Citation: 2011TCC209
Date: 20110412
Dockets: 2010-2192(CPP)
2010-2193(EI)
BETWEEN:
SOUTHLAND LIVESTOCK FEEDERS LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Southland Livestock Feeders Ltd.
(“Southland”) is appealing the decision of the Minister of National Revenue
that in 2007 Walter Penner was an employee engaged in pensionable and insurable
employment under paragraph 6(1)(a) of the Canada Pension Plan and
paragraph 5(1)(a) of the Employment Insurance Act,
respectively.
[2]
The only witness to
testify was the principal of Southland, Brent Cammer. He was direct and concise in his testimony and gave me no
reason to doubt his evidence. For the reasons set out below, I am satisfied
that Mr. Penner was working as an independent contractor.
[3]
Mr. Cammer is a rancher. In 2007, he in his capacity as the
principal of Southland was also running a
feedlot. The essence of a feedlot business is to fatten cattle for market. The
cattle are owned by third parties who pay a fee to the feedlot operator to
provide that service. One of Mr. Cammer’s responsibilities was to monitor each
animal’s development and adjust its nutrition to ensure the production of a
healthy profitable beast.
[4]
Mr. Penner was an
experienced feedlot worker. His role was to carry out the feeding of the cattle
in accordance with Southland’s specifications while also exercising his own
good judgment regarding the cattle’s condition. In performing such services, he used Southland’s
tractors, feed‑mixing wagon and grain augers. The other component of his
work was to maintain and repair Southland’s feedlot equipment. For this work,
he provided his own tools. He had access to a welder and air compressor on the
Southland property. He was reimbursed by Southland for any replacement parts he
purchased.
[5]
It is common ground
that Mr. Penner set his own schedule and worked as many hours as were required to get the job
done. The amount of work depended on the number of cattle on hand as well as
the weather; for example, during January’s deep freeze, the feedlot was a much
busier place than in August when grazing land was readily available. Because of
the unpredictability of the amount of work that might be required at any given
time, the parties agreed that Mr. Penner would invoice Southland bi-monthly
according to the number of hours worked at a rate of $13 per hour.
The sample invoices before the Court showed that Mr. Penner’s hours ranged from
141 hours at the beginning of January to 75 at the end of April.
[6]
Contrary to the Minister’s
assumptions, Mr. Penner did not receive any training and did not require
supervision. Because of his experience and competence in feedlot work, once he had
been shown around the Southland feedlot, he simply got on with the tasks
required.
[7]
I accept Mr. Cammer’s evidence
that during their negotiations, Mr. Penner represented himself to Southland as
a self-employed worker and, for reasons of his own not all of which seem to
have been good, insisted on being paid in cash. Southland agreed to his
conditions and accordingly, no deductions were made from Mr. Penner’s invoiced amounts
for income tax, employment insurance or Canada Pension Plan premiums. Southland
issued receipts for cash payments to Mr. Penner of $27,000.
[8]
In addition to his feedlot work,
Mr. Penner was engaged in other commercial endeavours, including the raising of
purebred dogs and goats. As a result, he dedicated about a third of his time to
the Southland feedlot. If Mr. Penner was not available, Southland had to make
other arrangements for the cattle which, in practical terms, meant Mr. Cammer
did the work himself. On some occasions, Mr. Penner brought a friend along
with him to help with his work. While Mr. Cammer was unable to say if Mr.
Penner paid her for her efforts, the important fact is that Southland did not.
Analysis
[9]
What seems to have pricked the Minister’s
interest in this matter was Mr. Penner’s having reported his Southland
earnings as “other employment income” and his not having ever reported any
business income in past years. Mr. Cammer said he had tried to track down Mr.
Penner in the hope of resolving his problems with the Canada Revenue Agency but
had had no success. Without Mr. Penner’s evidence, it was left to Mr. Cammer to
rebut the assumed facts upon which the Minister based his decision to assess
Southland for employment insurance and CPP premiums. This he has done.
