Date: 19990315
Dockets: 97-1213-UI, 97-131-CPP
BETWEEN:
COUNTRY VENTURES LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
AND
Dockets: 97-1217-UI, 97-132-CPP
BRIAN MACHNIAK,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasonsfor
Judgment
Porter, D.J.T.C.C.
[1]
These appeals were heard at Winnipeg, Manitoba on February 23,
1999. They were heard on common evidence, by consent of the
parties.
[2]
The Appellant Brian Machniak (hereinafter referred to as
"Machniak") has appealed the decision of the Minister
of National Revenue (the "Minister") dated
January 30, 1997 that Canada Pension Plan contributions and
unemployment insurance premiums were payable on the earnings paid
to him by the Appellant, Country Ventures Ltd. (the
"Company") for the period January 1, 1995 to
April 30, 1996. The reason given for the decision is:
"... You were employed under a contract of service, and
therefore
you were an employee."
The decision was said to be issued pursuant to subsections
27(1) of the Canada Pension Plan (the
"Plan") and 61(1) of the Unemployment
Insurance Act (the "Act") and was based on
paragraphs 6(1)(a) of the Plan and 3(1)(a) of the
Act respectively.
[3]
The Company has also appealed the same decision of the Minister
along with an identical decision of even date relating to Ken
Zorn another of its workers. Ken Zorn has neither intervened
in the appeal nor filed his own appeal. He was, according to
counsel for the Minister, informed of the decision of the
Minister and decided to take no action. His case however does
remain a matter of appeal by the Company which has received an
assessment from the Minister for unemployment insurance premiums
and Canada Pension Plan contributions relating to both
workers.
[4]
The established facts reveal that the two workers were engaged by
the Company by way of verbal agreements, throughout the period in
question, to drive two of its long distance transport trucks for
and under the operating authorities of Hunterline Trucking Ltd
("Hunterline"). The issue to be decided is whether they
did so whilst engaged as employees or as independent contractors
under contracts for services. It is a common issue and the same
in each case.
The Law
[5]
The manner in which the Court should go about deciding whether
any particular working arrangement is a contract of
service and thus an employer/employee relationship or a contract
for services and thus an independent contractor
relationship, has been clearly laid out by the Federal Court of
Appeal in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025.
The test to be applied has been further explained by that Court
in Moose Jaw Kinsmen Flying Fins Inc. v. M.N.R., 88 DTC
6099. There are, following these cases, numerous decisions of
this Court, some of which have been cited by counsel, which
demonstrate how these appellate guidelines have been applied. In
the Moose Jaw Kinsmen Flying Fins Inc. case, above, the
Federal Court of Appeal said this:
"[Analysis]
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 DTC 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.,
[1974] 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". In his own
use of the test to determine the character of the relationship in
the Montreal Locomotive Works case itself, Lord Wright combines
and integrates the four tests in order to seek out the meaning of
the whole transaction.
At page 5029 he said:
...I interpret Lord Wright's test not as the fourfold one
it is often described as being but rather as a
four-in-one test with emphasis always retained on
what Lord Wright, supra, calls "the combined force
of the whole scheme of operations," even while the
usefulness of the four subordinate criteria is
acknowledged.
At page 5030 he had this to say:
What must always remain of the essence is the search for the
total relationship of the parties.
He also observed "there is no escape for the trial judge,
when confronted with such a problem, from carefully weighing all
the facts."
...like MacGuigan J. we view the tests as being useful
subordinates in weighing all of the facts relating to the
operations of the Applicant. That is now the preferable and
proper approach for the very good reason that in a given case,
and this may well be one of them, one or more of the tests can
have little or no applicability. To formulate a decision then,
the overall evidence must be considered taking into account those
of the tests which may be applicable and giving to all the
evidence the weight which the circumstances may
dictate."
[6] I
have also considered the following cases which were cited to me
by counsel:
"Astro Towing (1988) Ltd. v. M.N.R., [1996] T.C.J.
No. 1720, 96-1639(UI), December 17, 1996, Judge T.
O'Connor, Tax Court of Canada
Fred Bond and Her Majesty the Queen, [1997] T.C.J.
