Date: 20101202
Docket: A-510-08
Citation: 2010 FCA 331
CORAM: SHARLOW
J.A.
TRUDEL
J.A.
STRATAS J.A.
BETWEEN:
HAMID BARADARAN and SHIVA
KHODABAKHSH
Appellants
and
THE MINISTER OF NATIONAL REVENUE
Respondent
and
VEGREVILLE HOTEL & INN LTD.
Respondent
REASONS FOR JUDGMENT
SHARLOW J.A.
[1]
This
is an appeal of a judgment of Justice Woods of the Tax Court of Canada (2008
TCC 503) in which she concluded that, from March 1 to October 28, 2006, the
appellants Hamid Baradaran and his wife Shiva Khodabakhsh were independent
contractors, not employees, when they worked at the Vegreville Garden Inn in
Vegreville, Alberta, a hotel owned by the respondent Vegreville Hotel & Inn
Ltd. (“VH”). The appellants have appealed to this Court to seek a reversal of
that decision.
[2]
The
appellants challenge a number of findings of fact by Justice Woods. The
respondent VH defends her decision. The respondent Minister of National Revenue
has appeared and submitted a memorandum of fact and law, but has taken no
position on the merits.
[3]
On
an appeal from a judgment of the Tax Court after a trial, the task of this
Court is to determine whether the judge made an error that would justify
setting the judgment aside and replacing it with a different judgment. In making
that determination, this Court must apply the standards of review established
by the Supreme Court of Canada (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235,
at paragraph 25).
[4]
A
determination as to whether an individual is an employee or an independent
contractor is a question of mixed fact and law. Therefore, unless it is
established that the determination is fatally flawed by an extricable error of
law (which the appellants do not allege), this Court can intervene only if the
judge has made a palpable and overriding factual error (see, for example, D.W.
Thomas Holdings Inc. v. Minister of National Revenue, 2009
FCA 371, at paragraph 3).
[5]
An
error is palpable if it is easily discerned and readily described. An error is
overriding if it is important enough to affect the outcome of the case. On that
standard of review, this Court cannot reverse the decision of Justice Woods
merely because it might have reached a different conclusion than she did. This
Court can intervene only if it can fairly determine that Justice Woods could
not reasonably have found the facts as she did based on the evidence presented
to her.
[6]
It
is clear from the submissions of the appellants, who are self represented, that
they are aware that the standard of review is palpable and overriding error.
[7]
I
turn now to consider whether this high standard of review is met. Before
dealing with the submissions made by the appellants, I note that Justice Woods
relied to a significant extent on a written contract between the parties,
apparently written without legal assistance. She does not quote the contract in
her reasons but it is included in the record. I summarize as follows the key
terms of the contract:
(a)
The
contract uses the word “contractors” to refer to the appellants and the word
“owners” to refer to Hamid Rahmanian and Rena Rahmanian, who owned VH.
(b)
The
owners were responsible for the renovation and major maintenance costs of the
hotel.
(c)
The
owners were entitled to the income from video lottery terminals and all
restaurant rent.
(d)
Profit
from the remainder of the hotel operation would be divided so that the
appellants would receive 10% of any profit up to $50,000, 15% of any profit
from $50,000 to $100,000, 20% of any profit from $100,000 to $200,000, and 30%
of any profit over $200,000, and the owners would receive the remainder.
(e)
In
addition to the profit share, the appellants would be paid $3000 per month
including free accommodation as compensation for hotel and lounge
responsibilities plus 200 hours per week of front desk duties. If the front
desk duties were carried out by a third party, the cost would be the
responsibility of the appellants.
(f)
The
contract could be terminated by either party on 60 days notice.
[8]
No
share of the profit became payable to the appellants under the contract because
the hotel operations resulted in a loss of approximately $35,000 for the year
ended August 31, 2006.
[9]
Justice
Woods considered the written contract to be a very important factor in this
case. She concluded that nothing in the contract provided the appellants with a
basis for concluding that they would be employees of VH. More importantly, she
took the contract as evidence that both parties accepted, when the contract was
entered into, that the appellants would be independent contractors and not
employees. Justice Woods also noted that the appellants registered a business
name for GST purposes, and that no source deductions were taken from the
compensation paid to the appellants. In my view it was reasonably open to
Justice Woods to conclude, as she did, that the evidence on these points
favoured the conclusion that the appellants were independent contractors.
