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Citation: 2003TCC168
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Date:20030325
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Docket: 2002-3111(CPP)
2002-3110(EI)
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BETWEEN:
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821743 ONTARIO INC. c.o.b. MIDAS MUFFLER,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
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and
ALI GHIASVAND GHIASI
Intervenor.
REASONS FOR JUDGMENT
Bell, J.T.C.C.
ISSUE:
[1] The issue is whether Employment
Insurance premiums and Canada Pension Plan
contributions are payable on amounts paid by the Appellant to Ali
Ghiasvand Ghiasi ("Ali"), Eric Levac
("Levac") and Gregory Schwemler ("Schwemler")
from January 1, 2000 to February 6, 2002. Canada Customs &
Revenue Agency ("Revenue") decided that such premiums
and contributions were payable by the Appellant on the basis that
it regarded all three as being employees of the Appellant and not
as being independent contractors.
[2] Mark Spergel ("Spergel")
owns 100 percent of 821743 Ontario Inc. ("Inc."). It,
during the period under review, operated a Midas Muffler
franchise. He testified that he gave each mechanic the option of
being independent contractors or employees advising them of the
benefits of each status. He stated that they were, before this
discussion, employees paid an hourly rate. He said that some
mechanics remained as employees and others pursued the
independent contractor route.
[3] Spergel described, in some detail,
the manner in which the mechanics operated. He encouraged them to
meet the client, to discuss vehicle needs with the client, to
invite them to inspect the vehicle with them, et cetera. Inc.
provided all mechanics with uniforms bearing the Midas logo and
with business cards bearing the Midas logo and the mechanic's
name.
[4] Spergel stated that the
independent contractors could work as much or as little as they
chose and that they could come in early or late. He said that
Inc.'s operation was conducted on the basis that the first
one into its premises on any given day, got the first job
available. He said that the independent contractors received 17
percent of the total bill, being the cost of parts and labour. He
advised that there was a labour guide setting out the various
rates and that, substantially, Inc. adhered to these rates. If an
independent contractor took more hours than were suggested by
this labour guide he was paid 17 percent of the amount related to
the guide time. He said, for example, that if the guidebook
suggested a job would take ten hours, an independent contractor
would receive 17 percent of the charge for ten hours whether he
completed the job in seven hours or 16 hours. He said that an
employee would, in these circumstances, be paid for seven hours
or 16 hours as the case may be. In short, he said that the
employees were paid for every hour they worked.
[5] Spergel also testified that the
independent contractor never received an hourly rate. For
example, if there was a snowstorm and no customers came in they
would receive nothing. On the other hand, an employee in those
circumstances would be paid for the time he was on the premises.
He said that the normal hours were 8:00 a.m. to 6:00 p.m. five
days a week, 8:00 a.m. to 4:00 p.m. on Saturdays and that on
Sundays the business was closed.
[6] He also stated that the
independent contractors were not scheduled but that they would
show up when they wanted to and they would tell him when they did
not intend to be there.
[7] Inc.'s counsel filed as an
exhibit a photocopy of a calendar on which independent
contractors had recorded what days they would not be on the
premises. He testified that one such contractor worked on cars at
the race track and this was consistent with the freedom
independent contractors had to work at other jobs. He said that,
on the other hand, an employee would have to have a good reason
to take time off. He stated that an independent contractor could
leave if it was a slow day. He said he would have to live with an
independent contractor coming in on a casually late basis but
that employees were expected to be there at 8:00 a.m. and he
would want to know why they were late if such were the case.
[8] Spergel also said that both
employees and independent contractors owned their own tool kits,
having paid for same. He said that Ali was a hard worker and
sometimes took his tools home. He said that one other contractor,
Greg, brought cars into the shop for alignment. He said they were
sometimes treated as Midas clients and sometimes not. He seems to
have left this to the contractor. He stated that many times an
invoice was prepared and both Midas and the contractor would make
money. He then stated unequivocally that the independent
contractors were free to work elsewhere. Spergel stressed
honesty, fairness, service and international guarantees as
business-getting qualities. He stated that a rating agent, Bruno
Pita gave Inc. one of the highest ratings for customer loyalty.
He said that he encouraged the mechanics to use their business
cards to help bring in business. He said he could not force the
independent contractors to work but told employees when to
work.
