Citation: 2011TCC351
Date: 20110715
Docket: 2010-2371(EI)
2010-2372(CPP)
BETWEEN:
RALPH FRANK WATZKE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
MERCHANT LAW GROUP LLP,
Intervenor.
REASONS FOR JUDGMENT
V.A. Miller J.
[1]
The Appellant appeals
from a decision made by the Minister of National Revenue (the “Minister”) that
he was not employed in insurable and pensionable employment with Merchant Law
Group LLP (the “Payor”) during the period June 2, 2008 to May 14, 2009.
[2]
These appeals were
heard on common evidence. The only issue is whether the Appellant was employed
as an employee or an independent contractor. The Appellant says that he was an
employee; whereas, the Minister and the Payor say that the Appellant was an
independent contractor.
[3]
At the hearing,
evidence was given by the Appellant, Gerald Heinrichs, a lawyer with the Payor,
and Anthony Merchant, founder of the Payor.
[4]
The central question to
be determined is whether the Appellant was engaged by the Payor as a person in
business on his own account[1].
In answering that question, I will take note of the parties’ intention and
whether the terms of their relationship support their intention. Some of the
terms to be considered were those given in Wiebe Door Services Ltd.[2]
They are control, ownership of tools, chance of profit and risk of loss.
[5]
The Appellant gave his
evidence in a rambling manner to the point that during cross examination his
answers were often incomprehensible. In many instances, there was a conflict
between the evidence given by him and that given by Mr. Merchant.
[6]
Where there is a
conflict in the evidence, I have accepted that of Mr. Merchant as it was more
cogent.
Intention
[7]
The Appellant is a
senior lawyer who has practised law since 1977. He stated that in 2008 he
practised law in Edmonton,
Alberta with the law firm of
Iginla & Company.
[8]
That year he saw an
advertisement placed by the Payor for a lawyer. According to him, the
advertisement read that the successful candidate would be trained as a class
action lawyer.
[9]
The Appellant
telephoned Mr. Merchant and later received a letter with the offer of a job.
The Appellant could only recall having one conversation with Mr. Merchant prior
to being offered a position with the Payor.
[10]
Mr. Merchant testified
that the Payor never advertised for a lawyer; it advertised for an articled
clerk. However, he was pleased to attract a senior lawyer like the Appellant.
After several conversations, the Appellant was offered a position as an
associate with the Payor.
[11]
The Appellant stated
that the letter of offer did not suggest he would be hired as an independent
contractor.
[12]
However, it was Mr.
Merchant’s evidence that he told the Appellant he would be engaged as an
associate and that all associates with the Payor are independent contractors.
He remembered discussing the tax benefits that result from being an independent
contractor with the Payor.
[13]
I note that in the
letter of offer dated May 12, 2008 to the Appellant, Mr. Merchant wrote:
Like other senior lawyers in the firm, you would join us under the
Senior Associates Agreement which has tax advantages.
[14]
The Associates
Agreement (the “Agreement”) contained the terms which governed the relationship
between the Payor and its associates. However, the Appellant did not sign the
Agreement and Mr. Merchant did not give an explanation as to why no one
followed up with the Appellant to sign the Agreement.
[15]
Regardless, it is my
opinion that the Appellant accepted that he was hired as an independent
contractor and it was his intention to be an independent contractor. He
received GST on his earnings with the Payor. He neither questioned this receipt
nor did he report it to the Canada Revenue Agency. No source deductions were
withheld from his earnings and the Appellant did not question it. He never
questioned his employment status with Mr. Merchant. It was only after he was
dismissed by the Payor and he sought employment insurance benefits that the
Appellant stated he had been an employee.
Control
[16]
The Appellant stated
that Mr. Merchant gave him assignments; supervised his work; and, trained him
in the field of class actions.
[17]
Mr. Merchant testified
that he did not manage or supervise any of the lawyers in the office. The Payor
was structured so that he did not have to manage the lawyers. The Appellant was
a senior lawyer who had practised law for 38 years prior to working with the
Payor. According to Mr. Merchant, the Appellant was bright. He had high grades
and good references. He did not require training and although he had no
experience in class action files, he studied and worked with the team of
lawyers who had carriage of these files.
[18]
The Appellant submitted
one of his letters as an exhibit which he said was corrected by Mr. Merchant.
It was Mr. Merchant’s evidence that the Appellant had asked for his opinion. I
note that the comments written on the letter were suggestions and not
directions by Mr. Merchant.
[19]
The Appellant’s
workload consisted of files he had brought with him from Alberta; files he
opened as a result of telephone calls at the Payor’s office; files he worked on
for other lawyers in the office; and, research. He was never in charge of class
action files but he did work on them. He was free to accept or to refuse to
work on files offered by Mr. Merchant or any of the other lawyers.
[20]
The Appellant had no
set hours of work. As with most professionals, he worked as many hours as it
took to complete a file. He kept track of his billable hours but no one tracked
the actual hours that he worked.
[21]
Although the Appellant
did not sign the Agreement, he worked according to its terms. He could take
vacation whenever he chose. He was required to inform the Payor if he was going
to be absent for more than three consecutive business days. In accordance with
this requirement, on December 17, 2008, the Appellant wrote to Mr. Merchant and
Mr. Outerbridge that he would have to be absent for a full month. Apparently,
he did not take off the entire month because his workload was too heavy.
However, that was his choice.
[22]
I find that the Payor
did not exercise control over the Appellant. This factor suggests that the
Appellant was an independent contractor.
Ownership of Tools
[23]
The Payor provided the
Appellant with an office, support staff and office supplies. Generally, the
Payor provided the Appellant with all of the tools necessary to do his work.
[24]
The Appellant was
responsible for paying his Bar fees, liability insurance, travel and
entertainment.
[25]
The Appellant could not
practice law without paying the Bar fees and the liability insurance. Likewise,
he could not practice without an office and supplies. I find that this factor
is inconclusive.
Chance of Profit/Risk of Loss
[26]
The Appellant was paid
an hourly rate for a maximum of six months. According to Mr. Merchant, the
Payor paid the hourly rate to new lawyers to assist them until there was cash
received from their billings. Thereafter, the Appellant was paid in accordance
with the Agreement. He received 41% on the first $160,000 of his cash receipts
and 45% on cash receipts over $160,000.
[27]
I note that, in
November and December, the Appellant’s remuneration was 41% of his cash
receipts.
[28]
The Appellant had both
a chance of profit and a risk of loss. His remuneration depended not only on
his billings but also on whether the amounts billed were collected. At the end
of six months, if none of the Appellant’s billings were collected, he would
receive no pay. The fact that the Appellant was assisted by being paid an
hourly rate for five months does not change his status from an independent
contractor to an employee.
[29]
After reviewing all of
the evidence, I have concluded that the Appellant was an independent contractor
during the period June 2, 2008 to May 14, 2009 while he was employed with the
Merchant Law Group LLP.
[30]
The appeals are
dismissed.
Signed at Ottawa,
Canada, this 15th day of July 2011.
“V.A. Miller”
Email this Content