Citation: 2010 TCC 437
Date: 20100823
Docket: 2008-3724(CPP)
BETWEEN:
DONALD W. YETMAN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Favreau J.
[1]
This appeal is from decisions
and assessments by the Minister of National Revenue ("the Minister").
The decisions were that, for the period from January 1, 2006 to
February 4, 2008 (the "Period"), the Appellant was employed
under a contract of service with Global Postal Consulting Inc. (the "Payer")
for the purposes of the Employment Insurance Act, S.C. 1996,
c. 23, as amended (the "EIA") and that during the same
period he was employed by the same employer in pensionable employment for the
purposes of the Canada Pension Plan, R.S.C. 1985, c. C‑8,
as amended (the "CPP"). This appeal was heard on common
evidence with the appeals of Martin Bean (2008-3723 (EI)) and (2008-3721 (CPP)).
[2]
The Appellant has not
appealed the Minister's decision under the EIA because no employment
insurance premiums were payable as the Appellant was considered as controlling
more than 40% of the voting shares of the Payer.
[3]
The Respondent relied
on the following assumptions of fact set out in paragraph 9 of the Reply
to the Notice of Appeal:
(a) the Payer operates a business involved in
providing process and technological consultation within the postal community
(the “Business”); (admitted)
(b) the Business was incorporated in 2004; (admitted)
(c) the Payer’s shareholders
and their percentages of holdings are:
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Amber Bean
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50%
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Jennifer
Yetman
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50%
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(admitted)
(d) there are only 2 workers in the
Business, the Appellant and Mr. Bean; (admitted)
(e) prior to 2005, the Appellant and Martin
Bean were employed by Canada Post; (denied)
(f) the Appellant and Martin Bean’s
employment with Canada Post was terminated in 2006; (denied)
(g) the Appellant is the father of the
shareholder, Jennifer Yetman; (admitted)
(h) Martin Bean is the spouse of the other
shareholder, Amber Bean; (admitted)
(i) the Appellant and Mr. Bean are Directors
of the Business; (admitted)
(j) the Appellant is the President and Mr. Bean
is the Vice-President of the Business; (admitted)
(k) the 2 shareholders, Amber Bean
and Jennifer Yetman have no knowledge of the Payer’s business; (denied)
(l) Amber Bean and Jennifer Yetman
were shareholders in name only; (denied)
(m) the Appellant and Mr. Bean
controlled the voting shares of Amber Bean and Jennifer Yetman; (denied)
(n) the Appellant and Mr. Bean controlled the
day‑to‑day operations and made the major business decisions for the
Business; (admitted)
(o) the Appellant has the authority to hire or
dismiss the Payer's staff and sign cheques and leases on the Payer's behalf; (admitted)
(p) the Appellant was hired under a verbal
agreement; (denied)
(q) the Appellant has 32 years of
experience with Canada Post; (admitted)
(r) the Appellant provided the
following duties:
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needs assessments and training requirements
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develop solutions for businesses and address postal needs
secure contracts;
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(admitted)
(s)
Mr. Bean does similar work as the Appellant; (denied)
(t)
the Appellant obtains contracts on behalf of the
Payer and negotiates the price of all contracts with clients; (denied as
written)
(u)
the Appellant works on contracts that he
personally secured on the Payer’s behalf; (denied as written)
(v)
the Appellant could not refuse work from the
Payer; (denied)
(w)
the Appellant performed his duties at the
client’s location or from his personal residence, which was also the Payer's
business address; (admitted)
(x)
the Appellant was required to report to the
Payer; (denied)
(y)
the Payer sets the Appellant’s deadlines and
priorities; (denied)
(z)
the Appellant received verbal instructions from
the Payer; (denied)
(aa)
the Payer’s
business hours of operation varied based on customer contracts; (admitted)
(bb)
the Appellant’s hours of work were flexible
based on the Payer’s contracts; (admitted)
(cc)
the Appellant was not required to record
his hours of work; (admitted)
(dd)
the Appellant was required to provide his
services personally; (denied)
(ee)
the Appellant did hire assistants;
(ff)
the Payer paid the assistants;
(gg)
the Appellant was required to provide his own
laptop computer in order to provide his services to the Payer; (admitted)
(hh)
the Payer provided the Appellant with a company
e-mail account; (admitted)
(ii)
the Appellant incurred minimal expenses relating
to his laptop in the performance of his duties; (admitted)
(jj)
the Payer reimbursed the Appellant for travel
expenses; (admitted)
(kk)
the Appellant was paid a flat rate of pay; (denied)
(ll)
the Payer determined the Appellant’s rate of
pay, which was based on the size and number of contracts the Payer obtained; (admitted)
(mm)
the Payer determined the payment frequency based
on it’s [sic] contracts with clients; (admitted)
(nn)
the Appellant was paid by direct deposit
transfers; (admitted)
(oo)
the Appellant submitted invoices to the Payer; (admitted)
(pp)
the Appellant has signing authority on the
Payer's business bank account; (admitted)
(qq)
the Appellant was hired for an indefinite period
of time; (denied)
(rr)
the Payer’s clients determined if work needed to
be redone; (admitted)
(ss)
the Payer had the right to terminate the
Appellant’s services; (admitted)
(tt)
the Payer does not own any assets; (admitted)
(uu)
during the Period, the Payer’s bank account held
a minimal balance (close to zero); (admitted)
(vv)
all revenues are paid directly to the Payer; (admitted)
(ww)
the Appellant registered a GST account with CRA
on June 1, 2007. (admitted)
[4]
Mr. Bean testified at
the hearing and stated that the Payer, although incorporated in 2004, was
inactive until June 1, 2007, at which time it obtained its first contract.
