him. Belos stated he does not hold an electrician’s license in
British Columbia and at one time used the name Belos Services although he
did not operate a business account. On a job site - if requested – he would
identify himself as a person working for Marathon.
[11] Counsel for the
appellant advised the Court the accuracy of the amounts set forth in Schedule A
- attached to the Reply to the Notice of Appeal (Reply) in appeal 2003-1122(EI)
– was not in issue. Counsel conceded the case regarding the worker – Donaldson
– was weaker than the others in terms of being at one end of the spectrum but
submitted the lack of a license is not determinative of one’s ability to
provide services on his own account. At the other end of the scale, counsel
pointed to the worker – Hoy – as an individual who was amply qualified to carry
on his own business in that he held the sort of license that enabled him to
take out his own permits for electrical work. Counsel referred to the various
written contracts entered into between the named workers and Marathon and to
the ability of the workers to accept or refuse work as they chose. Further,
even while providing services to Marathon on a project, they could work
elsewhere during periods when their presence was not required on a site.
Counsel submitted there was very little control or supervision – by Marathon -
over the workers and Tsakalos would attend the job site, as needed, to verify
progress for various purposes including his own need to submit invoices to the
General Contractor for progress payments. Marathon had electricians and other
workers on its regular payroll but the named workers and Marathon wanted their
services to be provided in accordance with the status of independent
contractor. Counsel submitted that even though the workers had chosen to work
exclusively – or nearly so – for Marathon does not transform them into
employees since they had the right to choose to remain in a working
relationship with a company that paid a reasonable rate - on a timely basis - and
permitted flexibility in hours of work in order to accommodate any special
needs arising from personal circumstances.
[12] Counsel for the
respondent conceded that Hoy was the most experienced worker and held the
highest qualifications in his trade and had more independence than other
workers. Notwithstanding, counsel submitted Marathon still had the right to
exercise control and had directed Hoy to attend at other Marathon projects, if
required. In addition, Hoy was encountering financial difficulties and was in
no position to function as an electrical contractor on his own account. He
required funds on a regular basis and obtained advances when certain
expenditures had to be made on behalf of his son. Counsel submitted that even
Hoy – although highly qualified – could only earn an amount based on the total
of hours worked at a certain rate and could not increase revenue through an
efficient management of time. Further, counsel submitted neither Hoy nor any of
the other named workers could gain a profit from the provision of their
services nor did they run any risk of loss because – as stated by Tsakalos in
his testimony – they would be paid even if the client defaulted in its payment
to Marathon. In counsel’s view of the evidence, there was no true negotiation
in terms of arriving at the hourly rate to be paid and the cheques issued by
Marathon did not seem to match the invoices issued in some instances, as in the
case of Reinhardt. Counsel submitted one must bear in mind that only Marathon
had the financial capability and the business infrastructure to submit bids in
order to obtain work and the appropriate number of electricians were hired only
if a bid had been accepted.
[13] The Supreme Court of Canada - in a recent
decision - 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2
S.C.R. 983 – (Sagaz) dealt with a case of vicarious liability and in the
course of examining a variety of relevant issues, the Court was also required
to consider what constitutes an independent contractor. The judgment of the
Court was delivered by Major, J. who reviewed the development of the
jurisprudence in the context of the significance of the difference between an
employee and an independent contractor as it affected the issue of vicarious
liability. After referring to the reasons of MacGuigan, J.A. in Wiebe Door
Services Ltd. v. M.N.R., [1986] 2 C.T.C. 200 and the reference therein to
the organization test of Lord Denning - and to the synthesis of Cooke, J. in Market
Investigations, Ltd. v. Minister of Social Security, [1968] 3 All
E.R. 732 - Major, J. at paragraphs 45 to 48, inclusive, of his judgment
stated:
Finally, there is a test that has emerged
that relates to the enterprise itself. Flannigan, ... ("Enterprise
control: The servant‑independent contractor distinction" (1987), 37
U.T.L.J. 25, at p. 29) sets out the "enterprise test" at p. 30 which
provides that the employer should be vicariously liable because (1) he controls
the activities of the worker; (2) he is in a position to reduce the risk of
loss; (3) he benefits from the activities of the worker; (4) the true cost of a
product or service ought to be borne by the enterprise offering it. According
to Flannigan, each justification deals with regulating the risk-taking of the
employer and, as such, control is always the critical element because the
ability to control the enterprise is what enables the employer to take risks.
