Roy v. M.N.R., docket 97-628-UI

Date: 19990323

Docket: 97-628-UI

BETWEEN:

ÉMILE ROY,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for judgment

Porter, D.J.T.C.C.

[1] This appeal was heard on July 20, 1998, at Edmundston, New Brunswick.

[2] The appellant is appealing from a decision by the Minister of National Revenue (“the Minister”) dated February 24, 1997, finding that his employment with St-Quentin Électronique Inc., the payer, from October 10, 1994, to April 13, 1995, was not insurable because there was no contract of service between him and the payer. The Minister made his decision under subsection 61(3) of the Unemployment Insurance Act (“the Act”) and relied on paragraph 3(1)(a) of the Act.

[3] The evidence shows that the appellant worked for the payer during the period at issue and that the payer had initially hired him to work part time at its Radio Shack franchise. It was agreed at the outset that the appellant was to work as a clerk in the store half of the time and as an electronic equipment repair technician the other half.

[4] Briefly, the issue in this appeal is whether the appellant was working under a contract of service, which would mean that his employment was insurable under subsection 3(1) of the Act, or under a contract for services, which would mean that it was not insurable.

[5] Counsel for the respondent raised another issue. She asked the Court to decide whether the appellant had accumulated enough hours of insurable employment under the Unemployment Insurance Regulations (“the Regulations”). The Reply to the Notice of Appeal states that the Minister made his decision on the basis of the facts set out in paragraph 5. That paragraph says that the appellant worked a certain number of hours, and the appellant has admitted that fact. Counsel for the respondent argued that, since the appellant worked only the hours indicated, his employment was excepted from insurable employment under section 13 of the Regulations. However, the Minister did not base his decision on that provision of the Regulations, and this issue is not the subject of an appeal to this Court. It is therefore not within this Court’s jurisdiction. If the Minister had relied on this point in making his decision, all of the calculations would be clearly supported by the evidence, which is far from being the case here. The Court must confine itself to a review of the basis for the Minister’s decision as set out in paragraph 2 of these reasons.

The law

[6] The approach to be used in deciding cases like this one was clearly established by the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025. The tests that the trial judge should use to reach a decision were reiterated by that same court in Moose Jaw Kinsmen Flying Fins Inc. v. M.N.R., 88 DTC 6099, in which the following was stated:

The definitive authority on this issue in the context of the Act, is the decision of this Court in Wiebe Door Services Ltd. v. The Minister of National Revenue, 87 DTC 5025. MacGuigan J. speaking on behalf of the Court, 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. He concluded at page 5028 that:

Taken thus in context, Lord Wright’s fourfold test 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.

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 the facts.”

. . . 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.

[7] The four tests laid down by the Court may be summarized as follows:

1. the degree or absence of control exercised by the employer;

2. ownership of the tools necessary for the work;

3. the chance of profit and the risk of loss; and

4. the degree of integration of the employee’s work into the employer’s business.

[8] This Court has also taken note of MacGuigan J.A.’s comments in Wiebe Door Services Ltd., supra, referring with approval to the approach taken in England:

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.

[9] Finally, I would add what was stated by Décary J.A. of the same court in Attorney General of Canada and Normand Charbonneau, [1996] F.C.J. No. 1337:

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 not, rather, 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—a particularly apt image in this case. The parts must give way to the whole.

[10] These are therefore the guidelines that I will have to use to reach a conclusion.

The facts

[11] In making his decision, the Minister relied on the following facts set out in paragraph 5 of the Reply to the Notice of Appeal:

[TRANSLATION]

(a) the payer is a corporation that has been duly incorporated in the province of New Brunswick since April 10, 1991, and whose sole shareholder during the period at issue was Gérald Bélanger;

(b) the payer ran a Radio Shack franchise whose business consisted in retailing electronic equipment;

(c) the manager of the payer’s business hired the appellant as an electronic equipment repair technician;

(d) the appellant did the repairs either at home in his own workshop or on customers’ premises;

(e) the appellant used his own tools to do the repairs;

(f) the payer never had a repair shop attached to its store;

(g) outside the periods at issue, repairs were done under contracts for services;

(h) the payer had no right of control over the hours the appellant worked or the methods he used to do repairs;

(i) the appellant himself decided when he would be paid by informing the payer’s accounting clerk that he had worked a full week;

(j) the payer did not have the necessary information to check the appellant’s hours of work;

(k) the appellant received 10 paycheques from the payer for the weeks ending on the following dates:

1994: October 13, November 17, December 15

1995: January 12 and 27, February 16 and 23, March 9 and 24, April 13;

(l) on May 1, 1995, the payer gave the appellant a record of employment showing 10 insurable weeks at $332.00 each;

(m) during the period at issue, the appellant did repairs at the payer’s request for a few hours during each week of the period at issue:

Number of hours per week

1994

October: 4 weeks 13; 17; 14.5; 15;

November: 4 weeks 10; 9; 9; 8.5;

December: 5 weeks 4.5; 22; 16; 30; 10.5;

1995

January: 3 weeks 11; 14.5; 14.4;

February: 3 weeks 8; 15.5; 37.3;

March: 2 weeks 14.5; 11.2;

April: 2 weeks 12.5; 6;

May: 2 weeks 5.5; 3.2;

(n) the appellant needed 10 insurable weeks to have the total of 12 insurable weeks he needed to be eligible for unemployment insurance benefits and for a human resources program designed to provide grants to participants who wish to become self-employed workers;

(o) the appellant had already received a record of employment for two insurable weeks as a day labourer at Viotel Inc.;

(p) after the period at issue, the appellant continued to practise the same trade as a self-employed worker;

(q) the terms and conditions of the contract between the appellant and the payer are indicative of a contract for services;

(r) there was no contract of service between the appellant and the payer.

[12] The appellant admitted the facts set out in subparagraphs (a) to (c), (e) and (g) with an explanation, admitted the facts set out in subparagraphs (k) to (m), (o) and (p) in part and denied the facts set out in the other subparagraphs.

[13] The appellant testified in support of his appeal. Jean-Pierre Caron, the payer’s owner, and Ronald Roy, an investigating officer with Human Resources Development Canada, also testified.

[14] The evidence concerning the work done by the appellant during the period at issue is rather muddled. The appellant’s testimony was contradicted by Mr. Caron’s on a number of significant points. The burden of proving insurability is on the appellant, who must show that the Minister’s decision is unfounded.

[15] It is clear that the payer initially hired the appellant on a trial basis. It was to be a part-time job, with the appellant working in the store half of the time and doing repairs the other half. When he hired the appellant, Mr. Caron, the payer’s owner, did not know whether he had enough sales for him to be able to hire a full-time worker. The payer had previously entered into an agreement with another electronics technician, a Mr. Bernier, who worked for the payer as an independent contractor for a few years. After accepting another job, Mr. Bernier was no longer available to do all the payer’s repairs; he did only those requiring a certain expertise. The appellant was also an electronics technician. He was initially hired by the payer to replace Mr. Bernier and to work in the store at the cash and in customer service, doing delivery and shelving merchandise.

[16] The appellant hoped that his part-time job would ultimately become a full-time job. However, the payer had some doubts about that.

[17] The appellant testified that he spent 75 percent of his time in the store and the other 25 percent doing repairs, except during the two weeks before Christmas, when he and the payer agreed that he would spend 100 percent of his time in the store. However, the payer testified that the appellant worked in the store 25 percent of the time and did repairs the other 75 percent. Both witnesses agreed that the job in question was part-time.

[18] The appellant said that Mr. Caron’s spouse was rarely at the store, while Mr. Caron said that she worked there every day.

[19] Mr. Caron said that most of the repairs were done by the appellant at home, while the appellant said that most of the repairs were done in a small workshop at the back of the store and that he rarely did repairs at home.

[20] The appellant and Mr. Caron admitted that the payer had a few tools but that the appellant had his own tools for doing repairs.

[21] Although the appellant said that he wanted to work full time and not just for 10 weeks to obtain unemployment insurance benefits, it is clear that Mr. Caron had a 10-week period in mind and knew that the appellant needed those weeks to become eligible for the benefits in question.

[22] The hours worked by the appellant and the way he was paid were unusual. He was paid, on a periodic basis, for 10 weeks of work, specifically on October 13, November 17, December 15, January 27, February 23, March 9 and 24 and April 13. It is clear that the appellant had not necessarily done a full week of work on each of those dates. He therefore worked overtime without pay in return for the hours for which the payer had already paid him.

[23] The evidence also shows that, on a few occasions, the appellant had paid for equipment or materials that were needed for repairs and, as reimbursement for his expenses in this regard, claimed hours so that he could increase the number of hours of work shown on his pay slip. The appellant therefore did not work all the hours shown on his pay slip. A certain number of the hours shown on his slip thus represent reimbursement for expenses he incurred. It seems to the Court that this was an arrangement entered into for the sole purpose of giving the appellant the number of weeks of work he needed to become eligible for unemployment insurance benefits.

[24] The Court is satisfied on a balance of probabilities that Mr. Caron’s testimony is more credible than the appellant’s in so far as the two differ. The appellant has quite a considerable stake in this case, whereas Mr. Caron has no stake in it. In my opinion, Mr. Caron is much more objective. I am not suggesting that the appellant is dishonest, but I have no doubt that his view of what occurred between him and Mr. Caron is biased. In the circumstances, I prefer to accept Mr. Caron’s testimony.

