Citation: 2007TCCI456
Date: 20070907
Docket: 2005-282(EI)
BETWEEN:
LES ENTREPRISES B. SMITH INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
from a decision concerning the insurability of the work performed by
Yvan Gagnon for Les Entreprises B. Smith Inc., during the period from
February 5 to April 22, 2003.
[2] The decision under
appeal is that the work was performed under a contract of service. The
Appellant alleges that Mr. Gagnon performed the work in question as a
self-employed person.
[3] In order to justify
the decision under appeal, the
Minister of National Revenue (the Minister) relied on the following assumptions
of fact:
[TRANSLATION]
(a) the Appellant, incorporated on October 28,
2002, operates a deforestation business;
(b) Bruno Smith was the Appellant’s sole
shareholder;
(c) in 2003, the Appellant obtained a
deforestation contract from Hydro-Québec in an area situated 110 kilometres
from Baie Comeau;
(d) to fulfill the contract, the Appellant
hired twenty or so loggers, including the worker;
(e) from February 5 to April 22, 2003, the
worker rendered services to the Appellant as a logger;
(f) on May 8, 2003, the Appellant issued a
Record of Employment in the name of the worker indicating March 17, 2003, as
the first day of work and April 11, 2003, as the last day of work;
(g) the Appellant does not challenge the
insurability of the worker’s employment for the period from March 17 to April
11, 2003;
(h) the Appellant claims that from February 5
to March 16, 2003, and from April 11 to April 22, 2003, the worker rendered
services to it as a self-employed person;
(i) when he first started working, on
February 5, the Appellant provided the worker with the chainsaw and, at an
undetermined date at the beginning of the period of employment, the worker
purchased the Appellant’s chainsaw;
(j) except for the fact that the worker used
the Appellant’s chainsaw and then his, there was no change in his working
conditions at the Appellant during the period in issue;
(k) when he was in the forest, the worker’s
lodging and meals were provided by the Appellant;
(l) the worker, like all the other workers of
the Appellant, worked five consecutive days and left the logging camp every
weekend;
(m) the worker usually worked 10 hours per day,
that is 50 hours per week;
(n) Hydro-Québec kept a record of the comings
and goings of the logging camp workers;
(o) the worker was supervised either by the
logging camp foreman or by Mr. Smith;
(p) the worker provided his chainsaw and
incurred its maintenance costs;
(q) the worker received remuneration based on
the volume of wood cut: initially, he received
$250 per acre cut and then, he received $200 per acre cut;
(r) the payor issued T4 slips for 2003 to
over 45 employees including the worker’s with source deductions;
(s) during the period in issue, the worker
worked 424 hours;
(t) during the period in issue, the worker
received $9,431.50 from the Appellant.
[4] The Appellant
indicated that it admitted paragraphs (a), (b), (c), (e), (f), (h), (i), (j),
(m), (n), (p), (r) and (t).
The facts
[5] Bruno Smith,
logging contractor, is the sole shareholder of the payor company. The payor
obtained a contract from a company which also obtained a larger contract from
Hydro‑Québec. The work was divided among twenty or so companies. The
objective was to prepare the land to be filled for the construction of a dam.
[6] In other words, all
the trees on the surface to be used as a water retention pond had to be cut
down.
[7] Hydro‑Québec
was responsible for providing lodging and meals to all persons working on the
logging camp, regardless of who they worked for.
[8] Hydro‑Québec
also monitored comings and goings by means of a swipe card providing access to
the site. The card in question made it possible to know the exact time of entry
and exit of each person.
[9] As for the
Appellant, it obtained a subcontract under which it had to clear, to the
satisfaction of Hydro‑Québec, the site specified in the contract. To that
end, the Appellant hired some loggers.
[10] The hiring of
loggers required to perform the work was done through two types of contracts,
either a contract of service or a business contract. In either case, the
contract in question consisted in felling all the trees in an area that was not
accessible to heavy machinery.
[11] Regardless of the
type of contract chosen, the work had to be performed in the same way, the only
difference being how the work was paid. If the logger was hired under a
“business contract,” he or she was paid $250 per acre cut. In the case of
a “contract of service,” the same work was paid at a rate of $200 per acre cut,
a difference of $50, which in terms of percentages represented a 20%
difference.