An "enterprise risk test" also emerged in La Forest J.'s dissent on
cross-appeal in London Drugs where he stated at p. 339 that "[v]icarious
liability has the broader function of transferring to the enterprise itself the
risks created by the activity performed by its agents".
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.
[14] I will examine
the facts in relation to the indicia set forth in the judgment of Major J. in Sagaz.
Level
of control:
[15] There was not a
great deal of direct control exercised over any of the workers, particularly in
the case of Hoy who was a highly qualified electrician with more than 20 years
experience. Indeed, it was Hoy who discharged a supervisory function on behalf
of Marathon in addition to providing his own expertise while working on complex
electrical installations. That supervisory aspect of his services was
considered by him when negotiating an hourly wage – ranging from $17 to $20 per
hour – applicable to each contract. Hoy described his duties on a Marathon
project as those normally discharged by a site foreman although he did not use
that title. Belos appears to have worked on only one or two smaller projects
during 2000 and, in the course of his testimony, stated he would contact
Marathon in order to arrange for required inspections to be carried out by an
inspector. Marty Donaldson was not a qualified electrician but was a
skilled labourer in the context of that trade. He was not able to perform work
on his own and was relegated to the role of assistant to other qualified
electricians. There was no direct evidence pertaining to work done by Pinkovski
or Reinhardt but it appears they worked on a site subject to the supervision of
Hoy from time to time and their work was examined by Tsakalos when he attended
the job on a frequent – albeit unscheduled – basis. Until December 13, 2000,
Pinkovski was not qualified as an electrician according to British Columbia
standards and would have required supervision in the sense some qualified
electrician would be required to certify that the work he had done conformed to
standards applicable to that job .
Provision
of equipment and/or helpers
[16] The evidence
established that all the workers had their own hand and/or small power tools.
That is normal within the trade. Any heavy equipment or specialized tools were
provided by Marathon either by renting them from a supplier or from their own
inventory. Although Tsakalos and Hoy and Belos testified they all considered it
was possible for a worker to hire a helper, that event never occurred. Rather,
when help was needed on a particular site, Hoy would contact Tsakalos to
provide extra workers for a job and Marathon would send electricians who were
on the Marathon payroll as employees. Hoy stated he did not have the financial
means to carry a payroll and chose to structure his working relationship with
Marathon accordingly so he would not have to bear the cost of providing
expensive equipment and bear the burden of administering a payroll account
merely to obtain additional qualified help when required from time to time.
None of the other workers ever exercised their purported right to hire their
own helpers and relied on Marathon to provide extra electricians when required.
Donaldson was a labourer and would not be expected to hire an assistant in
order to perform his tasks.
Degree
of financial risk and responsibility for investment and management
[17] None of the workers incurred any real
financial risk. In the remote event some deficiencies had to be corrected, they
were required to do so on their own time without billing Marathon at the
applicable hourly rate. However, all materials were still provided by Marathon
and Tsakalos stated in his testimony that the labour component usually
comprises approximately 30% of the total job cost. The workers owned their own
tools. When workers purchased certain supplies, they presented a receipt to
Marathon and were reimbursed. Any material required for the site could be
ordered - directly from the Marathon suppliers – by Hoy or the other
electricians on a site and the supplier and/or Marathon would deliver the
order. Tsakalos stated all workers would
have been paid in full by Marathon even if the particular General Contractor
had defaulted in any of its payments. Marathon was able to provide the investment in equipment and infrastructure
required to obtain various jobs from the general contractors/owners of certain
projects and the management of the work was undertaken by Tsakalos on behalf of
Marathon or as delegated to Hoy as part of his agreement to provide services to
Marathon not only as a qualified electrician but as someone capable of
supervising others. Hoy was compensated
at his usual hourly rate if he was required to travel from one Marathon job to
another site. In his view, that rate – as applied to actual travelling time -
compensated for the expense of operating his own vehicle. Hoy reimbursed
Marathon for his own WCB premiums even though they were paid directly by
Marathon together with amounts attributable to other workers. The basis for
this practice was not fully explained except it is reasonable to infer that Hoy
continued to maintain his own WCB account that he had opened at some point
during his long career as an electrician.
