REASONS
FOR JUDGMENT
Masse D.J.
[1]
The Appellant, 166020 Canada Inc., is a
corporation having its head office and principal place of business in the City
of Lasalle, Province of Québec. On August 30th, 2010, the Minister of
National Revenue (the “Minister”) issued rulings whereby it was determined that
Francois Matte, Carl Brault, Nicolas Plante, Martin Labelle and Patrick
Laquerre (the “Workers”) were engaged in insurable employment with the
Appellant during the period of January 1st, 2009 and December 31st,
2009 (the “period”), on the basis that they were employed under a contract of
service within the meaning of paragraph 5(1)(a) and section 93
of the Employment Insurance Act, S.C. 1996, c. 23 (the “EIA”). The
Appellant appealed these rulings and on September 27th, 2010, the Minister
assessed the Appellant for all of its Workers (the “Assessment”) for the period
here under consideration, for a total of $20,866.83 including penalty and
interest. The Appellant filed a Notice of Objection to this Assessment and by
letter dated December 6th, 2011, the Minister confirmed the Assessment and
confirmed the rulings issued on August 30th, 2010. Hence the appeal to
this Court.
[2]
The issue in this appeal is whether the Workers
engaged by the Appellant were independent contractors or were they employed in
insurable employment with the Appellant under a contract for service for the
purposes of the EIA.
Factual Context
[3]
Mr. Panos Christodoulopoulos is the president
and one of the shareholders of the Appellant who carries on business under the
name of “Magie Seal”. The Appellant is in the business of providing fabric and
leather protection treatment (the “treatment”) to the customers of large retail
furniture stores such as Brault & Martineau and Leon’s Furniture. The
clients of the Appellant are the furniture stores and not the purchasers of the
furniture since there is no privity of contract between the purchasers and the
Appellant.
[4]
The Appellant engaged the Workers, who were
considered as self‑employed technicians, to actually apply the treatment.
There was no written agreement between the Appellant and the Workers but it is
clear that both the Appellant and the Workers considered that they were
independent contractors and not employees.
[5]
When a store like Leon’s or Brault &
Martineau sells furniture, it will offer the treatment to the purchaser as part
of the bargain for an additional cost. If the purchaser purchases the
treatment, the furniture store will then contract the Appellant to apply the
treatment to the new furniture. The Appellant will then contact the purchaser
and make an appointment to have the treatment done. The Appellant will then
contact one of the Workers by fax or email in order to have the Worker actually
apply the treatment. The Appellant had about 15 Workers doing this work during
the period. Each Worker had an assigned territory. The Workers are given a
number of appointments to handle per day and the Workers are responsible for
arranging their own schedule any way they want to attend the purchaser’s
residence and apply the treatment. The Worker can accept as many or as few
appointments as he/she wants. It is expected that the work will be performed
between the hours of 8:00 a.m. and 5:00 p.m. The Workers are
completely on their own as to when to perform the work but it is expected that
the work will be done on the day that the purchaser is expecting it to be done
since the purchaser will likely stay home all day to receive the Worker. If the
Worker is not able to perform the work on the day scheduled, then it is up to
the Worker to contact the purchaser and reschedule the work.
[6]
Most of the Workers were individuals but some
were private enterprises and others were corporate entities (see Exhibit A‑1).
The Appellant does pay Goods and Services Tax/Quebec Sales Tax (GST/QST) to
those Workers whose revenues are sufficiently high to require GST/QST to be
paid on their services.
[7]
According to Mr. Panos Christodoulopoulos, the
Appellant had hired a payroll company, Ceridian, to prepare T4A slips for the
Workers. By error, Ceridian issued T4 slips (for employment income) to the
Workers, rather than T4A slips (for other income), and that is how the matter
came to the attention of the Canada Revenue Agency (the “CRA”). The error made
by Ceridian was explained to the CRA but the CRA still conducted a review even
though there was never, at any time, any dispute between the Workers and the
Appellant regarding the nature of their relationship. To the best of Mr. Christodoulopoulos’
knowledge, none of the Workers submitted an employment insurance application
nor did they ask for a determination as to their insurability.
[8]
Mr. Christodoulopoulos explained that when the workers
are taken on, it is explained that they are independent contractors. Workers
are not expected to come in to the Appellant’s business premises except for the
purposes of picking up stain‑treatment fluid and leather‑treatment
cream which is provided exclusively by Magie Seal, or to submit their completed
work orders in order to get paid. The Workers do not have any office space at
the Appellant’s premises. The Appellant does supply a spray machine which is
capable of producing a certain pressure with which to spray the anti-stain
fluid. However, the Workers have to supply everything else in the way of
equipment and tools. The Workers must supply their own motor vehicle and they
must pay their own automobile expenses such as gas, repairs, purchase price,
insurance, etc. The Workers also supply a fax or computer to receive work
orders, a home office if the Workers feel the need for an office, and rags to
apply the leather‑treatment cream. Even though the Appellant supplies a
specialized spray pump, there are some Workers who go to Canadian Tire and buy
a hand‑pump sprayer to apply the liquid but it takes longer to effect an
application. This hand‑pump is also used by some as a back up if there is
a problem with the Magie Seal supplied sprayer. Mr. Christodoulopoulos
indicated that he is aware of a Worker who only uses the hand pump and not the
Magie Seal pump. If the Magie Seal supplied pump sprayer is lost or damaged, it
is up to the Workers to replace or repair it.