[12] The agent for the
Appellant indicated that the work was performed in exactly the same way; he
explained that the 20% difference covered not only administrative expenses
incurred by the employer, certain deductions, but also expenses inherent to
such a contract, inter alia, the Employment Insurance program.
[13] The agent for the
Appellant explained that it had no other choice but to accept the loggers’
demands as to the nature of the contract.
[14] During the hearing,
I got the sense that the Respondent questioned that version of the facts and
rather believed that the Appellant issued false records or dummy records.
[15] I indicated, at the
hearing, that I did not share that interpretation, especially for the following
reason: when the Appellant accepted to be hired under a contract of service
with all the financial consequences and administrative expenses that it
entailed, it became easy and routine to allocate remuneration for all the work
periods, which seems to me to be sufficient to exclude or reject the theory of
dummy records.
[16] Generally speaking,
loggers are an important group of workers in the category of seasonal workers.
The are paid in a very particular way and the way they perform their work is
equally unique. In general, they own their tools and, in principle, they are
responsible for maintaining their tools and for the costs associated with their
use.
[17] It is a category of
workers that are covered by the financial assistance program provided by the Employment
Insurance Act (the Act), in spite of the classic criteria (ownership of the
tools, chance of profit or risk of loss, integration) set out in Wiebe Door
Services Ltd. v. M.N.R., 87 DTC 5025 and recently applied for
their pertinence by the Federal Court of Appeal in Combined Insurance
Company of America, decision rendered by Nadon, Létourneau and Pelletier
JJ. on January 30, 2007, on appeal from the decision of McArthur J. of
this Court, dated September 6, 2005.
[18] In fact, the work
performed by loggers is very unique. Generally, loggers are paid according to
various formulae where the quantity of wood cut is the main component of the
remuneration obtained; they own their work tools and assume responsibility for
the costs associated with their use and maintenance. They are also independent
with respect to the way in which they cut wood. In other words, they apply
their own felling technique.
[18] All these
distinctive features make it even more difficult to determine the nature of the
contract of employment, notably with respect to whether there exists a true
power of control by the person who pays remuneration.
[19] The presence of this
power of control by the employer is revealed by his or her presence or absence
on the logging camp, by his or her right of intervention not only in terms of
safety measures in the performance of work, but also in terms of the
reliability and safety of the tools and clothing used.
[20] There is no single or
magic formula for defining the nature of a contract of employment. Recently, my
colleague, the Honourable Pierre Archambault, stated in an exhaustive analysis
that the only possible approach to dealing with the issue of the central nature
of the work, in the province de Quebec, was the application of the provisions
of the Civil Code of Québec.
[21] At first, such an
approach seems to simplify the process of determining the nature of the
contract of employment; but when it comes down to the facts, it is quite a
different matter as one of the three essential factors, that is the
relationship of subordination, requires an analysis of all the facts where the
famous criteria set out in Weibe Door, supra, always prove to be
very useful and relevant in determining the nature of the contract in issue.
[22] To be eligible for
employment insurance benefits, loggers must meet certain requirements,
including working a sufficient number of hours to be worked under a contract of
service.
[23] Those conditions are
essential and absolutely fundamental, even more so since employment insurance
benefits constitute vital financial assistance. Considering that all work
performed as a self-employed person is excluded from the calculation of hours
required to be eligible for the benefits, it is easy to understand why loggers
want to perform work under a contract of service.
[24] Therefore, the
search for insurable employment is a major concern for the vast majority of
workers and particularly for those who fall into the category of “seasonal
workers.”
[25] Once the number of
insurable hours is reached, additional working hours are obviously not of equal
importance, especially since it undoubtedly becomes more profitable at that
point to work as a self-employed person because it is then possible to deduct
employment-related expenses.
[26] In the case at bar,
first, the worker undoubtedly wanted to have it both ways, that is accumulate
sufficient hours of insurable employment to become eligible for employment
insurance benefits. Second, as for the additional hours he did not need to
become eligible, he wanted to be considered a contractor, which would allow him
to earn more as he would not be subject to deductions, which, furthermore,
would undoubtedly be more lucrative for him. In fact, the status of contractor
or self-employed person allowed him to deduct those expenses, which could prove
to be of great benefit.