Opportunity
for profit in the performance of tasks
[18] Each worker was
entitled to receive payment for the proper number of hours worked at the
applicable rate set forth in the relevant contract in relation to a specific
project. There was no ability to profit otherwise from an efficient management
of time. Had each worker bid on a portion of a Marathon project at a fixed sum,
there may have been an opportunity to earn a profit in the normal business
sense. However, the working relationship between Marathon and all the qualified
electricians – including Pinkovski after December 13, 2000 – was based on
payment of an hourly rate in accordance with submitted time sheets and
invoices. The ability to negotiate an hourly rate seemed to be rather limited
and the modest increases between 2000 and 2001 were provided by Marathon to
take into account an increased cost of living.
[19] In the case of Minister of National
Revenue v. Emily Standing, [1992] F.C.J. No. 890 Stone, J.A. stated:
...There is no foundation in the case law
for the proposition that such a relationship may exist merely because the parties
choose to describe it to be so regardless of the surrounding circumstances when
weighed in the light of the Wiebe Door test ...
[20] There is no doubt that Marathon and the
workers wanted their services to be provided within a working relationship in
which they would be independent contractors. Recently, there has been some
movement in the jurisprudence whereby the agreements between the parties have
been regarded in a manner more consistent with the demands of the modern
marketplace.
[21] In the case of West Direct Express Ltd.
v. Canada (Minister of National Revenue – M.N.R.), [2003] T.C.J.
No. 373, Porter D.J.T.C.C. decided a case involving an individual providing
courier services to the corporate market in Calgary. At paragraph 14 of his
reasons, Judge Porter commented:
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 have been...
[22] In the within appeals,
it is interesting to note that the electricians who were treated as employees
and added to the Marathon payroll usually worked for shorter periods than any
of the named workers. The employee electricians also owned their own hand tools
and worked the same number of hours per week, although they may have had less
flexibility in terms of attending at a job site apart from normal working
hours. When asked what the distinction was between these employee electricians
and the others who were regarded as independent contractors, Tsakalos responded
by stating that if certain people wished to be employees he accommodated them
by accepting that characterization. Clearly, this points to a circumstance
where the parties are choosing to assign themselves a status without regard to
the factual underpinnings of the working relationship. In my view, this is
significant in terms of understanding the approach taken by Tsakalos – on
behalf of Marathon – in purporting to determine the appropriate status with
respect to a service provider.
[23] In a recent decision of the Federal Court of
Appeal - Precision Gutters Ltd. v. Canada (Minister of National Revenue –
M.N.R.), [2002] F.C.J. No. 771 - the Court held that the ownership of tools
owned by the gutter installers was an important factor to be taken into account
even though the most expensive tool, a specialized gutter-forming machine
mounted on a truck was owned by the payor company. In Precision, supra,
each installer used his own judgment to decide when to work and whether to
accept a specific job. The installers were free to work for other installers
and – on occasion – could negotiate with the company in order to obtain a
higher rate of pay. The gutter installers could choose to work alone or employ
others to help them and Sexton J.A. – writing for the Court – considered that
more work done by the installers would produce additional revenue. As well,
Sexton J.A. took into account there was no guarantee of work from day-to-day,
no minimum pay rate applicable, no fringe benefits and that the installers were
responsible to repair – at their own expense – any defects in workmanship. In Precision,
the company negotiated contracts with the customer and then hired installers to
perform the work. In arriving at the conclusion that the gutter installers were
independent contractors – and not employees – Sexton J.A. found there were two
businesses operating, one on the part of Precision Gutters and the other on the
part of the installers. One business concerned the manufacture of the gutters
and the other arose from the physical installation. Sexton J.A. did not deal
with the elaborate operational infrastructure of Precision Gutters since that
was considered to have been a separate business whose breadth and level of
responsibility and financial connection with the end user was distinct from the
business aspect of the installation process - in the narrow sense - as it
applied to the installers.
