Date: 20010611
Docket:
1999-1793-EI,
1999-1794-CPP,
1999-1932-CPP,
BETWEEN:
COMEAU'S SEA
FOODS LIMITED,
Appellant,
and
THE MINISTER OF
NATIONAL REVENUE,
Respondent,
Reasonsfor
Judgment
O'Connor,
J.T.C.C.
[1]
These appeals were heard on common evidence at Halifax, Nova
Scotia on January 22, 2001. Subsequent to the hearing of the
appeals, written submissions were provided by counsel for both
the Appellant and the Respondent.
[2]
Appeals 1999-1793(EI) and 1999-1794(CPP) relate to a ruling of
the Department of National Revenue dated July 9, 1998, confirmed
by the Minister of National Revenue (the "Minister") by
letter dated January 7, 1999 that Daniel d'Entremont was
engaged in pensionable employment and insurable employment with
the Appellant during the period January 1, 1997 to July 9,
1998 in that he was considered to be employed by the Appellant
under a contract of service for purposes of both the
Employment Insurance Act and the Canada Pension
Plan (CPP).
[3]
Appeal 1999-1932(CPP) relates to a Notice dated
January 15, 1998 whereby the Minister assessed the
Appellant in an amount of $241,661.84 with respect to the period
from January 1, 1997 to October 31, 1997 for
failing to deduct and remit CPP contributions from amounts the
Appellant paid to 146 fishermen, the names of whom appear in
Schedule "A" to the Reply to the Notice of Appeal, who
were engaged in providing services on the Appellant's four
scallop vessels and one herring seiner and failure to remit the
Appellant's share of the CPP premiums.
PREMINARY
(a)
The Appellant and the
Respondent agreed that this Court's determination with
respect to these three Appeals would apply to all fishermen
listed in said Schedule "A". It was further agreed that
the Court's decision would also apply to the appeals in
respect of the insurability and pensionability rulings involving
Daniel d'Entremont (1999-1793(EI) and
1999-1794(CPP)).
(b)
It was also agreed and
confirmed in a pretrial conference with Judge Rip, T.C.J.,
that it would be unnecessary to elicit testimony from all 146
fishermen engaged on the Appellant's vessels during 1997.
Rather the evidence tendered at trial from a sample of fishermen,
would speak for the working relationship between the Appellant
and all fishermen on the Appellant's vessels during the
periods in question. It was submitted that there was sufficient
and uncontradicted testimony to the effect that what took place
on one scallop dragger was, generally speaking, the norm for what
happened on the Appellant's other scallop draggers. Likewise,
the testimony of two fishermen involved in herring seining as to
the activities on the seiner was sufficient to evidence the
working relationship between the Appellant and crew of the Lady
Melissa II, the Appellant's herring
seiner.
FACTS
[4]
I find the relevant facts to be as follows:
(a)
The Appellant is a corporation duly incorporated in 1959 under
the laws of the Province of Nova Scotia.
(b)
Its principal place of business is 60 Saulnierville Road,
Saulnierville, Nova Scotia, where processing scallops and herring
was carried out. It also operated several other plants in Nova
Scotia which carried on operations other than processing scallops
and herring.
(c)
The vessels and equipment,
including nets, draggers and electronic equipment, were all owned
by the Appellant. The crew members owned their own shucking
knives and personal gear such as gloves, boots and rain gear. In
1997 there were two crews for each of the four scallop vessels.
The Appellant chose which crew would go where in collaboration
with the captains and tried to treat the crews equally,
considering some banks were more profitable than
others.
(d)
The vessels engaged in the
scallop fishery were the Lady Comeau II, Lady Denise II,
Lady Yvette II and Lady Lisa II. The vessel engaged in the
herring operation was the Lady Melissa II. The Appellant's
three new scallop draggers, the Lady Denise II, the
Lady Comeau II and the Lady Yvette II are each worth 3.5 to
4 million dollars. The Appellant's herring boat, the Lady
Melissa II and the other scallop dragger, the Lady Lisa II, are
worth in excess of 2 million dollars.
(e)
The Appellant had no
written employment agreement with the various fishermen but did
have a verbal arrangement with them whereby each of them was
entitled to a share of the proceeds from the catch and whereby
they all bore the responsibility for a share of the expenses in
respect of each fishing trip. These arrangements are evidenced by
various Settling Sheets submitted at Tabs 1 through 9 of the
Joint Book of Documents, Volume 1. As appears from these Sheets,
the Appellant would establish a value based on market conditions
for the herring and the scallops. These values established the
amount of the proceeds to be divided. The scallop fishermen with
respect to each catch would be entitled to 60% of those proceeds
and the Appellant 40%. The split of proceeds on herring was 40%
fishermen, 60% Appellant. These percentages had been in place for
many years prior to 1997 and generally followed industry
practice. Further as can be seen from the Settling Sheets, the
crew was responsible for its share of numerous expenses such as
ice, groceries consumed on the voyage, fuel, and certain
contributions made to the cook and the engineer. For greater
detail reference is made to the Settling
Sheets.
(f)
The Appellant owns the
species and quota fishing licenses and vessel licenses and
consequently, is considered as the owner of the catch,
notwithstanding that the fishermen are entitled to a large share
in the proceeds of the various catches.
(g)
None of the fishermen
(sometimes referred to as "crew") was guaranteed to
receive a minimum amount of earnings per trip, nor did any member
receive any benefits such as bonuses, statutory holiday pay,
overtime pay or vacation pay.
(h)
The Captain of each vessel
was the person who chose and retained the fishermen. The Captain
was retained by the Appellant but only after consultation with
the crew. Moreover, it was the Captain who determined when a
vessel would sail although this was done in collaboration with
Noel Dépres, the General Manager of the Appellant. The
Captain chose where to fish on the Bank or area assigned to him.
In most cases the Captain received cheques from the Appellant for
the full amounts due to himself and the crew and the Captain paid
the crew with his own cheques.