[9]
The Workers have to do the work on their own
time, on their own schedule and under their own control. They decide how many
calls they want to do, and how many days they want to work. Some of the Workers
do hire others to help them perform the work. Some of them will have their
spouse assist in doing the scheduling. The Workers can do what they want so
long as the work gets done.
[10]
A vehicle is a necessity; without a vehicle, the
Worker cannot carry on. If a vehicle breaks down, the Worker will often rent a
replacement vehicle. The Appellant does not pay for the extra help that a Worker
may contract. It is the Worker who decides in what order the purchasers are
serviced and the route that is taken. If a Worker damages any property
belonging to the purchaser, such as breaking a lamp or damaging flooring while
moving furniture, he/she is responsible for it. If the application of the
treatment is not done properly, then the Worker is responsible for seeing that
it is done right.
[11]
The purchaser does not get billed for the
treatment. The purchaser pays the furniture store for the treatment and the
store in turn contracts the Appellant to do the work. The Appellant then farms
out the work to the Worker. The only thing the Appellant does is to monitor
that the work gets done. There is no in field supervision by the Appellant as
to how the work is performed. The Appellant is only concerned that the work be
done satisfactorily and if it is not, then it is the responsibility of the Worker
to make it right. There is no evaluation or performance review of the Worker.
The Worker does not fill out time sheets or otherwise account for his/her time.
The only training is to show the Worker how to operate the spray machine and
apply the liquid. Then the Worker is on his/her own. Some Workers get someone
else to drive them around and Mr. Christodoulopoulos testified about one
Worker who lost his driver’s license and got his father to drive him to make
sure that he had an income coming in. The Worker has the right to refuse work.
The Workers are in a position to dictate when they want to work; some of them
will only work certain days of the week and that is their choice, not that of
the Appellant. The Workers get paid by the job. The amount paid is usually a
standard amount but this amount is quite often subject to negotiation between
the Worker and the Appellant; especially in cases where the Workers have to
travel some distance to service the purchaser. The Worker can even negotiate
with the purchaser to apply the treatment to other furniture that the purchaser
may want to have treated. The Workers can change the appointments that they
have with the purchaser directly without contacting the Appellant.
[12]
The Worker decides when he/she takes vacation or
how much vacation time is taken. There is no vacation pay, no benefits, no at
source deductions such as income taxes, Canada Pension Plan (“CPP”) and
Employment Insurance (“EI”). There is no guarantee of work and there is no
guarantee of any minimum income. If the work is not done for any reason,
including the absence of the purchaser, then the Worker does not get paid. Each
Worker can decide for himself/herself how many jobs they are willing to do per
day. There is no exclusivity of services. The Appellant does not provide any
liability insurance for the Workers. The Appellant does not tell the Workers how,
when or at what times to do the work. Mr. Christodoulopoulos sees his role
as getting work for the Workers; the Workers control everything else.
[13]
In cross‑examination, Mr. Christodoulopoulos
indicates that it is clear that if a purchaser has a problem, then they would
call the Appellant to have it corrected. If the problem was with a stain, then
that is a product problem and that is the responsibility of the Appellant. If
the problem was with the application of the product, that is the responsibility
of the Worker. If a Worker does any extras for a purchaser, the Worker is free
to negotiate the contract price for the extra but there is a threshold below
which they cannot go since it is clear that it would not be profitable for
either the Appellant or the Worker. As well, charging too low a price would
harm business relations with the furniture stores. He agrees that the Workers
do not purchase the liquid or leather cream, it is supplied to them. If a
Worker shows up at the home of a purchaser and the purchaser is not home, the
Worker leaves a note or card with instructions to call Magie Seal in order to
reschedule.
[14]
Martin Labelle is one of the Workers as well as
one of the Intervenors. He has been doing this work for nine years. He does not
consider himself to be an employee of the Appellant, he considers himself to be
an independent contractor. He was engaged on that basis and he is given an area
to service. He is responsible for all expenses incurred to do his work such as
automobile expenses, fuel, insurance, repairs; and he deducts these expenses
from revenue in completing his income tax returns. He says that if it is
determined that he has to work as an employee, then he will quit since the
operation would no longer be profitable for him. He is free to pursue other
employment or revenue earning opportunities as well. He sets his own hours and
he has in the past done work in the evening at the convenience of the
purchaser. Even though he has his own territory, he often does work in other
areas when needed and if he agrees and can earn a profit doing so. He would
negotiate a higher rate of remuneration in such a case. He does a lot of
travelling in order to service his area. The further he has to travel, the more
he asks to be paid and he negotiates the fee with the Appellant. He makes use
of the pump provided by Magie Seal but he also always carries his own pump as a
spare in his vehicle. He has his own tools with which to repair the spray
machines when needed. If he loses the Magie Seal supplied pump or if it is
destroyed, he is responsible for replacing it. He has insured himself against
such an eventuality. When he files his income taxes, he files as an independent
contractor, not as an employee and he deducts all expenses including all home
office expenses, meals while on the road, fax machine, computer and internet.
He does offer and provide extra fabric/leather treatment to the purchaser at a
fee that he negotiates with the purchaser. This fee is split with the
Appellant. He is the one who decides the route he takes on any given day and
the order in which customers will be serviced. He is completely free to refuse
any work for any reason. He is not supervised or evaluated. He states that he
is free to hire anybody else to do the work or to help him. His father has
driven him around for a short period of time. He takes vacations when he wants
to and for as long as he wants. He does not wear a Magie Seal uniform or shirt.
