Citation: 2013 TCC 125
Date: 20130419
Dockets: 2011-2773(EI)
2011-3219(CPP)
BETWEEN:
CARVER PA CORPORATION,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Weisman, D.J.
[1]
The appellant Carver PA
Corporation (“Carver”) has expertise in the area of industrial maintenance and
operations. Suncor Energy Services Inc. (“Suncor”) retained Carver to solve a
problem it was having with the freezing of its underground hydrant pipes in the
oil sands of Alberta. Carver, in turn, engaged Faisal Mahmood (“Mahmood”), a
mechanical engineer with experience working on pipelines in Saudi Arabia, to be its expert consultant on the project.
[2]
The Minister of
National Revenue (“the Minister”) assessed Carver for unpaid Employment Insurance
premiums and Canada Pension Plan contributions pursuant to the Employment
Insurance Act
(“the Act”) and the Canada Pension Plan
(“the Plan”) on the remuneration it admittedly paid Mahmood for work
done by him for Suncor between September 28, 2009 and February 12, 2010.
[3]
Carver appeals these
assessments on the grounds that it was not a placement or employment agency,
that it did not place Mahmood in employment under the direction and control of
Suncor, and that his working relationship with Suncor was neither a contract of
service nor analogous thereto within the meaning of the Employment Insurance
Act
and Regulations and the Canada Pension Plan
and Regulations which provide as follows.
The Statutory Provisions:
Employment Insurance Act:
5. (5) The Commission may, with the approval of the Governor in
Council and subject to affirmative resolution of Parliament, make regulations
for including in insurable employment the business activities of a person who
is engaged in a business, as defined in subsection 248(1) of the Income Tax Act.
Employment Insurance Regulations
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.
Insurable Earnings and Collection of Premiums Regulations
7. Where a person is placed in insurable employment by a placement
or employment agency under an arrangement whereby the earnings of the person
are paid by the agency, the agency shall, for the purposes of maintaining
records, calculating the person’s insurable earnings and paying, deducting and
remitting the premiums payable on those insurable earnings under the Act and
these Regulations, be deemed to be the employer of the person.
Canada Pension Plan
7. (1) The Governor in Council
may make regulations for including in pensionable employment
[…]
(d) the performance of
services for remuneration if it appears to the Governor in Council that the
terms or conditions on which the services are performed and the remuneration is
paid are analogous to a contract of service, whether or not they constitute a
contract of service;
[…]
Canada Pension Plan Regulations
34. (1) Where any individual is placed by a placement or
employment agency in employment with or for performance of services for a
client of the agency and the terms or conditions on which the employment or
services are performed and the remuneration thereof is paid constitute a
contract of service or are analogous to a contract of service, the employment
or performance of services is included in pensionable employment and the agency
or the client, whichever pays the remuneration to the individual, shall, for
the purposes of maintaining records and filing returns and paying, deducting
and remitting contributions payable by and in respect of the individual under
the Act and these Regulations, be deemed to be the employer of the individual.
(2) For the purposes of subsection (1), “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.
The Facts:
[4]
Mr. Sam Mraiche
(“Mraiche”), President of the appellant, testified that Carver maintains a
roster of subject matter experts in the various fields it services. It has
systems in place and people the world over seeking the expert best qualified to
solve its clients’ problems. These systems include their own database,
Workopolis, and personal networking at conferences and trade shows.
[5]
Carver noted Mahmood’s résumé
on Workopolis and, by an Independent Contractor Agreement made as of the 4th
day of September 2009, engaged him to work on Suncor’s pipeline problem. Prior
to Mahmood being so retained, Carver arranged a conference call between its
recruiter Mike Eldassouki, Mahmood and Mike Mesallmy (“Mesallmy”) of Suncor to
explain to Mahmood the technical aspects of the problem and issues Suncor was having.
While Mahmood was free to decline Carver’s proposed placement with Suncor, he
proceeded to negotiate a compensation rate of $55 per hour with Carver, which subsequently
invoiced Suncor $139 per hour for Mahmood’s services.
