[3] The relevant statutory provisions are Regulation 6(g) under the Employment Insurance
Act (the “Act”),
and Regulation 34.(1) under the Canada Pension Plan (the “Plan”), which provide
as follows:
6. Employment in any of the
following employments, unless it is excluded from insurable employment by any
provision of these Regulations, is included in insurable employment:
…
(g) employment of a person who is placed
in that employment by a placement or employment agency to perform services for
and under the direction and control of a client of the agency, where that
person is remunerated by the agency for the performance of those services.
34. (1) Where any individual is placed by a placement or employment
agency in employment with or for performance of services for a client of the
agency and the terms or conditions on which the employment or services are
performed and the remuneration thereof is paid constitute a contract of service
or are analogous to a contract of service, the employment or performance of
services is included in pensionable employment and the agency or the client,
whichever pays the remuneration to the individual, shall, for the purposes of
maintaining records and filing returns and paying, deducting and remitting
contributions payable by and in respect of the individual under the Act and
these Regulations, be deemed to be the employer of the individual.
[4] While neither Regulation defines the word “remuneration”, the
Federal Court of Appeal adopted the following definitions in Mastech
Quantum Inc. v. The Minister of National Revenue (“Mastech”):
The Shorter Oxford Dictionary (3rd Ed.)
defines “remunerate” and “remuneration” as follows: 1. trans. to repay,
requite, make some return for (services etc.) 2. to reward (a person); to pay
(a person) for services rendered or work done, hence remuneration, reward,
recompense, repayment, payment, pay. In the Black’s Law Dictionary, (7th
Ed.) “remuneration” is defined as: 1. Payment; compensation; 2. The act of
paying or compensating.
Prima facie, the person who actually pays the worker, remunerates that worker.
[5] In support of its contention that it did not remunerate Burrell, the
Appellant relies on the following four arguments. First, the agreement between
the Appellant and Burrell, executed by the parties on the 19th day
of July 2004, provides that:
Graphic Assistants Inc. has clearly explained to me
and I fully understand that if Graphic Assistants Inc. do not get paid by their
clients for services that I have performed, I will not receive payment from
Graphic Assistants Inc.
Second, the Appellant
negotiated Burrell’s rate of remuneration with Reed, taking into account his
expressed range of minimum and maximum hourly rates. It did not set the rate
itself, which would have indicated that it remunerated Burrell. Third, when his
first invoice to the Appellant went unpaid, Burrell complained to the Appellant
and was told that no monies had been received from Reed. He then approached a
Reed representative with whom he worked, who made inquiries and advised him
that the matter was in the hands of the accounting department. In the Appellant’s
view, this establishes that Burrell looked to Reed for his remuneration. Finally,
the Appellant argues that the facts before me are not distinguishable from
those in my decision in Kelly Carmichael v. M.N.R (“Carmichael”), where I found
that the placement agency did not remunerate the worker.
[6] As I noted in Carmichael, placement agencies face a dilemma.
On the one hand, they want to ensure that they get paid for their services.
This requires that they either trust the worker to pay them, or arrange to have
the monies owing by the client for the worker’s services sent directly to them,
deduct their fees, and remit the balance to the worker. The problem is that the
latter, while far preferable from the agencies’ point of view, puts them at
risk of being found to be deemed employers within the meaning of the two
relevant Regulations. In fact, placement agencies that adopt the latter
practice usually have been found liable accordingly. The jurisprudence that has
been brought to my attention reveals only two exceptions to this trend, both of
which are distinguishable from the fact situation before me.
[7] Chronologically, the first was Wegener (above), in which
Woods J. found that the various production companies, for whom the extras or
background performers were employed, actually remunerated them. This, even
though the wages due were directed by the workers to be paid to the agency that
found them employment, which deducted its fees for services rendered before
issuing cheques for the balance to the performers. The prima facie
presumption was rebutted by several facts. First, the production companies who
hired the performers agreed to take care of all payroll matters. Second, the
cheques issued by the production companies were made out in the names of both
the performers and the agency. Third, the production company issued T4A slips
to the performers thereby further acknowledging that it was paying their
remuneration. Fourth, the performers entered into agreements directly with the
client production companies. These agreements contain the following relevant
provisions:
(i)
The intent is to show
that payments made by the Production for Canadian services are taxable to the
individual (Canadian resident) who receives such payments and are directly
attributable to the making of the Production.
Justice Woods
found this provision suggestive that the production company pays the performers
for services rendered.
(ii)
Another clause explicitly provides:
In consideration of the grant of these rights, R.R.
FILMS INC., hereby agrees to pay the undersigned the rate of $7.00 (Seven
Dollars) per hour and 1.5 X the rate after 8 hours.
Finally, the
performers provided the agency’s mailing address for paycheques thereby
effectively giving a direction for their remuneration to be mailed to the Appellant
agency. Justice Woods concluded that the agency could not be found to have
remunerated the performers when it issued them cheques, because the
remuneration had already been paid.
[8] In Carmichael,
above, the client was found to have remunerated the worker for the reasons that
follow. First, Carmichael never invoiced the agency, Creative Force, for
her services. She was content that Creative confirm her hours worked, and then
invoice its clients “on behalf of Kelly Carmichael”. On one occasion she
faxed Creative as follows: “… starting in the new year, I will need you to
charge G.S.T. for me also. I will provide my number to you”. Second, the
agreement between her and the agency provides:
(i)
It is agreed that
amounts received from Customers from invoices provided by Creative Force to
which the Freelancer is entitled in accordance with the formula set out above
belong to the Freelancer and that Creative Force is merely collecting such amounts
on behalf of the Freelancer.
