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Citation: 2003TCC651
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Date: 20030929
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Docket: 2002-4688(EI)
2002-4689(CPP)
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BETWEEN:
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MICHAEL WALTER TOPOLOVICH,
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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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REASONS FOR JUDGMENT
Porter, D.J.
[1] These appeals were heard on common
evidence by consent of the parties, at Calgary, Alberta on the
6th of May, 2003.
[2] The Appellant has appealed from
the decision of the Minister of National Revenue (hereinafter
called the "Minister") dated September 5, 2002,
confirming an assessment issued to Accurate Leasing Ltd. (the
"Payor"), on November 28, 2001 for employment insurance
premiums and Canada Pension Plan contributions in respect of the
employment with it of the Appellant during the period January 15,
2000 to September 30, 2000. The reason given for the decision to
confirm the assessment was:
"... you were employed under a contract of service with
Accurate Leasing Ltd., and therefore, you were their employee in
pensionable and insurable employment."
The decision was said to be issued under subsection 27.2(3) of
the Canada Pension Plan (the "Plan") and
subsection 93(3) of the Employment Insurance Act (the
"EI Act") and was based on paragraph
6(1)(a) of the Plan and paragraph 5(1)(a) of
the EI Act.
[3] It is apparent that the Payor
itself has not appealed that decision to this Court.
[4] The material facts reveal that
during the period in question the Appellant was engaged by
Accurate Leasing Ltd. (the "Payor"), which carried on
business out of Winnipeg, operating a local office in Calgary,
Alberta. The business of the Payor was the negotiation and
brokerage of contracts for equipment lease financing. The
Appellant was engaged as an account manager/broker in Calgary.
The Minister has decided that engagement was as an employee
working under a contract of service. The Appellant
claims he was an independent contractor operating under a
contract for services. That is the issue before the
Court.
The Law
Contracts Of/For Service
[5] The manner in which the Court
should go about deciding whether any particular working
arrangement is a contract of service and thus an
employer/employee relationship or a contract for
services and thus an independent contractor relationship, has
long been guided by the words of MacGuigan J. of the Federal
Court of Appeal in the case of Wiebe Door Services Ltd. v.
M.N.R., 87 DTC 5025. The reasoning in that case was
amplified and explained further in cases emanating from that
Court, namely in the cases of Moose Jaw Kinsmen Flying Fins
Inc. v. M.N.R., 88 DTC 6099, Charbonneau v.
Canada (M.N.R.) [1996] F.C.J. No. 1337, and Vulcain
Alarme Inc. v. The Minister of National Revenue, (1999) 249
N.R. 1, all of which provided useful guidance to a trial Court in
deciding these matters.
[6] The Supreme Court of Canada has
now revisited this issue in the case of 671122 Ontario Ltd. v.
Sagaz Industries Canada Inc., [2001] S.C.J. No. 61, 2001 SCC
59, 274 N.R. 366. The issue in that case arose in the
context of a vicarious liability situation. However, the Court
recognized that the same criteria applied in many other
situations, including employment legislation. Mr. Justice Major
speaking for the Court, approved the approach taken by MacGuigan
J. in the Wiebe Door case (above), where he had analyzed
Canadian, English and American authorities, and, in particular,
referred to the four tests, for making such a determination
enunciated by Lord Wright in City of Montreal v.
Montreal Locomotive Works Ltd., [1974] 1 D.L.R. 161 at
169-70. MacGuigan J. concluded at page 5028 that:
Taken thus in context, Lord Wright's fourfold test
[control, ownership of tools, chance of profit, risk of loss] is
a general, indeed an overarching test, which involves
"examining the whole of the various elements which
constitute the relationship between the parties". In his own
use of the test to determine the character of the relationship in
the Montreal Locomotive Works case itself, Lord Wright
combines and integrates the four tests in order to seek out the
meaning of the whole transaction.
