Xerox Canada Ltd. v. M.N.R., docket 2000-419-EI

Date: 20001215

Docket: 2000-419-EI

BETWEEN:

XEROX CANADA LTD.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

MICHEL GINGRAS,

Intervener.

Reasons for Judgment

Lamarre, J.T.C.C.

[1]            Xerox Canada Ltd. ("Xerox") is appealing the decision by the Minister of National Revenue ("Minister") that the work of Michel Gingras for Xerox during the 11 months from January 1, 1998 to December 1, 1998 was insurable employment for the purposes of the Employment Insurance Act ("Act"). Xerox states that Gingras was hired through PRN Mobile Technical Service ("PRN"), a registered entity operated by Gingras as an independent contractor, and that there was no employment relationship between Xerox and Gingras during the period under appeal.

[2]            The evidence revealed that back in 1986 and 1987, Gingras was employed by Xerox. He then started his own printing business. In August 1994, Gingras was hired by Shawn Thomas & Associates ("Shawn Thomas") in Iqaluit, N.W.T. as a technician. At that time, Shawn Thomas had an agreement with Xerox to provide maintenance and equipment repair services for Xerox equipment. Shawn Thomas also handled sales for Xerox. As a technician, Gingras was providing services for Xerox on behalf of Shawn Thomas.

[3]            In November 1994, Gingras was contacted by Daniel Fortier, general manager of sales services for Northern Operations at Xerox. Fortier was interested in hiring Gingras directly, without going through Shawn Thomas, with whom, according to Gingras, Xerox was having some problems.

[4]            Fortier explained in his testimony that he had had several conversations with Gingras, who let him know that he wanted to perform services on his own. According to Fortier and Angèle Crevier, customer service operations manager for Xerox, Xerox never considered hiring employees in remote areas, including Iqaluit. The workload in that region being less than half the regular workload in built-in areas, Xerox needed an autonomous service agent to provide services to customers there. According to these two witnesses, it would have been impossible to hire inexperienced people that would need on-the-job supervision by Xerox over there and unrealistic to hire a full-time employee in a region where there was a lower workload.

[5]            Discussions took place between Fortier and Gingras between November 1994 and March 1995 when Gingras finally signed an agreement with Xerox and left Shawn Thomas. According to Fortier, Gingras agreed to work for Xerox under the type of agreement proposed by Xerox, that is, as an independent contractor.

[6]            Under that agreement, filed as Exhibit A-2, Gingras was hired through PRN as a service representative for Xerox for Baffin Island. Gingras testified that he registered PRN in 1995 for the purpose of obtaining the service contract with Xerox. Although Gingras had some experience with Xerox, he was required to attend training courses certified by Xerox. All the travel expenses he incurred to attend that training were covered by Xerox.

[7]            The agreement was signed for a period of three years, from March 1, 1995 to February 28, 1998. PRN was to receive a monthly rate of $5,800 plus GST, which included transportation costs, office space rental and telephone costs. The monthly rate was fixed and was based on the assigned territory's active equipment population. PRN had to submit to Xerox invoices for the total of the amount specified above for three-month periods. It was also agreed that Gingras was to provide his own vehicle to service his customers' equipment and was responsible for that vehicle's maintenance costs. PRN was also required to take out a personal liability insurance policy on Gingras and a car insurance policy. PRN could use a subcontractor to perform its assigned duties provided that Xerox had given its approval. All specialized tools and parts were provided by Xerox.

[8]            In December 1997, Gingras started negotiating a new contract with Xerox and the parties finally reached an agreement in April 1998. The new agreement was signed for the period from March 1998 through December 1998. Under that agreement, PRN was compensated for Gingras's services through a fixed monthly rate. According to Angèle Crevier, this monthly rate was established in terms of a percentage of workload based on the total equipment population in the territory. In 1998, they arrived at a figure of $1,880 per month, to which was added what the parties called a "northern allowance" of $4,705.05 per month. This northern allowance took into account the high cost of living in a northern area. The monthly allowance could be revised periodically to take into account the evolution of the active equipment population in the area. Actually, it did not change at all in 1998. In addition to that, PRN was paid extra compensation calculated on an event basis for all additional services it provided to customers and which were not covered by the monthly allowance (for example, new installations, removal of equipment or other services to customers not covered by a Xerox warranty). Payment of the monthly allowance and the northern allowance was guaranteed whereas the compensation granted on an event basis was paid only if the service agent (PRN) provided services giving rise to that compensation. This is why the compensation paid on an event basis could vary from one month to another.

[9]            According to Fortier and Crevier, the service agent was encouraged to work for others as long as services were maintained for Xerox and as long as the agent did not provide repairs and maintenance services for products of competitors of Xerox.

