Oil & Rubber Specialties Inc. v. M.N.R., docket 1999-38-CPP

Date: 19990803

Docket: 1999-38-CPP

BETWEEN:

OIL & RUBBER SPECIALTIES INC.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

PAUL E. RICHARD,

Intervener.

Reasons for Judgment

MacLatchy, D.J.T.C.C.

[1] This appeal was heard at Kitchener, Ontario on June 24, 1999.

[2] The Appellant appealed to the Respondent from the ruling that Paul E. Richard, the Worker, was employed in pensionable employment while engaged by the Appellant for the period from January 1, 1991 to August 28, 1997, within the meaning of the Canada Pension Plan (the "Plan") as he was an employee under a contract of service.

[3] The Respondent confirmed that the Worker was an employee under a contract of service and informed the Appellant that it had been determined that the Worker's engagement with the Appellant during the period in question was pensionable employment within the meaning of paragraph 6(1)(a) of the Plan.

[4] It was agreed between the Appellant and the Respondent that the Appellant is a federally incorporated company registered, with its head office in New Brunswick, on April 10, 1989 and was formed by joining the Worker's own business known as "Custom Rubber Products" with a business known as "Quantex Chemical" owned by Talis Forstmanis; Custom Rubber Products was a supplier of rubber products and services associated with these, including conveyor belting and belt splicing, while Quantex Chemical was a manufacturer of chainsaw bar and chain lubricant sold using the trade name "Lumberol". After the formation of the Appellant/corporation, the Worker's own business ceased to exist as a separate entity and the Worker became the branch supervisor of the New Brunswick operations of the new business enterprise. The Appellant/corporation's outstanding shares were originally owned equally by the Worker and Talfox Holding Inc., which was in turn owned by Talis Forstmanis. In 1990, the Worker transferred his shares to the aforementioned holding company and resigned as a director and officer of the Appellant/corporation, leaving Talis Forstmanis in complete ownership and control of the Appellant/corporation. The Worker remained as the branch supervisor of the Appellant's New Brunswick operations. As branch supervisor, the Worker was originally paid a base salary of $1,750 per month by company cheque signed by himself and made out to Paul Richard, o/a Custom Rubber Products. From December 15, 1992, the Worker arranged with the Appellant to have the entire monthly base salary to himself made out to his wife, Louise Richard, to avoid seizure for unpaid taxes. As of April 1996, the Worker arranged with the Appellant to have his wife paid a monthly base salary of $1,000 and himself paid a monthly base salary of $825. In addition to his monthly base salary, the Worker was paid a commission based on five percent of the gross margin for the Appellant's New Brunswick operations. The Worker was initially trained by the Appellant with respect to the various aspects of the manufacture and sale of lubricants. Many of the lubricants sold by the Appellant were not manufactured by the Appellant but purchased from another company owned by Talis Forstmanis. The Worker reported to and received direction from Talis Forstmanis on a continuing basis. In August of 1997, the Appellant informed the Worker that his services were no longer required.

[5] The Appellant argued that the Worker was an independent contractor who was engaged to run the operation of the Appellant in New Brunswick and was not an employee.

[6] The Respondent stated that based on assumptions made, the Worker was engaged by the Appellant on a contract of service and was therefore an employee of the Appellant.

[7] The question to be determined by this Court is whether the Worker had been engaged under a contract of service or a contract for services (i.e. an employee of the Appellant or an independent contractor). The law has developed slowly through the years, culminating in the definitive judgment of the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R. [1986] 3 C.F. 553. That judgment determined the best method to test the total relationship of the parties weighing all the relevant facts. Four criteria were to be used in analyzing the facts: (i) control and supervision – was the Worker under the control of and directed by the owner of the business and could he/she be suspended or dismissed? (ii) opportunity of profit and risk of loss – could the Worker share in the profit of the venture and/or suffer loss by reason of the failure of the exploit? Did the Worker pay his/her own expenses, materials, etc.? (iii) ownership of tools – what was provided to the Worker to perform his/her work, if anything? (iv) the organizational or integration test – whose business is it and how did the parties see their relationship and what was the true character of that relationship based on the facts elicited? The test is conclusive – all the evidence must be examined and the tests applied in order to determine the totality of the relationship at issue.

Control and Supervision

[8] It became clear to this Court, as the evidence unrolled, that control and direction was with the Appellant. The Appellant set the prices for the products it sold. Talis Fortsmanis stated that the Worker could set the price of such products but the Worker stated that it was clear to him that there was to be added a 50 percent mark up to the cost price to the Appellant. The Court accepts the evidence of the Worker that the Appellant controlled the pricing of its products. The Appellant stated that the original terms of the agreement between it and the Worker was one of a contract for services and the Worker was to operate the New Brunswick branch independent of any other part of the business owned by Talis Forstmanis. Initially, this appeared to be true but as the story unfolded it became clear that the Worker became absorbed into the operation of the Appellant as an employee. He was required to perform his services personally and could not hire anyone else to perform his function. The Worker was held out by the Appellant to be an integral part of Oil & Rubber Specialties Inc. on the Worker's business cards and on the Appellant's organizational charts – all of which were entered as exhibits during the trial. The Appellant terminated the Worker arbitrarily.

Profit and Loss

[9] The Worker could not share in the profits of the Appellant as he was not a shareholder nor did he have any profit sharing agreement with the Appellant. In a like fashion, the Worker would not bear any loss occasioned by the Appellant. The base salary of the Worker was set by the Appellant and the only way he could improve his income was to increase his sales of which he would receive a larger sales commission.

Ownership of Tools

[10] The evidence produced at trial established the fact that all the tools used in the business were those of the Appellant. This included a van used for the business, which was also used personally by the Worker. On dismissal, the Worker received nothing for any value he may have added on the purchase of the vehicle paid by way of deduction from his salary. The Worker was allowed to remove only those items he owned prior to joining the Appellant.

Organizational or Integration Test

[11] The business was that of the Appellant – no one else could carry on the endeavour. The Worker was an integral part of the operation and performed a necessary function in that business. At some point, the Worker invoiced the Appellant for his services but not on any type of a regular basis and bore no relationship to the services performed nor the hours spent on the Appellant's business. It was irrelevant to the real relationship existing between the parties.

[12] The evidence given by Paul E. Richard, the Intervenor, was in support of his belief that he was an employee of the Appellant. The Appellant believed that the Worker was an independent contractor. Even if both parties understood their relationship to be that of owner and independent contractor, it is not necessarily determinative of their relationship. The Court must look at the actual relationship using the broad directions as above noted. In this instance, considering all the relevant factors in the relationship, this Court finds that a "contract of service" existed between the parties. The evidence supports the determination that the relationship was one of employer and employee and that the Worker was employed in pensionable employment.

[13] The appeal is dismissed and the decision of the Minister is confirmed.

Signed at Toronto, Ontario, this 3rd day of August 1999.

"W.E. MacLatchy"

D.J.T.C.C.