REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
These appeals have been brought under the Canada
Pension Plan and the Employment Insurance Act. The issue in both
appeals is whether Mr. Drost was engaged by McHatten Builders Ltd. (“McHatten”)
as an employee or an independent contractor.
[2]
The Reply in each appeal stated that the period
under appeal was January 1, 2012 to December 31, 2012. However, the Replies
were in error and the correct period under appeal is November 18, 2012 to
September 27, 2013. Both the “Fact –Finding Questionnaire” (Exhibit A-1)
tendered by Mr. Drost and the ruling issued by the Canada Revenue Agency
(“CRA”) give the period as November 18, 2012 to September 27, 2013.
[3]
In 2013, Mr. Drost applied to the CRA for a
ruling on the insurability and pensionability of his work relationship with
McHatten. By letters dated January 14, 2014, the Rulings Officer advised
Mr. Drost and McHatten that Mr.Drost was employed in insurable and pensionable
employment with McHatten.
[4]
McHatten appealed the ruling and by letter dated
April 14, 2014, the Minister of National Revenue (the “Minister”) determined
that Mr. Drost was an independent contractor and his employment with McHatten
was neither insurable nor pensionable.
[5]
The only witnesses at the hearing were Mr. Drost
and Colleen McHatten and I have considered that both witnesses were
self-interested.
Facts
[6]
Colleen McHatten and her spouse, Joe McHatten, each
hold 50% of the shares in McHatten. Together they control the day-to-day
operations and make all major decisions for the business. McHatten operates a
home renovation business which includes the installation of windows, siding,
kitchens and bathrooms.
[7]
During the period, McHatten received the
majority of its contract work from Kent Building Supplies. The procedure was
that Kent Building Supplies contracted with various homeowners for renovation
work and then it subcontracted the work to various contractors, including
McHatten. It is McHatten’s position that it further subcontracted this
renovation work to its workers which included Mr. Drost.
[8]
Each renovation job required a crew of two to
four workers.
[9]
Mr. Drost worked for McHatten for a brief period
in 2005. He stated that he stopped working for McHatten in 2005 when he lost
his driver’s licence and couldn’t travel to the various jobs. He again started
to work for McHatten in late 2006 (See transcript page 17) until the end of
September 2013. His duties included plumbing, tiling, crack filling, and
installing windows, doors and drywall.
Law
[10]
In order to determine whether Mr. Drost was
engaged as an employee or an independent contractor, the essential question
that must be answered is whether he was performing his services as a person in
business on his own account: 671122 Ontario Ltd v Sagaz Industries Canada
Inc, [2001] 2 S.C.R. 983 at paragraph 47.
[11]
In 1392644 Ontario Inc v Minister of National
Revenue, 2013 FCA 85 (“Connor Homes”), the Federal Court of Appeal stated
that there is a two-step test which is to be used when deciding this question.
Under the first-step, the Court must determine the subjective intent of each
party to the work relationship. The second step of the test is to analyze the
work relationship between Mr. Drost and McHatten with a view to ascertaining
whether their working relationship was consistent with their intention. The
factors from Wiebe Door Services Ltd v MNR, [1986] 3 FC 553(FCA) are to
be used in this second step of the test. Those factors include control,
ownership of tools, chance of profit and risk of loss.
Analysis
Intention
[12]
It is clear from Colleen McHatten’s testimony
that McHatten intended to engage Mr. Drost as an independent contractor. She
stated that McHatten’s contracts required a crew of two to four workers,
depending on the job, and all workers, including her son Coty McHatten, were
engaged as independent contractors. In support of this intention, McHatten did
not withhold source deductions and it filed “Statements of Contract Payments”
(T5018) with the CRA for its workers in 2005, 2006, 2008, 2009, 2010, 2011,
2012 and 2013.
[13]
Mr. Drost’s intention is not so clear. At the
hearing he stated that he intended to be an employee with McHatten. However, I
am not persuaded that Mr. Drost held this intention while he worked for
McHatten. My hesitancy is based on the following evidence.
[14]
Mr. Drost said that prior to working for
McHatten, he worked for Renovations Plus as its foreman. He left this position
in 2006 to be foreman for McHatten and to run its job sites. I have inferred
from this testimony that he was an employee of Renovations Plus in 2006 and he
left this employment to become an employee of McHatten in late 2006. However,
the evidence showed that in his income tax return for 2006, Mr. Drost reported
only business income and no employment income. He has not filed an income tax
return since 2006. I have concluded that Mr. Drost was not an employee with
Renovations Plus and when he started to work for McHatten he did not intend to
be an employee.