[6]
Mahmood was flown to Fort McMurray, Alberta, where Suncor’s base plant was located. Suncor bore the cost of his
food and lodging at its Borealis camp facility and defrayed his travel
expenses, including a monthly flight back to his home in New Brunswick. Suncor’s
Mesallmy was named in the Independent Contractor Agreement between the
appellant and Mahmood as the person Mahmood was to report to at Suncor. This
agreement now described Mahmood as a “Pipeline Systems Reliability Engineer”.
[7]
Mesallmy was himself a
mechanical engineer like Mahmood, however Mesallmy lacked Mahmood’s expertise
in the use of the computer software required to simulate the various climactic
conditions undergone by Suncor’s hydrant pipelines. Mesallmy and Mahmood worked
together at Suncor’s Fort McMurray plant and their offices were adjacent to
each other.
[8]
In his testimony,
Mahmood described his job and working relationship with Mesallmy. Using his
computer software, he simulated various environmental conditions to ascertain
how heat is transferred from ground to pipeline, how long it takes to freeze
the whole pipeline, the causes of the freezing and what could be done to remedy
it.
[9]
Mahmood recounted that
he had to meet with Mesallmy on a daily basis to discuss the status of the
simulations. Mesallmy would evaluate the quality and reliability of Mahmood’s
work and direct Mahmood as to what to do next, although he lacked the expertise
in simulation software to tell him how to do it as aforesaid.
Analysis:
[10]
This fact situation
gives rise to three legal issues, the resolution of which will determine the
result of these appeals. Was the appellant acting as a placement or employment
agency in placing Mahmood with Suncor during the period under review; if so,
was Mahmood placed under Suncor’s direction and control within the meaning of
the relevant regulations; and did the terms and conditions of Mahmood’s working
relationship with Suncor constitute a contract of service or were they analogous
thereto?
Placement or Employment Agency:
[11]
It is trite law that
the term “employment” in Regulation 6.(g) under the Act includes
a business, trade or occupation and does not solely designate a master and
servant relationship.
It does not matter whether the worker involved is an employee or an independent
contractor. Both are included in insurable employment by this Regulation. The
same does not apply under the Plan and its Regulations which
require that the terms or conditions of the placement constitute a contract of
service or are analogous thereto.
[12]
The appellant contends
that it was not a placement or employment agency because it provided Suncor
with a package of consulting services which included Mahmood’s expertise as
well as that of the appellant itself, which was known to be expert in the field
of systems and inventory management support. Moreover, under its Consulting
Agreement with Suncor, Carver was also required to supply and furnish “…all
labour, new materials, tools, professional services, supervision and equipment
necessary for the satisfactory performance, and completion of the following project:
Inventory Management and Support.”
[13]
The phrase “placement
or employment agency” is defined in the Regulations for the purposes of
the Plan, but there is no comparable definition in the Act or its
Regulations. In OLTCPI Inc. v. M.N.R.
(“OLTCPI”) and again in Pro Pharma Contract Selling
Services Inc. v. M.N.R., I determined that the definition
found in the Plan was equally applicable to proceedings under the Act.
[14]
Counsel for the
appellant urges me to adopt the definition “an organization engaged in matching
requests for work with requests for workers” that some Judges have used in
cases heard under both the Act and the Plan.
[15]
I prefer to apply the
definition found in the Plan to appeals under the Act because the
cases cited above disregard the definition contained in subsection 34.(2) of
the Plan. This provision must surely be applicable to cases decided
under subsection 34.(1) of the Plan. If that is so, it follows that the
same definition should be applied equally in proceedings under the Act
to achieve as much consistency as possible between two provisions intended to
address the same situation.
[16]
Having said that, Supreme
Tractor is helpful in distinguishing between a placement or employment
agency and those payers who provide their clients with distinct services that
include a worker. In Supreme Tractor, the subcontractor provided a
grader and an operator to its client for $65 per hour, $17 of which was for the
operator and the balance for the supply and maintenance of the grader.
[17]
In the matter before
me, the appellant relies on Supreme Tractor in support of its position
that, by contract, it was obligated to provide a basket of consulting services
to Suncor and was, therefore, not caught by the Regulations under the Act
or the Plan.