[9] Spergel testified that he was not
a qualified mechanic and although occasionally he made
suggestions, he left the work to the mechanics. He stated that on
a "come-back", a vehicle upon which a contractor had
previously worked but needed more service, there would be no
invoice for that "rework". Accordingly, the independent
contractor would earn nothing on that task. He said that the
employee would be paid for all time spent on such a job because
he pays employees "as the clock ticks".
[10] Spergel also testified that the
mechanics had the right not to work for a certain customer if
they so felt. He also said that if a job came in at 5:00 p.m. and
the independent contractor worked until 7:00 p.m. he would stay
with him on the basis, mainly, of safety.
[11] He stated that the toolbox of his
mechanics would, on average, cost about $8,000. He said that they
bought and maintained their own tools, that he did not pay any
tool allowance to his mechanics and that if a mechanic did not
have a tool kit he would not be working at his location.
[12] Inc. owned lifts, bays, and
compressors. All mechanics used these - for example, empowering
their tools.
[13] He stated that appropriate deductions
were made from the employees but no such deductions were made for
the independent contractors and that they would receive nothing
if they were off work.
[14] He said that an invoice was submitted
either in writing or through the computer in respect of amounts
owing to the contractors. Finally, Spergel stated that one
employee had, after about six months, stated that he wished to
return to an employee hourly status.
[15] On cross-examination Spergel stated, in
response to a question as to whether the independent contractors
could hire someone else to do work on their jobs, that it never
happens. He said that a contractor could give a discount to be
sure to get a job or could "up the price" if the job
was difficult.
[16] Ali was an intervenor who stated on his
notice of intervention:
I agree with the fact that was determined by the government
that my employment with the Appellant was insurable and
pensionable EMPLOYMENT.
THIS IS THE REASON FOR MY INTERVENTION.
[17] He said that he had nothing to say as
an intervenor. However, he appeared as a witness for the
Respondent. He presented his evidence in a sharp and combative
manner. He stated that once he turned down a job because he
didn't like the customer beside him while he was working. He
also said that Spergel wanted to help him at one job and wanted
it done a certain way. He said that he had to be at the premises
from 8:00 a.m. to 6:00 p.m. With respect to invoices, he said
that they went through the computers. He said that he had one or
two customers of his own. He said that he used the shop
compressor and lights and torches. He said that he worked as an
independent contractor because "they" told him he would
be able to claim his tools and pay less tax. He said that he had
no more freedom than the employees. On cross-examination it took
a number of questions to elicit his statement that he knew others
gave discounts. He intimated that the independent contractors did
not call different shops for competitive price purposes. When
asked if he liked to come in to get the first customer he replied
that he was there at 8:00 a.m. He testified that he never did
outside work. When asked about Spergel's evidence that he had
taken his tools from work, he said that that was when they were
broken and that he went to replace or repair them. He insisted
that this was the case even when a question, on
cross-examination, regarding him taking tools in good shape was
posed. He also testified that Spergel had never told him that
Employment Insurance would not be available to him. He stated,
finally, that he had written off his tools.
[18] The Respondent also called Donovan
Thompson ("Thompson"), a mechanic who had worked at
Inc.'s premises. He said that when he was given the choice of
being an independent contractor or employee he chose the employee
status. His stated reason was that he did not want a big tax bill
because he couldn't save money and that his mother who worked
for Revenue Canada advised him to be an employee. He said that he
followed her advice. His evidence was presented in a flippant
manner. When asked if all were supposed to be there at the same
time he said:
As far as I know.
When asked if independent contractors come and go he stated
that he was not aware of any. He stated that he was paid 17
percent and taxes were taken off. He completed his evidence by
saying that he was paid commission and was not paid by the
hour.
APPELLANT'S SUBMISSIONS:
[19] Inc.'s counsel said, with respect
to control, that:
1.
The independent contractors are responsible for the work to be
done.
2.
The independent contractors were paid a percentage of parts and
labour bills, their income being dependent upon the amount of
work done and the value of work done.
3.
The independent contractor decided how work was to be done.
4.
The independent contractor was free to decide the hours or work
and could come and go as he pleased.
5.
The independent contractor decided the volume of work he wanted
to do.
6.
The independent contractor was responsible for his own training,
there being no Midas school.
7.
The independent contractor could select work and choose
customers.
8.
