Date: 20010125
Dockets: 2001-1404(EI)
2001-1422(CPP)
BETWEEN:
ALAN SOMERVILLE OP VALLEY LOCKSMITH,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Rowe, D.J.T.C.C.
[1] The appellant appealed from a
decision - dated January 30, 2001 - issued by the Minister of
National Revenue ( the "Minister") wherein the Minister
decided contributions pursuant to the Canada Pension Plan
(the "Plan") and premiums in accordance with
provisions of the Employment Insurance Act (the
"Act") were payable on the earnings paid to Mark
Bourget (the worker) during the period of May 31, 1999 to April
7, 2000 because he was employed under a contract of service and
therefore considered to have been an employee of the appellant
operating under the name Valley Locksmith. The appellant also
filed an appeal - 2001-1422(CPP) - from the decision
issued by the Minister pursuant to the Plan and the
parties agreed the result in the within appeal would apply.
[2] Alan Somerville testified he
resided in Mission, British Columbia and operated a locksmith
business - as a sole proprietorship - using the trade name Valley
Locksmith, sometimes referred to as Fraser Valley Locksmith. He
stated he became aware of a booklet - Exhibit A-1 - entitled:
Employed or Self-Employed?, prepared by Revenue Canada with the
intent it would be used by persons in the workplace in order to
assist in determining the status of a worker having regard to the
particular conditions of employment. After reading the booklet,
he began checking off the appropriate responses in the spaces
provided for that purpose. The appellant stated he agreed with
certain assumptions of the Minister as set forth in paragraph 3
of the Reply to the Notice of Appeal (Reply), as follows:
(a) the Appellant
operated a locksmith business;
(b) the Appellant
employed Bourget to provide locksmith services to the
Appellant's customers;
(c) in order to
operate a locksmith business, the Appellant had to be licensed by
the Ministry of the Attorney General of B.C. (the
"Ministry");
(d) in order to
provide locksmith services, Bourget was required to have two
licenses:
i) a Security Employee License issued by the Ministry which
licensed him as a locksmith in general; and
ii) a Security Employee Identification card which identified him
as a locksmith working with a particular firm;
(e) in order to
obtain the licenses referred to in paragraph (d) above, Bourget
had to take courses, be subjected to a criminal record and
security check and be bonded;
(f) the
services provided by Bourget were generally performed on the
various customers' premises, i.e., at business premises,
residences or in vehicles;
(g) the Appellant
provided Bourget with a company van, bearing the business name,
which was stocked with materials;
(h) the Appellant
paid for all the expenses of the van including insurance,
repairs, etc., except for gas, which was paid for by Bourget;
(k) Bourget's
regular remuneration was 50% of the labour charge but he was paid
a higher percentage for work done on weekends or in the
evening;
(l) Bourget
was guaranteed to be paid a minimum amount of $80.00 per day if
his commission was less than that amount;
(m) Bourget submitted an
invoice to the Appellant and was paid his remuneration by cheque
on a bi-weekly basis;
(n) Bourget provided
his own hand tools, a cellular phone and a pager for which he was
not reimbursed;
(o) Bourget
performed the services personally;
[3] The appellant explained his
business was comprised of a retail store - selling locks and
security devices for commercial and residential premises - and a
mobile locksmith service responding to customer demand. The
services involved changing locks, securing premises, gaining
access to locked vehicles and changing combinations on safes.
Somerville stated Bourget first began working for him - at Valley
Locksmith - in 1998, as an employee, subject to the usual source
deductions from his pay cheque. In May, 1999, the appellant
stated Bourget advised that he wanted to have the opportunity to
perform work for other people and requested a change in the
nature of their working relationship so he could provide ongoing
services to Valley Locksmith as an independent contractor.