[18]
This position is
problematic for several reasons. The Consulting Agreement between Carver and
Suncor is Exhibit A-6 in these proceedings. Its title aside, nowhere does this
Agreement specifically provide for the supply of consulting services by Carver
to Suncor. In actual fact, the most the appellant did was to periodically enquire
of Mesallmy and Mahmood how the project was going; this, however, was merely by
way of “quality control” as described by Mraiche. Carver does agree to supply
and furnish Suncor with all labour, materials, tools, professional services,
supervision and equipment necessary for the satisfactory performance and
completion of the project, as aforesaid. There is no evidence before me,
however, that Carver supplied Suncor with anything other than a highly-skilled
worker in the person of Mahmood. In this regard, the following pithy exchange
between counsel for the Minister and Mraiche is revealing:
(Mr.
Gotfried) Q. So there’s nothing in this Agreement that has any money going
from Suncor to Carver for anything other than the time that the workers worked
or travel of the workers or accommodation of the workers.
(Mr.
Mraiche) A. Well, I don’t know what else they would be paying me for.
[19]
As in OLTCPI,
Carver charged Suncor only for Mahmood’s time. This distinguishes this fact
situation from that in Supreme Tractor where both the grader and an
operator were supplied to, and paid for, by the client as a distinct service.
[20]
I accordingly find that
the appellant qualifies as a placement or employment agency during the period
under review, within the meaning of the Regulations under both the Act
and the Plan.
Direction and Control:
[21]
Mahmood was a highly
skilled and specialized mechanical engineer. His knowledge of the necessary simulating
computer software exceeded that of Mesallmy, the person he reported to at
Suncor. In these circumstances, the jurisprudence establishes that Mesallmy
will be found to direct and control Mahmood if he could tell Mahmood what to
do, although not how or the means by which it was to be done.
[22]
Carver considered
itself the project manager of the efforts to resolve Suncor’s pipeline problem.
Paragraph 12.1 of the Consulting Agreement provides: “… The Consultant (Carver)
shall retain control or direction of the manner and method of the performance
of the Work under this Agreement and Suncor shall have the right of supervision
merely as to the results of the Work. …”. Paragraph 3(c) of the
Independent Contractor Agreement in turn provides: “The parties agree that the
Corporation (Carver) shall direct the Contractor (Mahmood) only as to the
results to be achieved from the provision of Services by the Contractor, and
not as to the detailed manner or method of achieving such results. …”.
[23]
Thus, all parties were
well aware of what had to be done, i.e. solve Suncor’s pipeline problem. The
manner and/or method was reserved by agreement to Carver and then to Mahmood.
Suncor’s role is supposed to be limited to merely supervising the results.
[24]
On the other hand, the Independent
Contractor Agreement specifically designates Mesallmy of Suncor as the person
Mahmood is to report to. It therefore becomes relevant to look further into the
working relationship between Mahmood and Mesallmy to see if the latter’s role
was, in fact, merely supervising the result of the work or was something more.
[25]
The work on Suncor’s
problem with the freezing of its underground pipes required close collaboration
between Mesallmy and Mahmood, both mechanical engineers. They occupied adjacent
offices and Mahmood would regularly report the progress of his simulations to
Mesallmy, who then not only provided Mahmood with the shifting parameters of
the project, but decided what course the simulations should take at any given
time. Mahmood considered Mesallmy his boss or manager.
[26]
This scenario is
similar to that in OLTCPI, where the Director of Nursing of a facility
for senior citizens required a dietician placed there by the appellant
placement agency to do more than ensure compliance with the requirements of the
Ministry of Health. She had to meet with the facility administrator, develop
programs, and generate weight change, high-risk resident and site visit
reports. The Federal Court of Appeal found that this constituted direction and
control of the worker within the meaning of the placement agency regulations
under the Act and the Plan, and dismissed the appeals.
[27]
In my view, the fact
that Mesallmy decided what course Mahmood’s simulations were to pursue
establishes that Mesallmy did more than merely supervise the result of
Mahmood’s work. Mesallmy, and therefore Suncor directed and controlled Mahmood,
who was in a subordinate position to them.
