[OFFICIAL ENGLISH TRANSLATION]
Date: 20020909
Docket: 2000-4739(EI)
BETWEEN:
MICHEL SIMARD,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Savoie, D.J.T.C.C.
[1] This appeal was heard at
Chicoutimi, Quebec, on June 14, 2002.
[2] The appeal concerns the
insurability within the meaning of the Employment Insurance
Act (the "Act") of the appellant's
employment with Produits forestiers Alliance inc. (the
"payer") during the periods from
November 12, 1998 to January 26, 1999, from
April 19 to July 16, 1999, from August 9 to
October 14, 1999, and from October 25, 1999
to January 27, 2000 (the "periods at
issue").
[3] In reaching his decision, the
Minister of National Revenue (the "Minister") relied on
the following assumptions of fact:
[TRANSLATION]
(a) the payer
operated a timber harvesting business;
(b) the appellant
was the sole shareholder of 2425-9483 Québec Inc
(hereinafter referred to as "the contractor");
(c) the contractor
owned a John Deere skidder valued at over $150,000;
(d) on
July 6, 1998, and May 12, 1999, the payer
signed a machinery rental contract with the contractor;
(e) the payer paid
the contractor according to the volume of wood cut;
(f) the
appellant operated the contractor's machinery;
(g) the payer paid
the appellant's wages directly to him;
(h) the payer
deducted the appellant's wages, including tax deductions and
employer and employee contributions, from the monies owing to the
contractor;
(i) the
appellant worked days one week and nights the next;
(j) the
contractor was required to take out, at its own expense,
sufficient insurance for the machinery and its operator;
(k) the contractor
was responsible for maintaining the machinery;
(l) the payer
did not pay the appellant any wages when the machinery broke
down;
(m) the payer did not
assign other duties to the appellant when the machinery broke
down;
(n) the appellant
was employed by the contractor and not by the payer.
[4] The appellant admitted all of the
Minister's assumptions of fact, except those set out in
subparagraphs (i) and (j), which he wishes to clarify. The
appellant denied subparagraphs (l), (m) and (n).
[5] With regard to the assumptions set
out in subparagraphs (i) and (j), the appellant explained that
during the last year of the periods at issue he only worked
nights.
[6] By letters dated
November 2, 2000, the Minister informed the appellant
of his decisions that the appellant did not hold insurable
employment during the periods at issue because his employment did
not meet the requirements for a contract of service, and there
was thus no employer-employee relationship.
[7] In addition, the Minister
determined that the actual employer was 2425-9483
Québec Inc. and that the employment in question was not
insurable because the appellant controlled more than 40% of that
corporation's voting shares, which was admitted. In making his
decision, the Minister relied on paragraphs 5(1)(a) and
5(2)(b) of the Act, which read as follows:
5.(1) Subject to subsection (2), insurable employment is
(a) employment in Canada by one or more
employers, under any express or implied contract of service or
apprenticeship, written or oral, whether the earnings of the
employed person are received from the employer or some other
person and whether the earnings are calculated by time or by the
piece, or partly by time and partly by the piece, or
otherwise;
. . .
(2) Insurable employment does not include
. . .
(b) the employment of a person by a corporation if the
person controls more than 40% of the voting shares of the
corporation;
. . .
[8] It is settled law that the burden
of proof is on the appellant.
[9] In Sylvie Desroches v.
M.N.R. (A-1470-92), the Federal Court of Appeal defines the
function of a Tax Court of Canada judge as follows:
. . . However, in the final analysis, as this Court held in
Attorney General of Canada v. Jacques Doucet, it is the
Minister's determination which is at issue, namely that the
employment was not insurable because the applicant and the payer
were not bound by a contract of service. The function of the Tax
Court of Canada judge extended to considering the record and the
evidence in its entirety. . . .
[10] Each case stands on its own merits. It
was incumbent on the appellant to establish on the balance of
evidence that the Minister's decision was ill-founded.