At page 5029 he said:
... I interpret Lord Wright's test not as the fourfold one
it is often described as being but rather as a four-in-one test,
with emphasis always retained on what Lord Wright, supra,
calls "the combined force of the whole scheme of
operations," even while the usefulness of the four
subordinate criteria is acknowledged. (emphasis mine)
At page 5030 he had this to say:
What must always remain of the essence is the search for the
total relationship of the parties...
He also observed:
There is no escape for the Trial Judge, when confronted with
such a problem, from carefully weighing all of the relevant
factors...
[7] Mr. Justice MacGuigan
also said this:
Perhaps the best synthesis found in the authorities is that of
Cooke J. in Market Investigations, Ltd. v. Minister of
Social Security, [1968] 3 All E.R. 732, 738-9:
The observations of Lord Wright, of Denning L.J., and
of the judges of the Supreme Court in the U.S.A. suggest that the
fundamental test to be applied is this: "Is the person who
has engaged himself to perform these services performing them as
a person in business on his own account?" If the answer to
that question is "yes", then the contract is a contract
for services. If the answer is "no" then the contract
is a contract of service. No exhaustive list has been compiled
and perhaps no exhaustive list can be compiled of considerations
which are relevant in determining that question, nor can strict
rules be laid down as to the relative weight which the various
considerations should carry in particular cases. The most that
can be said is that control will no doubt always have to be
considered, although it can no longer be regarded as the sole
determining factor; and that factors, which may be of importance,
are such matters as whether the man performing the services
provides his own equipment, whether he hires his own helpers,
what degree of financial risk be taken, what degree of
responsibility for investment and management he has, and whether
and how far he has an opportunity of profiting from sound
management in the performance of his task. The application of the
general test may be easier in a case where the person who engages
himself to perform the services does so in the course of an
already established business of his own; but this factor is not
decisive, and a person who engages himself to perform services
for another may well be an independent contractor even though he
has not entered into the contract in the course of an existing
business carried on by him.
[8] In the case of Kinsmen
Flying Fins Inc., above, the Federal Court of Appeal
said this:
... like MacGuigan J. we view the tests as being useful
subordinates in weighing all of the facts relating to the
operations of the Applicant. That is now the preferable and
proper approach for the very good reason that in a given case,
and this may well be one of them, one or more of the tests can
have little or no applicability. To formulate a decision then,
the overall evidence must be considered taking into account those
of the tests which may be applicable and giving to all the
evidence the weight which the circumstances may dictate.
[9] The nature of the tests referred
to by the Federal Court of Appeal can be summarized as
follows:
a) The degree or absence
of control exercised by the alleged employer;
b) Ownership of tools;
c) Chance of profit;
d) Risk of loss.
In addition, the Court must consider the question
of the integration, if any, of the alleged employee's work
into the alleged employer's business.
[10] In the Sagaz decision (above)
Major J. said this:
...control is not the only factor to consider in
determining if a worker is an employee or an independent
contractor...
[11] He dealt with the inadequacy of the
'control test' by again approving the words of MacGuigan
J. in the Wiebe Door case (above) as follows:
A principal inadequacy [with the control test] is its apparent
dependence on the exact terms in which the task in question is
contracted for: where the contract contains detailed
specifications and conditions, which would be the normal
expectation in a contract with an independent contractor, the
control may even be greater than where it is to be exercised by
direction on the job, as would be the normal expectation in a
contract with a servant, but a literal application of the test
might find the actual control to be less. In addition, the test
has broken down completely in relation to highly skilled and
professional workers, who possess skills far beyond the ability
of their employers to direct.
