Saturn Construction Systems Ltd. v. M.N.R., docket 98-146-CPP

Date: 19990521

Dockets: 98-908-UI; 98-146-CPP

BETWEEN:

SATURN CONSTRUCTION SYSTEMS LTD.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent

and

HENRYK SITEK,

Intervenor.

Reasons for judgment

Beaubier, J.T.C.C.

[1] These appeals were heard together on common evidence at Vancouver, British Columbia on May 18 and 19, 1999. The Appellant's president, Frans Pellikaan, testified and called the following witnesses, in order: Dmitriy Kononenko; Russell Hopeton; his brother, David Pellikaan; the intervenor, Henryk Sitek; Sandor Berke and Carl Bouchard.

[2] Paragraphs 2 to 6, inclusive, of the Reply to the Notice of Appeal in file 98-908(UI) describe the issues in the matters before the Court. They read:

2. By Notice of Assessment dated November 20, 1997 (the "Assessment"), the Respondent assessed the Appellant with respect to, inter alia, employment insurance premiums (the "Premiums") in the amount of $13,788.93, payable by the Appellant pursuant to the Employment Insurance Act, S.C. 1996, c. 23 (the "EI Act") in connection with the services performed for the Appellant during the 1997 taxation year by the individuals listed in the attached Schedule A [as corrected at the hearing] in respect of whose remuneration the Appellant failed to make remittances to the Receiver General for Canada, (the "Receiver General") as required.

3. In response to an appeal for reconsideration of the Assessment brought by the Appellant pursuant to section 92 of the EI Act, the Respondent confirmed the Assessment.

4. In so assessing the Appellant, the Respondent relied on, inter alia, the following assumptions of fact:

a) the Appellant was in the construction business;

b) the Appellant hired the individuals detailed in Schedule A (the "Workers"), to perform carpentry, painting, siding and wall covering, floor covering installation, finishing and general laborer services;

c) the Workers provided their own hammer, tool belt, tape measures, paint brushes and safety helmets;

d) the Appellant provided all the material and the ladders, skill saws, paint sprayers and mixers and other large tools that the Workers required in order to perform the duties;

e) the Workers were told where to work, what to do, how to do it, when to start work and when to take coffee breaks;

f) the Appellant supervised the Workers and kept track of each of the Workers' hours;

g) the Appellant paid the Workers an hourly rate;

h) the Workers were not responsible for any incomplete or inadequate work and were paid their hourly rate to redo any work;

i) the workers did not incur any expenses, other than the expense of small tools, in the performance of their duties;

j) the Workers could not send a replacement worker had they been unable to perform their duties;

k) some of the Workers performed the same services under the same conditions for the Appellant in the 1996 taxation year and they were considered by the Appellant to be employees during that year; and

l) the Appellant failed to deduct from the remuneration paid to the Workers any amounts with respect to Premiums under the EI Act and also failed to remit to the Receiver General any amounts in respect of either the employee or the employer Premiums, as required, and is liable for the unremitted amounts, together with interest thereon.

B. THE STATUTORY PROVISIONS UPON WHICH THE RESPONDENT RELIES AND THE REASONS WHICH HE INTENDS TO SUBMIT

5. He relies upon paragraph 5(1)(a), subsection 2(1), and sections 82, 85 and 92 of the EI Act, as amended.

6. He respectfully submits that he correctly assessed the Appellant in accordance with the provisions of sections 82 and 85 of the EI Act, as the Workers were employed by the Appellant in 1997 in insurable employment under a contract of service within the meaning of paragraph 5(1)(a) of the EI Act and as the Appellant failed to deduct from the remuneration paid to the Workers any amounts in respect of employee Premiums and also failed to remit to the Receiver General any amounts in respect of either the employee or the employer Premiums, as required, and, accordingly, is liable for the unremitted amounts, together with interest thereon.

[3] The individuals in issue are:

Sandor Berke

S. Boucher

David Pellikaan

Yuri Concharenko

Russell Hopeton

Jimmy Bouchard

Carl Bouchard

Henryk Sitek

Alexander Doubrov

Roman Pawlak

Aldimar Von Angel

Stepan Veltchev

Angelo Markov

Edourd Bakechiev

Dmitriy Kononenko

Evgeni Kostiouk

Taras Kostyuk

Gyula Lovas

Jerry Peitecha

Fernand Bouchard

[4] Assumptions 4(a), (b), (c), (d), (e), (h), (i), (k) and (l) are correct.

[5] Assumption 4(f) is partially correct in that, using Dmitriy Kononenko's testimony as an example, the Appellant kept track of his hours. The Appellant paid him correctly at the agreed rate of $10.00 per hour (with nothing extra for overtime and no withholdings) but the time cards exhibited do not show Mr. Kononenko's correct hours. The time cards show intermittent days and hours, whereas he worked a regular five days each week and a full, straight, working day of hours.

[6] Sandor Berke had an identical experience. He is a painter. The Appellant's time sheets indicate that he did not work on April 14 or 15, 1997. His calendar indicates that he did work for the Appellant for 9 hours each day. Exhibit A-15 contains invoice No. 335583 which includes April 14 and 15, 1997, for $1,372 which includes those 18 hours. He was paid that by Saturn's cheque No. 0917 on April 29, 1997. Mr. Berke is believed and Frans Pellikaan is not.