Sections 103 and 104 of the Act confer on the Tax Court of
Canada broad remedial powers. These powers enable this Court to
resolve any dispute of a factual nature and to vacate, confirm or
vary the Minister's determination.
[11] Mr. Hugo Chayer testified for
the appellant. He is a human resources supervisor at Bowater, a
successor company to the payer. In his testimony, he described
the relationship between the various stakeholders in the industry
and the operating procedure for harvesting wood in forests.
[12] On the evidence, the era in which the
lumberjack, equipped with his chain saw, operated his own small
business in the forest is long gone.
[13] Today, forestry workers use equipment
such as tree fellers, cable skidders and grapple skidders,
machinery that enables single operators, who can also work at
night, to harvest timber, thus making operations in the forest
possible 24 hours a day. Forestry work has become
mechanized; the labour force has been significantly reduced.
Forestry work has evolved to such an extent that timber
harvesters are unionized.
[14] All these changes have transformed the
relationship between workers and payers. Payers, who in the past
owned the costly heavy machinery required, have become renters of
this same equipment, which now belongs to the worker who operates
it. The worker turns over the machinery to a corporation that he
controls, and a contract to rent this machinery to the
payer-lessee is then entered into. Such arrangements have become
the norm in this industry, and disputes before this Court have
resulted from this trend.
[15] That situation led Revenue Canada to
issue a communiqué, which was submitted to the Court. It
is dated July 8, 1997, and the first paragraph reads as
follows:
[TRANSLATION]
The purpose of this communiqué is to clarify our policy
on workers in the forestry industry who, in addition to providing
services to a contractor, rent their heavy machinery to the same
contractor.
[16] At this point, it is appropriate to
quote the other relevant parts of the communiqué:
[TRANSLATION]
Owner-operator
2. The fact
that a forestry worker owns his own machinery is not in itself a
conclusive factor in determining his employment status. It is
therefore possible for an owner-operator to
be hired under a contract of service while renting his
machinery to his employer under a rental contract. In that
situation, employment income is considered as being salary and
the income from the machinery constitutes rental income.
Written contracts
3. It is
essential that the agreements concerning the rental of the
owner-operator's heavy machinery and the hiring
of the owner-operator under a contract of
service be put in writing. Under those circumstances, the
owner-operator will be considered as an employee
holding insurable employment provided that the conditions
outlined in paragraph 7 are met.
No written contract
4. Any
situation in which there are no separate agreements in writing
(employee-machinery) shall be reviewed in order to
determine whether the essential tests for establishing the
existence of a contract of service are met. If those conditions
are not met, then the owner-operator will be deemed
to be self-employed.
Leasing of Machinery
5. The
machinery rental contract between the owner-operator
(lessor) and the prime contractor (lessee)
must include certain clauses indicating that the lessee assumes
control of the machinery for the duration of the agreement. The
following points should be covered in the contract:
(a) the precise
identification of the parties involved, for
example, lessor and lessee;
(b) the
duration of the agreement;
(c) theamount of
the rental and, if appropriate, the method of calculation
(hourly, daily, weekly, per cord, per cubic metre or by the
length of the logs handled, etc.);
(d) the
responsibilities of the lessee and the lessor; and
(e) the contract
must be signed by the two parties involved.
Contract of employment
6. While it is
possible for an owner-operator to be hired under a
valid contract of service, in general, each case must be examined
on the basis of its surrounding circumstances. However, it is
possible to conclude that in all cases where the contract of
employment of an owner-operator meets the conditions
listed in paragraph 7, the employment will be considered as
employment under a valid contract of service.
