Date:
20061027
Docket: A-487-05
A-488-05
A-489-05
A-490-05
A-491-05
A-492-05
Citation: 2006 FCA 350
CORAM: LINDEN J.A.
NADON
J.A.
MALONE
J.A.
BETWEEN:
City Water International Inc.
Appellant
and
Her Majesty the Queen
Respondent
REASONS FOR
JUDGMENT
MALONE J.A.
I. Introduction
[1]
These
are appeals from a judgment of a deputy judge of the Tax Court of Canada (the
Judge) dated September 14, 2005 (reported at [2005] T.C.J. No. 457). The sole
issue under review is whether certain workers who perform the function of
service technicians on behalf of City Water International Inc. (City Water)
were engaged in insurable employment under the Employment Insurance Act,
R.S.C. 1996, c.23 (EIA) and pensionable employment under the Canadian
Pension Plan, R.S.C. 1985, c.C-8 (CPP).
[2]
Under
both statutes, it is clear that an employee is a person who is a party to a
contract of service, not a contract for service (see paragraph 5(1)(a) of the EIA
and paragraph 6(1)(a) of the CPP). In order to determine whether City
Water workers were engaged under a contract of service, the Judge was required
to undertake an analysis in accordance with the Supreme Court of Canada’s
teaching in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001]
2 S.C.R. 983 [Sagaz]. Sagaz essentially amounts to a restatement
of the law as established by this Court in its time tested decision by
MacGuigan J.A. in Wiebe Door Services Ltd. v. M.N.R., 87 D.T.C. 5025 [Wiebe
Door].
[3]
To
determine whether workers are engaged under a contract of employment or as
independent contractors, Major J., writing for a unanimous court in Sagaz,
at paragraph 47 stated:
Although there is no universal test to determine
whether a person is an employee or an independent contractor, I agree with
MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke
J. in Market Investigations, supra. The central question is whether the person
who has been engaged to perform the services is performing them as a person in
business on his own account. In making this determination, the level of control
the employer has over the worker's activities will always be a factor. However,
other factors to consider include whether the worker provides his or her own
equipment, whether the worker hires his or her own helpers, the degree of
financial risk taken by the worker, the degree of responsibility for investment
and management held by the worker, and the worker's opportunity for profit in
the performance of his or her tasks.
[4]
Furthermore,
at paragraph 48, Major J. stated that the above factors constitute a
non-exhaustive list, and there is no set formula as to their application. The
relative weight of each will depend on the particular facts and circumstances
of the case.
II. Factual
Background
[5]
City
Water is in the business of selling and renting water purification units (the
Units) to businesses and residences. The Canada Revenue Agency issued a notice
of assessment to City Water in respect of its 2002 and 2003 taxation years,
assessing on the basis that certain of its workers were engaged in insurable
and pensionable employment.
[6]
City
Water provides its customers with two separate services: the initial
installation of Units and their ongoing service and maintenance. This appeal
relates only to workers who service and maintain the Units (Service Workers). Service
Workers were engaged under oral contracts wherein the terms of their
relationship was outlined by City Water management and agreed to by each worker
before work was commenced. City Water made it clear at the outset that the
Service Workers would be engaged in a self-employed contract position.
[7]
Service
Workers performed both regular and emergency service calls to City Water
customers. For regular service calls, they were provided with a list of
clients who would require such service within the upcoming 30 days and were
then free to schedule those calls at any time during that period. They had
flexibility to plan their routes, to perform the service at their own
convenience, and were not required to fulfill a fixed number of assignments in
any given day or week. With respect to emergency calls, these calls were
required to be done as soon as possible. Service Workers who performed
emergency services were paid extra.
[8]
No
representative of City Water came to the customer’s premises to supervise or
inspect the services performed by the Service Workers.
[9]
As
agreed at the outset of their engagement, there was no vacation, overtime or
sick pay, no benefits and no deductions at source. Service Workers were
required to provide invoices and justify work done, hours expended and expenses
claimed and were paid by the hour at various rates. They were not required to
attend at the offices of City Water on a daily basis. Monthly meetings were
held in Toronto in order to
inform Service Workers about new products, to provide payment for work done and
to allocate assignments for the upcoming month. Attendance was not mandatory.