[10]          Angèle Crevier elaborated on the distinction between employees and independent contractors working for Xerox. Its employees work on a full-time basis (37.5 hours per week from 8:30 a.m. to 5:00 p.m., five days a week) and are not restricted to doing service calls, as are the contractors, but perform other work in the areas of management or preventive maintenance. Contractors do not have to work regular hours; they perform their work at their own pace. Employees are subject to two evaluations of their work per year and have to meet certain targets while the contractors are not evaluated and do not have to meet any targets. The employees have to provide time sheets and are paid a fixed salary twice a month. The contractors provide a monthly invoice in order to get paid. The employees are reimbursed for their work expenses upon presentation of an expense account and may receive bonuses. The contractors do not receive bonuses and are not reimbursed for their expenses. The contractors' expenses are normally covered by the monthly allowance and the contractors are responsible for managing their expenses themselves. The employees receive full fringe benefits while the contractors have none.

[11]          With respect to supervision, Angèle Crevier testified that there is a big difference between employees and contractors. The employees work in groups and Xerox plays a management role with respect to these groups. Management meets with the employees regularly to discuss strategy. There are no such meetings for contractors. They work completely on their own.

[12]          Employees have to advise Xerox if they are sick or if they go on vacation. Contractors do not have to report the matter to Xerox when they are ill or otherwise off work for a short period. For longer periods of absence (two weeks or more), contractors arrange with their customers to do the work on their return if there is nobody to replace them. Xerox should however provide backup if necessary.

[13]          Employees are provided with all the necessary tools, including a computer and a car, for the performance of their duties. Contractors are only provided with the specialized tools required to do their job.

[14]          Gingras testified that he was working during normal business hours in Iqaluit. He was asked to check on whether there were calls from customers, to report service calls made and to order parts for customers' equipment. He said that he contacted the dispatch centre at least four or five times a day and each time he reported the type of service performed and the time spent on each call. He also took calls on his answering machine, which was provided by Xerox at his home. For customers outside Iqaluit, he tried to solve the problem on the phone with the customer. If this did not work, the customer was asked to send his equipment to Iqaluit at his own cost. Sometimes, Gingras would rent a plane to go on site. In these cases, he would charge the customer directly for the travel costs, but the customer would be billed by Xerox for the service. Gingras testified that it was not more time consuming for him to go on site than to have the piece of equipment shipped to him directly. According to him, shipping was harmful to the equipment and often he had to spend time repairing the damage. Angèle Crevier testified that it was not Xerox's policy to ask their service agents to travel outside their territory. If Gingras decided to travel, it was his own choice. According to her, such travel left him less time to do his other work for Xerox or to find other work for his own business. In any event, it was Gingras who organized his own work schedule and who had to bear the consequences of his decisions. Fortier also testified to that effect. He added that when the service was completed, Gingras reported to close that call and report on the parts used. However, Fortier did not review his work.

[15]          In July 1998, Gingras indicated to Xerox his intention to hire one John Paton to help him do the work. He had been training Paton since the month of May 1998. Angèle Crevier agreed to have him trained in Montreal, but Paton left in the month of August without having received any training from Xerox. From the month of May till his departure, Paton was considered an employee of PRN for the purposes of obtaining a government subsidy. Paton was paid by PRN and executed work for Xerox on behalf of PRN. In fact, in his tax return filed for the 1998 taxation year, Gingras declared all his income from PRN and deducted all expenses incurred in the course of doing his work for Xerox. The salary expense amounts to $15,314. Gingras testified that Paton was PRN's only employee and that PRN paid him $1,056 every two weeks, half of which was reimbursed to PRN through the government subsidy. Gingras testified that the salary expense also included amounts paid to himself. The statement of business activities for PRN shows a net income of $31,092 in 1998. Business tax, fees, delivery, freight, fuel costs and insurance, rent, legal fees, and car and travel expenses are expenses that have been claimed by Gingras with respect to the operation of PRN. It should be pointed out here that Gingras testified that PRN's only business was from Xerox.

[16]          In the month of July 1998, Gingras asked Xerox to raise his monthly allowance to approximately $15,000 in order to cover the salary of two technicians. This request was denied and Gingras decided to leave Iqaluit as soon as he could. He went to the United States and left his employee Paton alone to serve the Xerox customers. By so doing, he was, in his words, able to look at his business from outside. In August, when Paton resigned, Gingras came back to do the work. He made some contacts with a view to finding someone to replace him. He finally terminated his agreement with Xerox in November 1998 and dissolved PRN.