He stated that he was not related to Mr. Yetman and that he met him while,
as an employee of the CGI Group, he was assigned to a Canada Post contract. At
that time, the Appellant was a manager responsible for international contracts
at Canada Post. Mr. Bean said that he has never been an employee of Canada
Post. He left CGI in August 2006 and then worked for Escher Group Ltd. until
March or April 2007. On June 1, 2007, he started to provide services
to the Payer.
[5]
The Appellant also
testified at the hearing and stated that he retired from Canada Post in 2006
after 40 years of service. After his retirement, he worked for another
company for approximately nine months. Since then, his only involvement in the
labour force has been with the Payer and as a part‑time employee of the
City of Ottawa (five hours per week). He confirmed that
he worked with Mr. Bean on the same projects for three or four years while
he was with Canada Post.
[6]
The Appellant explained
the business deal with Mr. Bean. Essentially, it was the sharing on a fifty-fifty
basis of the income derived from contracts entered into by the Payer. A company
was incorporated because clients prefer to deal with a company rather than with
individuals. The shareholding of the company was set up in such a way as to
give an appearance of neutrality. The Payer's shareholders invested only $50
each in the share capital of the Payer and were not involved in the day‑to‑day
operations of the business.
[7]
The intention of the
Appellant and of Mr. Bean was to operate at the lowest administrative cost
possible, without any payroll. Their respective relationship with the Payer was
structured in such a way that they were independent contractors and not
employees. To achieve their goal, on October 30, 2004, they each signed a
consulting agreement with the Payer. According to the Appellant, the Payer was
a virtual company having no office, no assets and no work tools. The Payer was
not a profit centre and did not declare any net income on its T‑2, nor did
it pay any income tax during the Period. The financial year of the Payer ended
on September 30 each year.
[8]
In their respective
testimony, the Appellant and Mr. Bean explained that they both sought
contracts for the Payer and that they jointly negotiated the price and all
other terms and conditions of the contracts entered into with clients. The
deadlines and priorities regarding the work to be performed were established by
the contracts and were negotiated before the contracts were signed. The
Appellant was responsible for the administrative aspects of the contracts and
he performed his duties either on the clients' premises or from his own
residence. The Appellant was required to provide his own laptop computer in
order to perform his duties. The contracts were prepared in the Payer's name and
all payments resulting from the execution of the contracts were made directly
to the Payer. The Appellant submitted invoices to the Payer for his work and he
was paid by direct deposit.
[9]
According to the
Appellant, he was the person responsible for the management of the Payer, for
the preparation of the yearly financial statements, for the filing of the
income tax and GST returns, for the collection of accounts receivable and for the
payment of accounts payable.
Analysis
[10]
In Lang v. Canada
(M.N.R.), [2007] T.C.J. No. 365 (QL), 2007 TCC 547, Chief Justice
Bowman, as he then was, summarized in the following manner the rules applicable
where the question of the legal status of a worker arises:
[4] Each case in which the question of employee versus
independent contractor arises must be determined on its own facts. The four
components in the composite test enunciated in Wiebe Door Services Ltd. v.
M.N.R., 87 D.T.C. 5025 and 671122 Ontario Ltd. v. Sagaz Industries
Canada Inc., [2001] 2 S.C.R. 983, must each be assigned their appropriate
weight in the circumstances of the case. Moreover, the intention of the parties
to the contract has, in recent decisions of the Federal Court of Appeal, become
a factor whose weight seems to vary from case to case. (The Royal Winnipeg
Ballet v. M.N.R., [2006] F.C.J. No. 339, 2006 FCA 87; Wolf v.
Canada, [2002] F.C.J. No. 375, 2002 FCA 96; City Water International
Inc. v. M.N.R., [2006] F.C.J. No. 1653, 2006 FCA 350).
[11]
In Gagnon v. Canada
(M.N.R.), [2007] F.C.J. No. 156 (QL), 2007 FCA 33, the Federal
Court of Appeal reiterated the principle that the burden is on the party who
opposes the Minister's decision to rebut the assumptions of fact made by the
Minister (Le Livreur Plus Inc. v. Canada (Minister of National Revenue),
2004 FCA 68, at paragraph 12).
[12]
In the instant case,
the Appellant entered into a written contrat with the Payer. Despite the fact
that its terms and conditions were not strictly adhered to, the contract cannot
be disregarded. The signature of the contract clearly shows that the intent of
the parties to the contract was to structure their working relationship on the
basis of a contract for services. At the hearing, the testimonies of the
Appellant and of Mr. Bean confirmed the intention of the parties regarding
their business relationship. The fact that the Appellant submitted invoices for
the work he performed for the Payer constitutes another element confirming that
the Appellant considered himself as acting as an independent contractor.
