Vendor Surveillance Corporation v. M.N.R., docket 1999-1909-EI

Date: 20000922

Docket: 1999-1909-EI

BETWEEN:

VENDOR SURVEILLANCE CORPORATION,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

(Judgment rendered orally on August 4, 2000, at Montreal, Quebec, and subsequently revised at Ottawa, Ontario, on September 22, 2000)

Lamarre, J.T.C.C.

[1] This is an appeal from a decision rendered by the Minister of National Revenue ("Minister") pursuant to subsection 93(3) of the Employment Insurance Act ("Act") and paragraph 6(g) of the Employment Insurance Regulations ("Regulations").

[2] In that decision, the Minister determined that Mr. Denis Budgen held insurable employment with the appellant from September 8, 1997 to January 13, 1999. The appellant disagrees.

[3] It was admitted by counsel for the respondent that Mr. Denis Budgen stopped working for the appellant on December 20, 1998 and that the decision under appeal should be modified accordingly with respect to the period worked. It was also admitted by the respondent that were it not for the application of paragraph 6(g) of the Regulations, Mr. Denis Budgen would not have been considered as holding insurable employment with the appellant, as he was working as an independent contractor.

[4] Paragraph 6(g) of the Regulations states the following:

6. Employment in any of the following employments, unless it is excluded from insurable employment by any provision of these Regulations, is included in insurable employment:

. . .

(g) employment of a person who is placed in that employment by a placement or employment agency to perform services for and under the direction and control of a client of the agency, where that person is remunerated by the agency for the performance of those services.

[5] It is the position of the Minister that the appellant is a placement or employment agency that placed Mr. Budgen in an employment with one of its clients', Northrop Grumman ("Northrop"), to perform services for and under the direction and control of that client. The appellant is of the view that it is not a placement or employment agency and that Mr. Budgen was not working under the direction and control of Northrop.

Facts

[6] I heard the testimony of Ms. Françoise Bienvenue, an appeals officer at Revenue Canada, Mr. Bernard Fallon, president of the appellant, and Mr. Budgen.

[7] The appellant operates a business whereby it provides its clients with a list of qualified candidates capable of satisfying the manufacturing and product delivery needs of clients in the aerospace industry. As disclosed by the evidence, these candidates are experienced consultants who are able to provide the appellant's clients with information, suggestions, recommendations and support in ensuring that contractual obligations between a client and the third party suppliers are met in timely fashion, and also in ensuring product quality control.

[8] During the period at issue, Mr. Budgen was hired by the appellant as a consultant for the above purposes. An independent contractor's agreement between the appellant and Mr. Budgen was drafted on October 2, 1997. According to the agreement, the appellant wished to have Mr. Budgen available to perform procurement quality control services at times and pursuant to terms agreed upon by the parties. In that document, Mr. Budgen and the appellant mutually agreed that Mr. Budgen's business was independent of that of the appellant and its clients and that any work performed at a client's facility was simply a function of the nature of quality control. Mr. Budgen did not sign that agreement but signed the addendum attached thereto stating the terms of payment and the services to be rendered for the purposes of the project for which Mr. Budgen was retained. According to that addendum, Mr. Budgen was to be paid $17 an hour. Overtime had to be pre-authorized by the client. It was stipulated in the addendum that charges with respect to time and expense were to be submitted to the appellant within a certain time frame so that it could bill the client for them. Without the time sheets, the appellant could not be paid by the client, and neither would Mr. Budgen have been paid by the appellant.

[9] There was, on the other hand, a purchase order signed by the appellant and Northrop. That purchase order authorized the appellant to proceed with the supply of expertise and to assign someone to perform specific work at a specific price. In addition, the purchase order acknowledged that Northrop would pay the appellant for the services provided.

[10] Northrop is an American company and a major airframe subcontractor. Northrop had subcontracted work to, among others, two suppliers (Cercast and Héroux), and required the services of Mr. Budgen (through the appellant) at the suppliers' place of business in Montreal in order to monitor, review and analyze the various components of the manufacturing process and the delivery procedures for parts ordered from those suppliers. Mr. Budgen was acting as a quality control inspector.