[15]
Marie-Josée Simard is employed by the CRA as an
Appeals Officer. She reviewed the matter following a Notice of Objection filed
by the Appellant. She prepared the Report on an Appeal, Form CPT110
(Exhibit I‑1) which sets out the reasons for her decision and her
recommendations. This report essentially speaks for itself. It is clear
according to her report that even though the Appellant supplied a spray pump
machine, all of the Workers interviewed stated that they used their own spray
machine and did not use the one provided by the Appellant. She based her
decision almost entirely on the fact that she believed the Appellant exercised
direction or control over the work of the Workers and that the Workers were in
a relationship of subordination to the Appellant.
[16]
She does agree in cross-examination that it is
clear that the relationship that exists between the furniture store and the
Appellant is not at all different from the relationship that exists between the
Appellant and the Workers, yet the Appellant is not the employee of the
furniture stores. She agrees that the purchaser is a client of the furniture
store and is not a client of either the Appellant or the Workers. One of the
factors that Ms. Simard also considered in addition to subordination and
control was the factor of integration of the Workers in the business of the
Appellant, yet this was not mentioned in her report CPT110. She agrees that the
technicians do negotiate a fee or tariff in cases where the technician has to
travel some distance to service the client. She agrees that there has never
been any dispute between the Workers and the Appellant concerning the nature of
the relationship and none of the Workers have ever requested or asked for a
determination that they were engaged in insurable employment. She agrees that
the intention of the parties is quite clear that they considered the
relationship to be that of independent contractors, not employer/employee.
Indeed, all of the Workers interviewed held this point of view.
Theory of the Parties
[17]
The Appellant argues that the common intention
of the parties is a determinative factor and in the case at bar it is patently
clear that the Appellant and the Workers regarded the relationship as one of
independent contractor. This relationship was never disputed at any time. In
addition, the Appellant exercised no supervision or control over the manner in
which the Workers performed their work. There was an absence of subordination
and control.
[18]
The Appellant submits therefore, that the Appeal
should be allowed.
[19]
The Respondent submits that the Workers were
engaged in insurable employment in accordance with paragraph 5(1)(a) of
the EIA because they were working under a contract of service, or they were
employees of the Appellant. This is because the Workers were in a relationship
of subordination to the Appellant and the Appellant exercised direction and
control over the work performed by the Workers.
[20]
The Respondent submits therefore that the appeal
should be dismissed.
Analysis
[21]
It is not necessary to set out the relevant
provisions of the EIA since it is clear that if the workers are employees, then
they are engaged in insurable employment and if they are independent
contractors, then they are not engaged in insurable employment within the
meaning of subsection 5(1) of the EIA.
[22]
The case at bar arises out of the province of Québec. In the Province of Québec, it is the Civil Code of Québec,
S.Q. 1991, c. 64 (the “C.c.Q.”), that determines what rules apply to a
contract entered into in Québec. Therefore, the determination of whether a
worker is an employee or is an independent contractor must be analyzed from the
perspective of the civil law of Québec. There are three characteristic
constituent elements of a “contract of employment” in Québec: 1) the
performance of work, 2) remuneration; and 3) a relationship of
subordination. The first two elements are rarely contested. It is the element
of subordination that is at issue in this case as it is in almost all cases.
[23]
The civil law and the common law approach the
question here at issue from different perspectives. It goes without saying that
since this matter arose out of the province of Québec then the civil law of
that province applies. However, that does not mean that the common law rules
applied in the rest of Canada to determine the existence of an
employer/employee relationship are to be entirely ignored. Indeed, the common
law rules provide very useful indicators of whether or not a relationship of
subordination does in fact exist. Nonetheless, in the final analysis, it is the
C.c.Q. which makes “direction or control” the actual purpose of the exercise
and therefore that element is much more than a mere indicator of the
relationship: see 9041‑6868 Québec Inc. v. M.N.R., 2005 FCA 334, [2005]
F.C.J. No. 1720 (QL), at para. 12.
[24]
The relevant provisions of the C.c.Q. in
relation to contracts are the following:
1425.
The common intention of the parties rather than
adherence to the literal meaning of the words shall be sought in interpreting a
contract.
1426.
In interpreting a contract, the nature of the
contract, the circumstances in which it was formed, the interpretation which
has already been given to it by the parties or which it may have received, and
usage, are all taken into account.
[25]
Article 2085 of the C.c.Q. defines a contract
of employment as follows:
2085. A contract of employment is a contract by which a person,
the employee, undertakes for a limited period to do work for remuneration,
according to the instructions and under the direction or control of another
person, the employer.
(My Emphasis)
[26]
Articles 2098 and 2099 of the C.c.Q. define a
contract of enterprise or for services as follows:
2098.
A contract of enterprise or for services is a
contract by which a person, the contractor or the provider of services, as the
case may be, undertakes to carry out physical or intellectual work for another
person, the client or to provide a service, for a price which the client binds
himself to pay.
2099.
The contractor or the provider of services is
free to choose the means of performing the contract and no relationship of
subordination exists between the contractor or the provider of services and
the client in respect of such performance.