(ii)
It is agreed that the
Freelancer shall receive such payment that is due pursuant to this contract,
once the payment from the client has been received by Creative Force and
cleared by an appropriate financial institution.
(iii)
It is agreed that
Creative Force shall make every reasonable attempt to collect fees and expenses
invoiced to customers, but Creative Force cannot guarantee such payment. The
Freelancer hereby constitutes Creative Force as its agent to collect the fees
from the Customer to which the Freelancer is entitled.
[9] Both Carmichael and Burrell complained to the client when payment
for services rendered was not received in timely fashion. By itself, this is
understandable in view of the contractual provisions that made it clear that
the workers would not get paid unless the clients paid the agency. In Carmichael, however, the Appellant’s
complaint directly to the client also served to buttress the various other indicia
that she looked to the client for her remuneration. In contrast, Burrell’s
inquiry actually earned him the following admonition from the agency: “Do not
talk to the client about money”. These instructions are not consistent with the
agency’s position that the client remunerated the worker.
[10] The Appellant insists that it merely
negotiated Burrell’s rate of pay on his behalf, while he believes that the
Appellant set his rate of remuneration at $35.00 per hour. The latter would
tend to indicate that the agency remunerated Burrell. I found the
Appellant’s position the more credible of the two, since the evidence indicates
that it is consistent with its usual practice. On the other hand, the Appellant
placed great emphasis on Burrell’s agreement to bear the risk of loss should
the client default in payment. This, however, is hardly sufficient to establish
concurrence on his part that he was being remunerated by the client.
[11] Wegener (above)
was unusual in that the client of the placement agency expressly agreed to
remunerate the performers. In most cases, including Carmichael (above),
the agency and the worker agree on whether the agency or its client is
remunerating the worker. This gives rise to the
question of how much reliance courts should place on such agreements. As has so
often been held, it is a matter of law whether a worker is an employee under a
contract of service, or an independent contractor under a contract for services because the
rights of third parties are affected.
Accordingly, the expressed intention of the parties is not determinative unless
the applicable legal guidelines produce indeterminate results.
[12] Similarly, it seems to me that it is a matter
of law whether the agency or its client is the deemed employer pursuant to
Regulation 34.(1) under the Plan, rather than being determined by the
expressed intention of the agency and the worker, since the rights and
obligations of a third party, the client, are affected.
[13] In this regard, the recent decision of the Ontario Court of Appeal in
IBM Canada Ltd. v. Ontario (Finance) (“IBM”)
is informative. At issue was whether IBM or its foreign affiliates
remunerated expatriate IBM employees who were on temporary assignments
with the foreign affiliate in circumstances where IBM continued to pay
the expatriates’ salaries, but was reimbursed by the foreign affiliate. Central
to the Court’s decision was the fact that the foreign affiliate was not a party
to the terms of the placement agreement between IBM and its expatriate employee,
while the expatriate employee was not a party to the agreement between IBM and
its foreign affiliate. The Court concludes that since the expatriate would have
no contractual claim against the foreign affiliate for any breach of the conditions
and terms of the agreement between IBM and the expatriate, nor would the
foreign affiliate have a claim in contract against the expatriate for any
breach of the terms of that agreement, IBM remunerated the worker.
[14] Following from this, Chief Justice Richard’s
comment in Mastech (above), becomes significant:
I note also that subsection 34(1) presumes that either
the agency or the client will pay the remuneration and thus be deemed to be the
employer of the individual. Since the client, Dofasco did not pay the
remuneration for the purpose of the provision it must have been paid by the
agency, Silverside.
[15] If a client of an employment or placement
agency is in jeopardy of being found to be a deemed employer under the Plan,
in a situation where subsection 34.(1) of the Regulations is
invoked, it is clearly entitled to protection under section 27.2 of the Plan
as a “person who may be affected by the appeal” to the Minister; and pursuant
to that section, must be given both notice “that the Minister intends to decide
the appeal”, and “an opportunity to provide information and to make
representations to protect the person’s interest”. It also comes within the
definition of “intervener” in section 2 of the Tax Court of Canada Rules of
Procedure respecting the Canada Pension Plan. As such, it is
again entitled to notice of any appeal to the Minister under section 27.2;
together with intervener’s status in the proceedings; and the right to appeal
the Minister’s decision to the Tax Court of Canada pursuant to section 28 of
the Plan.
[16] In the matter before me, Mr. Burrell’s agreement to bear the risk of
loss should the client default in payment, does not establish that he agreed
that it was the client and not the agency that was remunerating him. On the
contrary, the fact that the agency admonished him saying: “Do not talk to the
client about money”, and the absence of an enforceable agreement between the
worker and the client, are incongruent with the Appellant’s position that the
client remunerated Mr. Burrell. The only fact that supports the Appellant’s
stance is that it negotiated Mr. Burrell’s rate of remuneration with its
client. The evidence as a whole clearly establishes that it was the Appellant
that remunerated Mr. Burrell.
[17] I have investigated all the facts with the
parties and the witnesses called on the parties’ behalf to testify under oath
for the first time, and have found no new facts and nothing to indicate that
the facts inferred or relied upon by the Minister were unreal, or were
incorrectly assessed or misunderstood. The Minister’s conclusions are
objectively reasonable. In the result, the Appellant having failed to discharge
the onus of demolishing the assumptions set out in the Minister’s Replies to
its Notices of Appeal, the appeals will be dismissed and the decisions of the
Minister confirmed.
Signed at Toronto, Ontario, this 18th
day of December 2008.
Weisman
D.J.
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