[11] According to Mr. Budgen's testimony, his main contact with Northrop was Mr. Louis Alfano in New York. He however spoke daily over the telephone with Northrop's project manager in Dallas about Cercast and sent a full written report once a week. With respect to Héroux, he kept in touch with the project manager in Florida on a weekly basis.

[12] Mr. Budgen's role was to keep the client informed as to his input and instructions regarding any changes or adjustments to the suppliers' operations. People from Northrop only came to Montreal three times to visit the suppliers' premises. Mr. Budgen testified that he met those people at the airport and took care of them during their visit. He was not reimbursed his expenses for those services. Mr. Budgen was asked to be present at the suppliers' place of business during the working hours of their employees. Although the working hours started at 6:30 a.m., Mr. Budgen did not arrive before 7:00 or 8:00 o'clock a.m. and left between 4:00 and 5:00 p.m. He worked 40 hours a week, Monday to Friday. Although an office was provided to him at the suppliers' place of business, he did 25 per cent of his work (all the paperwork) at home. Nobody really checked his hours worked and he reported his hours on a time sheet using the honour system.

[13] Mr. Budgen was laid off by Northrop when they decided to have their own inspector on site at the suppliers' place of business. This decision was taken when a competitor of Northrop raised the number of its inspectors at the suppliers' place of business.

Analysis

[14] I have to decide here if paragraph 6(g) of the Regulations applies.

[15] First, I must determine whether the appellant qualifies as a placement agency and, secondly, whether Mr. Budgen was working under the direction and control of the appellant's client (Northrop), for whom he was working.

[16] A placement agency is not defined in the Act. Under section 34 of the Canada Pension Plan Regulations, a placement or employment agency includes:

. . . any person or organization that is engaged in the business of placing individuals in employment, or for performance of services, or of securing employment for individuals for a fee, reward or other remuneration.

[17] In the case of Sheridan v. Canada, [1985] F.C.J. No. 230, the Federal Court of Appeal dealt with a placement agency for nurses that was duly licensed to carry on that business pursuant to the applicable Ontario statute. A registry of nurses available for private, temporary and relief nursing was maintained. The agency arranged for appropriate nursing services to various hospitals requesting such services and the nurses were subject to the control of the hospital to which they reported. It was held that the nurses were engaged in insurable employment by reason of the extended scope of the former paragraph 12(g) (now paragraph 6(g)) of the Regulations.

[18] There is no requirement in the Act that the placement agency be registered under a provincial statute. Under these circumstances and on the evidence before me, I find that the appellant can be defined as a placement agency even though its business includes various other activities. The appellant kept a registry of available expert consultants, as evidenced by Mr. Budgen's resumé filed as Exhibit A-4, which was not drafted by Mr. Budgen himself but by the appellant. It was also the appellant that arranged for the provision of appropriate consulting services to Northrop, who had requested those services. This is evidenced by the fact that it was the appellant that called Mr. Budgen to offer him work with Northrop. It is also evidenced by the testimony of Mr. Fallon and by the purchase order (Exhibit A-5) stating that the appellant was rewarded for providing such services.

[19] The next question to be determined is whether Mr. Budgen worked under the direction and control of the appellant's client Northrop. It is not contested here that Mr. Budgen received his remuneration from the appellant.

[20] Counsel for the respondent referred to the case of Hennick v. Canada, [1995] F.C.J. No. 294, in which Desjardins J. of the Federal Court of Appeal made the point that what is relevant is not so much the actual exercise of control as the right to exercise control. In Ms. Hennick's particular case, Desjardins J. said that while Ms. Hennick's contract with the payer did not specify how she was to teach, there were parameters she had to meet with regard to time which clearly constituted control.

[21] Counsel for the appellant referred to the case of Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025, in which McGuigan J. of the Federal Court of Appeal elaborated on the control test and recognized that the right to say how the work is to be done and to give instructions to the employee regarding the manner in which to carry out the work is fundamental to the exercise of control over the employee's work.

[22] However, McGuigan J. acknowledged that the control test has broken down completely in relation to highly skilled and professional workers, who possess skills far beyond the ability of their employers to direct.

