Citation: 2012 TCC 383
Date: 20121102
Dockets: 2011-3523(EI)
2011-3524(CPP)
2011-3759(CPP)
BETWEEN:
YOUNG TILE INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Bocock J.
I. Nature of
the Appeal
[1]
The three appeals
before the Court comprise the often litigated issue of whether workers within
the construction trades constitute independent contractors under a contract for
service or employees under a contract of service. There are two appeals under
the Canada Pension Plan and one appeal under the Employment Insurance
Act related to two workers of the Appellant’s tile installation business.
[2]
The Appellant is an Ontario company and is owned and operated by Rudolph Young. The Appellant appeals the Minister’s
assessment for CPP employer premiums in respect of pensionable earnings for each
of Ian Dixon and Stephen Rose under section 6 of the Canada Pension Plan
(the “Plan”) and the assessment of the Minister for EI employer
contributions in respect of insurable earnings of Stephen Rose under section 5
of the Employment Insurance Act (the “Act”). Each assessment
falls within the identical period of January 1, 2008 to December 31, 2009 (the
“Assessment Period”).
A. Witnesses
[3]
Both workers, Mr. Rose
and Mr. Dixon, and the owner, Mr. Young, testified before the Court. Although
the testimony of Mr. Dixon, Mr. Rose and Mr. Young differed on some points, the
Court found they were generally credible, but in matters of nuance or conflict concerning
the factual assertions of the relevant determinative legal factors of the issue
to be decided, the Court has preferred the testimony of Mr. Rose, Mr. Dixon
(Mr. Young’s stepbrother) and lastly Mr. Young in that order of precedence.
B. Legal Test
[4]
At the outset, counsel
for the parties both agreed that the four operative legal factors to consider in
the employee/independent contractor issue were enunciated clearly in the case
of Wiebe Door Services Ltd. v. The Minister of National Revenue.
These four factors from Wiebe Door are all part of one single test
described as the four-in-one test, namely: the extent to which an employee has
control, ownership of tools of the trade, a chance of profit and/or a risk of
loss within the working relationship.
C. Facts
[5]
On the issue of
evidence related to the four factors, the evidence and factual findings may be
summarized as follows. The two workers, Mr. Dixon and Mr. Rose, relocated
to Calgary, Alberta for the purposes of working for the Appellant by installing
floor tiling at various job sites. Mr. Young, the principal of the Appellant,
booked the jobs with the head general contractor (the “Primary Contractor”),
handled all communications with the Primary Contractor including the flow of
information. The workers as a whole would correct any remedial or faulty work and
would be paid according to the amount of tile laid on a pay by piece work basis.
The amount of pay was ascertained, calculated and distributed by the Appellant in
the sole discretion of its principal, Mr. Young. There were no written
agreements between the workers and the Appellant. In terms of tools of the
trade, aside from small personal tools such as trowels and a portable tile
cutter, all large tools, supplies, materials and like items were provided by either
the Appellant or the Primary Contractor. There was never any request of the
workers for investment into the venture nor were the parties on an individual
basis sanctioned or additionally compensated on the basis of the qualitative results
of their work, save and except for the quantity of work generated. Any remedial
work was identified by the Primary Contractor, relayed to the Appellant and
then all workers collectively carried out the remedial work to correct
deficiencies.
[6]
There was testimony by
Mr. Dixon and Mr. Rose that T4 statements may have been issued for their pay
and also that the worker’s safety authority premiums were paid by the
Appellant. In telling testimony, Mr. Rose, indicated that he “worked on Mr.
Young’s time.” In addition, although Mr. Rose incorporated his business or
registered a business name during the course of the Assessment Period, the
testimony of Mr. Rose was that this did not in any way change his working
relationship with the Appellant. As well, neither Mr. Dixon nor Mr. Rose
deducted any business expenses nor recounted for the Court the accrual of
business expenses beyond what could best be termed as their personal living
expenses. In addition, the workers were driven to and from work by the principal
of the Appellant.
