Date: 19971029
Dockets: 96-462-UI; 96-21-CPP
BETWEEN:
JORMEG CONSTRUCTION LIMITED,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
ALLAN L. SMART, JOHN MCFERRAN,
Intervenors.
Reasons for Judgment
Teskey, J.T.C.C.
[1] The Appellant appeals from assessments under the Canada
Pension Plan (“CPP”) and the Unemployment
Insurance Act (the “UI Act”), notices of
which were dated May 9, 1994. The basis of the assessments was
that the Minister of National Revenue (the
“Minister”) determined that 17 persons (the
“workers”) who were in a contractual position with
the Appellant were in insurable employment pursuant to the UI
Act and in pensionable employment pursuant to the CPP.
The Appellant claims that the workers were all independent
contractors and not employees.
[2] Both appeals were heard on common evidence.
Facts
[3] The terms of the contracts between these workers and the
Appellant are not really in dispute. It is the legal
interpretation of the terms of these contracts that is at
issue.
[4] All of these workers are either skilled tradesmen or
semi-skilled tradesmen’s assistants (labourers or helpers).
Of these workers, there were ten masons (I do not differentiate
between a stone mason, a brick layer or a concrete block layer),
one floor finisher and assistant, four assistants, one quarryman
and K. Moore who was not classified as to a position.
[5] The Minister when making her assessments relied upon
certain facts which were reproduced in the Reply to the Notice of
Appeal in the UI appeal in paragraph 6 thereof. The facts
reproduced in subparagraphs (a) to (d), (f) to (j) and (l) to (r)
were either not challenged or confirmed by the evidence before
me. These read as follows:
(a) the Payor was incorporated under the laws of the province
of Ontario on March 25, 1987;
(b) at all material times, all of the Payor’s
outstanding shares were owned by Cathy Smith;
(c) at all material times, Boyd Smith was the general manager
and controlled the day-to-day operation of the business and made
all the major business decisions;
(d) the Payor operates a seasonal construction business,
primarily engaged in obtaining and completing masonry contracting
jobs for various clients in the town of Bracebridge and the
surrounding area;
...
(f) the Workers required no training and little, if any,
direct supervision;
(g) the Appellant sought and obtained masonry contracting jobs
as an integral part of its business operation and engaged the
Workers as needed to do the actual work at the various work
sites;
(h) the Appellant was fully responsible for any unsatisfactory
work or damage done by the Workers with respect to all the
masonry contracting jobs;
(i) the Appellant provided all the materials and the equipment
needed to complete each masonry contracting job;
(j) the Workers provided their own small tools and paid for
their own transportation to and from the various work sites but
did not incur any major or unusual expenses with respect to their
work for the Appellant;
...
(l) the Appellant controlled when each masonry contracting job
was to be completed, which Workers would do the actual work,
where the work was to be performed and established the hourly
rate of pay for the various Workers based on their knowledge and
experience;
(m) the Workers performed their duties at the various work
sites and were required to report to the Appellant’s office
or the work site on a daily basis [the evidence establishes that
each worker had to report to the office each day at 7:00
a.m.];
(n) the Workers’ hours of work varied due to the nature
of outdoor work;
(o) the Appellant kept a record of the hours actually worked
by the Workers (job site job sheets);
(p) the tasks which the Workers performed constituted an
integral part of the Appellant’s business;
(q) the Workers received a regular weekly pay cheque from the
Appellant based on a set hourly rate;
(r) if a particular Worker’s services were not adequate,
the Appellant would not retain him a second time;
...
[6] Each worker was asked to sign an acknowledgement on the
Appellant’s letterhead which read:
This form is to acknowledge that the undersigned is employed
as a sub trade by Jormeg Construction Limited and is,
therefore, responsible for his/her own income tax and benefit (ie
CPP) remittance.
Whether all 17 signed these acknowledgements has not been
proven. For the purposes of these reasons, I will assume that all
did sign the acknowledgements. The acknowledgements were prepared
on the advice of the Appellant’s accountant. For reasons
that will be developed herein, it is too bad that the Appellant
relied on an unqualified person for legal advice. Whether a
worker is an independent contractor or an employee is a question
of law.
[7] After Revenue Canada’s auditor did the audit, the
Appellant immediately started to make the usual deductions and
remittances. The terms of the contracts and the working
conditions remained the same. I accept that the Appellant only
made the normal deductions and remittances out of caution, as it
was concerned with the potential liability, but still considered
these workers as independent contractors.