[15]
It is my view that both parties intended that
Mr. Drost would be an independent contractor.
Wiebe Door Factors
(a) Control
[16]
Control has been defined as the “right to direct the manner of doing the work as opposed to
whether the right was exercised” by the payer: Gagnon v Canada (Minister of
National Revenue), 2007 FCA 33 at paragraph 7. Both witnesses
testified that Mr. Drost was not supervised in his duties. Colleen McHatten
testified that Mr. Drost was experienced and very skilled. She stated that he
could be relied on to perform his duties. Neither witness was asked whether
McHatten had the right to direct how Mr. Drost performed his duties. There was
no evidence as to whether McHatten had the expertise to direct Mr. Drost
in the performance of his duties. In my view, the control test is not useful in
the context of this appeal as the evidence failed to address whether control
existed.
(b) Hours of
Work, Invoices
[17]
McHatten, in consultation with the homeowners,
determined the hours of work for Mr. Drost and the crew who worked with him.
They usually worked from 8:30 or 9 until 5 or 5:30 five days a week. Mr. Drost
was expected to be at the job sites during the hours of work. It was important
that each job was completed in a timely fashion because the crews were working
in a person’s home. As a result, Mr. Drost worked on weekends if a client
requested it.
[18]
Both witnesses testified that Mr. Drost kept
track of his hours of work.
[19]
The Minister assumed that Mr. Drost was required
to invoice McHatten in order to be paid. It is my view that Mr. Drost did not
invoice McHatten for the services he performed. Colleen McHatten submitted
documents which she considered to be invoices from Mr. Drost. Some of these
documents were “Purchase Orders” and others were “Receipts”. However, there
were only two documents which pertained to the period at issue and these were
receipts. One showed that Mr. Drost received $814 from McHatten on September
12, 2013 for renovations and the other showed that he received $968 from
McHatten on September 5, 2013 for renovations. These were not invoices from Mr.
Drost to McHatten for work completed but were receipts which evidenced that
McHatten paid amounts to Mr. Drost. Mr. Drost signed that he received these
amounts. He denied that he signed the “Purchase Orders” which were submitted
into evidence and I believe him. I have concluded that these “Purchase Orders”
were prepared by McHatten.
[20]
The fact that McHatten determined the hours of
work and that Mr. Drost did not invoice McHatten point to Mr. Drost being an
employee.
(c) Ownership
of Tools
[21]
For each job, Mr. Drost provided his own hand
tools which included a tape, a square, pencil, utility knife, hammer wrench and
a saw. If larger tools were required, they were provided by McHatten.
[22]
Mr. Drost owned the tools of the trade which it
is reasonable for him to own. This test indicates that he was an independent
contractor: Precision Gutters Ltd v Minister of National Revenue, 2002
FCA 207 at paragraph 25.
(d) Chance of
Profit
[23]
In 2006, Mr. Drost received $18 an hour from
McHatten. He stated that he did not negotiate his hourly rate but he received a
series of raises so that during 2012 and 2013, he was paid $22 per hour.
[24]
The Minister assumed that Mr. Drost could hire
assistants or replacements. However, this assumption was not based on reality.
Mr. Drost never hired an assistant and he didn’t ask if he could hire an
assistant. I have inferred from his evidence that he could not hire an
assistant. He stated that if a job required an additional worker, Joe McHatten
asked him to recommend another worker and the hourly rate that should be paid
to this worker. McHatten then hired and paid the additional worker. This
favours the conclusion that Mr. Drost was an employee.
(e) Risk
of Loss
[25]
The only financial risk which Mr. Drost bore
related to his tools and this cost was minor. If work had to be redone, Mr.
Drost was paid to do it. The facts relating to financial risk are more
consistent with Mr. Drost being an employee than an independent contractor.
[26]
Mr. Drost had his own business card on which he
advertised as “Odd Job Services”. It was his evidence that he did work for
other people on weekends but this work did not interfere with his duties for
McHatten. In today’s economy it is quite normal for people to have a weekend
job.
Conclusion
[27]
In my view, the objective facts are not
consistent with the parties’ intention. I have concluded that Mr. Drost was an
employee when he worked with McHatten.
[28]
The appeal is allowed.
Signed at Ottawa, Canada, this 20th day of November 2015.
“V.A. Miller”
Email this Content