Citation: 2013 TCC 219
Date: 20130704
Docket: 2012-2416(EI)
BETWEEN:
Maria Vertzagias,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Lamarre J.
[1]
This is an appeal from
a decision of the Minister of National Revenue (Minister), issued on
March 20, 2012, that the appellant did not hold insurable employment within
the meaning of paragraph 5(1)(a) of the Employment Insurance Act
(EI Act) while working for Leo-Danal (2008) inc. (the payer)
during the period from April 19, 2010 to April 26, 2011.
[2]
The facts relied upon
by the Minister are set out in paragraph 5 of the Reply to the Notice of Appeal
(Reply), which are reproduced hereunder :
5) In reaching his determination, the Respondent, the Minister of
National Revenue, relied on the following assumptions of fact:
a)
The payer operated a women [sic] clothing
business; admitted
b) The payer [sic] premises are located at 225, Chabannel street [sic] in Montreal; admitted
c) The shareholders are Domenico Pagnotta with 50% of the shares and
May Haddad and Paul Haddad with 25% of the shares each; admitted
d) The Appellant has a degree from LaSalle College; admitted
e) The Appellant was head patternmaker/designer of the payer; admitted
f) The job of the appellant was to oversee the making of women’s
garment [sic];
g) The Appellant rendered her services at the payer’s location and, in
part, at her residence;
h) The Appellant a [sic] has register [sic] business name
since 2004; admitted
i)
Every week, the Appellant submits an invoice to
the payer with the number of hours worked; admitted
j)
The hourly paid [sic] rate of the Appellant
was 28$ [sic]; admitted
k) The Appellant has discretion over the number of hours worked;
l)
The Appellant supply [sic] her own tools
such as sewing machines, scissors and rulers;
m) The worker was register [sic] for both the GST and the QST.
[3]
The appellant testified
at the hearing. She explained that she graduated in fashion design from LaSalle College and specializes in patternmaking and design in the making of clothes. She
has her own business making evening and wedding dresses, and she has been
registered with Quebec’s Registraire des entreprises since 2004 as a sole
proprietorship (“entreprise individuelle”) offering dressmaking services (“service de
couturière”) under the name of Kopella (Exhibit R-1, Tabs 8 and 18). In
October 2009, she started working for the payer two days a week, and
worked full-time from December 2009. Apparently, the payer manufactures sportswear
for women. On October 10, 2009, the appellant signed a contract with
the payer under her personal name (Exhibit R-1, Tab 4). The appellant was to
provide her design and pattern-making services at an hourly rate of pay of $28.
She did not receive any training from the payer, since she had been working in
the industry since 1997.
[4]
Her work consisted of
designing the product line, picking up fabrics, sketching, giving the fabric to
the sample maker for cutting, fitting the product, verifying the grading (the
size), and making adjustments to arrive at the final product. She said she was
working under the supervision of Ms. May Haddad, whom she referred to as
her “boss”, who would approve the final product.
[5]
The appellant said that
part of her job also involved overseeing quality control and production and
speaking to the contractors on a daily basis regarding any problems with the
fabrics. She said that she also ordered trims, buttons, and linings through the
payer’s suppliers, with the approval of her “boss”.
[6]
She testified that she
performed her work on the payer’s premises and that she was in contact with Ms. Haddad
three or four times a day as they were doing fittings daily. She said their
offices were next to each other. The appellant also mentioned that on few
occasions she took patterns home in order to get work finished on time.
[7]
The appellant said that
she provided her own rulers and scissors. She used the payer’s paper rolls and tables. She herself did not work with sewing machines. Accordingly,
she offered to sell her two old sewing machines to Ms. Haddad. Apparently,
Ms. Haddad agreed to pick them up, but as the sample maker (the person
doing the samples) did not like them, Ms. Haddad never purchased them and
they were not of any use to the payer. The appellant never took back those two sewing
machines, which were stored on the payer’s premises and left behind when the
payer eventually moved (Exhibit R-1, Tab 20).