[10]
In determining whether a worker is
an employee or an independent contractor, the Court must be guided by the
four-fold test in 671122 Ontario Ltd. v. Sagaz Industries
Canada Inc.
and may, in certain circumstances, take into account the intentions of the
parties; Royal Winnipeg Ballet v. Minister of National Revenue, [2008] 1
C.T.C. 220. In the present matter, the evidence in respect of the Sagaz criteria
is not particularly helpful in assessing Mr. Penner’s status; of greater
assistance is the evidence of the parties’ intentions.
[11]
Turning, first, to the Sagaz factors,
the evidence regarding the degree of control is not necessarily consistent with
Mr. Penner’s having been an employee. Though Mr. Penner was obliged to meet the
expectations of Southland in providing his services, he was not under
Southland’s “control” as that term is normally understood. Mr. Cammer had similar
expectations of Southland’s accountants and lawyers, neither of whom would be
considered employees of the company. The fact is that Mr. Penner effectively
worked on his own, without training or supervision, during the hours he chose
to complete the work. What dictated his schedule were the alimentary needs of
the cattle; subject to that reality, he was free to work for himself or others
and in fact, was engaged in his own business ventures while working at
Southland. As for tools, the large equipment and the small tools required for
the maintenance and repair work were provided by Southland and Mr. Penner,
respectively. The evidence in respect of tools is neutral except for the
Minister’s assumption that Mr. Penner used his own vehicle to get to and from
the Southland feedlot. Assuming that the Minister considered the vehicle to be
a “tool”, that fact is more consistent with Mr. Penner’s having been an
independent contractor than an employee. Normally, it is in circumstances where
the payor provides transportation to the worker that he is found to be an
employee.
[12]
Regarding the chance of profit and
risk of loss, here, the evidence tips ever so slightly in favour of Mr.
Penner’s having been an independent contractor. Given the control he exercised
over how and when he performed his work and his ability to bring in additional
help, he had some opportunity to maximize his earnings. There was no clear
evidence as to whether Mr. Penner would have had to make good any losses, say,
for example, if one of the cattle had died as a result of his ministrations
because that never happened. I am able to infer from the tenor of Mr. Cammer’s
testimony, however, that had Mr. Penner caused Southland any economic loss, it
is more likely than not he would have had to make up for it. That leaves only
the integration test – always difficult to apply in any practical way and all
the more so in the present circumstances. Counsel for the Respondent quite
rightly argued that feeding the cattle was essential to Southland’s business.
It does not follow, however, that Mr. Penner was integral to the business and
therefore, an employee. As was recognized by Décary, J.A. in Wolf v. Canada,
2002 FCA 96, these days, work that is a fundamental
component of a payor’s business is often performed by contract workers:
[120] In
our day and age, when a worker decides to keep his freedom to come in and out
of a contract almost at will, when the hiring person wants to have no liability
towards a worker other than the price of work and when the terms of the
contract and its performance reflect those intentions, the contract should
generally be characterised as a contract for services. If specific factors have
to be identified, I would name lack of job security, disregard for
employee-type benefits, freedom of choice and mobility concerns.
[13]
All in all, Mr. Cammer’s evidence leans
more towards the conclusion that Mr. Penner was an independent contractor than an
employee. To the extent there remains any doubt, the intention of the parties
tips the balance in Southland’s favour. In Royal Winnipeg Ballet, the
Federal Court of Appeal cited another of Justice Décary’s comments from Wolf:
Taxpayers may
arrange their affairs in such a lawful way as they wish. No one has suggested
that Mr. Wolf or Canadair or Kirk-Mayer are not what they say they are or have
arranged their affairs in such a way as to deceive the taxing authorities or
anybody else. When a contract is genuinely entered into as a contract for
services and is performed as such, the common intention of the parties is clear
and that should be the end of the search. Should that not be enough, suffice it
to add, in the case at bar, that the circumstances in which the contract was
formed, the interpretation already given to it by the parties and usage in the
aeronautic industry all lead to the conclusion that Mr. Wolf is in no position
of subordination and that Canadair is in no position of control.