Somerville agreed to that proposal and, whereas Bourget had
attended at the store each morning prior to that and had worked
as a full-time employee handling sales and service, he now
telephoned the store each morning to determine whether or not his
services were required during that day. The appellant would
inform Bourget of the nature and location of any job and Bourget
then travelled to the premises in order to perform the work. The
agreement arrived at by Somerville and Bourget required payment
to Bourget of an amount based on 50% of the labour charges for
each job done but excluded any sharing of revenue relating to
parts or materials. Bourget submitted invoices - Exhibit A-2 - to
Valley Locksmith, using the letterhead and logo of an entity
called Guardian Locksmith. The invoice listed Bourget's own cell
phone and pager numbers. The appellant explained that the system
of pricing - to a large extent - depended on a determination made
by the worker in the field depending on the circumstances with
which he was confronted. Somerville stated it was not common
practice to issue a firm price to a customer without undertaking
a physical examination of the premises. There was a minimum
charge - $45 - for any service call but Bourget was free to
charge additional fees as he saw fit depending on the nature of
the work performed on the site. In order to have constant access
to Bourget's services, the appellant stated he agreed to pay him
the sum of $80 per day - as a minimum - on a sort of retainer
basis - and if Valley Locksmith did not require Bourget to
perform any work then he was free to work for others. Somerville
stated it was rare to impose any time limit on Bourget in
reference to any service call and it would be done only at the
insistence of a customer. Since Bourget was a licensed locksmith
- and the appellant is not similarly qualified - the appellant
did not exercise any control or supervision over his work and
undertook no inspections of completed work. The working
relationship permitted Bourget to take time off as he saw fit and
Somerville stated he would locate a replacement locksmith or - on
occasion - hire the services of a competitor in order to satisfy
the needs of a customer. There were not many after-hours
call-outs on an emergency basis but Bourget could be contacted
via his own cell phone and/or pager and if he did attend at a
site and perform the required service, the amount charged would
generally be at a higher rate than if the same work had been done
during regular hours. Generally, the customer would choose the
type of lock to be installed and the labour charge would usually
be the same unless additional time was required for the specific
installation. In the event the actual work was done improperly,
then Bourget was required to correct the problem at his own
expense but if the trouble was caused by a faulty lock then
Somerville and Bourget would arrive at a satisfactory amount to
be paid for any further attendance at the premises. When a job
was completed, Bourget would complete the Valley Locksmith
invoice - a copy of which would be left with the customer - and
that day or the next, would leave the other copy at the
appellant's shop. As for Bourget's own invoices for services
provided, he submitted them every two weeks and was paid
regularly on that basis. Somerville agreed he would have
exercised the right to approve of any worker proposed by Bourget
as a replacement but the matter never arose. The tools required
for performance of the worker's job included a van - owned by
Valley Locksmith - that had been equipped with shelving,
cabinets and an expensive key-cutting machine. Since Bourget had
used the van when he had been on the regular payroll, it was
agreed he could continue to do so because his own van was not
similarly equipped. Bourget used his own hand tools including
saws, drills and specialized tools such as picks which tend to be
expensive. Bourget and Somerville agreed they were each to be
responsible for the purchase and repair of their own tools.
Somerville estimated the value of the van and equipment -
including its own power source and electrical converters - to
have been approximately $16,000. The van was insured by
Somerville - operating as Valley Locksmith - at an annual
cost of nearly $1,000 and there was also a liability policy
pertaining to any claims arising from services provided through
the business. Somerville also supplied Bourget with invoice books
- in the name of Valley Locksmith - in order to bill
customers but the worker paid for all costs pertaining to the use
of his own cell phone and pager service. At least 95% of the
required materials were delivered in the van and an agreement was
reached whereby Bourget would pay for all fuel costs associated
with operation of the van because he also used it to commute to
and from work. Any bad debts arising the supply of service by
Valley Locksmith through the actual performance of work by
Bourget were absorbed by the appellant's business as well as any
amounts relating to any guarantee concerning the quality of an
installed product. Somerville stated that even though he had
agreed to pay Bourget the sum of $80 per day - as minimum
compensation - he never requested the worker to perform any other
tasks or services. In accordance with their agreement, the
appellant considered Bourget to have the ability to provide his
services to others - including the occasion on which Bourget
changed locks in an apartment complex - which served to confirm -
in the appellant's mind - the reason the worker had wanted to
change his earlier status from that of employee to independent
contractor. During the relevant period, there was another
qualified locksmith working at the Valley Locksmith premises and
this worker had the status of an employee. Somerville stated it
was only after a full review of the Revenue Canada booklet and
following completion of all the sections therein and tallying up
the results, that he and his accountant were able to arrive at
the conclusion that Bourget would be providing his services to
Somerville's business - after May 31, 1999 - as an independent
contractor.