[17]          Another factor is worth commenting on. According to a note sent to Angèle Crevier in September 1998, Gingras requested from Xerox permission to apply a monthly "footprint charge" to all pieces of Xerox equipment in order to cover travel expenses in remote areas. The idea was to charge fees to all customers. Xerox rejected this request, as it was not part of their agreement. My understanding from the documents filed in evidence is that Gingras took it upon himself to invoice all customers in the region for that "footprint charge", without first advising Xerox. Apparently, quite a few customers agreed to pay PRN the "footprint charge" (see Exhibit A-1, Tabs 10, 12, 13). Some complained however.

Argument

[18]          Counsel for the appellant argued that where the parties seek to establish the existence of a particular relationship, the proper approach is to accept the contract between the parties as a starting point and then to examine the evidence adduced in order to determine whether the facts established thereby are consistent with the relationship between the parties as expressed in the written contract. (Counsel referred to the decision of Cattanach J. in Elkin v. M.N.R. (NR 4) referred to by Deputy Judge Porter of this Court in Manitoba Public Insurance Corp. v. M.N.R., [1998] T.C.J. No. 953 (Q.L.).)

[19]          On the other hand, counsel for the respondent stated that such an agreement is not in itself determinative of the relationship between the parties, and the facts must be carefully examined to determine the relationship between the parties (Wiebe Door v. M.N.R., [1986] 3 F.C. 553, at 556).

Analysis

[20]          I find in the present case that the agreement between the parties reflects the actual relationship between the parties.

[21]          Both parties were perfectly aware of the substance of the agreement they signed. Gingras was employed by Shawn Thomas at that time and he was under no pressure to sign with Xerox. In fact, the evidence shows that the agreement with Xerox suited him at the time, as he wanted to work on his own and would moreover be able, for income tax purposes, to deduct all expenses (including a portion of the rent for his apartment) against his income from Xerox. Gingras also charged GST on the consideration received for his services. An employee does not charge GST on his salary.

[22]          Furthermore, Gingras acted as someone who was running his own business. I cannot see an employee being able to leave the country and delegate his work to someone else, who had not received any particular training from the employer (I am referring here to Paton), and still receiving his pay cheque at the end of the month. Such an attitude would be intolerable in an employer-employee relationship but is acceptable in the case of a contract for services. Nor can I see an employee paying someone else out of his own pocket for work done for his employer, even if doing so gives rise to a government subsidy which covers half of the second employee's salary. In an employer-employee relationship, an employee does not hire other employees. He cannot delegate his work to someone else (see Alexander v. M.N.R., 70 DTC 6006 (Ex. Ct. Canada)). In a contract for services, the contractor may engage someone to help him fulfil his obligations.

[23]          Another indication that Gingras was acting as if he was running his own business is his attitude towards the "footprint charge". He sent invoices on behalf of PRN to all the customers in his territory claiming that "footprint charge" without having first spoken to Xerox about it. Many customers paid PRN the "footprint charge" without questioning it. The same can be said concerning PRN's billing of the costs for the use of a plane to go on site. This had nothing to do with Xerox. Again, it was part of the agreements between Gingras and his customers. These are certainly indications that the customers were used to dealing directly with Gingras through PRN and that they were doing business with PRN with respect to maintenance services for their Xerox products, and not with Xerox itself.

[24]          With respect to other indicators that have been developed in the case law for determining whether an employer-employee relationship exists, I do not find that the evidence points in that direction.

[25]          As for the degree of control, there is a difference between controlling the work of an employee and controlling the product itself. It is true that Gingras had to attend training at the request of Xerox. But the work that Gingras agreed to do for Xerox was to install, or to provide maintenance services for Xerox equipment. This equipment, as we all know, is constantly being reviewed and becomes more sophisticated year by year. Thus, it is normal for Xerox to require all who are going to work on that equipment to receive instructions in order to become familiar with the products.

[26]          Gingras explained that he called the dispatch centre four or five times a day and reported, for each service call, the time taken, and the parts used, to do the job. Neither Fortier nor Crevier testified that Gingras had to report the time spent on a service call. They both said that Gingras was responsible for organizing his own schedule. On the other hand, both Fortier and Crevier testified that Gingras had to contact the dispatch centre to find out about service calls, to indicate the end of the service call, and to report on the parts used to do the work. I understand from Fortier's testimony that this latter requirement was necessary for inventory purposes. Indeed, Xerox shipped the required parts by container to Gingras, who used them to service customers' equipment.