[8]
As for her work
schedule, the appellant testified that starting in December 2009 she
worked Monday to Friday from 9:00 a.m. to 5:00 p.m. She said that there were
rules of conduct; lunch was at 12:00 p.m. and the break at 3:00 p.m. Occasionally,
she would work on Saturdays from 9:00 a.m. to 1:00 p.m. This schedule lasted
for 2 or 3 months, after which she was told by Ms. Haddad to work two or
three days a week. She worked full-time again during the summer of 2010, but things
slowed down once more in the fall of 2010.
[9]
The appellant was paid
weekly according to the hours she invoiced (the invoices for the period from November 2009
to February 2011 were filed as Exhibit A-1). She was paid by cheque
without any deductions at source (one sample was provided as Exhibit A-2). At
one point, Ms. Haddad told the appellant that she had to register for GST
as her total income had reached $30,000. The appellant applied for GST
registration and obtained her business number for GST purposes on September 20, 2010
(Exhibit R-1, Tab 17).
[10]
According to the
appellant, when she started working full-time for the payer in
December 2009, Ms. Haddad made it clear that she had to work
exclusively for her. The appellant explained that, in any event, with the heavy
workload she would not have been able to work elsewhere. The payer had apparently
purchased another line of clothes. This explains the high volume of work at the
time. The appellant herself did not require outside help but Ms. Haddad
hired another pattern designer in those busy days. The appellant even once asked
her sister to serve as a model on a photo shoot for one full day to help out
the payer. Unfortunately neither the appellant nor her sister was compensated
by the payer for the sister’s services (see Appeal Letter dated
November 1, 2011 from the appellant to the Chief of Appeals, Exhibit
R-1, Tab 1, page 3).
[11]
The payer provided the
appellant with a parking spot. The appellant was not reimbursed for anything
and did not receive any holiday or statutory holiday pay, nor was she ever paid
overtime. She almost never took sick days and when she stayed at home, it was
at Ms. Haddad’s request because there was not enough work. One example of
this, apparently, appears on the invoice dated September 17 (presumably
2010), which shows that she worked four full days but was “off” on Friday (Exhibit
R-1, Tab 5, page 2); on other invoices, she only billed for a few days per
week. In cross-examination, she stated that she estimated that she worked an
average of 30-32 hours per week.
[12]
She acknowledged that
she was paid as if she was a self-employed, but said that money was a sensitive
issue with the payer and nothing was done to change that arrangement. She did
not receive T4 slips. However, she later filed a complaint against the payer with
the Commission des normes du travail, claiming her statutory holiday pay, her
4% vacation pay, overtime, and pay in lieu of two weeks’ notice after she
stopped working for the payer (Exhibit R-1, Tab 3). A settlement was eventually reached between the
parties in September 2012 “sans aucune admission de responsabilité de part
et d’autre, dans le seul but d’éviter les frais d’un procès” ([translation] »with
no admission of liability by either party, for the sole purpose of avoiding the
costs of a trial ») (Exhibit A-3).
[13]
The appellant acknowledged that before working for the
payer she was self‑employed and said that in 2007 she also received
employment income.
[14]
She never collected or remitted
GST to the government before working for the payer (as she said she never
reached the $30,000 threshold), nor did she file her tax returns for the years
2009 through 2012. She did not remit the GST collected from the payer. Her GST
registration number was revoked in April 2011 (Exhibit R-1, Tab 14),
which was when she stopped working for the payer.
[15]
Ms. May Haddad was
called to testify by the respondent. She is an associate designer with the
payer. She became a partner in 2008. She also entered into a written contract
with the payer under her registered business name of Vêtements Maggio. The
contract provided that she would receive a fixed annual amount to be divided
into monthly payments (Exhibit R-1, Tab 15). According to Ms. Haddad, she
and the appellant agreed that the appellant would be hired on a contract basis to
do pattern work on her own time. Ms. Haddad knew the appellant was working
from home as she was advertising on the web.