[12] He went on to say this:
In my opinion, there is no one conclusive test which can be
universally applied to determine whether a person is an employee
or an independent contractor. Lord Denning stated in
Stevenson Jordan, ... ([1952] 1 The Times L.R. 101)
that it may be impossible to give a precise definition of the
distinction (p. 111) and, similarly, Fleming observed that
"no single test seems to yield an invariably clear and
acceptable answer to the many variables of ever changing
employment relations..." (p. 416). Further, I agree
with MacGuigan J.A. in Wiebe Door, at p. 563, citing Atiyah,
... (Vicarious Liability in the Law of Torts. London:
Butterworths, 1967), at p. 38, that what must always occur is a
search for the total relationship of the parties:
[I]t is exceedingly doubtful whether the search for a formula
in the nature of a single test for identifying a contract of
service any longer serves a useful purpose.... The most that
can profitably be done is to examine all the possible factors
which have been referred to in these cases as bearing on the
nature of the relationship between the parties concerned. Clearly
not all of these factors will be relevant in all cases, or have
the same weight in all cases. Equally clearly no magic formula
can be propounded for determining which factors should, in any
given case, be treated as the determining ones.
Although there is no universal test to determine whether a
person is an employee or an independent contractor, I agree with
MacGuigan J.A. that a persuasive approach to the issue is
that taken by Cooke J. in Market Investigations, supra. The
central question is whether the person who has been engaged to
perform the services is performing them as a person in business
on his own account. In making this determination, the level of
control the employer has over the worker's activities will
always be a factor. However, other factors to consider include
whether the worker provides his or her own equipment, whether the
worker hires his or her own helpers, the degree of financial risk
taken by the worker, the degree of responsibility for investment
and management held by the worker, and the worker's
opportunity for profit in the performance of his or her
tasks.
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.
[13] I also find guidance in the words of
Décary J.A. in the Charbonneau case (above) when,
speaking for the Federal Court of Appeal, he said this:
The tests laid down by this Court ... are not the ingredients
of a magic formula. They are guidelines which it will generally
be useful to consider, but not to the point of jeopardizing the
ultimate objective of the exercise, which is to determine the
overall relationship between the parties. The issue is always,
once it has been determined that there is a genuine contract,
whether there is a relationship of subordination between the
parties such that there is a contract of employment ... or,
whether there is ... such a degree of autonomy that there is a
contract of enterprise or for services. ... In other words, we
must not pay so much attention to the trees that we lose sight of
the forest. ... The parts must give way to the whole.
(emphasis mine)
[14] I also refer to the words of
Létourneau J.A. in the Vulcain Alarme case (above),
where he said this:
... These tests derived from case law are important, but
it should be remembered that they cannot be allowed to compromise
the ultimate purpose of the exercise, to establish in general the
relationship between the parties. This exercise involves
determining whether a relationship of subordination exists
between the parties such that the Court must conclude that there
was a contract of employment within the meaning of art. 2085 of
the Civil Code of Quebec, or whether instead there was
between them the degree of independence which characterises a
contract of enterprise or for services....
[15] I am further mindful that as a result
of the recent decisions of the Federal Court of Appeal in Wolf
v. Canada, [2002] F.C.J. No. 375, and Precision Gutters
Ltd. v. Canada (Minister of National Revenue-M.N.R.), [2002]
F.C.J. No. 771, a considerable degree of latitude seems now to
have been allowed to creep into the jurisprudence enabling
consultants to be engaged in a manner in which they are not
deemed to be employees as they might formerly been. I am
particularly mindful of the words of Mr. Justice Décary in
the Wolf decision (above) where he said:
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. (my emphasis)
[16] Thus, it seems to this Court that the
pendulum has started to swing, so as to enable parties to govern
their affairs more easily in relation to consulting work and so
that they may more readily be able to categorize themselves,
without interference by the Courts or the Minister, as
independent contractors rather than employees working under
contracts of service.
[17] In conclusion, there is no set formula.
All these factors bear consideration and as Major J. said in the
Sagaz case (above), the weight of each will depend upon
the particular facts and circumstances of the case. Many of the
tests can be quite neutral and can apply equally to both types of
situation. In such case, serious consideration has to be given to
the intent of the parties. Thus is the task of the trial
Judge.