Analogous to a Contract of Service:
[28]
Mahmood was clearly not
a party to any contract of service either with Carver or Suncor. The question
then becomes whether the terms or conditions of his placement with Suncor were
analogous to one. This requires that the working relationship between Mahmood
and Suncor be subjected to the analysis mandated by the Federal Court of Appeal
in Wiebe Door Services Ltd. v. M.N.R. (“Wiebe Door”).
Control:
[29]
I note that under Wiebe
Door, the control guideline requires that the payer have the right to
control the worker.
Suncor had no such right. Its control over Mahmood was de facto. This
must be sufficient for the purposes of Regulation 34.(1) under the Plan.
Otherwise, independent contractors who are placed in employment with clients by
placement agencies could never be found to have terms or conditions of
employment that are analogous to a contract of service. This is clearly not the
legislative intent. The control factor accordingly indicates that Mahmood’s
working relationship with Suncor was analogous to a contract of service.
Tools:
[30]
Mahmood provided the
essential software which had the capacity to simulate the various stresses
acting upon underground pipelines that were subject to varying climactic
conditions. In addition, the evidence is that he supplied his own computer when
the one originally provided by Suncor for security purposes proved to lack the
power necessary to process Mahmood’s software. The office and premises in which
Mahmood worked are not considered tools since he would have had to use these
facilities no matter what his working relationship with Suncor. The
tools factor accordingly indicates that Mahmood’s working relationship with
Suncor was not analogous to a contract of service.
Chance of Profit and Risk of Loss:
[31]
Mahmood advised Carver
that he would not accept the position offered by Suncor for less than $100,000
per annum. Carver succeeded in securing this sum on his behalf. Mahmood’s
ability to negotiate his rate of remuneration, and his right to decline offers
of employment as aforesaid, both inherently constitute a chance of profit and a
risk of loss.
The profit and loss factor also indicates that Mahmood’s working relationship
with Suncor was not analogous to a contract of service.
[32]
Three of the four Wiebe
Door guidelines indicate that Mahmood’s working relationship with Suncor
was not analogous to a contract of service within the meaning of Regulation 34.(1)
under the Plan.
Intent:
[33]
The Independent
Contractor Agreement between Carver and Mahmood expresses the clear intent that
Mahmood be an independent contractor. The evidence indicates that the tripartite
relationship between Carver, Mahmood and Suncor was consistent with this
intent. The parties’ intention is accordingly entitled to be given weight.
Assumptions:
[34]
Counsel for the
Minister conceded that the appellant could discharge the onus of rebutting the
Assumptions contained in the Minister’s Replies to the Notices of Appeal in
these proceedings. These Replies allege that there was a master and servant
relationship between Carver and Mahmood. They were based on Mahmood’s erroneous
responses to the questionnaire he completed at the request of the Canada
Revenue Agency. The hearing therefore proceeded on the Minister’s alternative
position under the Act’s Regulation 6.(g) and the Plan’s Regulation
34.(1), both of which were duly pleaded in the Minister’s Replies. There was no
surprise or unfairness in this as the appellant was well aware of the case it
had to meet.
Result:
[35]
In the result, I find
that Carver was a placement or employment agency during the period under review
within the meaning of subparagraph 6.(g) under the Act, that it
remunerated Mahmood, and placed him in employment with Suncor under its
direction and control.
[36]
The result is different
as far as Regulation 34.(1) under the Plan is concerned. While Carver
was a placement or employment agency as defined in subparagraph 34.(2) of the Regulations,
the terms and conditions of Mahmood’s working relationship with Suncor did not
constitute a contract of service and were not analogous thereto.
[37]
I have investigated all
the facts with the parties and the witnesses called on their behalf to testify
under oath for the first time. I have found no new facts and no indication that
the facts inferred or relied upon by the Minister were unreal or were
incorrectly assessed or misunderstood with reference to the appeal under the Act.
The opposite applies with reference to the appeal under the Plan. Accordingly,
the Minister’s decision is objectively reasonable under the Act, but not
the Plan.
[38]
The appeal under the Act
is dismissed and the Minister’s assessment confirmed. The appeal under the Plan
is allowed and the Minister’s assessment vacated. Success being divided, each
party shall bear their own costs of these proceedings.
Signed at Toronto, Ontario, this 19th day of April
2013.
"N. Weisman"
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