(My
Emphasis)
[27]
In Grimard v. Canada, 2009 FCA 47, [2009]
4 F.C.R. 592, Justice Létourneau of the Federal Court of Appeal had to consider
the interaction between the common law and the Québec civil law in determining
whether or not there existed a contract of employment or a contract for
services. The Court held that the Québec civil law defines the elements
necessary for a contract of employment or for services to exist. On the other
hand, the common law enumerates factors or criteria which, if present, may be
used to determine whether such a relationship does in fact exist. A contract of
employment is characterized by the exercise over the performance of the work by
the employer. This control must not be confused, however, with the control over
quality and result. In the case of an independent contractor, the contractor
must have free choice in the means of performing the contract. In Québec civil
law, the notion of control is more than a mere criterion to be considered as it
is in the common law, it is an essential characteristic of a contract of
employment. Justice Létourneau stated at para. 43:
In short, in my
opinion there is no antimony between the principles of Québec civil law and the
so-called common law criteria used to characterize the legal nature of a work
relationship between two parties. In determining legal subordination, that is
to say, the control over work that is required under Québec civil law for a
contract of employment to exist, a court does not err in taking into
consideration as indicators the other criteria used under the common law, that
is to say, the ownership of the tools, the chance for profit, the risk of loss,
and the integration into the business.
(My
Emphasis)
[28]
This concept was repeated by the Federal Court
of Appeal in its decision in NCJ Educational Services Limited v. M.N.R.,
2009 FCA 131, [2009] F.C.J. No. 507 (QL). Justice Desjardins observed as
follows:
[58] While the
test of control and the presence or absence of subordination are the benchmarks
of a contract of service, the multiplicity of factual situations have obliged
the courts to develop indicia of analysis in their search for the determination
of the real character of a given relationship.
[59] In the
most recent edition of the book of Robert Gagnon (6e édition, mis à jour par
Langolis Kronstrm Desjardins, sous la direction de Yann Bernard, Audré
Sasseville et Bernard Cliche), the indicia (underlined below) have been added
to those found in the earlier 5th edition. Those added indicia are the same as
those developed in the Montréal Locomotive Works case and applied in
this court in Wiebe Doors.
92 – Notion – Historiquement, le droit
civil a d’abord élaboré une notion de subordination juridique dite stricte ou
classique qui a servi de critère d’application du principe de la responsabilité
civile du commettant pour le dommage causé par son préposé dans l’exécution de
ses fonctions (art. 1054 C.c.B.-C.; art. 1463 C.c.Q.). Cette subordination
juridique classique était caractérisée par le contrôle immédiat exercé par
l’employeur sur l’exécution du travail de l’employé quant à sa nature et à ses
modalités. Elle s’est progressivement assouplie pour donner naissance à la
notion de subordination juridique au sens large. La diversification et la
spécialisation des occupations et des techniques de travail ont, en effet,
rendu souvent irréaliste que l’employeur soit en mesure de dicter ou même de
surveiller de façon immédiate l’exécution du travail. On en est ainsi venu à
assimiler la subordination à la faculté, laissée à celui qu’on reconnaîtra
alors comme l’employeur, de déterminer le travail à exécuter, d’encadrer cette
exécution et de la contrôler. En renversant la perspective, le salarié sera
celui qui accepte de s’intégrer dans le cadre de fonctionnement d’une
entreprise pour la faire bénéficier de son travail. En pratique, on
recherchera la présence d’un certain nombre d’indices d’encadrement, d’ailleurs
susceptibles de varier selon les contextes : présence obligatoire à un
lieu de travail, assignation plus ou moins régulière du travail, imposition de
règles de conduite ou de comportement, exigence de rapports d’activité,
contrôle de la quantité ou de la qualité de la prestation, propriété des
outils, possibilités de profits, risque de pertes, etc. Le travail à
domicile n’exclut pas une telle intégration à l’entreprise.
[29]
My colleague, Justice Bédard, of the Tax Court of Canada,
provides a wonderfully simple and easy to follow roadmap on how to approach the
issue here being litigated under the C.c.Q. in his well reasoned decision in Promotions
C.D. Inc. v. M.N.R., 2008 TCC 216, [2008] T.C.J. No. 321 (QL), at
paragraphs 12 and 13:
[12] It can be
said that the fundamental distinction between a contract for services and a
contract of employment is the absence, in the former case, of a relationship of
subordination between the provider of services and the client, and the
presence, in the latter case, of the right of the employer to direct and
control the employee. Thus what must be determined in the case at bar is
whether there was a relationship of subordination between the Appellant and the
workers.
[13] The
Appellant has the burden of proving, on a balance of probabilities, the facts
in issue that establish its right to have the Minister’s decisions set aside.
It must prove the contract entered into by the parties and establish their
common intention with respect to its nature. If there is no direct evidence of
that intention, the Appellant may turn to indicia from the contract and the
Civil Code provisions that governed it. In the case at bar, if the Appellant
wishes to show that there was no employment contract, it will have to prove
that there was no relationship of subordination. In order to do so, it may, if
necessary, prove the existence of indicia of independence such as those stated
in Weibe Door, supra, namely the ownership of tools, the risk of
loss and the chance of profit. However, in my opinion, contrary to the common
law approach, once a judge is satisfied that there was no relationship of
subordination, that is the end of the judge’s analysis of whether a contract of
service existed. It is then unnecessary to consider the relevance of the
ownership of tools or the risk of loss or chance of profit, since, under the Civil
Code, the absence of a relationship of subordination is the only essential
element of a contract for services that distinguishes it from a contract of
employment. Elements such as the ownership of tools, the risk of loss or the
chance of profit are not essential elements of a contract for services.
