Date: 20000228
Docket: 98-757-UI; 98-110-CPP
BETWEEN:
IT/NET CONSULTANTS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] These appeals were heard at Ottawa, Ontario on February 25, 2000. Testimony was given by Alex Beraskow, the agent for and the general manager of the Appellant corporation ("IT/NET") and by Rudolf Nowak, the worker in question in these appeals ("Nowak"). Several exhibits were filed.
[2] The facts and the issue arising therefrom are set forth in the following paragraphs of the Reply to the Notice of Appeal and extracts from the Notice of Appeal and the Contract between IT/NET and Nowak. The quotes from the Reply relate to the Employment Insurance appeal. They are essentially identical to those in the Canada Pension Plan appeal except therein the references are to CP premiums and the Canada Pension Plan.
Reply:
17. By Notices of Assessment dated April 1, 1998, the Appellant was assessed for failure to remit Unemployment/Employment insurance premiums in respect of Rudolf Nowak (the "Worker") in the amount of $2,032.04 for 1996 and in the amount of $2,714.39 for 1997, and for related penalties and interest.
18. The Appellant was assessed for failure to deduct and remit Unemployment/Employment insurance premiums from the Worker's remuneration while engaged by the Appellant for the periods from April 15, 1996 to January 28, 1997 and January 29, 1997 to September 2, 1997, within the meaning of the Unemployment Insurance Act (the "Act") and the Employment Insurance Act (the "Amended Act").
19. The Appellant applied to the Respondent for reconsideration of the assessments. The Respondent varied the assessments by letter dated June 10, 1998. The Respondent confirmed the assessment as it related to the period from April 15, 1996 to January 28, 1997, and he cancelled the assessment as it related to the period from January 29, 1997 to September 2, 1997.
20. The issue is to determine whether the Appellant was required to deduct Unemployment/Employment insurance premiums from the Worker's remuneration in respect of the period April 15, 1996 to January 28, 1997, and whether the assessment should be confirmed, varied or cancelled.
21. In making his decision, the Respondent relied on the following assumptions of facts:
(a) the Appellant is a business which acts as consultants in management and technology and offers services in consulting, systems development, network services and package software integration;
(b) the Department of National Defence ("DND") is a client of the Appellant;
(c) the Worker was hired by the Appellant to perform services for DND in the field of computer support;
(d) the Worker was required to perform the services in an office on DND's premises;
(e) on April 2, 1996, there was a written contract signed between the Worker and the Appellant (the "contract");
(f) according to the contract, the services were required to be performed beginning April 15, 1996;
(g) according to the contract, the Appellant could designate the place where the work would be performed by the Worker;
(h) according to the contract, any overtime hours would have to be pre-approved by the Appellant;
(i) according to the contract, the Appellant could make deductions for Canada Pension and Unemployment Insurance if so directed by Revenue Canada;
(j) according to the contract, the Appellant could terminate the contract at any time with the provision of written notice for cause;
(k) according to the contract, the Worker was restricted, for a period of six months after termination of the contract, from offering employment or subcontract work to any employee, subcontractor or associate of the Appellant;
(l) according to the contract, the Worker was restricted from divulging any information acquired while working for the Appellant;
(m) according to the contract, the Worker was restricted, while working for the Appellant and for a period of six months after the termination of the contract, from seeking business from the Appellant's clients;
(n) the Worker reported directly to Major Langlois at DND;
(o) the Worker was required to work from 8:00 a.m. to 4:00 p.m.;
(p) the Worker was required to submit a time sheet of the hours he worked and the time sheet had to be approved by Major Langlois of DND;
(q) the Worker was supervised by Major Langlois of DND;
(r) the Worker was paid at the rate of $225.00 per day;
(s) the Worker performed the services on a full-time and recurring basis;
(t) the office, office equipment and furnishings were provided by DND;
(u) the Worker did not incur any expenses in the performance of his duties;
(v) the Worker was employed by the Appellant pursuant to a contract of service;
Notice of Appeal:
1.1 We paid Mr. Nowak on a per diem basis instead of a lump sum. Basically, he was paid for the hours that he worked. If he was sick or did not show up to work ... he did not get paid. It was a contract relationship rather than an employee or master/servant relationship. He did not have to account for his time other than as a billing record ...