[27] The Appellant explained
that it had to comply with the requirements of some loggers as to the type of
contract; if it failed to meet the requirements of the loggers, whose services
were essential, it simply would not have had the workforce necessary for the
performance of its subcontract.
[28] Moreover, it is easy
to understand why the loggers’ have a great interest in a hybrid formula.
First, the hybrid formula allows the worker to accumulate the number of hours
of insurable employment required to become eligible for employment insurance
benefits; second, the worker performs the same work as a self-employed person,
which makes him or her eligible to deduct all his or her expenses and perhaps,
and I mean perhaps, allows him or her to work as a self-employed
person during the period in which he or she receives Employment Insurance
benefits. Obviously, this hypothesis is simply pure speculation because this
type of situation must undoubtedly be very rare.
[29] In the case at bar,
I venture to think that the worker Yvan Gagnon applied for Employment Insurance
benefits and was told that he did not have the required number of hours to be
eligible. He therefore decided to retroactively and unilaterally change the
nature of the work he performed, that is to say that he claimed that the worked
performed as a self-employed person was nothing less than salaried employment
or, in other words, work performed under a contract of service.
[30] However, the same
work performed in the same way cannot at the same time be work performed under
a contract of service and a business contract for different periods.
[31] For this to be so,
it would be necessary for the parties’ intentions, as to the nature of the
contract, to be the essential and determinative element in characterizing the
contract. However, the case law has indicated on numerous occasions that the
parties’ intentions is but one element among many, an element not
determinative and above all not sufficient in itself.
[32] Although the parties’
intentions could prove to be of some importance, the characterization of the
contract of employment is neither sufficient nor determinative in itself, as
the performance of the work must be consistent with and comply with the type of
contract involved.
[33] In the case of
controversy or inconsistency, the facts relate to the performance of the work
and the circumstances under which the work is performed trump the parties’
intentions. It is from those facts and circumstances that one must draw the
elements leading to a conclusion as to the nature of the contract.
[34] In the case at bar,
this task is made more difficult by the fact that the nature of the work is
very unique.
[35] I must first point
out that, in the instant case, there could not be two types of contracts
between the same parties for performing the same work in the same way.
[36] In the case of the
hybrid formula, the parties’ intentions should be the only criterion required
to characterize the contract; such an approach is neither consistent with the Act
nor with the criteria established by the case law.
[37] What about the facts
and terms and conditions as to the performance of the work in the case at bar?
[38] The agent for the
Appellant stated that he regularly toured the logging camp to make sure the
work was performed in accordance with the requirements of Hydro‑Québec,
failing which the Appellant itself would not get paid. He also stated that he
had to provide Yvan Gagnon with good quality tools which the Appellant
clearly controlled to ensure the quality and safety of the equipment used by
the loggers it remunerated.
[39] He also explained
that the persons he remunerated consulted with each other as to the periods of
employment. They could work several days in a row and then take a few days off.
The swipe card they all had allowed the Appellant to monitor their presence on
the logging camp. The system implemented and managed by Hydro‑Québec
allowed the Appellant to know the exact time of entry into and exit from the
logging camp.
[40] Each logger entered
into an agreement with the Appellant. Instructions were given to the logger as
to the place where the work was to be carried out.
[41] Although it was up to the logger
to decide how to perform the work, the felling work had to be performed in a
manner acceptable to the Appellant. The work was supervised and, even though
the Appellant rarely intervened, it had at all times the right to intervene and
power of control not only over the work performed, but also over the overall
conduct of the worker, especially to ensure that the work was carried out in
accordance with safety requirements.
[42] Each logger entered
into an individual agreement. The Appellant was also responsible for the
worker’s conduct and quality of his or her work.
[43] Such control
or supervision was exercised by maintaining an almost constant
presence on
the premises where the work was carried out. The Appellant clearly had power of
intervention. Concrete instances of the use of such power of control were few,
except that the loggers were not left alone to work. The evidence did not
establish that the Appellant did not expressly or tacitly waive its power.
[44] For all these
reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 27th day of
September 2007.
“Alain Tardif”
Translation certified true
on this 19th day of October 2007.
Daniela Possamai, Translator
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