(i)
The Appellant's
primary business is fish processing and the Appellant purchases
fish from fishers on vessels other than its
own.
(j)
Prior to the CPP
assessment for 1997, Canada Pension Plan contributions had
been paid by each fisherman as self-employed.
(k)
Noel Dépres, the
General Manager of the Appellant, would call the Captains of the
scallop vessels most mornings when they were at sea (most voyages
lasted several days, usually 10) to check that everything was
okay and he would let the Captains know if the Appellant wanted
bigger or smaller scallops. There were five different banks for
scallops. When the Captains are fishing, they send in a daily
report of their catch shortly after midnight every day. The
herring trips were on a daily basis conducted principally in the
Bay of Fundy.
(l)
The Department of
Fisheries and Oceans ("DFO"), each year determines the
quota for the industry and allocates that quota on a percentage
basis to the various fishing companies. Further the DFO, the
Appellant and the Captain determine what, where, when and how to
fish. The Appellant has input as to which bank will be fished.
The Captain has input once they are at the bank designated by the
Appellant. It was up to the Captain to find the scallops within
the area designated by the Appellant.
(m)
I also accept as facts
those set out in the Appellant's Post-Hearing Submission at
paragraphs 161, 162, 167, 168 and 169, cited
below.
SUBMISSIONS OF COUNSEL FOR
THE APPELLANT
[5]
I quote the following from the Appellant's Post-Hearing
Submission:
8.
Subsection 6(1) of the Canada Pension Plan, R.S.C. 1985,
c. C-8, identifies what pensionable employment is and subsection
2(1) of that Act defines employment, for the purposes of that Act
as meaning "the performance of services under an express or
implied contract of service or apprenticeship ... (Book of
Authorities, Tab 1)
9.
The issue in the Appellant's appeal of the Canada Pension
Plan assessment and the appeal of the Minister's
determination regarding the pensionability of Mr.
d'Entremont's services, and therefore all fishermen
engaged by the Appellant, is simply whether the work performed by
the fishermen is performed pursuant to a contract of service. If
the fishermen are performing services pursuant to a contract of
service then they are engaged in pensionable employment, pursuant
to the Canada Pension Plan, thus triggering the
requirement that the Appellant withhold Canada Pension
Plan (occasionally referred to as "CPP")
contributions from payments made to the fishermen and remit those
withholdings along with the Appellant's share of
contributions to the Receiver General for Canada. Prior to the
1997 assessment by the Respondent the same total CPP
contributions were due, but they were remitted by the fishermen
as contributions in respect up [sic] self-employed
earnings.
...
11.
Just as with the Canada Pension Plan, pursuant to
paragraph 5(1)(a) of the Employment Insurance Act,
S.C. 1996, c.23, a person is engaged in insurable
employment if the employment is "under any expressed or
implied contract of service". (Book of Authorities, Tab
2) If the fisherman is self-employed the provisions of
the Employment Insurance Act do not apply to the earnings
of the fisherman while engaged in self-employment.
...
12.
Pursuant to section 2 of the Employment Insurance (Fishing)
Regulations, SOR/96-445 (Book of Authorities, Tab 3) a
person who is a "fisher" within the meaning of the
Regulations is included as an insured person under the
Employment Insurance Act. The effect is that the
requirement to pay premiums and the entitlement to EI benefits
does not depend on the determination of whether the crew is
engaged in a contract of service or a contract for
services.
13.
The consideration of whether a fisherman is engaged under an
express or implied contract of service is crucial to the
determination of whether the fishermen are engaged in both
pensionable and insurable employment for the purposes of
Canada Pension Plan and the Employment Insurance
Act. However, as the Appellant in this instance had deducted
EI premiums during the period in question, the Minister did
not assess on this issue. The determination of this Honourable
Court with respect to the insurability of the fishermen will have
no impact on either the Appellant or the Fishermen with respect
to the withholding and remittance of EI premiums.
14.
With respect to the issue of CPP contributions the impact is far
different.
...
16.
Further, this is not a case where the Minister has a discretion
that the trier of fact must concern his or herself with usurping.
An appeal of this nature is, in effect, a trial de novo.
The question, common to all three appeals, is one of mixed law
and fact. ...
[6]
Counsel for the Appellant refers to the decision of the Federal
Court of appeal in Moose Jaw Kinsmen Flying Fins Inc. v.
M.N.R., 88 D.T.C. 6099. At page 6100 the Court stated as
follows:
The definitive authority on this issue in the
context of the Act, is the decision of this Court in Wiebe
Door Services Ltd. v. The Minister of National Revenue, 87
D.T.C. 5025. MacGuigan J. speaking on behalf of the Court,
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., [1947] 1
D.L.R. 161 at 169-70. He 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".
115. An
extensive body of jurisprudence subsequent to Wiebe Door
has identified the "four-in-one test" as:
...
1.Control
2. Ownership of Tools/Equipment
3. Chance of Profit and Risk of
Loss
4. The integration or organization
test
[7]
Counsel adds the following:
116. The
Appellant submits that the Minister erred in determining that the
Appellant, ... was an employer of the fishermen who formed the
crews on the Appellant's vessels. The fishermen were
self-employed individuals on the basis that they had a high
degree of independence, a chance of profit and a real risk of
economic loss. Decisions of the Tax Court of Canada in
Murray v. M.N.R., [1987] 2 C.T.C. 2284, 87
D.T.C.559 (T.C.C.), ... (hereafter "Murray"),
and Benjamin v. M.N.R. (February 2, 1998),
96-1303(UI) (T.C.C.), ... (hereafter
"Benjamin"), together with the analysis adopted
by the Federal Court of Appeal in Wiebe Door ... support
the position of the Appellant.
117. The
relationship between the crew members and the Appellant is very
similar to that considered by Sarchuk J., in Murray where
he held that a fishing Captain and crew members were independent
contractors.