[25] The Court is satisfied that most of the facts set out in the Reply to the Notice of Appeal are true. The allegation in subparagraph 5(c) is accepted, although the Court acknowledges that the appellant worked in the store from time to time. The allegation in subparagraph 5(d) is accepted, although the Court acknowledges that the appellant did some repairs in the store.

[26] As for subparagraph 5(e), it is clear that the appellant used not only his own tools but also sometimes Mr. Caron’s.

[27] The allegation in subparagraph 5(f) is rejected, since the evidence showed that there was a small table at the back of the store for doing repairs.

[28] The allegation in subparagraph 5(h) is accepted as regards the repairs done at the appellant’s home. However, Mr. Caron exercised control over the appellant when he worked at the store. Moreover, the appellant had a pager and Mr. Caron could contact him if necessary.

[29] The allegations in subparagraphs 5(i) and (j) are accepted as regards the repairs done at the appellant’s home.

[30] The allegation in subparagraph 5(k) is accepted. It should be pointed out that both witnesses said that the final wages were paid in cash and not by cheque.

[31] As regards subparagraph 5(n), the Court is satisfied that the appellant had no knowledge of the program before the end of his work period. Likewise, as regards subparagraph 5(p), the Court believes that the appellant was unemployed for several months before he started his own business in November 1995.

Application of the tests

[32] As regards the tests laid down by the Federal Court of Appeal, it is clear that, while the appellant worked in the store, Mr. Caron exercised control over him and he could be considered an employee; for two weeks, that work took up 100 percent of his time. During the other weeks, he spent between 25 and 75 percent of his time working in the store; I am not satisfied that it was more than 25 percent given the contradictory evidence of the two witnesses. The appellant has not shown that he did repairs under Mr. Caron’s control. The Court is nonetheless satisfied that Mr. Caron had a right of control even if he did not exercise it.

[33] As for the tools test, it is clear that the appellant used his own tools most of the time and occasionally used Mr. Caron’s tools. From this point of view, the employment seems to have been held under a contract for services rather than a contract of service.

[34] As regards the chance of profit and the risk of loss, it is clear that only the payer could make a profit or incur a loss. The appellant was paid wages for the hours he worked doing repairs. Mr. Caron was the one who billed customers for the hours for which the appellant was paid. Based on this test, the employment seems to have been held under a contract of service.

[35] As for the integration test, the Court is convinced that the work done by the appellant both as a clerk and as a technician was integrated into the payer’s business. Although the appellant worked alone and without any direct control, his work was directly related to and fully integrated into the activities of the Radio Shack franchise. The appellant was not working for or seeking any other clients. From this point of view, he was working as an employee and not an independent contractor.

Conclusion

[36] As is often true, the employment in this case involves elements associated with both types of contracts. The fact that Mr. Caron hired the appellant on a trial basis to see whether he could afford to hire a part-time or full-time employee complicates matters. The Court is taking into account the fact that the period of time involved was short and that the payer’s needs changed a great deal during the holiday season. The Court realizes that Mr. Caron wanted to help this young man as best he could.

[37] The issue of the appellant’s irregular hours, which added up to 10 weeks of work, also complicates matters. The Court feels that neither Mr. Caron nor the appellant did anything dishonest. They simply used a suitable method of accounting. This also explains why the appellant converted the price of parts and materials into hours of work. No one tried to hide those arrangements; everything that happened was recorded and can be calculated quite easily by the appropriate authorities. However, the Minister did not rely on those facts in making his decision, and the Court does not intend to base its decision on them either. It is possible that, in calculating the hours and weeks reported by the appellant when he applied for unemployment insurance benefits, the Regulations were not complied with; however, that was not the basis for the Minister’s decision and the Court does not intend to decide that issue.

[38] After considering the tests set out above, the Court is satisfied on the balance of evidence that the appellant’s work was done under a contract of service and not under a contract for services. Based on the fact that the work was truly integrated into the payer’s business, the Court concludes that the appellant was working more as an employee than as an independent contractor.

[39] Leaving aside the question of non-compliance with the Regulations as regards the hours and weeks worked, the Court’s view is that the appellant’s employment was insurable under subsection 3(1) of the Act. This is the only issue that was put before the Court. For these reasons, the appeal is allowed and the Minister’s decision is vacated.

[40] Even if the Court had dismissed the appeal, it would not have hesitated to recommend that the Canada Employment and Immigration Commission exercise its power to write off the amounts paid, since the appellant started his own business a few months later thanks to the benefits he was granted. According to his Notice of Appeal, his financial situation was difficult. It is my view that the appellant did his best to work and was not involved in a scheme designed simply to enable him to obtain unemployment insurance benefits. It would be a shame if the appellant suffered another financial setback that could make him dependent on government assistance once again.

Signed at Calgary, Alberta, this 23rd day of March 1999.

“Michael H. Porter”

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 25th day of January 2000.

Erich Klein, Revisor