[4] In cross-examination, the
appellant - Alan Somerville - acknowledged that the amount of
revenue produced from the mobile locksmith service was greater
than the in-store component flowing from sales and service. The
other locksmith also did some work away from the shop but the
majority of her work was done at the retail outlet. Operating as
Valley Locksmith, the appellant stated he held a special license
pursuant to provincial legislation. Each locksmith held a special
license and also carried an identification card on which the name
of the cardholder was set forth as well as the name of his or her
employer. The appellant stated that - prior to May 31, 1999 - the
worker had been an employee of Valley Locksmith earning $15 per
hour and the usual source deductions had been taken from his pay
cheques. Thereafter, Bourget submitted invoices to Fraser Valley
Locksmith - Exhibit A-2 - and there was no Goods and
Services Tax (GST) included in the amounts billed, although
Valley Locksmith included GST and Provincial Sales Tax (PST) - if
applicable - on its own invoices which were provided - by Bourget
- to the customer. At one point during their working
relationship, the appellant explained Bourget had been
contemplating leaving Valley Locksmith and working for another
locksmith company - Bell Locksmith Ltd. (Bell) operated by
Somerville's former business partner - where he had worked
earlier in 1997. Somerville stated he had sold his shares in that
corporation to his fellow shareholder - Mr. Harder - and then
started Valley Locksmith as a sole proprietorship. As it turned
out, Bourget only worked for Harder's business for part of a day
and Somerville wanted to retain the worker's services as a
locksmith at Valley Locksmith. Prior to May 31, 1999, Bourget was
paid a different rate for handling after-hours calls. During that
earlier period, the appellant stated the worker had to perform
work - as directed - but had the right to refuse after-hours work
in which case another locksmith would be contacted to carry out
the task. Somerville agreed there were some standard rates set
for service such as the sum of $45 to change a residential lock
or to attend at a location in order to unlock a car and that
these prices for service were established by an association of
locksmiths of which Valley Locksmith was a member. The appellant
stated the worker could spend as much time on a job as required
and could set an hourly rate to charge to a customer and then
issue an invoice on that basis. Somerville stated he had attended
- at night - to a particular site on an emergency basis and had
attempted to resolve the problem but needed to send Bourget to
the location the next day in order to finish the work
satisfactorily. Due to the varying nature of the work to be
performed, the hourly charge to the customer was subject to
change. As much as possible, after-hours and emergency calls were
forwarded to Bourget's cell phone but if he was not available
then Somerville would receive the call and attempt to schedule
the work for the next day when Bourget could attend at the site.
Prior to May 31, 1999, the worker was not permitted to work for
others but did have the right to reject work for a valid reason
such as refusing to unlock a car in order that an intoxicated
person could gain access and drive away. Somerville explained
that all locksmiths - regardless of their working status - have
to make on-site decisions as to which methods will be used in
order to perform the necessary service. Somerville agreed he
dismissed Bourget on April 7, 2000 - prior to the business being
sold in June, 2000 - and acknowledged that a part-time worker -
hired in April, 2000 - may have also provided some mobile
service. Somerville stated that - prior to May 31,
1999 - he had never received any invoice for services from
Bourget on Guardian Locksmith letterhead.
[5] In re-examination, Somerville
stated the worker had to carry the security employee
identification - as provided by Valley Locksmith - on the basis
that he was an employee. The appellant explained that if Bourget
had been self-employed, he would have been required to possess a
Security License at an annual cost of $500. The license held by
Valley Locksmith was issued by the Ministry of the Attorney
General of the Province of British Columbia and it permitted
Somerville - through his proprietorship - to operate a locksmith
business but he had to employ a licensed locksmith and there was
another person so qualified who worked - mainly - inside the
store. When billing Valley Locksmith, the worker did not charge
GST but - in Somerville's opinion - was not required to do so
since his annual sales were less than $30,000.
[6] Mark Bourget testified he resides
in Langley, British Columbia and is currently employed as a
qualified locksmith. He completed his 30-week college course -
including a practicum - early in 1995. During the practicum, he
located two locksmith companies that were willing to take him on
as a volunteer within the context of the curriculum and in 1996
began working for a Vancouver locksmith business. After a
supervision period of two years, he received his Security
Employee License, a photocopy of which is reproduced on the first
of two sheets filed together as Exhibit R-1. In addition to the
license, an identification card was required which identified the
name of the appropriately licensed entity providing the service.