118. As
in the case here, the Court noted in Murray that there was
no employment contract between the company and the crew members.
Nor were the fishermen guaranteed any form of minimum earnings.
Further, each crew member shared in the proceeds of the catch on
a predetermined basis
119. In
reaching its conclusion that the Captain of the vessel and the
crew members were independent contractors, the Court reasoned at
paragraphs 15 through 17:
... The evidence clearly establishes that the
crew hired by Cape Beale were all independent contractors. There
is not a shred of evidence to support the proposition that Murray
was treated any differently. In his capacity as master of the
vessel his duties were not supervised by Cape Beale and Murray
was totally and completely in control of the methods and means of
doing his job; perhaps as a master of a vessel even more so than
in other circumstances might be the case. There was no employment
contract and there is no evidence that Murray was entitled to any
fixed or ascertainable remuneration. Each crew member, including
Murray, was paid on the basis of results. If they fished
efficiently their earnings would likely increase. If weather or
poor conditions or bad management or bad work disrupted their
pattern they bore the brunt of the loss, or they bore a portion
of the loss.
I see none of the incidences of a
master/servant relationship in this situation. Furthermore,
Revenue Canada itself distinguishes fishermen-employees
from independent contractors. I refer to interpretation Bulletin
IT-254R2, which although dealing with a totally different
matter contains this comment in paragraph 1:
This Bulletin applies to
"fishermen-employees" (members of the crew of a fishing
vessel who are remunerated on a salary or wage basis as distinct
from those entitled to a part of the profits on a
share-of-the-catch basis with liability for
expenses)...
120. In
Murray, the Court unequivocally held that crew members who
were part of a working arrangement almost exactly similar to the
one at the Appellant, were not employees of the vessel
owner.
121. The
decision in Benjamin, ... is the most recently published
decision from the Tax Court of Canada regarding the employment
status of fishermen. The working arrangement between the fisher
and the vessel owner was very similar to the arrangements in
Murray and that of the Appellant. In this case, the Court
characterized the parties as co-venturers. Judge Rowe
applied the Wiebe Door test and was satisfied that the
appellant was a self-employed individual even though the
fisher:
(a)
did not own any tools or equipment; and
(b)
did not exercise control about where to fish; and
(c)
did not pay for expenses such as groceries, fuel, bait,
ice.
The consideration which was most important to
the Court in determining that the fisher was self-employed was
her chance to profit. The fisher's remuneration was based on
35% of the profits from the catch. ...
[8]
Counsel then analyzes the fourfold test and I cite the following
extracts from his written submissions:
Control ...
127. The
nature of the fishing industry is such that the fishermen cannot
have absolute control over all aspects of the work to be
performed. For example, the fishing license restricts the species
of fish to be caught and where and when the fish may be caught.
Furthermore, because of the nature of fishing expeditions, it is
also necessary for individual fishermen to organize themselves
into a crew with a Captain. The process of fishing at sea also
requires all members of the crew to make a cooperative effort. It
is clearly not possible for each member of the fishing crew to
retain all of the control over how he or she performs work.
However, the work of the crew members is independent of the
Appellant and they fish without direction or supervision by the
company.
128.
Justice Robertson of the British Columbia Court of Appeal held in
Mark Fishing Co. v. U.F.A.W., [1972] 3 W.W.R. 641,
24 D.L.R.(3d) 585 (B.C.C.A.), ... (hereafter
"Mark Fishing"), that fishermen were not
employees and noted that the absence of control by crew members
over where and when they would fish was not necessarily
indicative of an employer/employee relationship. He recognized
that the very nature of a voyage at sea means that a variety of
decisions must be left to the Captain of the ship.
Counsel in particular referred
to the following words of Justice Robertson:
There is one feature in the contracts here
between the fishermen and the owners that inclines me
particularly to the view that the former were not employees of
the latter. It is the fact that, if there was a loss on a trip,
there was incurred a "hole" bill that was charged to
the crew in equal shares; this was a debt owing by each member of
the crew to the owner or owners, and one that followed the member
wherever he went; his liability to discharge it did not depend on
his having profits out of which to do so on subsequent trips of a
vessel of the same owner or owners. To me this appears to be
inconsistent with the relationship of master and servant and
consistent with the relationship of co-adventurers.
[emphasis added]
129. The
evidence demonstrated that the crew, and not just the Captain
alone, have a significant role in determining the number of crew
or the crew compliment. This is a significant decision which has
a direct effect on their total remuneration. ... While generally
all crew receive an equal share, with some positions such as
cook, engineer, mate and Captain receiving greater amounts, the
evidence demonstrated that new crew members were often brought in
by agreement at less than full share.
...
2. Ownership of Tools
134.
Self-employed individuals are often responsible for
providing necessary tools and supplies used in the performance of
services under a contract. However, it is important to note that
courts have placed less weight on the ownership of tools simply
because it can be fairly inconclusive depending on the nature of
the services being performed.
135.
Fishermen on vessels owned by the Appellant bear the
responsibility of supplying or paying for some of the necessary
tools such as shucking knives as well as their personal gear
including gloves, rain gear, and boots.
136. ...
The courts have given this aspect of the legal
test less weight in assessing work relationships. In today's
market, as in other industries, participation in the fishing
industry requires heavy investment in capital and modern
equipment to keep pace with technological changes and other
competitive pressures. The increasing sophistication and expense
of fishing equipment means that it is impractical to require
individual fishermen to contribute to the cost of the purchase
price of the machinery or the vessel. Such involvement would
require major capital investment by individuals carrying on
business in an industry which is typically seasonal.
...
3. Chance of Profit or Risk of
Loss
142.
Self-employed individuals will generally have the
opportunity to make a profit from the work performed, but
conversely they also bear the risk of loss. Employees, on the
other hand, are guaranteed to receive a payment for services
performed and would not be entitled to any profit over and above
the daily or hourly rate.
143. ...