[16]
Ms. Haddad said
that the payer had employees on the payroll at that time and that the appellant
preferred to be paid as a self-employed contractor, which gave her more freedom
and more flexibility. She said that the appellant could either work at the
office or from home, while the other employees had to be on-site full-time. Ms. Haddad
testified that it happened that the appellant took samples home to sew and
asked someone else (whom she believed was the appellant’s mother) to do the
sewing. On such occasions, she invoiced the payer for the finished product and
not by the hour (examples of this are found in the invoices filed in Exhibit
R-1, Tab 5, at page 3).
[17]
Ms. Haddad said
that the appellant was remunerated $28 per hour for her work as a patternmaker
and that this covered her expenses (as she had more expenses as a contractor). By
way of comparison, the payer hired another patternmaker as a part-time
employee, and she was paid $21 per hour (Exhibit R-1, Tab 16).
[18]
When the appellant
reached the $30,000 income threshold, Ms. Haddad told her that she needed
a GST registration number. She apparently offered the appellant the possibility
of becoming an employee if she preferred, which offer was declined by the
appellant, who wanted to keep a flexible schedule and did not want source
deductions to be withheld from her paycheque.
[19]
Ms. Haddad said
that she did not supervise the appellant’s work. What mattered to her was that
the projects be completed on time and in accordance with the payer’s
specifications. She would give the sketch to the appellant, who would then make
the pattern according to her own schedule. Ms. Haddad testified that the
appellant showed up whenever she wanted. She could stay late in the evening if
Ms. Haddad stayed, Ms. Haddad being the only one having a key to the
premises. Ms. Haddad fixed deadlines taking into account industry
requirements. She knew the amount of time that needed to be allotted for
cutting and for adjustments to be made after the patterns were completed. She
therefore gave deadlines to the appellant. She did not really check the number
of hours invoiced by the appellant as it seemed reasonable.
[20]
As for the tools,
Ms. Haddad said that the appellant provided her own scissors, rulers, pens
and tape dispensers. The appellant used the payer’s paper rolls and tables. At
times, she even used them for her own purposes. Ms. Haddad recognized that
the payer let the appellant use an office and a parking spot, but said that they
did the same for other contractors. They kept three offices for those
contractors.
[21]
Ms. Haddad also
acknowledged that she received government subsidies both for the work done by the
employees and for that done by her and the appellant as self-employed persons (Exhibit
R-1, Tab 19).
[22]
The respondent called
Mr. Serge Benoit, a field officer with the CRA, who spoke to the appellant
in May 2013 regarding her non-filed tax returns for the years 2009 through 2011.The
appellant told him that she was self-employed from October 2009 through
September 2011 and was paid at the rate of $28 per hour for 35 hours per week
(Exhibit R-1, Tab 21, 2nd page). He was not aware at the time, and she did not
tell him, that she was contesting her work status. He noted that no T4A slip
for a self-employed worker or T4 slip for an employee was filed by the payer
for the appellant.
[23]
Mr. Elio
Palladini, an appeals officer with the CRA, also testified to explain why he
decided to treat the appellant as self-employed. In summary, he believed Ms. Haddad’s
version of the facts, which version was apparently confirmed by another
employee, who had worked for the payer at the same time as the appellant. That
employee was not called to testify. Mr. Palladini also confirmed with the
Ministère du Développement économique, de l’Innovation et de l’Exportation that
subsidies were granted both for employees and for self-employed people working
in the fashion industry (as can be seen from the certificates issued and filed
as Exhibit R-1, Tab 19). Finally, Mr. Palladini determined that the payer
had 22 employees in 2010 and 17 in 2011 for whom T4 slips were issued, and that
the appellant was not one of them. He also confirmed that no T4A slip was
issued by the payer for the appellant.
Analysis
[24]
As the Federal Court of
Appeal said in NCJ Educational Services Limited v. Minister of National
Revenue, 2009 FCA 131, at paragraph 49, under the principle of complementarity
reflected in section 8.1 of the Interpretation Act, the criteria set out
in the Civil Code of Québec (CCQ) must be applied to determine
whether a specific set of facts gives rise to a contract of employment.