In August, 1997 Bourget stated he went to work for Bell, a
business operated by Somerville and Harder until they split up,
after which he went to work - as an employee - for Somerville,
operating as Valley Locksmith. Until May 31, 1999, he was paid at
the rate of $15 per hour together with 60% of the amount of
labour billed to a customer for work done after normal business
hours. He agreed he could refuse work - if otherwise occupied -
but did so rarely. Calls from customers were received by
Somerville who set the rates to be charged for the service but
Bourget stated he sometimes provided quotes to customers based on
his own understanding of the situation and the nature of the work
to be performed. The other locksmith was also an employee of
Valley Locksmith but Bourget was unaware of any mobile service
work ever performed by her. In the spring of 1999, Bourget stated
Somerville had approached him about purchasing the
Valley Locksmith business. Bourget then began considering
various matters including financing, assessment of inventory and
certain documents were prepared and steps taken in anticipation
of concluding the purchase and sale, including the registration
of the name Guardian Locksmith - as a trade name - to be used in
the operation of his own business. He decided against buying
Somerville's business and in the face of a reduction in available
work for him to perform, approached Somerville in order to
discuss a new working arrangement - which the appellant accepted
- effective May 31, 1999. After that date, Bourget stated he was
entitled to receive a 50-50 division of revenue on labour billed
for service calls, increasing to a 60-40 division in his favour
for work performed on calls beyond normal business hours. He
would attend at the Valley Locksmith store - a 45-minute commute
from home - in order to ascertain the nature of the work to be
done since there was always at least one job waiting for him.
Later in 1999, Somerville had agreed to pay Bourget a guaranteed
sum of $80 per day but the amount flowing from the division of
revenue attributable to labour was almost always in excess of
that amount, although invoices #016-#020, inclusive, - within
Exhibit A-2 - contained numerous entries for days billed at the
guaranteed minimum rate. The invoices - on which he submitted his
claim for payment every two weeks - had been issued on the
letterhead of Guardian Locksmith, printed in anticipation of
operating his own business under that name. Bourget stated he
never held any Security License - either in his own name or under
the trade name of Guardian Locksmith - and throughout his working
relationship with Somerville had always carried the
identification card stating he was an employee of Valley
Locksmith. After two years of working as a locksmith,
Bourget stated he finally received a license that no longer
stated "locksmith working under supervision" and -
instead - recognized him as a fully-qualified locksmith. His last
invoices submitted - #025 and #026 - were directed to Bell Lock -
at the same address as Valley Locksmith - since his relationship
with Somerville had deteriorated at that point upon noticing -
the previous day - that Somerville had a new locksmith working in
the store. On April 7, 2000 Bourget stated Somerville
informed him that their working relationship was terminated,
following which he cleaned his tools out of the van and left.
After the new arrangements had been agreed to on May 31, 1999,
Bourget stated he paid for fuel costs - averaging $10 per day -
for use of the van owned by Valley Locksmith and even before the
$80 per day guarantee was in place - as of September, 1999 - it
would have been difficult for him to lose any money since his
total expenditures were only $22.50 per day and he only needed to
bill out $45 in labour of which his 50% share could cover
expenses. At some point in November, 1999, Bourget stated he had
worked - one day - for the business operated by Harder and had
given Somerville two weeks notice of his intention to leave but
Somerville urged him to stay on. During the relevant period,
Bourget stated he did one job for another entity - occupying
about 3 hours - and Somerville had been aware of that
service.
[7] In cross-examination by the agent
for the appellant, Mark Bourget stated the college locksmith
course had cost him approximately $5,000. He agreed that after
May 31, 1999, his cheques from Valley Locksmith - in payment of
services rendered - no longer indicated any source deductions had
been taken. He agreed gasoline costs pertaining to the operation
of the van would have amounted to between $2,500 and $3,000 per
year. Bourget estimated his tools to be worth between $3,000 and
$4,000, most of which had been purchased during the term of his
course but others had been added from time to time, as needed.