7. Those
conditions are:
(a) the employment
and machinery rental contracts must be
separate;
(b) the method of
remuneration (hourly, daily, by the piece, etc.) must be
indicated in the contract;
(c) the employer
must have the right to control the way the work will be
done; generally, this control is exercised by a foreman on the
worksite;
(d) the employer
tells the worker where and for how long he will render the
services (location or site-schedule, duration of the
employment);
(e) the employer has
the right to decide what type of work the operator will
do;
(f) the
services of the owner-operator must not be directly
tied to the operation of his machinery; in case of a major
breakdown, for example, the operator may be required by
the employer to carry out other duties for which he will be paid
accordingly; and
g) the
employer is responsible for any damage and injuries caused
by the operator in the performance of his duties, including any
injuries suffered by the operator.
[17] In response to this communiqué,
the appellant produced, as Exhibit A-2, the lease
agreement between the contractor and the payer. It reads as
follows:
[TRANSLATION]
LEASE OF PERSONAL SERVICES
1. The Contractor shall be responsible for
maintaining and repairing the equipment for the entire duration
of this contract, and shall assume the costs thereof.
The CONTRACTOR authorizes the COMPANY to deduct from the
payments provided for in this contract all deductions at source
that are required by government authorities and by the collective
agreement in force, in addition to the charges for any labour
and/or merchandise provided by the COMPANY for the operation or
maintenance of the movable described in this contract.
2. When required by law, in any respect
whatsoever, the CONTRACTOR agrees to obtain and maintain, at its
own cost, adequate insurance coverage.
3. Any property used by the CONTRACTOR to
provide the services described in this contract is so used at the
CONTRACTOR'S own risk, and the CONTRACTOR holds the COMPANY
its representatives, employees, agents, servants, successors and
assigns harmless with respect to any damage to or loss of the
said property.
4. For payment purposes, the CONTRACTOR
shall accept:
the record of hours
worked;
the quantity, volume and
quality of piecework, the whole as recorded by the COMPANY.
5. The CONTRACTOR agrees not to advance any
claim for delays or loss of time.
6. This contract is a personal contract and
it cannot be assigned, in whole or in part, by the CONTRACTOR
without the prior consent of the COMPANY.
7. It is understood that either party may
terminate this contract at any time by providing notice in
writing to the other party.
8. The CONTRACTOR agrees, where applicable,
to comply with the orders of the occupational health and safety
board in the province in which operations shall take place, and
to that end, the CONTRACTOR authorizes the COMPANY to make the
required deductions and to pay its employees in accordance with
the COMPANY'S compensation system, the whole to be deducted
from the payments provided for in this contract.
9. The CONTRACTOR agrees to comply and,
where applicable, to ensure that its employees comply, with the
COMPANY'S regulations and with government regulations,
particularly those concerning safety, and with the requirements
in the collective agreement that are applicable to the operations
to be carried out under this contract.
THIS CONTRACT IS MADE:
BETWEEN
LESSEE
Produits forestiers Alliance inc.
200 De Quen Street
Dolbeau-Mistassini, Quebec
G8M 1M1
AND
LESSOR
Forestiers BerMan inc.
1913 Sacré-Coeur Boulevard
Dolbeau, Quebec
G8L 2A5
Machine number: 2280
Representative(s): Emmanuel Labrecque
1) In consideration of the payments referred
to hereunder, the LESSOR agrees to render personal services to
the LESSEE using the movable described below, in accordance with
the following terms and conditions. It is understood that the
contractor shall assume full responsibility for the performance
of the said services.
DESCRIPTON OF
SERVICES
RATE
Equipment, make and
year: 1997 Timberjack Per
Serial
No.:
977054
attached
Model:
2628
agreement
Registration:
V621891-5
2) All of the terms and conditions set out
on the back of this contract form an integral part hereof.
3) This lease of personal services shall be
renewed from year to year unless the description of services is
altered.
Contract signed in duplicate this
05-05-99
.
________________________
______________________
LESSOR
LESSEE
THIS CONTRACT IS MADE:
BETWEEN
LESSEE
Produits forestiers Alliance inc.
200 De Quen Street
Dolbeau-Mistassini, Quebec
G8L 5M8
AND
LESSOR
Forestiers BerMan inc.