No. 89, 96-3116(IT)I, February 15, 1997, Deputy Judge
D.W. Rowe, Tax Court of Canada
Custom Auto Carriers Ltd. and M.N.R. and Chris Rodgers,
97-780(UI), October 16, 1998, Deputy Judge Michael H.
Porter, Tax Court of Canada
Fimrite Oilfield Services Ltd. and M.N.R. et al.,
96-1607(UI), October 14, 1998, Judge G. Rip, Tax Court
of Canada
Braaten Trucking Ltd. v. M.N.R., [1998] T.C.J. No. 672,
98-258(UI) and 98-45(CPP), July 22, 1998, Deputy Judge
D.W. Rowe, Tax Court of Canada
F.G. Lister Transportation Inc. v. M.N.R., [1998]
T.C.J. No. 558, 96-2163(UI) and 96-119(CPP), June 23,
1998, Deputy Judge D.W. Rowe, Tax Court of Canada
Summit Gourmet Foods Inc. and M.N.R. and Freeman
Walters, 97-470(UI), November 24, 1997, Judge M. Mogan,
Tax Court of Canada
S & S Investments Ltd. o/a Our Messenger Service v.
M.N.R., 94-1872(UI), October 2, 1996, Judge R.E.
Sobier, Tax Court of Canada"
[7]
These then are the legal guidelines that I must bear in mind in
deciding this issue.
[8]
In the Reply to the Notice of Appeal filed by the Deputy Attorney
General of Canada on behalf of the Minister, the latter in coming
to his decision is said to have relied upon the following
assumptions of fact, which are the same in each case:
"(a) the facts admitted, supra;
(b) the Appellant operates a trucking business;
(c) the Appellant owns trucks and hires drivers to drive the
trucks;
(d) the Workers were hired as truck drivers by the
Appellant;
(e) the trucks were owned by the Appellant;
(f) the Appellant paid for all operating expenses of the
trucks;
(g) the Appellant had an agreement with Hunterline where the
Appellant would supply a truck and driver to Hunterline;
(h) the agreement between Hunterline and the Appellant was
that once a trip was completed, Hunterline would pay the
Appellant 75% of the profit of the trip and then the Appellant
would pay the Worker 25% of its 75% amount;
(i) Hunterline controlled the trips through a dispatcher and
scheduled the trucking assignments for the Workers;
(j) Hunterline scheduled the trips that the Workers drove;
(k) the Workers were paid semi-monthly by cheque by the
Appellant;
(l) the Workers were required to maintain a record of their
hours driven in logbook and submit the hours to Hunterline;
(m) the Workers have no risk of loss;
(n) the Appellant had the right to terminate the employment
arrangement with the Workers if they were not performing their
duties properly;
(o) the Workers did not solicit their own business;
(p) the Workers could not drive the trucks for any other
purpose, other than Hunterline or the Appellant's
business;
(q) the Workers were not in business on their own
account."
[9]
The Appellants, through their counsel, agreed with items (a) to
(j) (except that it was more accurate to say that
"Hunterline gave out the assignments" rather than
"scheduled the trips" which the drivers did themselves
once assigned), (k), (l), (n) and (o) (only to a point ) and
(p).
[10] The
Appellants took issue with items (m) and (o).
[11] David
Boychuk gave evidence on behalf of the Appellants as did the
Appellant Machniak. There was no additional evidence called on
behalf of the Minister.
[12] David
Boychuk said in evidence that he was the President of the Company
and had a personal knowledge of the matters. He explained that
the Company owned a number of trucks which it operates and that
it also operates a trucking repair business in Saskatchewan. Some
of its trucks are driven by regular employees who are paid on a
mileage basis regardless of the amount received by the Company
for the trip. These drivers also receive statutory benefits and
are clearly under the control and direction of the company.
[13] Other
drivers, as in the case of Zorn and Machniak, work under a
different arrangement. The Company has a general contract with
Hunterline, a large truck operating corporation, whereby it (the
Company) supplies trucks and drivers to Hunterline, who then
assign trips directly to those drivers. Hunterline has all the
necessary operating authorities and also supplies the trailers
containing the cargoes, which are to be attached to the trucks
for transportation.