[13]
The four‑in‑one
test developed in Wiebe Door includes the following factors:
(a)
control
(b)
ownership of tools
(c)
chance of profit
(d)
risk of loss (sometimes
(c) and (d) are combined)
(e)
integration.
According to Chief Justice Bowman, only factors (a) to
(d) are part of one single test. As for the integration factor, it is difficult
to apply and is not in itself relevant in determining whether or not a person
is an employee.
[14]
The term "control"
has been defined by Justice Bowie of this Court in Gagnon v. Canada
(M.N.R.), [2006] T.C.J. No. 40 (QL), 2006 TCC 66, as "the
right to direct the manner of doing the work, as opposed to whether that right was
exercised by the Appellant" (paragraph 14).
[15]
In the present case,
the evidence at the hearing, which consisted essentially of the testimony of
the Appellant and Mr. Bean, was to the effect that:
the Appellant performed the work by
using the method of his choice, without the supervision and control of the
Payer;
the Appellant was assigned work and
was paid a set amount for the delivery of the work;
the Appellant had to provide a work
package deliverable, and the priority given the work he did was totally at his
discretion;
the Appellant worked independently
within a defined delivery timeframe; he used his expertise to provide the
deliverable, without any direction or supervision from the Payer;
the Appellant was not required to
provide his services personally and he did hire assistants who were paid by the
Payer;
the Payer did not have control over
the work or jobs that the Appellant could take on; he could work for other
companies or other legal entities and he did not require permission from the
Payer to do so; during the Period, the Appellant did work for others (for
example, the City of Ottawa);
the Appellant did not report to
work at an establishment of the Payer and he was not required to record his
hours of work;
the Appellant did not receive any
training from the Payer with regard to how to do the work for which he was
engaged.
[16]
At the hearing, the
Respondent's counsel recognized that no supervision and control was actively
exercised by the Payer over the execution of contracts, but he maintained that
the right of control existed and that this right of control was sufficient in
itself to establish an employer‑employee relationship.
[17]
I consider the right of
control that could be exercised by the Payer as purely theoretical because not
only was the Payer not in a position to control the quality of the work
performed by the Appellant, but it also did not have the necessary expertise or
means to control the mode of execution and the performance of the services
provided by the Appellant.
[18]
Concerning the
ownership of tools, the evidence discloses that the Appellant provided his own
tools and equipment required for the work. The Appellant was also responsible
for repair, insurance and maintenance costs with respect to the tools and
equipment. The Payer simply paid for work completed.
[19]
Concerning the chance
of profit or risk of loss, it has been established that:
the Appellant had the opportunity
of making additional profit by seeking contracts and by participating in the
negotiation of the terms and conditions of the contracts;
the Appellant was financially at
risk if he did not fulfil the obligations under the contracts, because he would
not be paid if the deliverable was not delivered;
the Appellant had a risk of loss
because he had to bear the expenses relating to the use of his own workspace
and his own equipment and tools;
the Appellant had no job security,
no vacation pay and no fringe benefits;
there were no source deductions from
the payments made to the Appellant by the Payer.
[20]
In Gagnon, supra, the
Federal Court of Appeal stated that "the ability to negotiate the terms of
the contract entailed a chance of profit and a risk of loss" (par. 19).
The expertise and involvement of the Appellant is essential to the Payer in any
case in which a contract has technical requirements.
[21]
The application of the Wiebe
Door test to the facts of this case clearly points to a legal status of
independent contractor. There was no supervision and control over the execution
of the contracts; the Appellant had a chance of profit and bore the risk of
loss; he supplied his own tools and equipment; he had no job security; and he
was free to take on other jobs or contracts.
[22]
The application of the
intention test also points towards an independent contractor situation. The
Appellant and Mr. Bean both considered themselves as being independent
contractors.
[23]
Furthermore, for the
period from January 1, 2006 to June 1, 2007, the Appellant cannot be
considered to have been an employee of the Payer because the Payer was inactive
until June 1, 2007, the date on which the Appellant began providing
services to the Payer.
[24]
Therefore, the appeal is
allowed and the assessments are referred back to the Minister for
reconsideration and reassessment in accordance with these reasons, and the decisions
are varied in accordance with these reasons.
Signed at Toronto, Ontario, this 23rd day of August 2010.
“Réal Favreau”
CITATION: 2010 TCC 437
COURT FILE NO.: 2008-3724(CPP)
STYLE OF CAUSE: Donald W. Yetman and the Minister of National Revenue
PLACE OF HEARING: Ottawa, Canada
DATE OF HEARING: March 8, 2010
REASONS FOR JUDGMENT BY: The
Honourable Justice Réal Favreau
DATE OF JUDGMENT: August 23, 2010
APPEARANCES:
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Agent for the
Appellant:
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Donald W. Yetman
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Counsel for the
Respondent:
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Tanis
Halpape
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COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the
Respondent: Myles J. Kirvan
Deputy
Attorney General of Canada
Ottawa, Canada
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