1.2 The nature of Help Desk work is such that everyone is sort of on a shift basis. Mr. Nowak indicated to our client at DND what hours he preferred to work ...
1.3 We did not pay any of his travelling expenses - ever; nor any other expenses incidental to our business.
1.4 We did not contribute to any benefit plans on behalf of Mr. Nowak.
1.5 We provided no training to Mr. Nowak. He did not attend any meetings at which we discussed work methods or the like. Nor did we specify how the work was to be performed. Mr. Nowak used his own methods and came at his own expense.
1.6 We did not require that Mr. Nowak devote full time to IT/NET, nor to DND. ... .
1.7 We did not provide any facilities - work space, equipment, furnishings - for Mr. Nowak.
1.8 Mr. Nowak did not do any work at IT/NET premises, our place of business. ...
1.9 We never instructed Mr. Nowak on the order or sequence in which to complete the work; we never gave him an established routine, nor schedule.
1.10 We never gave Mr. Nowak instructions about when, where and how to work.
1.11 We never asked for oral or written reports from him. ...
...
1.13 The relationship was a contractual one, with definite start and stop times. Once the contract was completed, our work relationship was finished. There was never a continuing relationship, nor an endless variety of tasks to finish.
2. Ownership of Tools & Equipment
2.1. IT/NET did not provide any tools, equipment, material etc.
The contract:
[3] The contract in question, dated April 2, 1996, ("Contract") is entitled "Contract for Services Master Agreement" and refers to Nowak as "Associate". It provides, inter alia, as follows:
1. SERVICES:
a) IT/NET engages the Associate to work for IT/NET for an indefinite term, subject to the termination provisions in clause 3, commencing on the 15 day of April, 1996.
b) The work and services to be required from the Associate shall be to perform the duties outlined in Appendix "A" Assignment Work Statement. The work and services are to be done and performed at such places as IT/NET may require.
...
2. PAYMENT:
a) IT/NET agrees to pay the Associate in accordance with the remuneration provisions included in Appendix "A" Assignment Statement of Work for the duties outlined therein. Any overtime hours are to be approved prior to commencement.
b) Timesheets and invoices for work performed are to be submitted at month end to IT/NET. A 10% holdback of the entire contract value may be withheld: that amount is forfeited if the Associate prematurely terminates the contract or if work performance is deemed unsatisfactory. All monies paid by IT/NET are to be considered as a draw, until IT/NET receives payment from the client.
c) If so directed by Revenue Canada policy, IT/NET may perform the function of making deductions at source for Canada Pension Plan and Unemployment Insurance, but not Income Tax. In all instances, the payment of Income Tax is the sole responsibility of the Associate.
d) Any expenses incurred by IT/NET in the execution of this contractual agreement will be borne by the Associate, and will be recovered as deductions from payments for invoices submitted by the Associate.
3. TERMINATION:
a) In the event of the death of the Associate, this Agreement shall forthwith terminate.
b) IT/NET may terminate this Agreement at any time with provision of written notice for cause.
4. NON-SOLICITATION:
The Associate agrees that he/she will not, directly or indirectly, on his/her behalf or on behalf of any future employer, for a period of 6 months after completing a contract under this agreement, offer or cause be offered or recommend, the offering of employment or subcontract work, to any employee, subcontractor or associate of IT/NET.
5. DUTY OF CONFIDENTIALITY:
The Associate will not, while an Associate of IT/NET or at any time thereafter, directly or indirectly:
a) divulge to any person, firm or corporation, any name, address or requirement of any customer of the IT/NET;
b) divulge to any person firm or corporation, any process, method or device of IT/NET or other information, whether of the foregoing character or not, acquired as a result of his service; or
c) divulge to any person, firm or corporation, any of the financial affairs of IT/NET.
6. NON-COMPETITION:
The Associate agrees that during this Agreement period, and for a period of six months after its termination he/she will not, on behalf of any company or partnership or hisself/herself, attempt to solicit business from any IT/NET clients or prospects without the written consent of IT/NET. The intent of this clause is to reasonably protect the goodwill of IT/NET while at the same time not unduly limiting the ability of the Associate to continue in the practice of his/her profession.
Appendix "A" to the contract provides as follows:
...