[14] The
drivers deal directly with Hunterline to arrange their trips.
Once assigned to a trip they are free to make their own plans as
to how and where they go. They are also free to take a trip or
not, although it was clear from the evidence that if they refused
too many they would not be kept on.
[15]
Hunterline paid to the Company 75% of the profit for the trip.
The Company in turn paid the drivers 25% of that 75%. The Company
paid all the operating expenses of the truck such as insurance,
licences and registration, gas and oil as well as all the
maintenance and repairs to the truck.
[16] The
trucks when new were worth in 1995 approximately $75,000.00 to
$80,000.00 each.
[17] The
drivers provided some equipment such as tarpaulins to cover the
loads, straps and tie downs, chains and a cab protector, which
was required just for certain loads. This equipment if purchased
new would cost about $5,000.00, although Machniak said in his
evidence that he had accumulated his over the years and it would
last a lifetime provided one looked after it. Nonetheless the
drivers provided this equipment at their own expense.
[18] The
drivers were responsible for damage to their truck and to third
party property at least to the extent of any insurance
deductible, as well as damage to, loss of or shortage in the
cargo, again to the extent that it was not covered by insurance.
They were also at risk with their own equipment. They were paid
every two weeks by cheque from the Company. They did not report
to the Company on any kind of regular basis in the same way that
the regular employees were required to do. They were simply
trusted and expected to get on with the job like the
professionals they were. When the drivers were engaged in this
manner it was generally because they were already experienced and
did not need training or everyday supervision. They were however
required to file daily logs with Hunterline in accordance with
the law.
[19] In
arranging their trips they established the best working
relationship they could with the dispatchers at Hunterline as
these persons could arrange more profitable trips for them.
Further if after a trip there was no cargo available for the
return trip they sometimes went about finding a cargo for that
return trip from other sources. However they were still required
to deal with any cargo they so found through the offices of
Hunterline. They were not free to just go out and obtain cargoes
to transport on their own account and this I find to be
significant. The sides of the trucks were painted with the name
of Hunterline and all was done with respect to the operation of
those trucks under the auspices of Hunterline.
[20] It is
clear that the more trips they made the more the drivers were
paid. However for every dollar they made for themselves they also
made several for the Company. Their rate of pay always remained
constant and the source was a single one, through the Company
from Hunterline. They often, however, could make better deals
with Hunterline than the Company could directly and thus the work
was more profitable than working as an employee on a straight
mileage basis.
[21] Their
agreements with the Company were not in writing.
[22] They
could not drive the trucks nor transport goods for any other
organisation without going through Hunterline.
[23] They
scheduled their own time out. They received nothing for sick pay
or vacation pay. They were both farmers and in peak seasons, such
as when they were attending to their harvests, they did not
drive. Otherwise they organised themselves full time driving
these trucks. They could, and in the case of Machniak once did,
arrange for another driver to substitute for them in their truck.
In that case that other driver had to be approved by Hunterline,
who would check his driving credentials such as his driving
abstract before giving permission. I gleaned from the evidence
that this was not a common practice. When it did occur the one
time, Machniak was paid by the Company in the usual way and he in
turn paid his substitute driver. I viewed this more as an anomaly
rather than an established procedure.
[24] No
provision was made for GST in payments to the drivers. Although
the evidence indicated that in anyone year each driver received
more than the minimum amount to be GST exempt. No deductions were
made for tax, unemployment insurance premiums or Canada Pension
Plan contributions.
[25] Those are
the basic facts that I took from the evidence of the witnesses.