[24] I return to the central question - as
referred to by Major J. in Sagaz, supra - which is to determine whether
any worker provided his services to Marathon on the basis he was in business on
his own account. The fact Hoy had the ability to take out permits in his own
name indicates a capacity to be in business for himself particularly since he
did have an advertisement on the side of his own vehicle which invited
customers to contact him. However, the evidence is clear that during the
relevant period, Hoy only bid on a couple of residential jobs and was
unsuccessful due to his prices being based on higher rates applicable to the
commercial/industrial work which he preferred. He did not have the ability to
purchase supplies and materials for a job and depended on Marathon to offer him
work once that company had secured a project. Hoy did not want to be an
employer of other workers since he had his own financial problems and required
cash advances against future earnings in order to buy medicine for his son. He
also needed to be paid at least twice per month in order to be assured of a regular
cash flow. These indicia are not consistent with entrepreneurship and are
nearly indistinguishable from the workings of the usual employer-employee
relationship except that Hoy – due to his experience and qualifications – was
afforded some leeway in terms of choosing whether to work on certain days or to
perform some tasks during the weekend.
[25] Donaldson had no business pursuant to which
he could offer his services. He was a skilled labourer/assistant with
considerable experience in the electrical trade but was not in any position to
perform work on his own. He was paid an hourly wage on a regular basis.
[26] Christos Belos was not qualified as an
electrician in British Columbia although he had been certified in Greece and
was well able to carry out the necessary work. He did some small jobs for
others in February and May, 2000 and invoiced them on his own account. He
considered himself to be an independent contractor and had provided his
services to Marathon in 1999 and 2000 on that basis. He attended at each job
site prior to accepting to work and inquired about the project schedule because
he refused all offers of night work. Tsakalos provided an estimate of the
duration of the work and they agreed on an applicable hourly rate during that
period.
[27] Peter Reinhardt performed a considerable
amount of work for Marathon in 2000, as indicated by the sum of $49,731 set out
in the T5018. He also signed various contracts at different times throughout
2000 and 2001 in which he agreed to provide his services at rates ranging from
$22 to $24 per hour. He was a qualified electrician and chose to receive
payment twice per month – as well as advances – and submitted invoices and time
sheets after the work had been performed. The invoices and the payments made to
him do not match.
[28] Pinkovski was the worker involved in a
previous appeal - by Marathon – concerning his working status in 1999. In that
case, reported as Pinkovski v. Canada (Minister of National Revenue- M.N.R.),
[2002] T.C.J. No. 180, I concluded the worker was an employee
of Marathon. The facts therein were substantially the same as those in the
within appeals including the existence of various signed contracts between the
worker and Marathon at a particular hourly rate, the ownership of tools,
provision of equipment and the level of control exercised by Marathon, except
there was no evidence of any supervision being carried out by someone – like
Hoy – as was the case in the within appeals. At paragraph 16, I commented:
The appellant was not a qualified
electrician until December 13, 2000. That fact alone does not preclude him from
having been in business for himself even though he may have faced some
disciplinary action under the trades apprenticeship program or even prosecution
under provincial legislation for performing certain work without the proper
Certificate of Qualification. Realistically, it is difficult to see how
Pinkovski could have obtained work on his own from the various persons or
entities cast in the role of general contractors when he was not qualified to
obtain the work since one would expect the owners or project managers would
require some proof the subcontractor was properly licensed and insured. He was
not able to purchase materials necessary to complete a job nor did he own the
proper equipment. He could earn money – at a fixed hourly rate – if Marathon
had been able to obtain work through a subcontract and needed his services as
an apprentice electrician to complete the job. Counsel for the appellant
submitted that, as between Pinkovski and Marathon, he could be carrying on
business on his own account without having to be in the same league as Marathon
in terms of being able to bid directly on projects. However, it is apparent
that – apart from the characterization of status stated in the various
agreements - Marathon treated the appellant like an employee; he was paid every
two weeks in accordance with a fixed hourly rate and his work was supervised
and inspected prior to the official visit to the site by the electrical inspector
because it was Marathon that would have to bear the brunt of any deficiencies.