IT/NET Client: Department of National Defence
Hardware Support for DND
Client Contact: Major S. Fraser
DPIS
Role: Hardware Consultant
Remuneration: $225 Per Diem based on a 7.5 hour day
Responsibilities: As per the Statement of Work
Start Date: The assignment will commence
on Monday, April 15, 1996.
Completion Date: The projected end is October 31, 1996.
IT/NET Contacts: Marketing Personnel: Suzin Richlark
...
[4] In carrying out the provisions of the Contract, Nowak invoiced IT/NET periodically and was paid on that basis. Nowak would prepare time sheets from time to time indicating the hours worked. This would be approved by General Langlois of DND. Suzin Richlark, an employee of IT/NET would review the time sheets and Nowak would be paid on the basis thereof. Nowak owned the tools although he stated their value was only $30.
SUBMISSIONS:
[5] The Appellant submits that Nowak was engaged under a contract for services, i.e. as an independent contractor and counsel for the Respondent submits that the arrangement was essentially contrived and in essence constituted a contract of service thus requiring the Appellant to deduct and remit premiums for Employment Insurance and for Canada Pension Plan.
[6] As is well known the basic criteria for determination of the issue were set forth in Wiebe Doors Services v. Her Majesty the Queen, 87 DTC 5025. These criteria constitute control, ownership of tools, chance of gain and risk of loss and whether the worker was an integral part of the operations of the Appellant.
ANALYSIS AND DECISION:
[7] On the issue of control, in my opinion, control was minimal at best. Mr. Nowak did not work at the premises of the Appellant but rather worked exclusively at the premises of DND. The only elements of control by IT/NET that existed were the intervention of Suzin Richlark who verified Nowak's time sheets and the restrictive covenants in the Contract. Nowak was never (except to pick up cheques) on the premises of IT/NET. Further the general manager of IT/NET never even met Nowak until shortly before the hearing of this appeal. In short, the factor of control being so minimal points to the nature of the contract being exactly what it is labelled, namely a contract for services as opposed to an employment contract of service. There is considerable jurisprudence (cited in Fleetway mentioned below), to the effect that when the facts are neutral the agreement or Contract shall prevail.
[8] As to ownership of tools the tools that Nowak used were owned by him. Admittedly their value was minimal but the fact is that they were his tools as opposed to IT/NET's. The ownership of tools criteria also points to the conclusion that the contract was a contract for services as opposed to a contract of service.
[9] Nowak was not paid on a regular salary basis but was rather paid on the basis of invoices he submitted. Some of the invoices indicate Nowak was registered for GST purposes. The evidence indicated however that the fee for this registration was paid by IT/NET. There is a strong suggestion that the whole arrangement was structured in such a way as to purposely make Mr. Nowak an independent contractor. In my opinion the fact that an arrangement is structured in such a way as to best benefit the parties from an Employment Insurance and Canada Pension Plan contribution point of view is not the end of the matter. The parties are free to structure their arrangement as best suits their purposes.
[10] As to chance of gain or risk of loss Mr. Nowak did not have these. In other words, this criterion points to the conclusion that it was a contract of service.
[11] As to the integration test, in my opinion the facts point in two directions. It is clear that Nowak was part of the income producing operations of IT/NET. By carrying out his duties he contributed to its profit picture. On the other hand, having no office or place of business or place to work in in IT/NET's premises and not being involved in its daily activities i.e. not being a daily and regularly paid employee leads to the opposite conclusion namely that there was no integration.
[12] Counsel for the Respondent referred to the decision of Lamarre Proulx, T.C.J. in Fleetway Consulting Services Inc. v. Canada, 1998 T.C.J. No. 249 where the fact situation was remarkably similar to that existing in this appeal and where it was held that an employee situation (not contractor) existed. I am not bound by that decision but in any event it is distinguishable on several points, specifically as to the degree of control and the ownership of tools.
[13] In conclusion, on a balance of probabilities I find that Nowak was engaged under a contract for services which is precisely what the contract is labelled. In applying the tests, especially the aspects of minimal control, ownership of tools, and the two way indication from the integration test, Nowak was engaged under a contract for services. Consequently, the appeals are allowed without costs.
Signed at Ottawa, Canada this 28th day of February, 2000.
"T.P. O'Connor"
J.T.C.C.