[25]
Reference must
therefore be made to articles 2085, 2098 and 2099 of the CCQ. Under article
2085, there are three characteristic elements to a contract of employment,
namely: 1) the performance of work; 2) remuneration; 3) the direction or
control of another person, the employer. On the other hand, article 2099 makes
it clear that in a contract for services “no relationship of subordination
exists between . . . the provider of services and the client” (NCJ
Educational Services, supra, paragraphs 50-52).
[26]
In Grimard v. Canada,
2009 FCA 47, [2009] 4 F.C.R. 592, at paragraph 31, the Federal Court of Appeal,
relying on dictionaries, stated that the “subordination of a person involves
his or her dependence on another person or his or her submission to that
person’s control. Therefore, a contract for services is characterized by a lack
of control over the performance of the work. This control must not be confused
with the control over quality and result. The Quebec legislator also added as
part of the definition the free choice by the contractor of the means of
performing the contract”.
[27]
It is noteworthy that the
Federal Court of Appeal had previously warned in that same case, at paragraph
27, that “it would be wrong to believe that there is antinomy between the
principles of Quebec civil law [regarding the legal nature of a work
relationship] and what has been referred to as common law criteria, that is to
say, control, ownership of the tools, chance of profit, risk of loss, and
integration of the worker into the business”. Létourneau J.A., summarized his
analysis as follows at paragraph 43:
[43] In
short, in my opinion there is no antinomy between the principles of Quebec civil law and the so-called common law criteria used to characterize the legal
nature of a work relationship between two parties. In determining legal
subordination, that is to say, the control over work that is required under
Quebec civil law for a contract of employment to exist, a court does not err in
taking into consideration as indicators of supervision the other criteria used
under the common law, that is to say, the ownership of the tools, the chance of
profit, the risk of loss, and integration into the business.
[28]
Moreover, the Federal
Court of Appeal also referred, in paragraph 32 of its decision in Grimard,
to articles 1425 and 1426 of the CCQ, which “require that the mutual intention
of the parties be determined and that a certain number of factors be
considered, such as the circumstances in which it was formed”. However, the
Court stressed the fact that “the behaviour of the parties in performing the
contract must concretely reflect this mutual intention or else the contract
will be characterized on the basis of actual facts and not on what the parties
claim” (paragraph 33).
[29]
In the very recent
decision of the Federal Court of Appeal in 1392644 Ontario Inc. o/a Connor
Homes v. Minister of National Revenue, 2013 FCA 85 (Connor Homes),
at paragraph 23, the Court confirmed that the ultimate question in determining
if a given individual is working as an employee or as an independent contractor
is whether or not the individual is performing the services as a person in
business on his own account. This concept was first adopted by MacGuigan J.A.
in Wiebe Door Services Ltd. v. M.N.R. [1986] 3 F.C. 553, in the search
for the total relationship between the parties, and was approved by the Supreme
Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.,
2001 SCC 59, [2001] 2 S.C.R. 983 at paragraph 47.
[30]
As stated by Desjardins
J.A in NCJ Educational Services, supra, at paragraph 70, this
concept related to the integration test is drawn from the common law analytical
approach referred to earlier in the Grimard decision, which confirmed
the use that may be made of common law decisions in ascertaining the nature of
a contract of employment under the civil law.
[31]
Therefore, in making
that determination, the level of control held by the employer over the worker’s
activities and whether or not the worker provides his own equipment, hires his
helpers, manages and assumes financial risks, and has an opportunity for profit
in the performance of his tasks will be relevant factors to consider (Connor
Homes, at paragraph 29).
[32]
There is a two-step
process of inquiry that is used to assist in addressing the central question, i.e
whether or not the individual is performing the services as a person in
business on his own account (Connor Homes, paragraph 38).
[33]
The Federal Court of
Appeal stated the following regarding that two‑step process at paragraphs
39 and 40 of Connor Homes:
[39] Under the first step, the subjective intent of each
party to the relationship must be ascertained. This can be determined either by
the written contractual relationship the parties have entered into or by the
actual behaviour of each party, such as invoices for services rendered,
registration for GST purposes and income tax filings as an independent
contractor.