(i)
No guaranteed salary or remuneration
144. On
the issue of chance of profit, the Appellant is clearly not an
employer because crew members on its vessels do not have any
guaranteed salary—they pay their share of expenses and they
are entitled to their proportionate share of the proceeds from a
catch. The remuneration received by the Appellant's crew
members is entirely profit-based. The Appellant receives the
"boat share" from the catch because it is the owner of
the vessel and not because it is an employer of the fishermen.
From its share the Appellant must pay expenses relating to its
equipment and licenses.
...
[9]
Counsel also refers to Klingner v. Mark Fishing Co. 1993
Carswell Nat. 726, 63 T.T.R. 83 wherein the Federal Court, Trial
Division held that a relationship similar to that in these
appeals was akin to a joint venture.
161.
Here, the evidence demonstrated that the herring seiner would
frequently return from a night's fishing with no catch.
However, by agreement, settlement would be delayed until
conclusion of a number of trips in order that the settlement
would result in payment to the crew. The scallop draggers also
had "broken trips". It is uncontradicted that the crew
of a vessel forced to return from a trip early, thus making it an
unprofitable trip, would discuss with the other crew whether the
first crew could return to sea. There was agreement that the
first crew would return to ensure a profitable trip. The expenses
from sailing the first time are thus held over until the final
settlement with respect to a trip. If it were not for the
agreement reached between the two crews (without any involvement
or input by the Appellant) then there would be a loss to the
crew. However, because the crew among themselves agreed that they
can return to fish until they have a full trip, they have in this
way ensured that the negative balance in the equivalent of their
whole account is offset by the value from a subsequent
trip.
162. In
the case of herring it is even more evident that a
"hole" account is kept. The Court heard evidence that
during the season the Lady Melissa sails every day but often
returns without a catch. The expenses from each trip are held
over until there is a sufficient catch and a settlement sheet is
finally completed. The expenses from previous trips, where no
settlements have taken place, are held over until a number of
profitable trips.
...
4. Integration or Organization
Test
...
166. If
work performed by an individual is done as an integral part of
the business, then this can be relevant to the determination if
the person is an employee of the company. The work performed by
an independent contractor will generally be necessary to the
business, but not integral to it.
167. The
fishermen must all possess personal fishing licences issued by
DFO that must be renewed annually. The members of the crews who
act as captain, mate and engineers must also have other specific
training that must be renewed such as first and an [sic] MED
(Marine Emergency Duties) certificates. The Appellant does not
pay for nor reimburse the fishermen for the costs of these
licenses and certificates.
168. Many
crew members on the Appellant's vessels are also active in
other aspects of the fishing industry - in areas unrelated
to the Appellant. For example, a number of the crew on the
herring seiner, the Lady Melissa are involved at various times of
the year in the lobster fishery. As well, other crew on the
scallop draggers and herring seiner are involved in cutting wood,
owning and operating a sawmill, working on unrelated boats
fishing for ground fish such as pollock, cod and haddock, and
working for other inshore scallop boats not related to the
Appellant.
169. The
Appellant is not responsible for the training of any of the crew
members. Each individual possesses necessary skills or receives
training from other crew members as part of a team of
co-venturers. Both in herring and scallops the members of
the crew have specialized skill and knowledge relating to their
fishery. This knowledge or skill is acquired by the fishermen
themselves and is not provided by the Appellant.
170. In
determining the level of integration of the fishermen in the
business, it is also relevant that the Appellant does not pay the
fishermen bonuses, vacation pay, statutory holidays or
overtime.
...
Conclusion: Legal Test
175. A
proper analysis of the relationship between the Appellant and
fishermen working on its vessels in accordance with the
four-in-on [sic] legal test results in a
characterization of the fishermen as independent contractors or
co-venturers. A proper application of the test cannot be
made without consideration of the realities of the fishing
industry and the fact that the fishermen and the Appellant share
expenses and profits. This characterization is well supported by
the vast majority of decisions from the Courts regarding the
employment status of fishermen.
...
C.
Administrative Practice
182. ...
the approach used by the Minister's officers to determine
whether a fisher is an employee or an independent contractor may
be useful as an interpretive aid. There are various technical
interpretations issued by Revenue Canada which overwhelmingly
support a finding that the Appellant is not an employer of the
fishermen.
183. As
noted in the case of Murray ... discussed above, in
Interpretation Bulletin IT-254R2 - Fishermen -
Employees and Seafarers - Value of Rations and Quarters,
dated May 26, 1980, ... ; the Minister
distinguishes "fishermen-employees" from
self-employed fishermen for the purposes of determining the
application of employment benefit provisions and
states:
1. This Bulletin applies to
"fishermen-employees" (members of the crew of a
fishing vessel who are remunerated on a salary or wage basis as
distinct from those entitled to a part of the profit on a
share-of-the-catch basis with liability for
expenses) and to the officers and crew of any vessel other than a
fishing vessel.
184. In
technical interpretation 9419327, dated August 10, 1994 ... the
Department states that it will generally consider a person to be
a self-employed fisher person if:
·
the person owns or rents a
fishing boat;
·
the person is a captain of a
fishing boat; or
·
the person is a shares man
who gets a share of the catch.
[emphasis added]
...
186. A
"Communique" dated September 6,1997 (see
Exhibit AR-1, Vol. 3, Tab 26) reiterates
that a fisher will be considered self-employed if the
person:
a) participates in making a catch;
b) is not fishing for sport; and
c) meets at least one of the following
conditions:
i) has ownership or leases the boat which is
used to make the catch; or
ii) has ownership or leases specialized
fishing gear (not including hand tools or clothing) which is used
to make the catch; or
iii) is the holder of a species license,
issued by the Department of Fisheries and Oceans, necessary to
make the catch; or
iv) has a right of ownership to all or part
of the proceeds from the sale of the catch and has a financial
responsibility for all or part of the expenses incurred in making
the catch. [emphasis added]
187. In
the 1997 Fishing Income Guide (T4004) (Book of Authorities,
Tab 15), it is noted that the income of a sharesman is the
amount received after deduction of all trip expenses from the
sale of a catch. Permitted deductions include amounts paid for
personal fishing licenses, rubber gear, gloves and
knives.