[14]
Justice Noël concurred in the
result but qualified the above statement by saying:
… I
acknowledge that the manner in which parties choose to describe their
relationship is not usually determinative particularly where the applicable legal
tests point in the other direction. 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.
…
This is not a
case where the parties labelled their relationship in a certain way with a view
of achieving a tax benefit. No sham or window dressing of any sort is
suggested. 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 … .
[15]
After considering these decisions
and the related jurisprudence in some detail, Sharlow, J.A. went on to summarize
the emerging principles and their application to the question of employee
versus independent contractor:
… One
principle is that in interpreting a contract, what is sought is the common
intention of the parties rather than the adherence to the literal meaning of
the words. Another principle is that in interpreting a contract, the
circumstances in which it was formed, the interpretation which has already been
given to it by the parties or which it may have received, and usage, are all
taken into account. The inescapable conclusion is that the evidence of the
parties’ understanding of their contract must always be examined and given
appropriate weight.
[Underling added.]
[16]
Applying the above to the present
circumstances, it should be noted that the Minister did not allege sham or
improper purpose in respect of Southland’s agreement with Mr. Penner. Because
the contract between Southland and Mr. Penner was verbal, its terms and
the circumstances hinged on the credibility of Mr. Cammer’s evidence in this
regard. As mentioned at the outset, he gave me no reason not to take him at his
word. His direct evidence was not shaken on cross‑examination. Having
thus cast doubt on the accuracy of the Minister’s assumptions, Mr. Cammer
shifted the onus to the Minister to buttress his case. No witnesses were called
by the Crown.
[17]
Turning, then, to the context in
which the oral agreement was made, it involved two cattlemen in southwest
Saskatchewan’s ranching country, both experienced and competent in the proper
operation of a feedlot, each with other businesses on the go, in more or less equal
positions of power to negotiate the rate and conditions for Mr. Penner’s performance
of certain services for Southland. If there was any inequality in bargaining
power, it seems to me Southland was in the weaker position. In explaining one
of the reasons why it would have been nonsensical for Mr. Penner to have
provided his own tractor, wagon and grain augers, Mr. Cammer testified that it
was difficult enough to find people willing to do feedlot work without imposing
onerous (and redundant, since the very same equipment was already available at
the feedlot) conditions on them. This suggests that had Mr. Penner wanted to,
he could have negotiated for a position as an employee; whether Southland would
have agreed to that is another matter.
[18]
The invoices produced by Southland
show that the parties acted in accordance with the verbal agreement described
by Mr. Cammer. As for the Minister’s assumptions that Mr. Penner reported his
income from Southland as “other employee income” instead of business income and
that he had never declared business income on his returns in the past, why he might
have done so is beyond the knowledge of Southland and, in any case, is not in
itself indicative of his not having intended to work as an independent
contractor. Similarly, Mr. Penner’s not having registered for GST does not
mean he was an employee; his gross income from Southland was less than the
threshold amount that would have triggered his obligation to register.
[19]
More significant, for the purposes
of an appeal of an assessment for unremitted employment insurance and CPP
premiums, is the fact that the Minister’s interest in the file arose in respect
of Mr. Penner’s income tax return rather than an application for employment insurance.
From this I infer that he never applied for any benefits. His not having done
so is also consistent with Mr. Cammer’s evidence that Mr. Penner considered
himself to be an independent contractor.
[20]
In all of the circumstances, I am
persuaded that Mr. Penner was working at the Southland feedlot in 2007 as an
independent contractor. The appeal of the assessment of the Minister of
National Revenue for employment insurance and Canada Pension Plan premiums is
allowed and the assessment is vacated.
Signed at Toronto, Ontario, this 12th day of April 2011.
“G. A. Sheridan”
Email this Content