[10]
Service
Workers were required to have only a screwdriver and a wrench. City Water
provided them with other necessities such as a pail, sponge, towels, water
testing pills, gloves, sanitizers, glass cleaner, replacement filters, a
plastic filter wrench, and a meter to test the water for its metal content.
[11]
Service
Workers also provided their own vehicle or bicycle if working in the downtown Toronto core. Many
drove extensive distances in the Greater Toronto Area and elsewhere to provide
services. They incurred the cost of insurance and maintenance of their vehicles
or bicycles and were reimbursed for certain expenses, such as the cost of gasoline
and parking, and received a monthly car allowance for driving in excess of 100
kilometres.
[12]
In
the City of Toronto, the workers
were given a $200.00 monthly incentive bonus to avoid recall work, which was
reduced by $50.00 for each recall until the $200.00 was exhausted.
III. Decision
of the Judge
[13]
On
the issue of control, the Judge held that City Water exercised little or no
supervision or control over the Service Workers. However, he held that this
factor should not bear the weight it would in other cases, because the lack of
control, in his view, is a function of the simplicity of the task at hand. On
the issue of tools, the Judge held that a vehicle was not required since three
workers did service work by bicycle, rather than by vehicle. As a
result, he determined that City Water provided the bulk of the tools used by
the Service Workers.
[14]
The
Judge then considered the Service Workers’ chance of profit. He relied on this
Court’s decision in Hennick v. Canada (M.N.R) (1995), 53 A.C.W.S. (3d)
1134 (F.C.A.) and held that hourly earnings, whether longer or shorter, are not
profits. Thus, the workers had no chance of profit insofar as their service
and maintenance work was concerned. Lastly, the Judge concluded that since
they had virtually no expenses, they had no risk of loss.
[15]
In
his findings of fact, the Judge held that it was the intent of the parties that
all the workers be independent contractors. In this regard, he mentioned the
decision of this Court in Wolf v. Canada (C.A.), [2002] 4 F.C. 396, whereby
Noël J.A. held that when a contract is generally entered into and is performed in
accordance with its terms, the intention of the parties cannot be disregarded. However,
it does not appear that he actually took the parties’ intention into account
when arriving at his final conclusion. Ultimately, the Judge determined that
during the period in issue, to the extent that the workers performed service
and maintenance functions, income so earned was income from employment.
IV. Standard of
Review
[16]
In
our review of the Judge’s decision, questions of law are reviewable on a
standard of correctness, while findings of fact or of mixed law and fact will
be set aside only if it is determined that the Judge has committed a palpable
and overriding error (see Housen v. Nikolaisen, [2002] 2 S.C.R. 235). This
case deals with questions of law as well as questions of both mixed fact and
law. Accordingly, on pure questions of law, the Judge’s decision will
be reviewed on a standard of correctness. However, where the Judge made a
determination that involved the application of a legal test to a set of facts
that is a question of mixed fact and law, and is subject to a standard of
palpable and overriding error.
V. Analysis
1. Control
[17]
City
Water argues that the Judge erred in holding that the control test should bear
little weight because of the simplicity of the tasks conducted by Service Workers.
It submits that there is no authority to reduce the weight given to the control
test on the basis that the nature of the work required little control.
[18]
A
contract of employment requires the existence of a relationship of
subordination between the employer and the employee. The concept of control is
the key determinant used to characterize that relationship (see D&J
Driveway Inc. v. Canada (Minister of National
Revenue),
2003 FCA 453).
City Water also referred the panel to Livreur Plus Inc. v. Canada (Minister
of National Revenue), 2004 FCA 68, where this Court applied the Wiebe
Door test to determine whether the employment of two workers was insurable
under the EIA. In considering the control component of the test,
Létourneau J.A. stated at paragraph 19:
… the Court should not confuse control
over the result or quality of the work with control over its performance by the
worker responsible for doing it. … As our colleague Décary J.A. said in Charbonneau
v. Canada (Minister of National Revenue –M.N.R.), …, “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.”