[40] The second step is to ascertain whether an
objective reality sustains the subjective intent of the parties. As noted by
Sharlow J.A. in TBT Personnel Services Inc. v. Canada,
2011 FCA 256, 422 N.R. 366 at para. 9,
"it is also necessary to consider the Wiebe Door
factors to determine whether the facts are consistent with the parties'
expressed intention." In other words, the subjective intent of the parties
cannot trump the reality of the relationship as ascertained through objective
facts. In this second step, the parties [sic] intent as well as the terms
of the contract may also be taken into account since they colors [sic] the relationship. As noted
in Royal Winnipeg Ballet at para. 64, the relevant
factors must be considered "in the light of" the parties' intent.
However, that being stated, the second step is an analysis of the pertinent
facts for the purpose of determining whether the test set out in Wiebe Door and Sagaz has been
in fact met, i.e whether the legal effect of the
relationship the parties have established is one of independent contractor or
of employer-employee.
[34]
Therefore, the first
step in the analysis is to determine the intent of the parties, and the second
is to then determine whether the parties’ relationship, as reflected in
objective reality, is one of employer-employee or of client‑independent
contractor (Connor Homes, supra, paragraph 42).
[35]
Here, it may be
inferred from the evidence that the intent of both parties was that the
appellant would be an independent contractor when they first contracted with
each other. Indeed, the appellant’s understanding was that she was hired as
such. I draw this conclusion from the contract that she signed in October 2009
whereby she offered her design services to the payer in consideration of
remuneration at a specified hourly rate (Exhibit R-1, Tab 4), combined with the
fact that she was advertising her own business, that she was always paid by
cheque without any deductions at source, that she registered for the GST, and lastly
that she mentioned to Mr. Benoit, a field officer with the CRA, that she
was self‑employed during the period at issue (Exhibit R-1, Tab 21, 2nd page).
[36]
As for the payer, it
obviously did not consider the appellant as an employee and did not issue her T4
slips as it did to its 20 or so employees.
[37]
The issue before this
Court is therefore whether this contractual intent was reflected in reality, i.e
whether the contract’s legal effect was in fact to create a client‑independent
contractor relationship or rather an employer-employee relationship (Connor
Homes, supra, paragraph 43).
[38]
With respect to the
degree of direction or control of the payer over the appellant, I have been
presented with two different versions. Ms. Haddad testified that the
appellant was free to work according to her own schedule. She said that the
appellant could work on her patterns at home and that she sometimes took
samples home with her to be sewed by someone else (the appellant’s mother, Ms. Haddad
believed), and the appellant invoiced the payer for the final product.
Ms. Haddad testified that the appellant did the fittings for the proposed patterns
at the office. Ms. Haddad said that she did not supervise the appellant’s
work. What mattered was that the project be completed on time, to the payer’s
specifications and in accordance with industry requirements. She said that the
appellant also worked for her own clients, sometimes from the payer’s premises.
[39]
The appellant, on the
other hand, said that she worked from 9 a.m. to 5 p.m., Monday to
Friday, for a period of two or three months when she started working full-time
in December 2009, and again in the summer of 2010. She said that there
were rules of conduct; lunch was at 12 p.m. and the break at 3 p.m. She said
that she was supervised when she completed a pattern and that she was told by
Ms. Haddad how to cut. Ms. Haddad would approve the sample. In the
appellant’s words, she was constantly monitored by Ms. Haddad, their offices
being side by side.
[40]
In view of the two contradictory
versions, I looked closely at the invoices presented by the appellant to the
payer from November 2009 onward (Exhibit A-1). It appears from those invoices
that the appellant did not work regular hours even in December 2009, which was
when she said she started working full-time according to a strict schedule
imposed by the payer. For example, for the week November 24-27, 2009, invoiced
on December 3, 2009, she billed for four days of seven hours per day
for a total of 28 hours. For the following week (November 30 – December 4,
2009) invoiced on December 9, 2009, she billed for four days at seven
hours a day and for one five-hour day, for a total of 33 hours. The first full
week of December 2009, she again billed for four days at seven hours a
day, but also invoiced for three hours on Friday and three hours on Saturday,
for a total of 34 hours. The second full week of December 2009, she billed for
five days at seven hours a day for a total of 35 hours. In January 2010, she
billed for between 41 hours per week and 51½ hours a week. It appears that
she worked longer hours than those of the regular schedule of 9 a.m. to 5 p.m.
to which she referred in her testimony. Thereafter, her schedule varied constantly
and very rarely, it would appear, did she work five days a week from 9 a.m. to
5 p.m. as she claimed she did in her testimony and in her Notice of Appeal. In
July and for the first two weeks of August 2010, she filed two invoices for each
week: one for regular weeks of 35 hours and the second for extra hours.