188.
Based on the Minister's own published guidelines and
interpretations, the fishermen who work on the Appellant vessels
should be characterized as self-employed. Most importantly,
the fishermen meet the "sharesman" condition required
by the Minister. Each crew member is entitled to a share of the
proceeds of the catch and is required to pay certain expenses for
the fishing voyage.
SUBMISSIONS OF COUNSEL FOR THE
RESPONDENT
[10] Counsel
for the Respondent refers to the applicable laws and Wiebe
Door. I cite the following extracts from his written
submission analyzing the four tests.
The Control Test
20.
The control test was the traditional common law criterion of an
employment relationship. The test has been restated several
times. In Wiebe Door Justice MacGuigan notes two
restatements of the control test. The first is a statement of the
test set out by Baron Bramwell in R. v. Walker
(1858), 27 L.M.J.C. 207, quoted at paragraph 6 of the Wiebe
Door decision.
It seems to me that the difference between the
relations of master and servant and of principal and agent is
this: A principal has the right to direct what the agent has to
do; but a master has not only that right, but also the right to
say how it is to be done.
21.
The second is a statement of the test adopted by the Supreme
Court of Canada in Hopital Notre-Dame de L'Esperance
and Theoret v. Laurent et al., [1978] 1 S.C.R. 605 at 613,
quoted at paragraph 6 of Wiebe Door:
... the essential criterion of
employer-employee relations is the right to give orders and
instructions to the employee regarding the manner in which to
carry out his work.
22.
Thus, the control test examines whether the alleged employer has
the right to give orders and instructions to the employee
regarding the manner in which the employee carries out his work.
As noted by Justice MacGuigan, the test can break down in
relation to highly skilled and professional workers, who possess
skills far beyond the ability of their employers to direct. For
this reason, the proper application of this test requires the
court to focus on the alleged employer's right
to give orders rather than on whether the alleged employer gives
orders in fact. Thus, in Gallant v. Canada (Department of
National Revenue), [1986] F.C.J. No. 330, Pratte J.A.
states the following:
The distinguishing feature of a contract of
service is not the control actually exercised by the employer
over his employee but the power the employer has to control the
way the employee performs his duties.
...
24.
As stated in Scherrer v. Canada (Minister of National Revenue
- M.N.R.), [1994] T.C.J. No. 966, October 27, 1994,
unreported, at paragraph 15:
The degree of control exercised by the
employer is one of the determining factors, and of course it
varies, depending on the employment. The foreman in a plant
exercises visible and obvious control over the employees under
his or her direction. On the other hand, marine or airline
companies can exercise only limited control over captains of
vessels or pilots of aircraft. It would be unthinkable to have a
supervisor sitting beside every one of them. And yet they are no
less employees of the company that employs them. ...
25.
Factors pointing to a relationship of subordination ought to be
considered by the Court in applying the control test. In
Chiasson et al. v- M.N.R. (February 23, 1990),
87-603(UI), there was no consultation with respect to the
remuneration of the fishers, the beginning and end of the fishing
period, the nature of the work and its duration, and fishers were
obliged to participate in the preparatory work for the departure
of the vessels. The Court held at page 9 that:
In these circumstances, it appears difficult
to me to conclude that there is a joint venture when a single
party has absolute control over all the operations relating to
the planned initiative. Control over the work by one of the
parties is so absolute and participation in the
decision-making by the other party is so completely absent
that it appears more plausible to believe, in applying this first
test that the nature of the legal relationship between the
fishing vessel owner and the deck hands is rather that of an
employer who deals with his employees. ...
The Integration Test
26.
The "organization" test was first set out by Lord
Denning in Stevenson, Jordan and Harrison, Ltd .v. MacDonald
and Evans, [1951] T.L.R. 101 at page 111. It is quoted in
Wiebe Door atparagraph 3:
One feature which seems to run through all the
instances is that, under a contract of service, a man is employed
as part of the business, and his work is done as an integral part
of the business; whereas, under a contract for services, his
work, although done for the business, is not integrated into it
but is only accessory to it. ...
27.
This test, employed by the Supreme Court of Canada in
Cooperators Insurance Association v. Kearney, [1965]
S.C.R. 106, asks essentially whether the alleged servant was part
of his employer's organization. Bendel in Fleming, The Law
of Torts (2nd ed. 1961), quoted in Wiebe
Door at paragraph 11, uses a passage from an Ontario Labour
Relations Board decision to explain the reason for the use of the
integration test thus, at 382:
The essence of operating a business is holding
out to a market society the availability of goods and services at
the best possible price having regard to competing pressures
exacted upon a particular market. It seems patently obvious to
this Board that a particular business will not flourish in
circumstances where growth is totally integrated with the
operations of a particular customer. The essence of resolving and
distinguishing the contractor from employee is his independence
... in instances where the driver's means of financial
support is [sic] inextricably bound up with the respondent we are
of the view that he cannot be considered an independent
contractor. ...
28.
In Wiebe Door, Justice MacGuigan states that the
organization test produces entirely acceptable results when
properly applied, that is, when the question of integration is
asked from the point of view of the "employee" and not
from that of the "employer". The reason for this
perspective, states Justice MacGuigan at paragraph 16, is
that "it is always too easy from the superior perspective of
the larger enterprise to assume that every contributing cause is
so arranged purely for the convenience of the larger
entity". When the test is viewed from the point of view of
the worker, it is plain to see that if the worker's business
is totally integrated with the operations of the payor, the
worker is not an independent contractor. According to Wiebe
Door at paragraph 16, the question that must always be
posed with respect to the organization or integration test is:
"Whose business is it?" ...
29.