The Facts
[18] In the Reply to the Notice of Appeal
signed on his behalf, the Minister was said to admit the
following facts which were alleged in the Notice of Appeal filed
by the Appellant:
(a) The Appellant
was hired as an account manager.
(d) Accurate Leasing
Ltd. (hereinafter the "Payor") did not issue a T4 with
respect to the Appellant, for the period under review.
(e) Revenue Canada
(the Canada Customs and Revenue Agency) drafted a T4 with respect
to the Appellant.
(n) The Payor
entered into contracts with financial institutions.
(o) The Payor was
paid by the financing institutions.
(p) The Appellant
received 50% of the fees charged by the Payor.
(q) The Appellant
submitted credit recommendations.
(r) The Payor's
fee varied depending on the size of the contract and the
financing institution.
[19] In the Reply to the Notice of Appeal
signed on his behalf, the Minister was also said to have relied
upon the following assumptions of fact (I have set out the
agreement or disagreement of the Appellant in parenthesis):
(a) the Payor was in
the business of negotiating and brokering contracts for equipment
lease financing; (Agreed)
(b) the Payor
entered into contracts with financing institutions,
(Disagreed)
(c) the financing
institutions paid fees to the Payor for services provided;
(Agreed)
(d) the Payor was
based in Winnipeg and maintained a branch office in
Calgary; (Agreed)
(e) the Appellant
was hired as an account manager and his duties included obtaining
lease agreements, completing paper work, attending meetings,
training junior staff, answering phones, and developing marketing
strategies; (Disagreed)
(f) the
Appellant performed his services at the Payor's premises in
Calgary and in the field; (Disagreed)
(g) the Appellant
earned a net base wage of $500.00 per month; (Disagreed)
(h) the Appellant
also received a commission of 50% of the fees paid to the Payor;
(Disagreed)
(i) the Payor
set the Appellant's pay rates; (Disagreed)
(j) the
Appellant was paid on a semi-monthly basis; (Agreed)
(k) the Appellant
normally worked during regular office hours, Monday to Friday;
(Disagreed)
(l) the
Appellant was in the Payor's office at 8:30 a.m. every
morning and worked there for 1 to 2 hours; (Disagreed)
(m) the Appellant normally
worked 40 hours per week; (Disagreed)
(n) the Payor had
first call for the Appellant's time; (Disagreed)
(o) the Payor had
the right to control the Appellant; (Disagreed)
(p) the Appellant
was instructed by the Payor; (Disagreed)
(q) the Payor set
goals and expectations for the Appellant; (Disagreed)
(r) the Appellant
attended regular weekly meetings; (Disagreed)
(s) the Appellant
represented the Payor while in the field; (Agreed)
(t) the
Appellant used the Payor's business cards; (Agreed)
(u) the Appellant
did not work for others while working for the Payor; (Agreed)
(v) the Appellant
provided his own vehicle and cell phone; (Agreed)
(w) the Payor provided a
furnished work location; (Disagreed)
(x) the Payor
supplied all of the materials required; (Disagreed)
(y) the Appellant
incur vehicle expenses in the performance of his duties;
(Agreed)
(z) the Payor paid
the operating expenses including office expenses, supplies,
administration, utilities, advertising, and insurance;
(Disagreed)
(aa) the Appellant was employed
under a contract of service by the Payor, and (Disagreed)
(bb) wages paid by the Payor to
the Appellant, for the period January 15, 2000 to September
30, 2000, were $15,312.00. (Disagreed)
[20] Evidence was given by the Appellant
himself and by Rick Muscato, a friend and colleague of his.
[21] The Appellant said that he was a
broker/manager working in Prince George, British Columbia, when
he saw a position advertised in Calgary. The advertiser, who
turned out to be the Payor, was looking for a broker/manager.