[23] In a more recent decision of the Federal Court of Appeal, Vulcain Alarme Inc. v. Canada, [1999] F.C.J. No. 749, Létourneau J. restated the principle that control rests on the giving of instructions concerning the way the employee's work is to be done. In Vulcain Alarme Inc., the worker operated under the trade name of a registered entity and had done inspection work and calibration of toxic substance detectors on behalf of Vulcain Alarme Inc. for Vulcain's customers. There was a time frame within which the services were to be provided. With respect to the fact that the employee had to submit time sheets and expense reports in order to be paid at an hourly rate determined by the payer, Vulcain Alarme Inc., Létourneau J. referred to the decision in Canada v. Rousselle et al. (1990), 124 N.R. 339, in which Hugessen J., then sitting on the Federal Court of Appeal, stated the following at page 344:

Fixing the amount of remuneration or defining the purpose of the exercise is not controlling work. These aspects exist in a contract for services as much as in a contract of service. It is still more the case that control does not lie in the act of payment, whether by cheque or otherwise.

[24] Létourneau J. went on to say in Vulcain Alarme Inc.:

¶ 6 The same is true, of course, of reimbursement for expenses and the inevitable billing system associated with it.

¶ 7 In the case at bar the evidence did not disclose that the plaintiff controlled Mr. Blouin by giving him orders and instructions in the way his work was to be done. On the contrary, the latter was complete master of the way in which he provided his services, except that they had to be done within 30 days. No one imposed any control on him or exercised any supervision over his provision of the services, and Mr. Blouin set his own schedule.

[25] Létourneau J. then referred to a passage in Charbonneau v. M.N.R., [1996] F.C.J. No. 1337, in which Décary J. said:

. . . It is indeed rare for a person to give out work and not to ensure that the work is performed in accordance with his or her requirements and at the locations agreed upon. Monitoring the result must not be confused with controlling the worker.

[26] In the present case, I have to determine whether Mr. Budgen was under the direction and control of Northrop. The facts on which Ms. Bienvenue of Revenue Canada relied to conclude that Mr. Budgen was under such control are the following: Mr. Budgen had to file time sheets; he gave daily reports; overtime had to be approved; he received instructions from a supervisor in New York; and he had to accompany people from Northrop when they visited Montreal.

[27] The evidence revealed that Mr. Budgen did not receive instructions from a supervisor in New York. Rather, he made daily calls to someone at Northrop in Dallas to keep them informed of the different problems faced by the suppliers. Northrop did not indicate to Mr. Budgen on a daily basis the work to be done. It was rather Mr. Budgen who kept them informed of his input and instructions regarding any changes or adjustments to the suppliers' operations. Mr. Budgen was not subject to any control with respect to his hours worked. He filed a time sheet using the honour system and was paid on the basis of the time sheet. The fact that overtime had to be approved was part of the contractual arrangement. Mr. Budgen agreed to being paid on the basis of a 40-hour week for the work that had to be done. This is not in my view necessarily indicative of an employer-employee relationship as he could and did in fact work more than 40 hours per week without additional remuneration. Furthermore, Mr. Budgen could work at home at his own convenience without Northrop being informed of this fact. It is obvious that he did not have to work during the business hours of Northrop, which was located in Dallas and in Florida. Although he was told that it was preferable that he be present at the suppliers' place of business during the working hours of their employees, nobody checked to see that he was. He was in a sense free to organize his schedule to suit himself.

[28] For all these reasons, I am of the view that the appellant has shown on a balance of probabilities that, in this particular case, Mr. Budgen was not under the direction and control of Northrop during the period at issue.

[29] Both counsel presented argument on the onus of proof. Counsel for the appellant submitted that the appellant does not have the burden of proof with respect to the allegations raised in the Reply to the Notice of Appeal that were not taken into account by Ms. Bienvenue in making her decision. Counsel for the respondent is of the view that the onus of proof rests on the appellant with regard to all assumptions set out in the Reply. This point is now academic since I am satisfied that the appellant has shown that Mr. Budgen was not under the control and direction of the appellant's client within the meaning of paragraph 6(g) of the Regulations. The respondent has already acknowledged that Mr. Budgen was an independent contractor. The case turned solely on the application of paragraph 6(g) of the Regulations, which I find is not applicable.

[30] I will therefore allow the appeal and reverse the Minister's decision on the basis that Denis Budgen's employment was not insurable within the meaning of the Act and the Regulations during the period at issue.

Signed at Ottawa, Canada, this 22nd day of September 2000.

"Lucie Lamarre"

J.T.C.C.