However, the absence of a relationship of subordination is an essential
element. For both types of contract, one must decide whether or not a
relationship of subordination exists. Obviously, the fact that the worker
behaved like a contractor could be an indication that there was no relationship
of subordination.
[14] Ultimately,
the courts will usually have to make a decision based on the facts shown by the
evidence regarding the performance of the contract, even if the intention
expressed by the parties suggests the contrary. If the evidence regarding the
performance of the contract is not conclusive, the Court can still make a
decision based on the parties’ intention and their description of the contract,
provided the evidence is probative with respect to these questions. If that
evidence is not conclusive either, the appeal will be dismissed on the basis
that there is insufficient evidence.
[15] Thus, the
question is whether the Workers in the case at bar worked under the Appellant’s
control or direction, or whether the Appellant could have, or was entitled to,
control or direct the Workers.
[30]
Justice Bédard went on to say that even though the contracting
parties state their intention clearly, freely and in a fully informed manner,
this does not mean that their intent is decisive. The contract must also have
been performed in a manner that is consistent with this intent. Just because
the parties stipulated that the work would be done by an independent contractor
does not mean that the relationship was not between an employer and an
employee. The court must verify whether the relationship described in the
contract was consistent with reality.
[31]
Any analysis of whether a worker is an employee or an independent
contractor under the common law must start with the landmark decision of the
Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., [1986] 2 C.T.C.
200 (F.C.A.). Mr. Justice MacGuigan, speaking for the Court, adopted Lord
Wright’s four‑in‑one test as stated in Montréal v. Montréal
Locomotive Works Ltd. et al., [1947] 1 D.L.R. 161, describing it as “a
general, indeed an overarching test, which involves ‘examining the whole of the
various elements which constitute the relationship between the parties’.” This four‑in‑one
test involves a consideration of (1) control; (2) ownership of tools;
(3) chance of profit; and (4) risk of loss. Neither one of these
factors is determinative in and of itself under the common law. The
determination requires a trial court to combine and integrate the four factors
in order to seek out the meaning of the whole transaction. Justice MacGuigan
also stated that the “organization test” or the “integration test”, that is the
extent to which the worker is integral to the employer’s business, may also be
of assistance. The true question is whether or not the worker engaged to
perform services as a person in business on his or her own account.
[32]
In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.,
2001 SCC 59, [2001] 2 S.C.R. 983, Mr. Justice Major of the
Supreme Court of Canada held that in the common law, the difference between an
employee and an independent contractor was the element of control that the
employer has over the worker. However, control is not the only factor to
consider in determining if a worker is an employee or an independent
contractor. Justice Major was of the opinion that there is no one conclusive
test which can be universally applied to determine whether a person is an
employee or an independent contractor. He stated as follows at paragraphs 47
and 48:
47. Although there is no universal test to determine whether a
person is an employee or an independent contractor, I agree with MacGuigan J.A.
that a persuasive approach to the issue is that taken by Cooke J. in Market
Investigations, supra. 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.
48. 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.
[33]
Wolf v. R., 2002 FCA 96, [2002] 4 F.C. 396, is a case
that came out of Québec but it has found application in the common law
provinces. Mr. Wolf was a citizen of the United States who was working as
a consulting engineer in Québec. He sought to deduct lodging and travel
expenses as business expenses which he could do if he was an independent
contractor but not if he were an employee. At trial, the Tax Court held that he
was not an independent contractor and the business expenses were properly
disallowed. The taxpayer appealed to the Federal Court of Appeal. The appeal
was allowed by the unanimous decision of all three Justices of Appeal but for slightly
different reasons. Justice Desjardins applied the relevant provisions of the C.c.Q.
as well as the common law tests. Justice Desjardins examined the level of
control the payer exercised over the worker’s activities, the ownership of the
equipment necessary to perform the work, whether the worker hired his own
helpers, and the degree of financial risk and of profit as they relate to
circumstances of an individual with specialized skills. Justice Noël was of the
view that this was a case where the characterization which the parties had
placed on their relationship ought to be given great weight although it is not
determinative. Justice Noël was of the view, however, that in a close case
where the relevant factors point in both directions with equal force, the
parties’ contractual intent, and in particular their mutual understanding of
the relationship cannot be disregarded. Mr. Justice Décary was also of the view
that the contractual intent was an important factor that ought to be given much
weight. He stated the following:
117.
The test, therefore, is whether, looking at the
total relationship of the parties, there is control on the one hand and
subordination on the other. I say, with great respect, that the courts, in
their propensity to create artificial legal categories, have sometimes
overlooked the very factor which is the essence of a contractual relationship,
i.e. the intention of the parties. Article 1425 of the Civil Code of Québec
establishes the principle that “[t]he common intention of the parties rather
than the adherence to the literal meaning of the words shall be sought in
interpreting a contract”. Article 1426 C.C.Q. goes on to say that “[i]n
interpreting a contract the nature of the contract, the circumstances in which
it was formed, the interpretation which has already been given to it by the
parties or which may have received, and usage, are all taken into account”.
118.
We are dealing here with a type of worker who
chooses to offer his services as an independent contractor rather than as an
employee and with a type of enterprise that chooses to hire independent
contractors rather than employees. The worker deliberately sacrifices security
for freedom (“the pay was much better, the job security was not there, there
were no benefits involved as an employee receives, such as medical benefits,
pension, things of that nature…” Mr. Wolf’s testimony, Appeal Book, vol. 2, p.