[22] The Appellant contacted the Payor and
was interviewed on January 8, 2000. He was engaged and informed
of the working conditions verbally. There was no written
contract. He was told that he would be in business for himself,
with which he was comfortable, as that is how he had worked
previously in British Columbia.
[23] He explained the nature of his work and
the business of the Payor. His task was to look for and find
people and businesses who were about to purchase large equipment
and were looking for appropriate financing to fund the purchase.
He obviously liaised with a number of dealers to assist him in
this. He would then submit a proposal to the Payor who would find
the appropriate financier and conclude the deal from that end.
Thus, the Appellant found the borrower and the Payor found the
lender. The finance company would pay the Payor for the service
which, in turn, would split that fee 50/50 with the Appellant. In
a sense, it was a joint brokering venture, one party finding the
borrower and the other a lender, and fitting them together. There
was no continuing contract between the Payor and the financing
institutions (assumption (b)); just a fee paid for setting up the
business which the Payor then split with the Appellant.
[24] The Payor had set up a small office in
Calgary. When the Appellant was established as an account
manager/broker, he used this office to do his paperwork. However,
he paid a fee of $200.00 per month for this to the Payor.
[25] The arrangement was that the Payor
would pay the Appellant a base monthly fee of $700.00. From this
would be deducted the sum of $200.00 for the rent of the office.
Thus, the Appellant would receive $500.00 net. The Appellant
would, twice a month, submit his invoices to the Payor for
various brokerage fees that he had earned. In fact, these
invoices were generated from information provided by him to the
controller in Winnipeg. From the amounts of the invoice would be
deducted the base fee of $700.00 (which included the rent of
$200.00) and the balance remitted to him. Thus, he did not
consider his base fee to be a wage (assumption (g)). It was paid
on account of his fees and he was paid by invoice. He did not
charge G.S.T.; apparently he did not make enough to warrant
obtaining a number.
[26] The Appellant took issue with
assumption (e) as it omits reference to his being a
"broker" and account manager. He said he was not
required to attend meetings nor train junior staff. He would
assist junior people simply out of a desire to create good
relations with other brokers.
[27] The Appellant disagreed with assumption
(h) stating that there was a difference between a brokerage fee
and a commission. He was paid a brokerage fee which he set
himself (assumption (i)), although obviously it had to be by
prior agreement with the Payor.
[28] With respect assumptions (k), (l) and
(m), the Appellant said he did not work and was not required to
work any regular hours. He set his own hours and came and went to
the office and elsewhere at all kinds of different hours as he
saw fit.
[29] With respect to assumption (n), the
Appellant considered that he was free to work for any other
brokerage house that he chose. Obviously, if he was working
closely with the Payor, he was not likely to work with others,
but he was free to do so if he saw fit. The Payor had no first
call on his time, nor did it have any control over when, how or
where he went about his work.
[30] With respect assumption (p), the
requirements of the finance companies as to how proposals should
be put together, were passed on to him by the Payor. This was not
control in the sense of the words used in these situations as it
was the very work that he was doing. He had to submit the
applications for financing in a form acceptable to the finance
companies.
[31] The Appellant said he set all his own
goals and nothing was set by the Payor and there is no evidence
otherwise (assumption (q)).
[32] The Appellant said that a Mike
Hollaway, who was the person who originally interviewed him,
would try to set up weekly meetings, but nobody was required to
attend (assumption (r)). The Appellant said he was free to attend
the meeting or not as he saw fit.
[33] With respect to assumptions (x) and
(z), the Appellant said he had access to the office and a
computer for which he paid his $200.00 per month. Apart from
that, he did all his own typing, provided his own paper, had his
own business cards, although he used some supplied by the Payor
as well, his own cell phone and his own motor vehicle for which
he was not reimbursed.
[34] With respect to assumption (bb), the
amounts paid to him are not in question.
[35] The evidence of Rick Muscato was short,
he very much confirmed the evidence of the Appellant.