There was nothing of consequence surrounding the provision of services to
Marathon that would lead one to conclude the work was being done within the
context of an entrepreneur carrying on his own business. The contract between
the appellant and Marathon - dated July 1, 1999 – wherein Pinkovski agreed to
provide his services to Marathon until December 31, 1999 - without naming any
specific construction projects or clients - seems to have had no purpose
because further contracts were signed by both parties later on and the identity
of the Marathon client and the anticipated start and completion dates of the
jobs were stated in the accompanying letter. Agreeing to work at $15 per hour
in connection with any future contracts Marathon might obtain, does not seem to
be consistent with what one would expect from an entrepreneur operating his own
electrical contracting business.
[29] In the within appeals, I cannot find there
were two businesses operating, one on the part of a worker and the other on the
part of Marathon. Although Donaldson is obviously an employee/labourer, it is
not so easy to characterize Hoy who occupies a position closer to the other end
of the spectrum. However, a job status is not dependent merely on how one talks
or wishes to be seen, it involves an examination of the actual conduct of the
parties during the course of the working relationship. Hoy carried out his work
in a manner nearly completely consistent with one who has the status of
employee. The work done by Hoy and by other workers was substantially more
steady in nature than that offered – each morning – to the gutter installers in
the Precision, supra, case. The jobs in the within appeals usually lasted
between two and six months and the work performed by the qualified electricians
was clearly not divisible from the substantial contract Marathon had obtained
in each instance from the relevant General Contractor. The electrical
installation business - within the context of commercial/institutional
construction - was always that of Marathon. Even though there was some
flexibility accorded the tradesmen as to working hours and an absence of
ongoing, direct control – by Marathon - over their daily work, Hoy acted as
Marathon’s supervising electrician and ensured there was on-site liaison with
the representative of the General Contractor. Apart from an expressed
desire to have the status of independent contractor, none of the workers named
in the assessments otherwise acted as though he had been engaged to provide his
services as a person in business on his own account. During 2000 and 2001,
Marathon paid Reinhardt the sums of $49,371 and $49,527.20, respectively,
according to the T5018s. (Exhibit A-6) Hoy earned $30,166 in 2000 and
$33,159.04 in 2001 as a result of providing his services to Marathon. In 2000,
a year in which he was not qualified as an electrician until December 13,
Pinkovski earned $31,570 and – in 2001 – received payments totalling $16,748.50.
Belos was paid the sum of $3,765 in 2000 and did not provide any services to
Marathon in 2001. None of these workers charged GST on their invoices because
they were not registrants in accordance with the GST regime even though their
revenue – in some instances – exceeded the $30,000 per year threshold
applicable to suppliers as defined by the applicable GST legislation. None of
the workers purported to operate in a manner consistent with a business
including operating a business bank account and they appeared – for the most
part – to be content to wait for a telephone call from Tsakalos inviting them
to provide their services – at an hourly rate – on a particular project. It
seems to me that if an individual wishes to be seen as providing services as a person
in business on his own account, there should be some conspicuous trappings of
entrepreneurship sufficient to indicate the existence of an enterprise in an
ordinary commercial sense. In the within appeals, an examination of the overall
facts leads to the conclusion that none of the workers provided services to
Marathon during the applicable relevant period as a person in business on his
own account.
[30] The Minister was correct in issuing both
decisions and they are confirmed. Both appeals are hereby dismissed.
Signed at Sidney, British Columbia, this 9th
day of October 2003.
Rowe,
D.J.
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