Employees received an hourly rate when there was no work to do
but the independent contractors were paid only when they
worked.
9.
There was no supervision.
10.
With respect to tool ownership, the contractors supplied their
own tools, but for the large shop tools, at their own cost, there
being no tool allowance and no repair allowance.
11.
The independent contractors were free to remove their tools when
they were working elsewhere. Counsel stated that Midas owned
lifts and compressors but it's gear was not sufficient to let
the work be done without the mechanic's own tools.
[20] Respecting profit and risk of loss,
counsel reiterated the percentage payment for independent
contractors and submitted that the independent contractor could
work outside and could use his business cards for the mutual
benefit of Inc. and him. He made the same point respecting
uniforms.
[21] Respecting the integration test,
counsel submitted that the contractors used invoices and that
they could work at other jobs.
[22] Appellant's counsel referred to
Cummins Alberta v. M.N.R., [1989] T.C.J. No. 328, a
decision of the Tax Court respecting contract mechanics where
mechanics were to be remunerated on a piecework basis. The Court
ruled that the workers were independent contractors and not
employees. It based its conclusion on:
1.
The Appellant exercised negligible control over the
mechanics;
2.
The mechanics were allowed to work elsewhere;
3.
Their work was limited to specific tasks;
4.
Each mechanic was elsewhere engaged in business for himself doing
truck or heavy equipment repairs and overhauls.
[23] Counsel then referred to Metro
Towing Ltd. v. Canada, [1991] T.C.J. No. 717. In that case
the Appellant employed "B" as a truck driver in its
towing business. This arrangement changed by an agreement under
which B would lease a truck from the Appellant for a fixed rate
and would receive 64 percent of towing revenue generated by him.
The towing work jobs continued to be dispatched by the Appellant.
B could not perform towing work for anyone else. He still wore
the Appellant's uniform and could not refuse a particular
towing job without valid reasons. The contract stipulated that
the relationship between the parties was not to be one of
employer-employee but one of independent contractor supplying
services to the Appellant. The Court held that the Wiebe
Door four-in-one test of control, ownership of tools and
equipment, risk and integration did not yield a conclusive result
because the intentions and objectives of the parties as clearly
stated in the contract should be a prime determination. Counsel
also referred to Wiebe Door Services Ltd. v. Canada,
(1986) 3 F.C. 553.
RESPONDENT'S SUBMISSIONS:
[24] The Respondent submitted that the
workers had to report at certain hours, citing the evidence of
Thompson. She said that they had to perform work at the shop and
could not set their own prices, that they were required to wear
Midas uniforms and had to indicate when they would not come in.
She suggested that Spergel "put his foot down", that
they had to attend meetings and that control stayed with
Spergel.
[25] She submitted that the independent
contractors needed Inc.'s tools. She submitted that there was
no risk of loss and that there were no expenses, no supplies
needed, et cetera.
[26] She referred to 671122 Ontario Ltd.
v. Sagaz Industries Canada Inc. [2001] 2 S.C.R. 983. In this
case Mr. Justice Major referred to the Wiebe Door tests
and said:
It bears repeating that the above factors constitute a
non-exhaustive list, and there is no set formula as to their
application. The relative weight of each will depend on the
particular facts and circumstances of the case.
[27] She also referred to T.M.J.
Automotive Ltd. v. Canada [1999] T.C.J. No. 900, Standing
v. Canada (F.C.A.), [1992] F.C.J. No. 890 and P.B. Adams
Equipment Repair Ltd. v. Canada [2001] T.C.J. No. 832.
ANALYSIS AND CONCLUSION:
[28] On the basis of the tests I conclude
that the Appellant should be successful. I enforce that
conclusion by reference to the clear intention of the parties in
creating a structure that was intended to form an independent
contractor relationship. That was an informed decision made by
mechanics who had been given the opportunity to make a choice. I
was not favourably impressed with the evidence of Ali or of
Thompson. Ali seemed to have an "axe to grind" and
Thompson was facile with responses. Spergel was, in my
assessment, credible. I accept the facts presented by him, such
facts having been well summarized by Appellant's counsel, as
set out above.
[29] On the basis of the evidence and the
Wiebe Door tests and the choice adoption of independent
contractor status by some mechanics I conclude that the appeal
should be allowed.
Signed at Ottawa, Canada this 25th day of March, 2003.
J.T.C.C.
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