II. Appellant’s
Argument
[7]
The Appellant offered
to the Court that the two-step process for the determination of whether a
contract of service or a contract for service existed could be extracted from
the Canada Revenue Agency’s own brochure identified as “RC4100”. The two-step
process required an examination of the intent of the parties. The Appellant indicated
that the parties intended to be independent contractors by agreeing to pay
their own taxes. The Appellant also argued that there was a clear understanding
between the Appellant and the workers which reflected the intention that they
be independent contractors by each agreeing to “pay his own taxes.”
[8]
Further, the Appellant
stated that the second step is to examine the “true nature of the working relationship.”
The Appellant argued that the Appellant and workers effectively replicated and
mirrored the working relationship to that which existed between the Appellant and
the Primary Contractor as to the issues of control, tools of the trade,
opportunity for profit and risk of loss. The Appellant argued that it had
little control, had to remediate all deficiencies at the direction, discretion
and control of the Primary Contractor who oversaw the process and progress of
the entire job. Similarly, the Appellant provided some, but not all, of the
tools which, in turn, were supplemented by the provision of tools by the Primary
Contractor. The Appellant had no significant investment or financial risk and, (as
with all the workers although they did not do so) the Appellant hired
additional workers to perform the task. The method of compensation although not
scientific was based upon piece work for each worker as it was between the Primary
Contractor and the Appellant. Appellant’s counsel argued that there is no legal
justification for the different treatment of the relationship between the
Appellant and its workers and the relationship between the Appellant and the Primary
Contractor which, in turn, was clearly a relationship of independent contactor
and contract for service. Therefore, so should the working relationship between
the Appellant and its workers be characterized.
[9]
The Respondent’s
submissions were more legal in nature and directed the Court to examine the
true relationship of the structure as indicated in Wiebe Door. At
paragraphs 33 and 34 of the case of Lang v. Canada,
Chief Justice Bowman of this Court reviewed a summary of the applicable case
law and said as follows:
[33] With respect to the factor of intent I would make a couple more
observations. The first is that the Supreme Court of Canada has not expressed a
view on the role of intent. In Sagaz, it was not mentioned as a factor.
The second is that if the intent of the parties is a factor it must be an
intent that is shared by both parties. If there is no meeting of the minds and
the parties are not ad idem, intent can not be a factor. The third, if
intent is a factor in determining whether someone is an employee or an
independent contractor, then it must necessarily be a factor in all cases where
the question is relevant. In this court our focus is usually on the rather
narrow question whether a person is employed in insurable or pensionable
employment or, under the Income Tax Act, whether a person is an employee
for the purposes of deducting certain types of expenses or being taxed in a
particular way. The Sagaz case, on the other hand dealt with vicarious
liability. If the test is the same then the rights of third parties could
potentially be affected by the subjective intent of the contracting parties as
to the nature of their relationship — a concern expressed by Evans J.A. in his
dissent in Royal Winnipeg Ballet.
[34] Where then does this series of cases leave us? A few general
conclusions can be drawn:
(a) The four-in-one test in Wiebe Door as confirmed by
Sagaz is a significant factor in all cases including cases arising in Quebec.
(b) The four-in-one test in Wiebe Door has, in the
Federal Court of Appeal, been reduced to representing “useful guidelines”
“relevant and helpful in ascertaining the intent of the parties”. This is true
both in Quebec and the common law provinces.
(c) Integration as a test is for all practical purposes dead.
Judges who try to apply it do so at their peril.
(d) Intent is a test that cannot be ignored but its weight is
as yet undetermined. It varies from case to case from being predominant to
being a tie-breaker. It has not been considered by the Supreme Court of Canada.
If it is considered by the Supreme Court of Canada the dissenting judgment of
Evans J.A. in Royal Winnipeg Ballet will have to be taken into account.