[41]
Furthermore,
Ms. Haddad testified that she had hired another patternmaker in the peak
period and that this person was on the payer’s payroll and was paid $21 an
hour. Ms. Haddad explained that this employee was paid $7 less an hour
than the appellant because Ms. Haddad recognized that the appellant had
more expenses since she was working as a contractor. Ms. Haddad said that
she offered the appellant the possibility of becoming an employee when her income
reached the threshold of $30,000 that obliged her to apply for a GST
registration number. According to Ms. Haddad, the appellant declined the
proposition because she wished to keep the flexibility she enjoyed and did not
want the payer to withhold deductions at source.
[42]
The appellant did not
really challenge this in Court. She acknowledged that she did apply for a GST
number and admitted that she did not remit any tax to the government. She did
not file income tax returns for the years 2009 through 2011 and informed Mr. Benoit,
the CRA field officer, that she was self-employed during those years.
[43]
Taking into account the
contradiction between the hours indicated on the invoices and the work schedule
alleged to have existed by the appellant in Court and in her Notice of Appeal, together
with the fact that the appellant deliberately indicated to the CRA field officer
that she was self‑employed during the time she worked for the payer and,
incidentally, that she was not very diligent when it came to discharging her
tax responsibilities, I am inclined to give more weight to Ms. Haddad’s
version of the facts. The appellant moreover did not receive any training from
the payer as she already specialized in patternmaking and design in the making
of clothes, and advertised herself accordingly. She also provided her own rulers,
scissors, pens, and tape dispensers but used the payer’s tables and paper rolls.
She occasionally worked for her own personal business on the payer’s premises.
[44]
She was paid a fixed
hourly rate but according to a varying schedule. That rate was $7 per hour more
than that of the other patternmaker, who was hired as an employee. She
occasionally had someone else sew the samples, for which work she invoiced the
payer not by the hour but for the final product. She asked her sister to help in
a photo shoot, for which the payer paid nothing.
[45]
The appellant was
provided with a parking spot and office space when she was on the payer’s premises,
but so were the other contractors. The appellant did not have any employee
benefits nor was she paid for any statutory holidays.
[46]
It is true that the
appellant filed a complaint with the Commission des normes du travail after the
period at issue, in March 2012 (Exhibit R-1, Tab 3), but that complaint was settled
[translation] “with no admission
of liability by either party” (Exhibit A-3). Ms. Haddad explained that it
was less costly to settle than to pursue the matter further.
[47]
Considering it as a
whole, I find that the evidence tends to confirm the subjective intent of
the parties when they first contracted with each other. The appellant may have
wanted to change her status during the period at issue, but she did not act in
such a way as to make it possible to conclude that such a change may have occurred.
Rather, one gets the impression that as long as she was working she preferred self-employed
status (not having tax deducted at source and being paid more) but, when she
claimed employment insurance, she realized that she would have been better off
as an employee.
[48]
The appellant has not
convinced me that she was not hired by the payer as an individual working on her
own account and that the legal relationship between her and the payer was not
consistent with her having independent contractor status. She failed to satisfy
me that, irrespective of the terms agreed upon with the payer, she was working
as an employee in the payer’s business and for the payer’s business.
[49]
I therefore conclude
that, when working for the payer during the period at issue, the appellant did
not hold insurable employment within the meaning of paragraph 5(1)(a) of
the EI Act.
[50]
The appeal is
dismissed.
Signed at Ottawa, Canada, this 4th day of July 2013.
“Lucie Lamarre”
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