With respect to the question "Whose business is it?",
the Court in Chiasson, supra, relied on the following
factors at page 10:
If the test is applied from the point of view
of the fishermen, it seems clear to me that these fishing
expeditions did not form part of a business that was operated
collectively by all the deck hands of the same crew. For example,
the deck hands did not participate in any way in the choice of
their co-workers, nor obviously in the choice of their
captain. Several of them were related to the captain. On an
objective examination of the facts in the appeals with which we
are concerned, it is quite obvious that the business for which
the deck hands worked was truly that of the owner of the vessel.
In my opinion, it cannot be seriously contended that the business
in question was even partially that of the fishermen. The
application of this third test decidedly supports the contention
that the fishermen were employees.
...
32.
Part of the "four-in-one" test involves
determining who owns the tools necessary to carry on the
undertaking being examined. As noted in Chiasson, supra,
at page 9:
As we have seen, the vessel, the fishing gear
and the tools were without exception the exclusive property of
the owner of the vessel. If the application of this second test
points in any direction, it would be towards the fishermen being
employees. Indeed, one would normally expect these fishermen to
make some kind of contribution towards the vessel if they were
part of a joint venture,
33.
With respect to the chance of profit or risk of loss, the mere
fact that a worker is paid by the piece does not indicate that he
is self-employed. In fact, payment by the piece is
contemplated within section 5(1)(a) of the Employment
Insurance Act. ...
34.
In Chiasson, supra, at pages 10 and 11, the Court examined
whether the share allocated after amounts were deducted from the
fishers settlement sheets "amounted to a share of the
profits from the fishing expeditions". The Court took into
account that fact that the owner of the fishing vessels had to
absorb the cost of such items as the depreciation of the vessel,
the materials used for maintenance repairs, the fishing gear and
tools, other than the electronic equipment. The Court held, at
page 11, that the amount the crew members received was really
based on "an arbitrary calculation, which can only be
explained by the historical context." ...
APPLICATION OF THE EVIDENCE TO THE
LAW
35.
The Respondent submits that with respect to the control test, the
following factors point to a contract of service between the
Appellant and the fishers:
·
The Appellant owns the
vessels, the species licences, the boat licences and the major
equipment used to prosecute the fishery. None of the fishers
could prosecute the off-shore scallop and herring fisheries
independently because they could not obtain the necessary
licences to do so. The number of licences available are limited
to those participants already engaged in the
industry.
·
The Appellant determines the
price to be paid the fishers without input from the fishers. The
fishers do not negotiate this price.
·
The Appellant determined that
there would be double crews without any input from the
fishers.
·
The Appellant determines which
bank each vessel will go to.
·
The captain may determine
where to fish within a bank. Should the Appellant want a certain
kind or quality of scallop, it may instruct the captain to move.
If a captain is told to move by the, Appellant, he must
move.
·
The captains working on the
Appellant's vessels are highly skilled and experienced
fishers. This experience enables them to find the fish once
inside the area designated by the Appellant. The fact that the
captains of each vessel made independent decisions with respect
to where to fish within the area designated by the Appellant does
not point to a lack of control by the Appellant. Rather, this
demonstrates the principle expressed in Scherrer, supra,
at paragraph 15, that it would be unthinkable to have a
supervisor sitting beside every captain of a vessel, and yet they
are no less employees of the company that employs
them.
·
The nature of fishing is such
that it would be impossible for the Appellant to direct the
captain as to exactly where to go within a bank. However, it is
clear that the Appellant has the right to control the captains
and does so to a great degree, even going so far as to instruct
them to move in order to satisfy the demand for a certain quality
of product.
·
The Appellant tells the
captain when to leave and when to return. The captain must make
this decision with regard to the safety of the crew
only.
·
Daily contact is maintained
with the vessels.
·
Where fishers do not want to
fish in an area designated by the Appellant because it will
result in a smaller settlement, they still believe they are
obliged to go.
·
Marcel Comeau stated that
after the herring season, which is prosecuted by the fishers from
late May to mid October, the fishers have the rest of the year to
do whatever they wish. This would imply that they cannot do
whatever they wish during the season itself.
36.
The Respondent submits that with respect to the integration test,
the following factors point to a contract of service between the
Appellant and the fishers:
·
The Appellant's scallop
draggers and herring seiner form an integral part of the overall
operation of the Appellant.
·
The Appellant owns the boat
and species licences and the vessels used to prosecute the
fishery. The Appellant is required to pay a considerable amount
for these licences and vessels. This would suggest that the
Appellant does not consider the work performed by the fishers to
be merely incidental to the Appellant's
business.
·
While the Appellant has
several different operations, it is primarily in the business of
fish processing. The fishers provide the very material used by
the Appellant at their processing plants. By prosecuting the
herring and scallop fisheries, the Appellant was able to control
the timing, quantity and quality of fish arriving at their plants
for production. This also better assured them that product would
be available to process by the plant workers in their
plants.
·
The fishers have an ongoing
relationship year after year with the Appellant. Sailing on the
Appellant's boat takes priority over any other jobs during
the season. Once again, the herring fishers were free to work
elsewhere after the Appellant's quota was
caught.
37.
The Respondent submits that with respect to the ownership of
tools, the following factors point to a contract of service
between the Appellant and the fishers:
·
The Appellant owned the major
tools used in the work performed by the fishers: the vessels, the
large fishing gear and the fishing licences.
·
The Appellant was wholly
responsible for any repairs to the vessels.
·
The Appellant paid all of the
insurance on the vessels.
·
The Appellant owned the fish
quota.
·
The fishers only provided
their own personal items such as oil clothes, gloves, boots and
knives.
38.