1913 Sacré-Coeur Boulevard
Dolbeau, Quebec
G8L 2A5
Machine number: 2703
Representative(s): Emmanuel Labrecque
1) In consideration of the payments referred
to hereunder, the LESSOR agrees to render personal services to
the LESSEE using the movable described below, in accordance with
the following terms and conditions. It is understood that the
contractor shall assume full responsibility for the performance
of the said services.
DESCRIPTION OF SERVICES
RATE
Equipment:
Multifunctional tree feller
1997 Timberjack
Per
Serial
No.:
977054
attached
Model:
2628
agreement
Registration:
V621891-5
2) All of the terms and conditions set out
on the back of this contract form an integral part hereof.
3) This lease of personal services shall be
renewed from year to year unless the description of services is
altered.
Contract signed in duplicate this
June 5, 2000
.
________________________
______________________
LESSOR
LESSEE
[18] Upon examining the terms of the lease
agreement in light of Revenue Canada's communiqué, an
attempt to compare the two documents reveals a significant gap
between them.
[19] For example, the condition set out in
subparagraph 5(c) of the communiqué has definitely
not been included in the lease agreement. Subparagraph 5(c) reads
as follows:
[TRANSLATION]
the amount of the rental and, if appropriate, the
method of calculation (hourly, daily, weekly, per cord, per cubic
metre or by the length of the logs handled, etc.).
[20] The same is true with regard to the
following subparagraphs of the communiqué:
[TRANSLATION]
7. (a) the employment and machinery rental
contracts must be separate;
(b) the method of
remuneration (hourly, daily, by the piece, etc.) must be
indicated in the contract;
(c) the employer
must have the right to control the way the work will be
done; generally, this control is exercised by a foreman on the
worksite;
(d) the employer
tells the worker where and for how long he will render the
services (location or site-schedule, duration of the
employment);
(e) the employer has
the right to decide what type of work the operator will
do;
(f) the
services of the owner-operator must not be directly
tied to the operation of his machinery; in case of a major
breakdown, for example, the operator may be required by
the employer to carry out other duties for which he will be paid
accordingly; and
(g) the employer
is responsible for any damage and injuries caused by the
operator in the performance of his duties, including any injuries
suffered by the operator.
[21] However, Exhibit A-2, which
sets out the terms of the agreement between the contractor and
the payer, states the following in paragraph 3:
[TRANSLATION]
Any property used by the CONTRACTOR to provide the services
described in this contract is so used at the CONTRACTOR'S own
risk, and the CONTRACTOR holds the COMPANY, its representatives,
employees, agents, servants, successors and assigns harmless with
respect to any damage to or loss of the said property.
[22] The appellant, who denied that the
payer did not pay him any wages when the machinery broke down,
brandished the collective labour agreement, filed as
Exhibit A-1. Article 23 thereof stipulates that
in case of the breakdown of a machine:
[TRANSLATION]
. . . during a workday, employees assigned to operate that
machine are entitled to compensation at the occupational rate, up
to a maximum of nine (9) hours from the time that the breakdown
is verified by the supervisor.
If the breakdown is not repaired on the second day, the
employees are entitled to compensation at the occupational rate,
up to a maximum of four and one-half (4 1/2) hours.
[23] These provisions set the compensation
limit for loss of income due to a major equipment breakdown. When
this was put to him, the appellant explained that major
breakdowns in these pieces of equipment are rare due to the high
quality of maintenance that the equipment receives. The question
of who, in this particular instance, incurred the loss if,
however, such a breakdown occurred, remained unanswered. The
document entitled [TRANSLATION] "Lease of Personal
Services," Exhibit A-2, states that:
[TRANSLATION]
The CONTRACTOR agrees not to advance any claim for delays or
loss of time.
[24] It is true, as the appellant claims,
that some of the conditions listed in the communiqué are
included in the collective labour agreement. However, not all of
them are included. It should be noted that most of these
conditions represent nothing more than what is already stated in
the subparagraphs on which the Minister relied in making his
determination.