The new working relationship had come about because business had
been slow and Bourget had thought it was fair to Somerville to
change the arrangement to one of sharing revenue produced by his
labour on the jobs performed. Pursuant to the new basis for
payment, Bourget agreed he could earn more than his former amount
of $120 - based on $15 per hour for an 8-hour day - or
he could earn less - and in that sense there was a risk to the
new method of payment for his services. While many jobs had a
flat rate attached to them, Bourget agreed some jobs were charged
in accordance with complexity but even then the amount billed to
the customer was based on a $60 per hour labour rate established
by Valley Locksmith. On the other hand, he did not have to pay
any costs relating to any bonding policy while providing services
for Valley Locksmith. He agreed he had done some work - at the
request of his mother - for an apartment block and had also
provided some services to another business in exchange for
products. Even though Somerville did not insist that he attend at
Valley Locksmith premises each day, Bourget stated he had never
billed the minimum $80 fee on any invoice unless he had actually
attended at the store that day. Bourget referred to a letter -
Exhibit R-2 - dated May 11, 2000 - he had received from the
Licensing Supervisor of the Ministry of Attorney General of
British Columbia requesting that he return the security employee
license in his possession because he was no longer employed by
(Fraser) Valley Locksmith and Section 12 of the Private
Investigators and Security Agencies Act (Security Act) [RSBC
1996] Chapter 374, required the immediate surrender of said
license and identification card to his employer. Bourget stated
he complied with the terms of the letter and sent in his license
- to the Licensing Supervisor - and when he found another job, he
re-applied for - and received - another license.
[8] Ken Paterson, C.A. - agent for the
appellant - submitted the evidence indicated the appellant and
Bourget had been involved in a joint venture subsequent to May
31, 1999. In carrying out jobs for entities or persons other than
Valley Locksmith, Bourget may have been committing a breach
of section 3 of Security Act but the intent of the
legislation was to protect the public by regulating the locksmith
and security industry and not for the purpose of governing the
relationship between payors and workers involved in that field of
endeavour. On all the evidence, Paterson submitted the appellant
had complied with the jurisprudence and that the various tests -
on balance - clearly established that Bourget had been providing
services to the appellant as an independent contractor carrying
on business on his own account.
[9] Counsel for the respondent
submitted there was significant control over the worker because
Bourget was required to carry - at all times - an identification
card which certified that he was working for the appellant's
business which - in turn - had been required to obtain a special
security license pursuant to certain provisions of provincial
legislation. Counsel pointed out that even before May 31, 1999,
Bourget and Somerville shared revenue with respect to labour
performed beyond normal working hours. After some point following
May 31, 1999, the worker received an $80 per day guarantee from
the appellant and the worker never had any real risk of loss. The
main tools were the expensive van and special equipment owned by
the appellant and the worker used tools - personal in nature -
most of which had been obtained while taking his training.
Counsel submitted the evidence clearly established that Bourget
had never been in business for himself during the relevant period
but had always been dependent on the appellant's proprietorship
for generation of revenue and for the actual right to provide
services as a locksmith under the auspices of the special license
held by Valley Locksmith.
[10] In Wiebe Door Services Ltd. v.
M.N.R., [1986] 2 C.T.C. 200, the Federal Court of Appeal
approved subjecting the evidence to the following tests, with the
admonition that the tests be regarded as a four-in-one test with
emphasis on the combined force of the whole scheme of operations.
The tests are:
1. The control test
2. Ownership of tools
3. Chance of profit or risk of loss
4. The integration test
Control:
[11] The evidence demonstrated the worker to
have been a qualified locksmith capable of working on his own
without supervision. The appellant did not possess sufficient
qualifications or experience to monitor the quality of the tasks
undertaken by the worker. However, the worker responded to work
as assigned by Somerville, carried out his duties, and submitted
Valley Locksmith invoices to customers in accordance with rates
set by the appellant. The worker could work at his own pace -
using his own judgment - and was not required to attend each day
at the Valley Locksmith premises in order to earn the
minimum payment of $80 per day.
Tools:
[12] The worker owned his own tools - valued
at approximately $4,000 - but it is not unusual for qualified
tradesmen to possess hand tools chosen personally in accordance
with their own preference. In the within appeal, the main tool
connected with the generation of revenue was the Valley Locksmith
van equipped with shelves, inventory and key-cutting machine
necessary to carry out the mobile service. Other than fuel costs,
the appellant was responsible for all other expenses associated
with the use of the vehicle during the course of business. The
worker owned - and paid for - his cell phone and pager but that
was his own personal choice and was not a requirement imposed on
him by the appellant.