24). The hiring company deliberately uses independent contractors for a given
work at a given time (“it involves better pay with less job security because
consultants are used to fill in gaps when local employment or the workload is
unusually high, or the company does not want to hire additional employees and
then lay them off. They’ll hire consultants because they can just terminate the
contract at any time, and there’s no liabilities involved”, ibid., p.26). The
hiring company does not, in its day-to-day operations, treat its consultants
the same way it treats its employees (see para. 68 of Madam Justice
Desjardins’s reasons). The whole working relationship begins and continues on
the basis that there is no control and no subordination.
119.
[…] When a contract is genuinely entered into as
a contract for services and is performed as such, the common intention of the
parties is clear and that should be the end of the search. […]
120.
In our day and age, when a worker decides to
keep his freedom to come in and out of a contract almost at will, when the
hiring person wants to have no liability towards the worker other than the
price of work and when the terms of the contract and its performance reflect
those intentions, the contract should generally be characterized as a contract
for services. If specific factors have to be identified, I would name the lack
of job security, disregard for employee type benefits, freedom of choice and
mobility concerns.
Thus it is clear that the common
intention of the parties, if it can be ascertained, is very important in
determining if the relationship is that of employer‑employee or
independent contractor.
[34]
In Royal Winnipeg Ballet v. M.N.R., 2006 FCA 87, [2007] 1
F.C.R. 35, the Federal Court of Appeal was again swayed by the common
intention of the parties. The Court was of the view that dancers engaged by the
Royal Winnipeg Ballet were independent contractors rather than employees.
Justice Sharlow was of the view that the trial judge erred by not considering
the intent of the parties. The parties did not intend an employment
relationship to result from the contract. Justice Sharlow traced the
jurisprudential history since Wiebe Doors:
60. […] One principle is that in interpreting a contract,
what is sought is the common intention of the parties rather than the adherence
to the literal meaning of the words. Another principle is that in interpreting
a contract, the circumstances in which it was formed, the interpretation which
has already been given to it by the parties or which it may have received, and
usage, are all taken into account. The inescapable conclusion is that the
evidence of the parties’ understanding of their contract must always be
examined and given appropriate weight.
61. I emphasize, again, that this does not mean that the
parties’ declaration as to the legal character of their contract is
determinative. Nor does it mean that the parties’ statements as to what they
intended to do must result in a finding that their intention has been realized.
To paraphrase Desjardins J.A. (from paragraph 71 of the lead judgment in Wolf),
if it is established that the terms of the contract, considered in the
appropriate factual context, do not reflect the legal relationship that the
parties profess to have intended, then their shared intention will be
disregarded.
[…]
64.
In these circumstances, it seems to me wrong in
principle to set aside, as worthy of no weight, the uncontradicted evidence of
the parties as to their common understanding of their legal relationship, even
if that evidence cannot be conclusive. The judge should have considered the Wiebe
Door factors in the light of this uncontradicted evidence and asked himself
whether, on balance, the facts were consistent with the conclusion that the
dancers were self-employed, as the parties understood to be the case, or were
more consistent with the conclusion that the dancers were employees. Failing to
take that approach led the judge to an incorrect conclusion.
[35]
In the case of 1392644 Ontario Inc. (c.o.b.
Connor Homes) v. M.N.R., 2013 FCA 85, [2013] F.C.J. No. 327 (QL), the
payer was operating foster homes and group homes through which it provided care
for children who have serious behavioral and development disorders. The workers
worked as caregivers and in one case as an area supervisor. The Minister had
determined that the workers were engaged in pensionable employment pursuant to
the CPP and the EI. The workers appealed this determination to the Tax Court of
Canada and the appeal was dismissed. A further appeal was taken by the workers
to the Federal Court of Appeal. Justice Mainville discussed the test to
determine whether a worker is an employee or an independent contractor:
23. The ultimate question to determine if a given individual
is working as an employee or as an independent contractor is deceivingly
simple. It is whether or not the individual is performing the services as his
own business or on his own account: 671122 Ontario Ltd. v. Sagaz Industries
Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983 (S.C.C.) at para. 47
(“Sagaz Industries Inc.”).
[…]
29. […] The factors to consider may thus vary with the
circumstances and should not be closed. Nevertheless, certain factors will
usually be relevant, such as the level of control held by the employer over the
worker’s activities, and whether the worker provides his own equipment, hires
his helpers, manages and assumes financial risks, and has an opportunity of
profit in the performance of his tasks.
[…]
33. As a result, Royal Winnipeg Ballet stands for the
proposition that what must first be considered is whether there is a mutual
understanding or common intention between the parties regarding their
relationship. Where such a common intention is found, be it as independent
contractor or employee, the test set out in Wiebe Door Services Ltd. is
then to be applied by considering the relevant factors in light of that mutual
intent for the purpose of determining if, on balance, the relevant factors
support and are consistent with the common intent. […]
[…]
38.
Consequently, Wolf and Royal Winnipeg
Ballet set out a two step process of inquiry that is used to assist in
addressing the central question, as established in Sagaz Industries Canada
Inc. and Wiebe Door Services Ltd., which is to determine whether the
individual is performing or not the services as his own business on his own
account.
39.