[25] In her argument, counsel for the
Minister called for the application of the principles established
in the following cases:
1. Canada (Attorney
General) v. Rousselle (F.C.A.), [1990]
F.C.J. No. 990;
2. Coopérative
Forestière des Hautes-Laurentides v. Canada
(Minister of National Revenue - M.N.R.), [1996]
T.C.J. No. 469;
3. Charbonneau v.
Canada (Minister of National Revenue - M.N.R.), [1996]
F.C.J. No. 1337;
4. Girard c. Canada
(ministre du Revenu national - M.R.N.), [2000] A.C.I.
no 35.
[26] InCoopérative
Forestière des Hautes-Laurentides, supra, Judge
Cuddihy of this Court stated in the following terms the
principles and tests laid down in the relevant case law:
I must adopt the reasoning used by Desjardins J.A. of the
Federal Court of Appeal in Hennick, [See Note 2 below] and I
quote:
______________________________________________________
Note 2: The Attorney General of Canada v. Gayle
Hennick and Royal Conservatory of Music, A-328-94, February 22,
1995.
______________________________________________________
While this text is well known, it might be useful at the outset
to emphasize that in his analysis of both Lord Wright's
fourfold test (control, ownership of the tools, chance of profit,
risk of loss) and of Lord Denning's organization or
integration test, MacGuigan J.A. in Wiebe Door Services Ltd.,
stressed all along that what remains of the essence is the search
for the total relationship of the parties. He first quoted at
length Lord Wright in Montreal v. Montreal Locomotive Works Ltd.
[See Note 3 below]
______________________________________________________
Note 3: [1947]
1 D.L.R. 161 (P.C.), at 167-70.
______________________________________________________
In earlier cases a single test, such as the presence or
absence of control, was often relied on to determine whether the
case was one of master and servant, mostly in order to decide
issues of tortious liability on the part of the master or
superior. In the more complex conditions of modern
industry, more complicated tests have often to be
applied. It has been suggested that a fourfold test
would in some cases be more appropriate, a complex involving (1)
control; (2) ownership of the tools; (3) chance of profit;
(4) risk of loss. Control in itself is not always
conclusive. Thus the master of a chartered vessel is
generally the employee of the shipowner though the charterer can
direct the employment of the vessel. Again the law often
limits the employer's right to interfere with the
employee's conduct, as also do trade union
regulations. In many cases the question can only be
settled by examining the whole of the various elements which
constitute the relationship between the parties. In
this way it is in some cases possible to decide the issue by
raising as the crucial question whose business is it, or in other
words by asking whether the party is carrying on the business, in
the sense of carrying it on for himself or on his own behalf and
not merely for a superior.
[Emphasis in text]
Then, he added: [See Note 4 below]
______________________________________________________
Note 4: Wiebe Door Services Ltd. at
562-63.
______________________________________________________
. . . I interpret Lord Wright's test not as the fourfold
one it is often described as being but rather as a four-in-one
test, with emphasis always retained on what Lord Wright, supra,
calls "the combined force of the whole scheme of
operations," even while the usefulness of the four
subordinate criteria is acknowledged.
. . . What must always remain of the essence is the search for
the total relationship of the parties . . .
Of course, the organization test of Lord Denning and others
produces entirely acceptable results when properly applied, that
is, when the question of organization or integration is
approached from the persona of the "employee" and not
from that of the "employer", because it is always too
easy from the superior perspective of the larger enterprise to
assume that every contributing cause is so arranged purely for
the convenience of the larger entity. We must keep in
mind that it was with respect to the business of the employee
that Lord Wright addressed the question "Whose business is
it?"
[my emphasis]
[27] In Rousselle, supra, the
Federal Court of Appeal also reviewed the principles and tests
set out above and, in circumstances similar to those herein, that
court, speaking through Hugessen J.A., stated the following:
In my view, it is clear that the Tax Court of Canada judge
misunderstood and so misapplied several of the criteria mentioned
above.
