Citation: 2006 FCA 350
CORAM: LINDEN J.A.
City Water International Inc.
Her Majesty the Queen
REASONS FOR JUDGMENT
 These are appeals from a judgment of a deputy judge of the Tax Court of Canada (the Judge) dated September 14, 2005 (reported at  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).
 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.,  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].
 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.
 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
 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.
 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.
 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.
 No representative of City Water came to the customer’s premises to supervise or inspect the services performed by the Service Workers.
 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.
 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.
 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.
 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
 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.
 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.
 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.),  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
 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,  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.
 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.
 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.
 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?
 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.
 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.
 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
 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.
 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
 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.
 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
 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.
 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.
 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.
 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.
 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.
 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.
A.M. Linden J.A.”
M. Nadon J.A.”
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
STYLE OF CAUSE: City Water International Inc.
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.
DATED: October 27, 2006
FOR THE APPELLANT
FOR THE RESPONDENT
SOLICITORS OF RECORD:
Aird & Berlis,
FOR THE APPELLANT
Deputy Attorney General of Canada
FOR THE RESPONDENT