[8] Each worker was told what to do that day and where, at the
7:00 a.m. daily meetings, at the Appellant’s workshop. Boyd
Smith (“Boyd”), a qualified mason, the husband of
Cathy Smith, gave as an example, if the Appellant had two cottage
contracts at the same time and if one owner showed up and the
workers were working on a cottage where the owner was not around,
he would move the workers to the cottage where the owner was
staying in order to keep him or her contented. The workers were
not assigned to start and complete a specific project such as a
stone fireplace. The workers were subject to being moved from job
to job and back and forth, at the direction of Boyd. The
Appellant had deadlines with its customers. The Appellant met
these deadlines by hiring the workers to do the required work.
The workers were not under deadline, they just worked by the hour
for the Appellant and were paid for the actual hours worked. Once
the hourly rate was agreed upon, the worker was subject to the
complete control of Boyd as to where, when and for how many hours
of work were to be performed. The worker had no security as to
completion of a specific task as control was in the hands of
Boyd.
Analysis
[9] McGuigan, J.A. of the Federal Court of Appeal, in Wiebe
Door Services Ltd. v. M.N.R., 87 DTC 5025, when dealing with
what was considered four tests, namely control, ownership of
tools, chance of profit or risk of loss and integration,
described the tests "not as a fourfold but as a four-in-one
test, with emphasis on "the combined force of the whole
scheme of operations".
McGuigan, J.A. said, at page 5030:
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?"
Then he went on to say on the same page:
Perhaps the best synthesis found in the authorities is that of
Cooke J. in Market Investigations Ltd. v. Minister of Social
Security, [1968] 3 All E.R. 732, 738-9:
The observations of Lord Wright, of Denning, L.J., and of the
judges of the Supreme Court in the U.S.A. suggest that the
fundamental test to be applied is this: "Is the person who
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.
[10] The Federal Court of Appeal in Moose Jaw Kinsmen
Flying Fins Inc. v. M.N.R., 88 DTC 6099 said at page
6100:
... 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.
[11] In regards to the written acknowledgements that the
Appellant may or may not have obtained from all the workers and
the general custom in the trade, in these appeals, after
considering these facts, I have decided to attach to them very
little weight. The Federal Court of Appeal in Standing v.
M.N.R. [1992] F.C.J. No. 890, released September 29, 1992
said:
... Regardless of what may have been the Tax Court’s
appreciation of the Wiebe Door test, what was crucial to it
in the end was the parties own post facto characterization
of the relationship as that of employer/employee. There is no
foundation in the case law for the proposition that such a
relationship may exist merely because the parties choose to
describe it to be so regardless of the surrounding circumstances
when weighed in the light of the Wiebe Door test. The Tax Court
should have undertaken an analysis of the facts while having
regard to that test which, indeed, was reaffirmed in Moose Jaw
Kinsmen Flying Fins Inc. v. The Minister of National
Revenue.
[12] The question whether a worker is an employee or an
independent contractor is a question of law. The test as
described by MacGuigan, J.A. in Wiebe Door Services Ltd.
and as further discussed by the Federal Court of Appeal in
Moose Jaw Flying Fins Inc. must be applied to all the
terms of the contract. In some instances, what the parties have
declared as to what they consider to be their contractual
relationship and/or the custom in that particular business may
well be a factor that tips the decision one way or another.
Control
[13] The question is can a worker contract his or her work on
a sub-contract basis to provide work only at an hourly rate,
subject to the control of a payor who will determine the working
hours, define the services to be provided, what work is to be
performed from day to day and even from hour to hour and on where
the work is to be performed and remain an independent contractor?
I think not.
[14] I believe the giving up of control to the Appellant to
the extent herein crosses over the line between independent
contractor and employee.
Chance of Profit - Risk of loss
[15] Although the argument was made herein that the workers
had a chance of profit and risk of loss, I reject this argument.
The Appellant was the only entity that had this. The workers were
hourly paid with no chance of profit other than to earn wages and
no risk of loss. They earned wages not profits. They had no more
risk of loss than any other employee. I acknowledge that in a
true sub-contract situation, a sub-contractor can work for
an hourly amount. I place very little importance on this portion
of the test herein.
Tools
[16] There is no evidence before me that the workers did or
did not own the equipment that the Appellant provided. Tradesmen
whether independent contractors or employees, all use their own
hand tools and equipment. The facts herein are neutral on this
part of the test.
Integration
[17] Concerning integration in the eyes of the workers
regardless of the acknowledgement, when the question is asked
"Whose business is it?", the resounding answer has to
be "the Appellant’s business" when looking
at all of the terms of the contracts of employment.
[18] Considering all the evidence before me and taking into
account the tests that are applicable, the Appellant has not
convinced me that these workers were independent contractors. In
fact, I can only come to one conclusion in that each and everyone
of them were simply hourly paid employees of the Appellant.
[19] The appeals are dismissed and the assessments
confirmed.
"Gordon Teskey"
J.T.C.C.
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