Chance of profit or risk of loss:
[13] After May 31, 1999 the worker and the
appellant agreed to divide revenue derived from labour performed
by the worker. The normal split was 50-50 but if money was earned
by Bourget after normal business hours then he was entitled to
retain 60% of the labour component. At a later point - probably
September, 1999 - the parties agreed the worker would receive a
minimum payment of $80 per day whether or not any work was
performed. The worker was not required to perform any other
services in order to obtain said payment although he chose not to
bill for the guaranteed amount unless he had actually attended at
the shop. The worker paid for fuel costs of the van but agreed to
do so because he was permitted to use the vehicle to travel to
and from work as well as for his personal needs. Although there
were occasions following May 31, 1999 when the worker earned less
from the new revenue-sharing payment basis than he would have
earned at an hourly wage while being treated as an employee, that
is not the appropriate test to be applied concerning the chance
of profit or risk of loss. The worker conceded that even before
the implementation of the $80 per day guarantee, he only needed
to generate revenue of $45 per day in order that his 50% share
would cover his daily costs relating to the performance of his
work. All guarantees in respect of product were the
responsibility of the appellant and the worker was reimbursed in
accordance with an agreement between himself and the appellant on
a case-by-case basis if the worker was required to re-attend at a
premise due to a problem attributable to faulty equipment rather
than his own workmanship. During those times when he was not
required to perform a job for Valley Locksmith, the worker had
the right to do work for others - as far as the appellant was
concerned - but only did so on two occasions, one of which had
been arranged by his mother, and another when he provided service
in exchange for some products. The necessary bonding and
liability insurance policies were paid for by Valley Locksmith as
were all costs - other than fuel - pertaining to the van.
Integration:
[14] This test is one of the most difficult
to apply. At page 206 of his judgment in Wiebe,
supra, MacGuigan, J.A. stated:
Of course, the organization test of Lord Denning and
others produces entirely acceptable results when properly
applied, that is, when the question of organization or
integration is approached from the persona of the
"employee" and not from that of the
"employer," because 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. We must keep in mind that it
was with respect to the business of the employee that Lord Wright
addressed the question "Whose business is it?"
Perhaps the best synthesis found in the authorities is
that of Cooke, J. in Market Investigations, Ltd. v.
Ministerof Social Security, [1968] 3 All. E.R.
732 at 738-39:
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.
There is no escape for the trial judge, when confronted with
such a problem, from carefully weighing all of the relevant
factors, as outlined by Cooke, J."
[15] The Supreme Court of Canada in a recent
decision - 671122 Ontario Ltd. v. Sagaz Industries Canada
Inc., 2001 SCC 59; 274 N.R. 366 - dealt with a case of
vicarious liability and in the course of examining a variety of
relevant issues, the Court was also required to consider what
constitutes an independent contractor. An analysis of the
decision of the Supreme Court of Canada as it related to that
issue was undertaken by Joel Nitikman, a partner with Fraser
Milner Casgrain LLP, Vancouver, British Columbia. In an article
entitled 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.:
Employee vs. Independent Contractor published in Canadian
Current Tax December 2001, Volume 12, No. 3 at p. 30 Nitikman
discussed the development of the jurisprudence in this field
including Wiebe, supra, which followed the decision of the
Privy Council in Montreal v. Montreal Locomotive Works Ltd. et
al , [1947] 1. D.L.R. 161 (PC) at 169-70; aff'g [1945]
4 D.L.R. 225 (S.C.C.) At p. 31, Nitikman commented as
follows:
The Supreme Court of Canada followed Montreal
Locomotive, and specifically the four factors cited by Lord
Wright, in a case involving almost identical facts, Regina
Industries Ltd. v. Regina (City). In a more recent case, one
not dealing with the employee vs. contractor issue but an issue
similar to that in the Montreal Locomotive and Regina
Industries cases, the Supreme Court of Canada referred to
these two cases as merely "very special" cases dealing
with constitutional issues. This foresaw the possibility that in
a later case the Supreme Court of Canada might overrule the
Montreal Locomotive four-factor test.
While stated to be true only in "some" cases,
the essential feature of the Montreal Locomotive test as
adopted in Wiebe was this: whose business is it? Is the
worker carrying on his or her own business while working for the
payor, or is the worker merely part of the payor's business.
There have been many cases where the courts have missed this
essential question and have focused on the four factors as if
they were a test in and of themselves, but it is clear that they
are (or should be) merely factors that could be used to determine
the underlying issue: whose business is it?