The Respondent submits that with respect to the chance of profit
and risk of loss, the following factors point to a contract of
service between the Appellant and the fishers:
·
The crew was paid on a per
pound basis which they did not negotiate with the Appellant. The
evidence of the witnesses was that the price per pound had not
fluctuated in 10 years. When the Appellant's quota increased
in the year 2000, the Appellant dropped the price per pound paid
to the fishers. The fishers had no guarantee of participating in
any profit derived from increased quotas
·
As a result of being required
to share in the prosecution of the scallop fishery in less
desirable areas, no fisher was given the opportunity to maximize
his profit.
·
The amount the fishers receive
is really based on an arbitrary calculation, which can only be
explained by the historical context.
·
Other expenses were deducted
in amounts that could only be explained in a historical context
as they did not reflect their actual costs, such as the
electronic equipment (i.e. radar and loran). Deduction of such
expenses cannot be described as sharing in a
loss.
·
The system of remuneration
used by the Appellant guaranteed that the fishers would never be
in a loss situation. When a crew was forced to return from a
fishing trip early, they were allowed to return to sea to
continue fishing without having to "settle up" until
their return from the second trip. By agreeing to broken trips
and flexible times for settlement, which was not opposed by the
Appellant, if there was any risk (which the Respondent still
submits there was none), by this arrangement, the fishers with
the Appellant have eliminated any risk of loss.
·
None of the witnesses could
remember an example of a fisher owing the company because his
expenses had exceeded the amount he was paid for the
catch.
·
If there were a loss on a
broken trip for a crew member who did not participate on the
second trip, the crew would be responsible for the loss.
Therefore, unlike the fact situation in Mark Fishing
Co. v. U.F.A.W., 1972 Carswell BC 95, [1972] 3 W.W.R.
641, 24 D.L.R. (3d) 585, (B.C.C.A.), liability for the debt did
not follow the individual fisher. ...
·
Although the captain and crew
can effect their remuneration by determining the number of crew
or the crew compliment, the greatest factor with respect to their
remuneration is the value of the catch they receive from the
Appellant, a factor they have no input or negotiation on. The
Respondent submits that the Appellant controls the value of the
catch and makes choices based on a determination as to how the
market will affect the Appellant's own profit interests. The
fishers are not privy to this information and cannot, as would a
self-employed fisher, respond to outside market demands by
setting their own price.
·
The Appellant has made
reference to the increasing expenses and sophistication within
the fishing industry and how it is impractical to require
individual fishermen to contribute to the cost of the purchase
price of the machinery or vessel. The Respondent submits that
fishers who are self-employed do make this major
financial/capital investment and claim their respective expenses
such as loan interest, boat repairs, insurance, etc., and capital
cost allowances on depreciable equipment in their operation. The
case at bar differentiates between the risks and investment a
self-employed fisher must undertake in contrast to the
fishers that work for the Appellant.
·
Any true risk of loss was that
of the Appellant, as it was the Appellant who had sole
responsibility for the financing of the vessels, insuring the
vessels, and the investment in the licences. Further, the
Appellant's processing plants would have been detrimentally
affected by any significant loss of product, increasing the risk
to the Appellant in other areas of the Appellant's
business.
...
40.
With respect to the total relationship of the parties, the
Respondent submits that the fishers were in a relationship of
subordination vis a vis the Appellant which would mitigate any
true partnership or relationship of
"co-venturer".
...
42.
In section C of its submissions the Appellant has made reference
to information releases produced by the Canada Customs and
Revenue Agency, previously the Minister of National Revenue,
regarding the employment status of fishers. The Appellant is
correct in stating that these releases are not binding legal
authority. They are an interpretative aid addressing some of the
factors the Minister considers in making a determination on the
employment status of a respective fisher.
...
44.
In relation to the fishers under consideration and in response to
the Appellant's submissions, the Respondent says that the
fishers did not share in the catch but that their remuneration
was determined according to an arcane, historically based
formula. It must be noted that the formula did not calculate the
profit or loss of the fishing venture.
ANALYSIS
AND DECISION
[11]
Subsection 6(1) of the Canada Pension Plan, R.S.C. 1985,
c. C-8, identifies what pensionable employment is and subsection
2(1) of that Act defines employment for the purposes of that Act
as meaning "the performance of services under an express or
implied contract of service or apprenticeship". Just as with
the Canada Pension Plan, pursuant to paragraph 5(1)(a) of
the Employment Insurance Act, S.C. 1996, c.23, a
person is engaged in insurable employment if the employment is
"under any expressed or implied contract of service".
The question thus becomes were the fishermen in these appeals
employed under a contract of service or a contract for
services.
[12]
Based upon all the factors present in these appeals, I find that
on a balance of probabilities the relationship that existed in
these appeals was in each case one of a contract for services and
not a contract of service. One cannot simply look at the
ownership of the expensive vessels and conclude from that, that
since the major tools (i.e. the vessels, fishing equipment and
radar, etc.) were owned by the Appellant and only minor items and
tools owned by the fishermen that therefore what existed were
contracts of service. One cannot expect seasonal fishermen to
contribute to the cost of or running expenses of such costly
equipment as we have in this case. With respect to control, there
are elements of control exercised by the Appellant but there was
a considerable degree of independence of the Captain and crew
when performing their services. In fact the Appellant chose the
captains after consultation with the crews. It was the captains
who retained the crew members and in most cases paid them by
cheque after receiving the appropriate amount from the Appellant.
Moreover, many of the aspects of control arise from the
relationship of the DFO controlling the places to be fished and
quotas of fishing. As to integration, the factors point in two
directions. The fishermen in question were not totally integrated
into the operations of the Appellant. The question that arises is
whose business is it? Well it is obviously mainly the business of
the Appellant but, the fact remains that the Appellant by sharing
the proceeds of the catch, in effect, is sharing the proceeds of
the business with the crew as a co-venturer. This I find to be a
key element in ascertaining the nature of the relationship. I
refer in particular to the following decisions:
Re Lunenburg Sea Products Ltd., Re Zwicker, [1947] 3 D.L.R
195 (N.S.S.C.)
Murray v. Canada, 87 D.T.C. 559 (T.C.C.)