In other words, controlling the quality of
work is not the same as controlling its performance by the worker hired to do
it.
[19]
In
my analysis, the simplicity of the task can have no bearing on control and should
not be considered in determining whether a degree of subordination exists. As
such, the Judge made a legal error in concluding that the control factor should
bear little weight because of the simplicity of the tasks conducted by the
Service Workers. In the present case, City Water attracted the customers but
left the actual performance of the service function to the Service Workers
without any supervision. Accordingly, control here clearly points to a
contract for services.
2. Who Provided the Equipment?
[20]
The
Judge noted that City Water provided virtually all of the service equipment.
In his analysis, the fact that most workers provided their own vehicle was not significant.
Rather, he found that the Service Workers did not require vehicles based on the
fact that three of the fifty-seven workers were able to do servicing by
bicycle. This view of the evidence led the Judge to conclude that this factor
pointed to an employment relationship.
[21]
City
Water argues that the test under this branch is whether the vehicles were provided
by the workers and used in the servicing and maintenance of the Units (see Sagaz
at paragraph 47); not whether they were required. It also argues that
if an assessment as to the necessity of the equipment is required, one must
look at the reasonableness of the use. In Precision Gutters Ltd. v. Canada (Minister of
National Revenue), 2002 FCA 207, Sexton J.A. considered the
ownership of tools test and stated at paragraph 25:
It has been
held that if the worker owns the tools of the trade which it is reasonable for
him to own, this test will point to the conclusion that the individual is an
independent contractor even though the alleged employer provides special tools
for the particular business.
[22]
In
this case, most of the Service Workers were required to travel significant
distances and counsel
for the Minister conceded in oral argument that a vehicle was reasonably
necessary in order for the Service Workers to do their job. Accordingly, in my
analysis, the Judge made a legal error in refusing to place any emphasis on the
importance of the vehicles provided by the Service Workers, which were
essential to their job. Therefore, providing a vehicle, which is a major
investment, favours a finding that the Service Workers were employed as
independent contractors.
3. Opportunity for
Profit
[23]
The
Judge found that the workers had no chance of profit because they were paid by
the hour. However, City Water argues that the fact that an hourly rate was
paid to the workers is not determinative. It submits that there
was a chance of profit, as evidenced by the fact that the workers who did
emergency services were paid extra, the workers were required to rectify errors
on their own time and at their own cost, and those who worked within the City
of Toronto were entitled to earn up to an additional amount of $200 if they had
no recalls.
[24]
On
the present facts, in my analysis, the chance of profit was entirely City
Water’s. The Service Workers were guaranteed an hourly wage and were
subject to an incentive bonus. While it is true that the workers could earn
more if they worked more hours, the jurisprudence is clear that that does not
constitute a chance of profit (see Hennick at paragraph 14). While they
may have had an incentive to work harder and get paid an extra $200, this is
not the same as the commercial risk of running a business (see Page v. Canada (Minister of
National Revenue), 2004 TCC 211 at paragraph 38). Therefore, I
would agree with the Judge when he found that the workers had no chance of
profit, which points to a contract of service.
4. Degree of
Financial Risk
[25]
Since
I have determined that on the evidence the Service Workers required a vehicle,
I must also determine whether they faced a risk of loss of any kind. The
evidence shows that the Service Workers were reimbursed for several expenses,
including gasoline, parking and a cell phone. They were also given a monthly
car allowance. Most importantly, they did not have any risk of bad debt as
they were paid whether or not the customer paid City Water.
[26]
Based
on this record, I would agree with the Judge that there was no risk of loss to
the Service Workers, notwithstanding the fact that they had to maintain
insurance on their respective vehicles. This factor points to a finding that
the Service Workers were engaged in a contract of employment.