There was no real dispute on the facts between the Minister and
the Appellants. The issue rather involved the interpretation to
be put on those facts. There is no doubt that there was a
considerable distinction to be made between the arrangements made
by these drivers and the regular employees. The question then
arises whether they were different classes of employees or
whether they were truly independent contractors. The parties'
intent was to provide for independent contractors according to
their evidence. The Court however is not bound so much by their
expressed intent as by the terms of the arrangement they in fact
set up. The substance of the arrangement is more critical to this
decision than the label the parties chose to put upon it. Their
intent in any event is not evidenced by any written contract. Had
there been a written contract in the absence of clear evidence
that the substance was not the same as the intent, the Court
might be inclined to give considerable deference to any clearly
expressed intent. In the present circumstances however the
parties must be considered to have intended to set up that which
they did in fact set up. They may have hoped or thought that it
would not fall into the category of contracts of
service but that is now a matter of mixed fact and law to
decide.
Application of the Tests to the
Facts
[26] The
aspect of control or supervision has to rest primarily on the
right to control or supervise, whether or not it was actually
exercised. These were experienced drivers and like all
experienced professionals or trade persons, in whatever line of
work, they did not necessarily need day-to-day
supervision. They could handle the job and, the better and more
efficiently they handled it, the more money both they and the
Company made. The Company however had the right to terminate
their services at any time and put another driver in the truck.
To that extent although it did not in fact exercise that right,
it did control the work of the drivers. Counsel for the
Appellants urged upon the Court that this would be so whether
they were employees or independent contractors. However the
question to be asked I suppose is what there would be left to the
driver if the Company exercised this option. In the case of an
independent contractor he would still have a business to run. In
the case at hand, in such circumstances, he would have
nothing.
[27] It seems
to me that the Company controlled another significant aspect,
that is it imposed the requirement that the driver do all his
work through the offices of Hunterline. These drivers were not
free to go wherever they wanted whenever they wanted for whoever
they wanted. They were confined to the business arranged by or
through Hunterline. They were free to refuse a trip but not free
to arrange an outside trip. That restriction, it seems to me, was
a substantial measure of control exercised by the Company. Any
work they had depended solely on their continued relationship
with the Company and could be terminated or changed at any time
by the latter. This aspect of the test very much leans towards a
contract of service in my view.
[28] With
respect to the tools and equipment used, the substantial tool was
clearly the truck. It is true they also needed other equipment.
However by providing other equipment they obtained better
remuneration terms. It would seem that employees often do that.
The substantial and major part of the equipment, in essence the
substance of the work, was the truck and this belonged to the
Company. If the drivers had leased the trucks they might have
held some proprietary rights but they did not. The trucks
remained squarely in the hands of the Company. Furthermore the
Company paid all the expenses for the trucks including all the
servicing and repairs. The drivers had absolutely no stake in the
trucks and their investment in the equipment which they carried,
paled in comparison to the value of the trucks. This aspect of
the test tends to show that the arrangement had more to do with
them as employees than as independent contractors.
[29] With
respect to whether there was a chance of profit or risk of loss,
whilst the drivers were possibly responsible for potential damage
or loss claims they had little stake in the affair. If the truck
broke down or was lost for some reason that was not their affair.
Apart from the relatively low investment in the equipment they
had no financial stake save and except if they drove more trips
and drove them more efficiently they could earn more. There was
no generation of business equity however. If the truck sat idle
they were not responsible for lease or purchase payments as was
the Company. In such a situation they simply would not generate
income but they would not be losing their money at the same time.
That is what is envisaged by this aspect of the test. In short
there was no entrepreneurial aspect to what they were doing. I am
of the view that this aspect of the test also lends itself
squarely to an employee status rather than that of an independent
contractor.
[30] Lastly I
must consider the integration part of the tests. I have to look
at this from the point of view of the drivers and ask the
question whose business it was. In my mind it is clear that the
business was that of the Company. It purchased the trucks and
then made the agreement with Hunterline to furnish them with the
trucks along with drivers, to be available to do hauls for them.
If not these drivers, the Company would have put in other
drivers. The drivers picked were expected to be experienced and
resourceful enough to arrange trips in an economically
advantageous way both to the Company and to themselves. However
it was the Company which had the arrangement with Hunterline, not
the drivers. All they had to do was to make the individual
arrangements for the driving. Hunterline paid the Company for the
truck and driver and the Company in turn paid the drivers. It was
clearly the business of the Company. No invoices were submitted
by the drivers. No GST was charged. The whole arrangement was in
my view no more than a sophisticated arrangement to pay by the
piece.