First, as regards the factor of "control", it is
established that the respondents worked by themselves in the
forest at a location some distance from the employer's place
of business. There was no representative of the
employer on the spot and so no direct supervision.
Each of the respondents was free to work when he wanted and
the hours he wanted. Once a week at most, Mr. Chiasson
went to the location to measure the wood cut. As we
have seen, it was agreed in advance that each respondent would
work only the minimum number of weeks necessary to qualify for
unemployment insurance.
. . .
In my view, it is clear that the judge did not understand the
meaning of the word "control". Fixing the
amount of remuneration or defining the purpose of the exercise is
not controlling work. These aspects exist in a
contract for services as much as in a contract of
service. It is still more the case that control does
not lie in the act of payment, whether by cheque or
otherwise.
[28] The evidence showed that the
payer's foremen marked the trees. However, the workers
prepared the time sheets and submitted them to the foreman once a
week. The Appellant testified that:
[TRANSLATION]
. . . the foremen tell us what to do. We do not see them
often. We stay at the logging camp from Monday to Friday.
[29] It has been established that the
contractor agreed to comply and, where applicable, to ensure that
its employees complied, with the payer's regulations. The
payer recognizes that the worker was under the contractor's
supervision. This is in accordance with the contract that they
signed. However, it must be remembered that the worker is the
contractor's sole shareholder, and therefore, in that
context, the worker is responsible for his own supervision.
[30] As regards the ownership of tools, the
contractor unquestionably owned the equipment, and the appellant
was the worker who operated it. The employer did not provide any
tools.
[31] As regards the chance of profit and the
risk of loss, it is important to emphasize that the worker's
remuneration was split in order to clearly show that all profits
and losses were those of 2425-9483 Québec Inc.,
represented by its sole shareholder, the worker. Thus, it was not
the payer that incurred on behalf of the worker the most costly
risks under the overall agreement. The profit lay in the
remuneration paid to 2425-9483 Québec Inc., and to the
worker, its sole shareholder. In fact, the two were
inseparable.
[32] With respect to the integration test,
it must be recognized that the worker and the payer are involved
in the same field of activity. However, this Court does not
believe that the payer's project would have got underway
without the worker.
[33] 2425-9483 Québec Inc. was the
worker's business. Thus, the worker and his company,
2425-9483 Québec Inc., became integrated with the
appellant at the beginning of the project in order to carry out
the agreed work. However, one must recognize that the meaning and
scope of a contract is determined not by the title the contract
is given, but rather by the relationships between the parties and
by the parties' conduct. That is what determines the true
nature of the resulting contract.
[34] It should be noted-and this fact is
significant-that the contract between the payer and the worker
does not set any rate of pay and thus cannot create an
employer-employee relationship, as the rate of pay is an
element essential to the existence of insurable employment.
[35] This Court therefore concludes that the
Appellant did not hold insurable employment during the periods at
issue because his employment did not meet the requirements for a
contract of service. Thus, there was no employer-employee
relationship.
[36] In addition, the appellant's actual
employer was 2425-9483 Québec Inc. However, his employment
with that employer is not insurable because the appellant
controlled more than 40% of the voting shares of that
corporation.
[37] In the opinion of this Court, this
decision is supported by well-settled case law in which, in
similar circumstances, employment held under the same conditions
was found to be non-insurable. This Court wishes to make it
clear that it is referring to the aforementioned cases,
namely:
1. Rousselle;
2. Coopérative
Forestière des Hautes-Laurentides;
3. Charbonneau;
4. Girard.
[38] Therefore, the appeal is dismissed and
the Minister's decision is confirmed.
Signed at Grand-Barachois, New Brunswick, this 9th day of
September 2002.
D.J.T.C.C.
Translation certified true
on this 9th day of December 2003.
Erich Klein, Revisor
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