Under the first step, the subjective intent of
each party to the relationship must be ascertained. This can be determined
either by the written contractual relationship the parties have entered into or
by the actual behaviour of each party, such as invoices for services rendered,
registration for GST purposes and income tax filings as an independent
contractor.
40.
The second step is to ascertain whether an
objective reality sustains the subjective intent of the parties. As noted by
Sharlow J.A. in TBT Personnel Services Inc. v. Minister of National Revenue,
2011 FCA 256, 422 N.R. 366 (F.C.A.) at para, 9, “it is also necessary to
consider the Wiebe Door Services Ltd. factors to determine whether the
facts are consistent with the parties expressed intention.” In other words, the
subjective intent of the parties cannot trump the reality of the relationship as
ascertained through objective facts. In this second step, the parties’ intent
as well as the terms of the contract may also be taken into account since they
color the relationship. As noted in Royal Winnipeg Ballet at para. 64,
the relevant factors must be considered “in the light of” the parties’ intent.
However, that being stated, the second step is an analysis of the pertinent
facts with the purpose of determining whether the test set out in Wiebe Door
Services Ltd. and Sagaz Industries Canada Inc. has been in fact met,
i.e. whether the legal effect of the relationship the parties have established
is one of independent contractor or one of employer-employee.
41.
The central question at issue remains whether
the person who has been engaged to perform the services is, in actual fact,
performing them as a person in business on his own account. As stated in both Wiebe
Door and Sagaz, in making this determination no particular factor is
dominant and there is no set formula. The factors to consider will thus vary
with the circumstances. Nevertheless, the specific factors discussed in Wiebe
Door and Sagaz will usually be relevant, such as the level of
control over the worker’s activities, whether the worker provides his own
equipment, hires his helpers, manages and assumes financial risks, and has an
opportunity of profit in the performance of his tasks.
Having set out
this brief jurisprudential review under both the civil law and the common law,
I now will go on to discuss the various factors.
A. The parties’ common intention
[36]
This is a very important factor. The Workers did
not have any written employment agreement with the Appellant. However, it was
most certainly understood as between the Workers and the Appellant that the
Workers were independent contractors. No one, not even Ms. Simard of the CRA,
disputes that this was the common intention of the parties. All of the Workers
interviewed regarded themselves as independent contractors.
[37]
In addition, the parties certainly dealt with
each other in their day‑to‑day business as if the Workers were
independent contractors rather than employees. Some of the Workers carried on
business under their own trade names and some of them actually incorporated
themselves. The Workers were responsible for all expenses related to the performance
of their work. The Workers were free to refuse work. There were no at source
deductions for income taxes CPP or EI. There were no benefits at all, such as
medical, dental etc., and no pension plan. There were no paid vacations and the
Workers were not paid for statutory holidays. The Workers could determine when
they took vacations and for how long. The Workers filed their income tax
returns reporting their income as business income and they deducted business
expenses from this revenue. Those Workers who earned sufficient revenues did in
fact register for GST/QST pursuant to the Excise Tax Act and did charge
GST/QST for their services.
[38]
The nature of the contract, the circumstances in
which it was formed, the interpretation given to it by the parties and the
usage all lead me to the inescapable conclusion that the parties most certainly
viewed their relationship as independent contractors rather than
employer/employees. I find that the Workers and the Appellant mutually intended
and understood that the Workers were engaged as independent contractors and not
as employees of Appellant.
B. Subordination
[39]
This is the most important and determinative
factor under the civil law. I am satisfied on the balance of probabilities that
the Workers were self‑employed because the Appellant and the Workers were
not in a relationship of subordination within the meaning of article 2099 of
the C.c.Q. I am also satisfied that the Appellant did not exercise the degree
of direction or control over the work of the Workers that would be required in
order to classify their relationship as one of a contract of employment
pursuant to article 2085 of the C.c.Q. A review and examination of the common
law factors certainly bears this out.
(i) Control or direction
[40]
I am of the view that the Appellant exercised
very little control or direction over the manner in which the Workers performed
their work.
[41]
The Workers were free to refuse any work that
was offered. The workers did not have any office space at the Appellant’s
business premises and they were not obliged to attend the Appellant’s business
premises other than for the purpose of picking up stain‑protection fluid
and leather cream. The Workers were never subject to any supervision while out
in the field. The Workers were free to organize their work day in any manner
they chose. The Workers did not have a fixed schedule and they could themselves
arrange alternate times with the purchasers to have the treatment done. The
Workers could do the work themselves or they could engage others to do it for
them or to help them out such as drive them around. Even though there was a
standard fee that the Workers would be paid depending on the size and type of
furniture to be treated, the Workers were free to negotiate a higher fee and
would often do so if they had to travel long distances to service the
purchaser. The Workers were free to perform extra treatments for the
purchasers without the permission of the Appellant. The negotiated fee for
such extras, however, could not be so low as to harm the Appellant’s business
interests or its relationship with the furniture stores. The Workers only got
paid after the work was done. If a Worker attended the home of a purchaser in
order to apply the treatment and the purchaser was not home such that the
application could not be made, the Worker was not paid for his/her wasted time.
[42]
There was no evaluation of the performance of
the Workers. The Appellant was only concerned that the treatment be applied
right. In other words, results and not the means of doing the work were of
importance. In Charbonneau v. M.N.R., [1996] F.C.J. No. 1337 (QL),
the Federal Court of Appeal held that monitoring the result of the work must
not be confused with controlling the worker.