Conclusion
[31] At the
end of the day, when I look, not just at the individual trees,
all of which in my view bear the markings of contracts of
service, but stand back and look at the whole forest, I see only
a picture of an employment situation and not that of independent
contractors. In my view there is not sufficient independence from
the Company on the part of the drivers to say that they were
engaged by way of contracts for services.
[32] In the
result all the appeals are dismissed and the decisions of the
Minister are confirmed.
Signed at Calgary, Alberta, this 15th day of March 1999.
"Michael H. Porter"
D.J.T.C.C.
COURT FILE
NO.:
97-1213(UI)
STYLE OF
CAUSE:
Country Ventures Ltd. and M.N.R.
PLACE OF
HEARING:
Winnipeg, Manitoba
DATE OF
HEARING:
February 23, 1999
REASONS FOR JUDGMENT BY:
the Honourable Deputy Judge
Michael H. Porter
DATE OF
JUDGMENT:
March 15, 1999
APPEARANCES:
Counsel for the
Appellant:
William P. Narvey
Counsel for the
Respondent:
Tracy Harwood-Jones
COUNSEL OF RECORD:
For the
Appellant:
Name:
William P. Narvey
Firm:
Southport
Law Group
Winnipeg,
Manitoba
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE
NO.:
97-131(CPP)
STYLE OF
CAUSE:
Country Ventures Ltd. and M.N.R.
PLACE OF
HEARING:
Winnipeg, Manitoba
DATE OF
HEARING:
February 23, 1999
REASONS FOR JUDGMENT BY:
the Honourable Deputy Judge
Michael H. Porter
DATE OF
JUDGMENT:
March 15, 1999
APPEARANCES:
Counsel for the
Appellant:
William P. Narvey
Counsel for the
Respondent:
Tracy Harwood-Jones
COUNSEL OF RECORD:
For the
Appellant:
Name:
William P. Narvey
Firm:
Southport
Law Group
Winnipeg,
Manitoba
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE
NO.:
97-1217(UI)
STYLE OF
CAUSE:
Brian Machniak and M.N.R.
PLACE OF
HEARING:
Winnipeg, Manitoba
DATE OF
HEARING:
February 23, 1999
REASONS FOR JUDGMENT BY:
the Honourable Deputy Judge
Michael H. Porter
DATE OF
JUDGMENT:
March 15, 1999
APPEARANCES:
Counsel for the
Appellant:
William P. Narvey
Counsel for the
Respondent:
Tracy Harwood-Jones
COUNSEL OF RECORD:
For the
Appellant:
Name:
William P. Narvey
Firm:
Southport
Law Group
Winnipeg,
Manitoba
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE
NO.:
97-132(CPP)
STYLE OF
CAUSE:
Brian Machniak and M.N.R.
PLACE OF
HEARING:
Winnipeg, Manitoba
DATE OF
HEARING:
February 23, 1999
REASONS FOR JUDGMENT BY:
the Honourable Deputy Judge
Michael H. Porter
DATE OF
JUDGMENT:
March 15, 1999
APPEARANCES:
Counsel for the
Appellant:
William P. Narvey
Counsel for the
Respondent:
Tracy Harwood-Jones
COUNSEL OF RECORD:
For the
Appellant:
Name:
William P. Narvey
Firm:
Southport
Law Group
Winnipeg,
Manitoba
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
97-1213(UI)
BETWEEN:
COUNTRY VENTURES LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on common evidence with the
appeals of Country Ventures Ltd. (97-131(CPP)) and
Brian Machniak (97-1217(UI) and 97-132(CPP)), on
February 23, 1999, at Winnipeg, Manitoba, by
the Honourable Deputy Judge Michael H.
Porter
Appearances
Counsel for the Appellant:
William P.
Narvey
Counsel for the
Respondent:
Tracy
Hardwood-Jones
JUDGMENT
The
appeal is dismissed and the decision of the Minister is confirmed
in accordance with the attached Reasons for Judgment.
Signed at Calgary, Alberta, this 15th day of March 1999.
D.J.T.C.C.
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