[36] I have no difficulty with the
credibility of the two witnesses. I found them basically honest
trying to explain the situation as it was to the best of their
ability. I accept their evidence where it differs from the
assumptions made by the Minister.
[37] Those are the salient facts as I find
them.
Application of Law to the Facts
[38] Title: It must be clearly
understood that even where the parties choose to put a title on
their relationship, if the true nature and substance of the
arrangement does not accord with that title, it is the substance
to which the Court must have regard. That legal principle has not
changed (see Shell Canada Ltd. v. Canada (1999) S.C.J.
No. 30). Having said that, it is also fair to say that where
the parties genuinely choose a particular method of setting up
their working arrangement, it is not for the Minister or this
Court to disregard that choice. Due deference must be given to
the method chosen by the parties and if on the evidence as a
whole there is no substantial reason to derogate from the title
chosen by the parties, then it should be left untouched. The
Wolf and Precision Gutters cases (above) very much
substantiate that proposition.
[39] Control: As this aspect of the
test has been traditionally applied, it has been consistently
pointed out that it is not the actual control so much as the
right to control that is important for the Court to consider. The
more professional and competent a person is or the more
experience they have in their field, the less likely there is to
be any actual control, which creates difficulty in applying this
test. Indeed as Major J. pointed out in the Sagaz case
(above), there may be less control exercised in the case of a
competent professional employee than in the case of an
independent contractor. Nonetheless, it is another factor to be
weighed in the balance.
[40] In this instance, there seems to be
little control or no control exercised by the Payor. The
applications for financing had to be put together on standard
forms in a way which met the requirements of the finance
companies. That, however, was the very work itself and cannot be
classified as control. How the Appellant went about his work,
where and when was very much up to him. His work involved putting
together one-half of the deals. I see no evidence of control
whatsoever in that situation. This factor very much indicates an
independent contractor working under a contract for
services, if even that; in a sense, it was more a partnership
situation.
[41] Tools and Equipment:
Although the Payor provided an office where the Appellant could
work, collect messages and access the computer, he paid for those
services, which is hardly the hallmark of an employee. In
addition, he provided his own cell phone and motor vehicle.
[42] This factor also points clearly in the
direction of an independent contractor.
[43] Chance of Profit and Risk of
Loss: Obviously, the more the Appellant worked and the
better he did at his work, the more applications he would put
together, and thus the greater would be his broker's fees. On
the other side of the coin, he had to pay his rent, cell phone
and car expenses and if he did not put together any applications
for financing, he would have no income. I took from the evidence
that this base fee would be debited to the next month's
income if he did not make sufficient in any month and so on.
Thus, he stood to suffer a loss.
[44] The whole arrangement had an
entrepreneurial ring to it. Employees do not pay their employers
to use their office space. This factor also, in my mind, points
to an independent contractor situation.
[45] Integration: This is the
aspect of the test which has been most often criticized. The
question to be asked is "whose business is it?". That
must be asked from the point of view of the worker, not the
employer as from the latter's point of view it will always
look like its business. In other words, were there two businesses
here or one.
[46] As I say, this whole arrangement had an
entrepreneurial ring to it. In the sense, they were in a kind of
partnership. Certainly when I ask the question of whether the
Appellant was in business for himself, the answer is clearly in
the affirmative. His business was finding, preparing and
submitting applications for financing. He tended to use the
Payor, but could have used any other brokerage house that he
chose. The Payor's business was putting together the
financing with the financing companies. It was almost like a
joint venture and one could not work without the other.
Conclusion
[47] When I look not just at the individual
trees but also at the forest as a whole, I am overwhelmingly of
the view that the Appellant was in business for himself and not
in insurable or pensionable employment. The arrangement was set
up in this manner and carried out in this manner.
[48] The appeals are accordingly allowed and
the decisions of the Minister are vacated.
Signed at Calgary, Alberta, this 29th day of September
2003.
Porter, D.J.
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