This was confirmed in Geophysical Engineering
Limited v. The Minister of National Revenue. The issue was
whether a particular mining prospector was an employee of or
engaged as a contractor by a certain mining syndicate. The Court
of Appeal held he was not an employee and cited with approval the
Market Investigations case that was later followed by the
leading case of Wiebe Door. On appeal the Supreme Court
upheld this decision and adopted entirely the judgment of the
Court of Appeal. In my view, the Supreme Court in this case
upheld the use of the Market Investigations case as the
leading test in determining whether someone is an employee or a
contractor.
In addition to the four factors in Montreal
Locomotive, it is very often said that
"integration" is an important factor, that is, is the
worker integrated into the payor's business? However, it is
clear that this is not a factor to be looked at but is really the
whole issue: if the worker is integrated into the payor's
business then the worker is not in business for himself. In
answering this issue the courts have made it clear that it must
be looked at from the worker's point of view rather than the
payor's point of view, because of course from the payor's
point of view everyone he hires is for purposes of his business.
So again the issue comes down to this: from the worker's
point of view is he in business for himself or is he merely part
of someone else's business.
671122
The Supreme Court has now confirmed this analysis in
671122. Briefly, the issue was whether a particular
company was vicariously liable in tort for the actions of another
person. The Court determined, that this issue depended on whether
that other person was an employee of the company or a contractor.
The Court then went on to discuss the test for making this
determination. It seems clear from the following passage that the
Court did not regard this case as applying only in tort
situation, but that it would be applicable even in tax or other
cases:
Various tests have emerged in the case law to help determine
if a worker is an employee or an independent contractor. The
distinction between an employee and an independent contractor
applies not only in vicarious liability, but also to the
application of various forms of employment legislation, the
availability of an action for wrongful dismissal, the assessment
of business and income taxes, the priority taken upon an
employer's insolvency, and the application of contractual
rights... Accordingly, much of the case law on point while not
written in the context of vicarious liability is still
helpful.
After discussing the pros and cons of the initial
"control" test, the later "four factor" test
and the "integration" test, the Court finally held that
in the main the key test is that set out in Market
Investigations, ...: whose business is it:
Although there is no universal test to determine whether a
person is an employee or an independent contractor, I agree with
MacGuigan J.A. [in Wiebe] that a persuasive approach to
the issue is that taken by Cooke J. in Market
Investigations, ... 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.
Thus, it is now clear that in determining the employee
vs. contractor issue, the usual factors cited are not tests in
and of themselves, but merely pieces of evidence that may be
given more or less weight in a particular situation to determine
whether the worker is simply part of the payor's business or
really in business on his or her own account. (footnotes
omitted)
[16] If the central question is whether the
person who has been engaged to perform the services is doing so
as a person carrying on business on his own account, then the
other factors - or tests - as referred to in Wiebe, supra,
still retain their value and relevance as an integral part of the
overall process of determining the status of the worker. However,
I would tend to agree with the assessment of Nitikman that the
various factors have been liberated from the strict confines of
their former categories even though the Federal Court of Appeal
in Wiebe had clearly stated the tests were to be used on a
four-in-one basis rather than merely adding up category wins,
losses and ties in a numerical sense. In my view, there is now a
distinction between viewing the various factors as tools to be
used in determining the ultimate issue of status - the central
question - and the former standard procedure of assigning the
same significance to an analysis of the integration factor as to
the other tests. At worst, it seems the integration factor should
now occupy the position of primus inter pares and - at
best - could be considered equal to the other tests only in an
Orwellian context in which it is accepted that, although all
factors are to be considered equal, some are obviously more equal
than others. In order to arrive at the determination as to
whether a person is in business on his own account, the tests
concerning control, use of tools, chance of profit or risk of
loss, now appear to be part of the requisite process of analysis,
scrutiny, reduction and refinement - in order to respond to that
question - and the former integration test has had assigned to it
the role of repository of that distillate wherein the true status
of the service provider is finally resolved.