5. Other Factors
[27]
In
balancing the above factors, the result of the inquiry is not obvious. Therefore,
it is necessary to determine what weight should be given to the intention of
City Water and the Service Workers at the time of their initial engagement.
[28]
If
it can be established that the terms of the contract, considered in the
appropriate factual context, reflect the legal relationship that the parties
intended, then their stated intention cannot be disregarded (see Royal
Winnipeg Ballet v. Canada (Minister of National Revenue, 2006 FCA 87 at
paragraph 61). Royal Winnipeg was not decided at the time the Judge
rendered his decision.
[29]
Royal
Winnipeg
is essentially a re-codification of the law as stated by this Court in Wolf,
supra at paragraph 15. In that case, the issue before this Court
was whether Mr. Wolf was an employee or an independent contractor. Concurring
with Desjardins J.A. in the end result, but on the basis of a different
analysis, Noël J.A. stated at paragraphs 122 to 124:
… But in a
close case such as the present one, where the relevant factors point in both
directions with equal force, the parties’ contractual intent, and in particular
their mutual understanding of the relationship cannot be disregarded.
…
My assessment
of the total relationship of the parties yields no clear result which is why I
believe regard must be had to how the parties viewed their relationship.
…
It follows
that the manner in which the parties viewed their agreement must prevail unless
they can be shown to have been mistaken as to the true nature of their
relationship. In this respect, the evidence when assessed in the light of the relevant
legal tests is at best neutral. As the parties considered that they were
engaged in an independent contractor relationship and as they acted in a manner
that was consistent with this relationship, I do not believe that it was open
to the Tax Court Judge to disregard their understanding.
[30]
Thus,
the parties’ intention will only be given weight if the contract properly
reflects the legal relationship between the parties (see Royal Winnipeg
at paragraph 81). In this case, there is no written agreement that purports to
characterize the legal relationship between the Service Workers and City Water;
however, there is no dispute between the parties as to what they believe that
relationship to be. The evidence is that both parties believed that the workers
were self-employed and each acted accordingly.
[31]
In
my analysis, since the relevant factors yield no clear result, greater emphasis
should have been placed on the parties’ intention by the Judge in this case. The
Judge was required to consider the factors in light of the uncontradicted
evidence, and to ask himself whether, on balance, the facts were consistent
with the conclusion that the workers were persons in ‘business on their own
account’ (see Sagaz supra at paragraph 3), or were more consistent with
the conclusion that the workers were employees. In failing to do this, he made
a palpable and overriding error on a question of mixed law and fact. Had he
conducted that analysis, in my view, he could only have concluded that City
Water was not the employer of the Service Workers.
VI. Conclusion
[32]
These
appeals should be allowed, the decision of the Tax Court of Canada dated
September 14, 2005 should be set aside in part and the assessments for the 2002
and 2003 taxation years should be referred back to the Minister of National
Revenue for reconsideration on a basis consistent with these reasons. City
Water should have its costs in this Court and in the Tax Court of Canada.
"B. Malone"
“I
agree
A.M. Linden J.A.”
“I
agree
M. Nadon J.A.”
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKETS: A-487-05
A-488-05
A-489-05
A-490-05
A-491-05
A-492-05
STYLE OF CAUSE: City Water International Inc.
and
Her Majesty The Queen
PLACE OF HEARING: Toronto,
Ontario
DATE OF HEARING: October 19, 2006
REASONS FOR JUDGMENT OF THE COURT BY: Malone
J.A.
CONCURRED IN
BY: Linden J.A.
Nadon
J.A
DATED: October 27, 2006
APPEARANCES:
|
Louise R.Summerhill
|
FOR THE
APPELLANT
|
|
Arnold H.Bornstein
Jenny P.Mboutsiadis
|
FOR THE
RESPONDENT
|
SOLICITORS
OF RECORD:
|
Aird & Berlis,
Toronto, Ontario
|
FOR THE APPELLANT
|
|
John H.Sims,Q.C.
Deputy Attorney
General of Canada
Ottawa, Ontario
|
FOR THE RESPONDENT
|
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