[7] Mr. Berke also testified that he hired back on as an employed painter for Saturn on March 18, 1997. Three weeks later he was told that he would not receive any pay cheque until he had invoiced Saturn as a subcontractor. He received an invoice form from another worker, invoiced his hours as a subcontractor and he was paid. He also worked extra hours and was paid for them at his fixed hourly rate. This pattern continued while he worked for Saturn in 1997. But he had no tools, worked on his foreman's instructions and was laid off on May 13, 1997 when an inspector stopped Saturn's work on the project he was then working on. The documents in Exhibit A-15 indicate that this was the "Centreville" project.

[8] As a result the records placed in evidence by the Appellant are not believed and do not represent the truth of the time spent in service by the employees, or that they were not employees of the Appellant.

[9] In addition, Mr. Kononenko testified that he did two items of piece work for the Appellant, but the piece work rate worked out, more or less to the same hourly rate as his wage - $10 per hour. This was the only detailed testimony respecting assumption 4(g). Mr. Kononenko is believed. Thus, while there appears to have been a few fixed contract jobs by the employees, they were merely a subterfuge for regular hourly rates of pay by the Appellant to the individuals in question.

[10] With respect to assumption 4(g), Henryk Sitek testified that he could send a replacement worker with the approval of the employer if he was sick. Both Russell Hopeton, a good friend of Frans Pellikaan, and David Pellikaan testified that they could send substitutes at any time. They are not believed. Russell Hopeton has been unemployed for several months and desperately needs a job which he hopes to get from the Appellant. David is very upset; he still works for the Appellant and is quite angry with the entire Employment Insurance process that has brought this appeal about and which has affected his ability to work for other contractors. He is appealing to the World Court. In these circumstances, the Court understands the reasons for their testimony, but cannot accept it where it conflicts with the testimony of other witnesses. As a result, the Court finds that assumption 4(j) is correct.

[11] The last witness to testify was Carl Bouchard. He stated that he worked for Saturn as a subcontractor in 1997. But he gave no detail of any different working conditions than the others who testified. Many of his invoices were for hours and those that did not have hours listed lacked detail. On the basis of the evidence of the others, and the conflicts when other witnesses of the Appellant compared their own records to the Appellant's, Carl's evidence is not accepted.

[12] This is a case where the Appellant called evidence like a shotgun. All of the witnesses were called by the Appellant and much of their testimony is in conflict with Frans Pellikaan's version of matters. As a result, the evidence he called which is against the Appellant must be taken at face value and, where it conflicts with other evidence, that other evidence is rejected. The Appellant called it and the Appellant must accept its results.

[13] The question before the Court is whether the individuals are employees of Saturn. Paragraph 3(1)(a) of the Employment Insurance Act reads:

3.[3] (1) Insurable employment is employment that is not included in excepted employment and is

(a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise;

[14] Paragraph 6(1)(a) of the Canada Pension Plan reads:

6.(1) Pensionable employment is

(a) employment in Canada that is not excepted employment;

[15] When interpreting these paragraphs, reference is made to the following quotations from Wiebe Door Services Ltd. v. M.N.R. (F.C.A.) 87 DTC 5025 in which MacGuigan, J.A. said:

Case law has established a series of tests to determine whether a contract is one of service or for the provision of services. While not exhaustive the following are four tests most commonly referred to:

(a) The degree or absence of control, exercised by the alleged employer.

(b) Ownership of tools.

(c) Chance of profit and risk of loss.

(d) Integration of the alleged employees' work into the alleged employer's business.

...

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.

[16] Using these criteria, the Court finds:

(a) Control

The Appellant set the hours of work for the individuals. The evidence is clear that they were told when to arrive at work, when to have coffee and lunch and when to leave work. They were told exactly what to do on the job. They all worked on high-rise buildings in metropolitan Vancouver and the Appellant's foremen co-ordinated their work with each other. The majority of their invoices were for hourly rates and those who insisted that they were subcontractors gave no detailed or credible evidence as to independent subcontract work done outside of the foreman's supervision or outside of Saturn's organization and control of the workplace. Any detailed evidence on the invoices for fixed amounts indicated that the totals coincided closely with that worker's hourly rates.

(b) Ownership of tools

Aside from David Pellikaan's 1999 list of tools, any of the individuals who detailed their tools for Saturn's jobs had very little other than a hardhat, a hammer, or a screwdriver and a tape measure or a brush. They had the usual workman's equipment with which to go to work.

(c) Chance of profit and risk of loss

Each worker who testified had to do the work in order to be paid what amounted to a fixed hourly rate. The invoices were handed out to them. All the workers who testified worked exclusively for Saturn during the week or months that they worked for Saturn. Relying on the evidence of Dmitry Kononenko, who the Court believes, above those who testified otherwise, the Court accepts as fact that any fixed price work done by the workers ended up amounting to their hourly wages. Moreover the clear evidence of false records in the hourly work sheets indicates to the Court that they were purposely completed that way by Saturn in order to enhance its "fixed price" contract statements from the workers. That way the hourly rates could not be tested against the alleged contract work.

The workers had no chance of profit and risk of loss in the business sense. They risked the loss of their job or their health as employees.

(d) Integration

The workers were clearly integrated into Saturn's business. All of those who testified did interior work - holes for ventilation systems, carpentry, painting, flooring work and similar tasks after the structure was completed. Each had his scheduled tasks that had to be completed for the next worker's tasks.

[17] The workers were not in business for themselves. The appeal is dismissed.

Signed at Vancouver, British Columbia this 21^st day of May 1999.

"D.W. Beaubier"

J.T.C.C.