[43]
This factor, in my opinion, establishes that the
Appellant exercised little control over the work performed by the Workers. A
consideration of this factor indicates that the workers were independent
contractors and contra‑indicates an employer/employee relationship.
(ii) Equipment and tools
[44]
This is also an important factor in determining
if the Workers were in a relationship of subordination to the Appellant. It is
true that the Appellant was the sole and exclusive supplier of the anti‑stain
fluid and the leather‑treatment cream. It is argued by the Respondent
that this is an indicator of subordination. However, it is to be noted that the
Magie Seal treatment is what the purchaser bargained for, not some other
product. It is also argued that the Appellant supplied a spray pump capable of
generating a certain pressure for the application of the liquid treatment.
However, none of the Workers interviewed used this pump and they all used their
own supplied pump to do the applications or as a back‑up. The Respondent
argues that these tools are a compelling indicator of subordination since the
Appellant supplied these tools. However, it is clear based on the evidence
which I have heard that the most important tool and the most expensive tool was
the motor vehicle which the Worker had to supply. The Worker had to assume all of
the expenses related to the operation of their motor vehicle and they were not
reimbursed for any such expenses. The Workers had to have either a fax machine
or a computer with which to receive work orders from the Appellant; they did so
at their own expenses. The Workers had to provide their own home offices. The
Workers had to repair the Magie Seal supplied spray pump or replace it in the
event that it was lost or destroyed. In matter of fact, the Workers simply
purchased their own spray pumps from Canadian Tire or other such hardware
store.
[45]
In essence, the only tool that the Appellant
supplied was the liquid spray product and the leather cream. The Workers had to
supply everything else. Although the liquid and cream are important, the most
important and likely the most expensive tools are the vehicles which the
Workers had to supply themselves.
[46]
A consideration of equipment and tools tends to
indicate that the relationship that existed between the Appellant and the
Workers was that of independent contractors and tends to contra‑indicate
the existence of a relationship of subordination.
(iii) The hiring of helpers
[47]
The Workers had the full discretion to hire
anyone they wanted to either do the work for them or to help them. Examples
were given of one Worker’s wife assisting him with scheduling and another
Worker’s father driving the Worker around. I am of the view that the ability to
hire assistants without any interference from the Appellant is a strong
indicator that the relationship is that of an independent contractor rather
than that of employer/employee: see Malleau v. M.N.R., 2013 TCC 47,
[2013] T.C.J. No. 45 (QL).
(iv) Financial Risk
[48]
This factor is best discussed under the chance
of profit and risk of loss factor.
(v) Investment and Management
[49]
The Workers were expected to invest in a motor
vehicle which can be very costly. They were free to choose whatever motor
vehicle they wanted but certainly one factor in their choice of motor vehicles
would be dependability since without a dependable motor vehicle the Worker would
not be able to perform any work. If the Worker‑owned motor vehicle broke
down, a replacement had to be purchased or rented.
[50]
A consideration of this factor tends to indicate
that the relationship was that of an independent contractor and tends to contra‑indicate
that it was that of an employer/employee.
(vi) Chance of Profit and Risk of Loss
[51]
There was no guarantee of any work and thus
there was no guarantee of any income. The Worker’s ability to earn profit was
variable and entirely within the Worker’s control. It depended on the extent to
which the Worker was willing and able to accept the work that was offered and
it most certainly depended on how efficient the Worker was in performing work
and organizing his/her work schedule – the more efficient the Worker was, the
more jobs he/she could do and the more he/she could earn. The chance for profit
was also dependent on the extent to which the Worker could convince the
purchaser to purchase extras. It was also necessary for the Worker to control
expenses if he/she wanted to maximize profits and minimize losses.
[52]
The Worker had to be careful in the performance
of the work since the Worker was responsible to the purchaser for any damages
caused by him/her while performing the work. The Appellant was only responsible
for defective material which the Appellant supplied.
[53]
A consideration of this factor tends to contra‑indicate
an employer/employee relationship and does tend to indicate an absence of
subordination.
(vii) Integration into the Appellant’s operations
[54]
The degree of integration of workers into a
business has to be assessed from the standpoint of the workers, not that of the
business: 671122 Ontario Ltd. v. Sagaz Industries, supra, at 1003.
Doing so from the standpoint of the business nearly always leads unavoidably to
the conclusion that the Worker’s activities were organized and programmed to
suit the principal and overriding activity of the business. In other words, the
Worker’s activities will always appear to be integrated into the business. In
the instant case, the Workers were not integrated into the Appellant’s business
operations in any meaningful way. They could be dismissed at any time and
immediately replaced by others. The worker did not have an office at the
Appellant’s business premises.
[55]
This is not a telling factor but to the extent
that it must be considered, it would contra‑indicate an employer/employee
relationship.
Conclusion
[56]
In conclusion, on considering all of the
evidence and the applicable legal principles, I come to the conclusion on the
balance of probabilities that the Appellant did not exercise any direction or
control over the work to be performed over the Workers and I also conclude that
the Workers were not in a relationship of subordination with the Appellant.
Therefore, I am satisfied that the Workers were independent contractors and
were not employees of the Appellant.
[57]
For all of the foregoing reasons, the appeal is
allowed and these matters are referred back to the Minister for reconsideration
and reassessment on the basis that none of Workers here under consideration
were engaged in insurable employment while engaged by the Appellant during the
period under consideration.
Signed at Kingston, Ontario, this 15th day of July 2014.
“Rommel G. Masse”
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