[10]
Justice
Woods went on, as required by the jurisprudence, to consider whether the
arrangement as actually carried out reflected a true independent contractor
relationship between the appellants and VH. In that part of her analysis, she
considered the traditional factors from Wiebe Door Services Ltd. v. Canada (Minister of
National Revenue – M.N.R., [1986] 3 F.C. 553 (C.A.) (although that case
was not cited by either party or in the reasons for judgment). The grounds of
appeal relate to her consideration of those factors.
[11]
The
appellants correctly point out that Justice Woods, in determining who
effectively controlled the operation of the hotel, generally preferred the
evidence of the appellant Mr. Baradaran over that of Mr. Rahmanian, who gave
evidence for VH. She noted that Mr. Baradaran testified that Mr. Rahmanian had
the ability to dictate how the hotel would be operated. Nevertheless, Justice
Woods concluded that Mr. Baradaran was in effective control of the hotel
business. The appellants submit that this conclusion is perverse, and that
Justice Woods did not appreciate that the appellants acted always under Mr.
Rahmanian’s direction, with his permission, and under his direct scrutiny
because of internet cameras on the premises.
[12]
The
record discloses that Justice Woods was confronted with conflicting evidence on
the question of control of the hotel business. Although she noted weaknesses in
the evidence of Mr. Rahmanian, and was aware of the evidence cited by Mr.
Baradaran relating to the degree of control and scrutiny actually exercised by
Mr. Rahmanian, she reasoned that his involvement was consistent with what would
have been needed to protect VH’s financial investment. She said that, on the
basis of the evidence as a whole, the appellants had the authority to run the
hotel as they saw fit, with the exception of those financial matters. In my
view, that conclusion was reasonably open to her on the evidence presented, and
supports her finding that the appellants were independent contractors.
[13]
The
appellants submit that Justice Woods failed to appreciate that all of the tools
of the hotel business were provided by VH and none were provided by the
appellants except the occasional use of their own car to perform some work for
the hotel.
[14]
In
determining whether a person is an employee or an independent contractor, the
ownership of tools is a factor that may be given considerable weight in some
circumstances, and very little in others. The evaluation of the weight to be
given to that factor in a particular case is a factual question. The record is
clear that the hotel and all of the assets within it were owned by VH, but
there is no reason to presume that a person retained as an independent
contractor to manage a hotel would necessarily require any tools apart from the
hotel itself and its contents. In the circumstances of this case, Justice Woods
was justified in giving the factor of the ownership of tools little weight. She
concluded that the appellants were independent contractors even though they
provided no tools. In my view, that factual conclusion was reasonably open to
her on the evidence presented.
[15]
The
appellants submit that Justice Woods erred in her consideration of the factors
of chance of profit and risk of loss. They argue that she disregarded the fact
that the appellants were contractually entitled to share in the profits of the
hotel, but they never did so because there were no hotel profits during the
relevant period. And yet, they received their contractual entitlement of $3,000
per month despite the fact that the hotel was operating at a loss. It is true
that Justice Woods did not mention that there were no hotel profits to share,
but that was not an error because that fact by itself is not relevant to the
question of whether the appellants were employees or independent contractors. As
to the other points, Justice Woods concluded that the entitlement of the
appellants to a share of the profits was a neutral factor because employees may
have the same entitlement. She also observed that the contract did entail a
risk of loss because the appellants were responsible for labour costs if their
duties were performed by third parties, and that this supported the conclusion
that the appellants were independent contractors. Again, these factual
conclusions were reasonably open to her on the evidence presented.
[16]
In my
view, this was a close case before Justice Woods in the sense that there was
substantial evidence favouring the position of the appellants as well as
substantial evidence favouring the position of the respondent VH. However, as
explained above, this Court cannot reverse Justice Woods’ decision merely
because it might have decided the case differently than she did. Having
concluded that all of her findings of fact were reasonably open to her, we are
compelled to dismiss this appeal.
[17]
For
these reasons, and despite the well articulated submissions of Mr. Baradaran
for the appellants, I would dismiss the appeal, in the circumstances without
costs.
“K.Sharlow”
“I
agree
Johanne
Trudel J.A.”
“I
agree
David
W. Stratas J.A.”
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