[17] In the within appeal, when one asks the
question, "whose business is it?", the nature of the
work performed must also be examined within the context of the
particular licensing provisions governing the worker and the
appellant as individuals performing services within the security
industry. The worker had previously been an employee of Bell - a
corporation - in which Somerville had been a shareholder. Bourget
then chose to follow Somerville to the new business,
Valley Locksmith and worked there as an employee until May
31, 1999. At that point, the worker and Somerville decided to
change the structure of their working arrangement and the
appellant took some care to determine the probable status of
Bourget pursuant to their new relationship. In the appellant's
view, after having done his homework and filling out all the
spaces in the Revenue Canada booklet - Exhibit A-1 -
Bourget would be providing services to Valley Locksmith within
the context of his own business. Bourget submitted invoices -
every two weeks - to Valley Locksmith and used letterhead of
Guardian Locksmith, a trade name he had registered in earlier
contemplation of purchasing the locksmith business from the
appellant. The premises were owned by Somerville and the business
comprised of a retail store - staffed by another locksmith - and
the mobile service - featuring a fully-stocked van with necessary
key-cutting equipment - was owned by the appellant. Calls from
customers were directed to Valley Locksmith's number in the
telephone directory and were forwarded automatically to the cell
phone or pager of the worker after normal business hours. The
appellant - through Valley Locksmith - belonged to a
trade association and, as a member, abided by a general rate
structure to be applied in most situations. The worker, although
he was entitled to a division of revenue generated from his own
efforts, received no share from the sale of locks, parts, or
other devices utilized in the course of an installation at a
residence or commercial premise. A significant matter to be
considered is the type of licensing issued during the relevant
period as it applied to both the worker and the appellant. The
nature of the Security Employee License - Exhibit R-1 - held by
Bourget was such that his ability to carry on the trade of
locksmith was void unless accompanied by a valid security
employee identification card - second page of Exhibit R-1 -
issued by a licensed security business. The appellant - operating
as Valley Locksmith - held such a license for which he paid an
annual fee of $500. When the working relationship was terminated,
the Licensing Supervisor of the Ministry of Attorney General by
letter - Exhibit R-2 - demanded that Bourget return the security
employee license in his possession because he no longer worked
for the appellant's licensed security business. I concur with the
submission of the appellant's agent that the relevant provincial
legislation was not designed with a view to governing working
relationships but it is still important to recognize that the
ability of Bourget to earn revenue as a locksmith - during the
relevant period when he was still subject to supervision - was
wholly dependent on his status as an employee with Valley
Locksmith. The worker did not possess the necessary license to
operate a business on his own at that point in his career. An
arrangement by which remuneration is based on revenue-sharing,
with or without any guarantee of a daily minimum amount does not
- without more - transform someone into an entrepreneur.
[18] The within appeal illustrates the
difficulties faced by individuals who attempt to define the
nature of their working relationship. Often, troubles arise
because the parties do not appreciate they cannot - on consent -
merely assign a status to themselves with the intent that it will
serve to govern their future working relationship. In the case of
The Minister of National Revenue v. Emily Standing, 147
N.R. 238, F.C.A., Stone, J.A. at pp.239-240 stated:
... There is no foundation in the case law for the proposition
that such a relationship may exist merely because the parties
chose to describe it to be so regardless of the surrounding
circumstances when weighed in light of the Wiebe Door
test.
[19] The within appeal concerned the same
issue as that dealt with by a Rulings Officer who had determined
the status of the worker to have been that of an employee. That
ruling was then confirmed by the Minister who communicated the
decision to the appellant. Initially, the appellant and his agent
- a Chartered Accountant - had taken the time to complete the
questions contained in the booklet and then undertook a sort of
overall tally in order to come to the conclusion that - on
balance - Bourget was an independent contractor. I commend them
for their efforts. As often stated in these sort of cases, there
is no easy way out and distinctions are often extremely subtle.
Sometimes, the parties are mistaken from the outset as to the
relevant status of the worker providing the service. Other times,
the parties have attempted - in good faith - to amend an existing
relationship with the intent the mechanics of the new regime will
alter the former status of the worker. As time progresses, the
original intent relating to that putatively transformed
relationship may continue but the real underlying structure - as
observed in the normal course of business operations - may also
remain unchanged - in any significant manner - as was the case in
the within appeal. Notwithstanding some modification to the pay
structure and working conditions, it still remained the
appellant's business and the worker provided services to that
business pursuant to a contract of service.
[20] Having regard to all of the evidence
and applying the relevant jurisprudence, I have concluded the
decision of the Minister is correct and the appeal is hereby
dismissed. As agreed by the parties at the outset, appeal
2001-1422(CPP) is also dismissed.
Signed at Sidney, British Columbia, this 25th day of January
2002.
D.J.T.C.C.
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