Robinson v. Canada, [1991] T.C.J. No. 624
(T.C.C.)
Benjamin v. Canada, [1998] T.C.J. No. 153
(T.C.C.)
[13]
The enactment of the Employment Insurance
(Fishing) Regulations ("Fishing
Regulations") is a tacit recognition that fishers
(fishermen) are often considered to be independent contractors.
The willingness to extend the benefits of the Employment
Insurance Act (the "EI Act") to fishermen
demonstrates a clear statement that people in this occupation
would not otherwise benefit.
[14]
The Fishing Regulations were enacted
pursuant to subsection 153(1) of the EI Act, which
provides:
153. (1)
Notwithstanding anything in this Act, the Commission may, with
the approval of the Governor in Council, make such regulations as
it deems necessary respecting the establishment and operation of
a scheme of employment insurance for self-employed persons
engaged in fishing, including regulations
(a)
including as a self-employed person engaged in fishing any person
engaged in an activity or occupation related to or incidental to
fishing; and
(b)
including as an employer of a self-employed person engaged in
fishing any person with whom the self-employed person enters into
a contractual or other commercial relationship in respect of
their occupation as a self-employed person engaged in
fishing.
[15]
This provision replaces former subsection
130(1) of the Unemployment Insurance Act (subsection
146(1) of the 1970-71-72 Act).
[16]
In Silk v.Canada (Unemployment
Insurance Act Umpire) [1982], 1 F.C. 795 (F.C.A.), the Umpire
had to determine whether a regulation enacted pursuant to former
subsection 146(1) of the Unemployment Insurance Act was
ultra vires and invalid in that it prescribed a different
qualifying period than that provided in the Unemployment
Insurance Act. The Federal Court of Appeal found that the
section did not authorize the setting up of a more restrictive
scheme than that provided by the Unemployment Insurance
Act. Thurlow C.J. stated in his interpretation of former
subsection 146(1):
The submission put
forward in support of the Regulation, as I understand it, was
that the Commission was authorized by section 146 of the Act to
establish and had established a separate and distinct system of
unemployment insurance for persons engaged in fishing who would
otherwise not be eligible to receive benefits.
[...]
What paragraph (a)
appears to me to intend is that regulations may be made for
"including as an insured person" a fisherman
notwithstanding that he is not an employee of any other person.
When such a regulation has been made the fisherman is to fall
within the definition of and be treated as an insured person
under the Act notwithstanding that he is not an employee. In
consequence he will have to pay premiums.
The effect of
paragraph (b) is similar. Under it regulations may be made for
including as an employer a person with whom the fisherman has a
contractual or commercial relationship in respect of his
occupation as a fisherman, notwithstanding the fact that the
person to be included as an employer is not an employer at all.
In consequence that person too will have to pay
premiums.
It is apparent from
reading these paragraphs that the regulations to be made are not
merely to be regulations that treat the fishermen as insured
persons within the meaning of the Act but to include them in the
unemployment insurance scheme established by the Act for employed
persons.
[17]
The Supreme Court of
Canada, [1983] 1 S.C.R. 335
(S.C.C.) later
confirmed the Federal Court of Appeal's reasons and
McIntyre J. stated:
Before the enactment
of s. 146, fishermen were not eligible for unemployment insurance
benefits. It is clear from the words of the provision that its
purpose was to extend the application of the Act to
fishermen.
[18]
I should add that if
these Appellants were to be found to be employees in such a
situation where they were clearly being remunerated solely on a
percentage of the catch, then it is not clear to whom the
Fishing Regulations would ever apply.
[19]
Further the administrative practices of Revenue Canada detailed
in Appellant's submissions clearly indicate that fishermen
who share in the proceeds of the catch are not employees.
Moreover the fishermen in these appeals received no fixed
remuneration, vacation pay, etc.. Also when not fishing on the
Appellant's vessels they could and did take other employment.
Further, in my opinion, sharing in the proceeds of the catch is
not payment by the piece.
[20]
The Scherrer & Chiasson decisions are
distinguishable from the facts in these appeals. The cases cited
by counsel for the Appellant are more persuasive.
[21]
For all of the above reasons the appeals are allowed, without
costs.
Signed at Ottawa,
Canada, this 11th day of June 2001.
"T. O'Connor"
J.T.C.C.
COURT FILE
NO.:
1999-1793(EI), 1999-1794(CPP)
and 1999-1932 (CPP)
STYLE OF
CAUSE:
Comeau's Sea Foods Limited v.
The Minister of National Revenue
PLACE OF
HEARING:
Halifax, Nova
Scotia
DATE OF
HEARING:
January 22, 2001
REASONS FOR JUDGMENT
BY: The Honourable Judge T.
O'Connor
DATE OF
JUDGMENT:
June 11,
2001
APPEARANCES:
For the
Appellants:
Roderick H. Rogers
R. Dan Harasemchuk
Counsel for the
Respondent:
John P. Bodurtha
Caitlin A.
Ward
COUNSEL OF RECORD:
For the
Appellant:
Name:
Roderick H. Rogers
Firm:
Stewart McKelvey Stirling Scales
Halifax, Nova Scotia
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-1793(EI)
BETWEEN:
COMEAU'S SEA FOODS LIMITED,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard together on common evidence with
the appeals of
Comeau's Sea Foods Limited
(1999-1794(CPP)) and (1999-1932(CPP))
on January 22, 2001 at Halifax, Nova Scotia,
by
the Honourable Judge Terrence
O'Connor
Appearances
Counsel for the
Appellant:
Roderick H. Rogers
R.
Dan Harasemchuk
Counsel for the
Respondent:
John P. Bodurtha
Caitlin A. Ward
JUDGMENT
The appeal is allowed, without costs, and the decision of the
Minister is vacated in accordance with the attached Reasons for
Judgment.
Signed at Ottawa, Canada this 11th
day of June 2001.
J.T.C.C.
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