(e) Trial judges who ignore intent stand a very good chance
of being overruled in the Federal Court of Appeal. (But see Gagnon where
intent was not considered at trial but was ascertained by the Federal Court of
Appeal by reference to the Wiebe Door tests that were applied by the
trial judge. Compare this to the Royal Winnipeg Ballet, City Water
and Wolf.
[10]
The Respondent argued
that given the absence of discussion, written agreement or other objective evidence
of the nature of the relationship, the mere understanding of each party of “paying
his own taxes” was, at best, form over substance and, at worst, lacked any
clear direction as to even a bare consensus of an agreement between the parties
resembling an intention to legally act as independent contractors. Moreover,
the Respondent argued that the absence of an agreement (written or otherwise)
in this case fails to establish any badge of intention.
[11]
On the control issue,
the Respondent argued as follows:
a)
on the issue of payment
for services and on the issue of calculations of pay, the workers were never
shown compensation calculations and moreover the calculations were determined
in the sole discretion of the Appellant;
b)
there was continuous
oversight, direction and instruction provided directly to the workers by the
Appellant;
c)
the workers gave clear
priority and ranking (and perhaps exclusively) to their delivery of tile installation
services to the Appellant; and
d)
each worker was not free
to engage subcontractors and was not free to refuse or reschedule delivery,
scope and timing of services; working instead in accordance with the Appellant’s
direction and schedule.
[12]
With respect to tools
and equipment of the trade, the custom in the industry was that employers or contractors
alike would have certain nominal tools of the trade in their own possession.
Accordingly, the issue of employer versus independent contractor cannot be determined
in this case by that factor since it would apply equally to either
characterization.
[13]
With respect to
opportunity for profit and risk of loss, the workers had no opportunity to
exploit expense margins, reschedule for other jobs or subcontract additional workers.
No business expenses were generated nor deducted which could be managed to
increase margins of profitability for each worker. Lastly, there were no
invoices, spreadsheets, calculations or reconciliations, but merely wage payments
made at the discretion of the principal of the Appellant. The treatment of the
Appellant by the Primary Contractor is irrelevant and not determinative of the appeals
before the Court. In conclusion, the Respondent argued that no evidence was
presented to demolish the assumptions of the Minister of the existence of an
employee relationship.
III. Analysis
and Decision
[14]
The argument of
Appellant’s counsel of the similarity of the Appellant’s relationship with the Primary
Contractor, while novel, cannot thwart the clear authority in Wiebe Door,
as clearly cited with clarity and approval in Lang. The fact
remains that the Appellant did control how many workers it hired, the means for
its service completion and its ultimate profitability by scheduling, direction
and control. The workers in question were the Appellant’s employees, working at
the Appellant’s direction. By illustration, the scheduling and remedial work were
both directed, controlled and otherwise organized by the Appellant. The workers
worked under the Appellant’s control, driven to and from the job site and were
compensated entirely within the Appellant’s compensation regime where the
amount of pay was distributed without invoices and reconciliation. Wages were doled
out coincidently with the Appellant’s own receipt of funds from the Primary Contractor,
all of which occurred completely at the Appellant’s discretion without further
justification, negotiation or discussion with the workers.
[15]
The absence of any
evidence of a consistent mutual intention to establish written or even
supportable verbal contracts for services between the Appellant and workers and
the lack of any recognizable elements of meaningful control, opportunity for
profit, risk of loss or other considerations on the part of the workers which might
demonstrate some independent commercial arrangement all leave the assumptions
by the Minister of an employee and employer relationship unassailed. In
summary, the Minister’s assumptions are not only reasonable, but are entirely
supported by the facts proven, which relevant factual findings all together instinctively
render the workers to the status of employees within the Court’s mind.
[16]
Accordingly the appeals
are dismissed.
Signed at Ottawa, Canada, this 2nd day
of November 2012.
“R.S. Bocock”
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