[27]          I find that Xerox did not exercise the degree of control required for Gingras to be considered an employee. In so deciding, I give more weight to the testimony of Fortier and Crevier than to Gingras's testimony. Indeed, the fact that Gingras decided to use an airplane once in a while, at his customers' expense, without that being a requirement of Xerox, is in my view a factor showing that Gingras was the master of his own schedule. He organized his work to suit his own business purposes. Xerox had no control over his work as such. It is true that Xerox collected data from the dispatch centre on service calls taken by Gingras. However, it is clear from Fortier's evidence that this data was not used as a source of feedback on his work. It was only a way of monitoring how much activity was going on and what inventory needed to be replenished. As was said in Vulcain Alarme Inc. v. Canada, [1999] F.C.J. No. 749 (Q.L.), referred to by both parties, monitoring the result must not be confused with controlling the worker.

[28]          With respect to ownership of tools, it is true that Xerox provided Gingras and Paton with the specialized tools required. This in my view is not determinative. Indeed, Gingras could not have serviced Xerox equipment without the Xerox component parts and specialized tools. Furthermore, Xerox did not provide Gingras with a car, as it did for all other employees. I realize that Gingras received a fixed monthly remuneration (including the northern allowance) that was intended to cover all costs incurred by Gingras in performing his service contracts. However, Gingras had the discretion to use that money as he wished. He did not have to submit an expense account, unlike all the other employees.

[29]          With respect to the chance of profit and risk of loss, Gingras, through PRN, certainly bore some risks, as he had to organize his work according to his budget. True, he received a guaranteed monthly allowance. However, if he did not organize his time well, or if he did not provide good service, he had to do the extra work at his own expense. As a matter of fact, Gingras wrote a few letters to Xerox complaining about the high cost of doing business in the North. He also requested a higher allowance to cover the cost of a second technician. This was not accepted by Xerox as it was not part of their agreement. Furthermore, Gingras was given no fringe benefits by Xerox and he was also required to take out a personal liability insurance policy. When he terminated his agreement with Xerox in November 1998, he was not paid a penny more. He did not receive any vacation pay nor any other allowance. On the other hand, there was a chance of profit in that, if he was fast and efficient, he could use his time to work elsewhere and earn more money. As well, within the scope of his contract with Xerox, there was a possibility of making extra money for work paid for on an event basis and not covered by his monthly allowance. As a matter of fact, PRN showed a profit in the year 1998, and that profit took into account the salary paid to Paton in that year.

[30]          In my view, it can be inferred from the evidence disclosed that Gingras did not form an integral part of Xerox's business. To use Lord Denning's words in Stevenson, Jordan and Harrison v. MacDonald and Evans, [1952] 1 T.L.R. 101, 111, his work was only accessory to it. Not only did Gingras act as someone who was running his own business, but he was in fact and according to his agreement with Xerox an independent contractor.

[31]          As was said by Cooke J. in Market Investigations Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732, 738-9, 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. Indeed, the fact that Gingras registered PRN for the purposes of contracting with Xerox is not decisive here.

[32]          Having regard to all these elements, which have been analyzed in the overall context of the relationship between the parties, I find that the weight of the evidence is rather to the effect that Gingras was not employed by the appellant under a contract of service, but was engaged as an independent contractor. For these reasons, the appeal is allowed and the Minister's decision is vacated.

Signed at Ottawa, Canada, this 15th day of December 2000.

"Lucie Lamarre"

J.T.C.C.

COURT FILE NO.:                                                 2000-419(EI)

STYLE OF CAUSE:                                               Xerox Canada Ltd. v. M.N.R.

PLACE OF HEARING:                                         Ottawa, Ontario

DATE OF HEARING:                                           December 5 and 6, 2000

REASONS FOR JUDGMENT BY:      the Honourable Judge Lucie Lamarre

DATE OF JUDGMENT:                                       December 15, 2000

APPEARANCES:

Counsel for the Appellant: Janice Payne

Counsel for the Respondent:              Shalene Curtis-Micallef

For the Intervener:                                                The Intervener himself

COUNSEL OF RECORD:

For the Appellant:                

Name:                     

Firm:                       

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2000-419(EI)

BETWEEN:

XEROX CANADA LTD.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

MICHEL GINGRAS,

Intervener.

Appeal heard on December 5 and 6, 2000, and judgment rendered orally

on December 8, 2000, at Ottawa, Ontario, by

the Honourable Judge Lucie Lamarre

Appearances

Counsel for the Appellant:          Janice Payne

Counsel for the Respondent:      Shalene Curtis-Micallef

For the Intervener:            The Intervener himself

JUDGMENT

          The appeal pursuant to subsection 103(1) of the Employment Insurance Act is allowed and the decision of the Minister of National Revenue on the appeal made to him under section 91 of the Act is vacated.

Signed at Ottawa, Canada, this 15th day of December 2000.

"Lucie Lamarre"

J.T.C.C.