Date: 19990604
Dockets: 98-739-UI; 98-109-CPP
BETWEEN:
CHANOR TRUCK REPAIRS LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Mogan, J.T.C.C.
[1] By notice of assessment dated November 14, 1997, the Minister of National Revenue assessed the Appellant for $3,904.50 as Canada Pension Plan contributions and $4,641.01 as Employment Insurance premiums plus penalty and interest. The assessment was made on the basis that a particular individual, Dean Muir, was employed by the Appellant in 1995, 1996 and 1997. The Appellant appealed to the Minister claiming that Dean Muir was an independent contractor and not an employee. On April 30, 1998, the Minister ruled against the Appellant and confirmed the assessment. The Appellant has appealed to this Court from the Minister's ruling. The only issue is whether Dean Muir was an employee of the Appellant or an independent contractor in the years 1995, 1996 and 1997.
[2] The Appellant carries on business at the town of Cache Creek, British Columbia approximately 80 kilometres west of Kamloops at the intersection of Highway 1 and Highway 97. Since 1974, the Appellant has carried on the business of auto repairs (both garage service and roadside emergency service) and auto wrecking and salvaging. During the years 1995, 1996 and 1997, the Appellant had three full-time employees: a licensed mechanic, an administrative assistant and a repair technician. Commencing in October 1995, the Appellant entered into an oral agreement with Dean Muir pursuant to which Mr. Muir agreed to provide services as an auto mechanic for a fee of $20.00 per hour. At regular intervals (after the 15th day and after the last day of each month) Mr. Muir would provide invoices to the Appellant which set out the number of hours worked for the preceding period multiplied by $20.00 per hour. On most occasions the Appellant would pay Mr. Muir's invoice by cheque but occasionally, all or part of the invoice would be paid in cash. The Appellant never issued a T4 income tax form to Mr. Muir because the Appellant took the position that Mr. Muir was not an employee.
[3] The first witness for the Appellant was Charles Pittman, the principle shareholder and manager of the Appellant's business. Mr. Pittman's evidence may be summarized as follows. During the time under review, he had other persons employed in his service garage working as mechanics at the rate of $18.00 per hour. He paid Dean Muir $20.00 per hour because Mr. Muir did not want any source deductions. Mr. Muir said that he would be responsible for his own income tax and CPP contributions. Under the arrangement made between Mr. Muir and the Appellant, he set his own hours; he would be offered work but was not required to take it; and he was encouraged to deal directly with the Appellant's customers. The other individuals whom the Appellant admits were employees (Brian Harris, Rob Harris and Rick Gene) worked a regular 40-hour week starting at 8:00 each morning with coffee breaks at 10:00 in the morning and 3:00 in the afternoon. Dean Muir was free from those regulated hours because he was paid only for the hours he actually worked and recorded on work orders at the Appellant's garage.
[4] Although Mr. Muir was not required to work regular hours, it is a fact that, on average, he worked many hours each week from October 1995 to October 1997. I will review the Appellant's Exhibits A-1 to A-5 because they are consistent with the oral evidence of Mr. Pittman and Mr. Muir concerning the pattern of his work for the Appellant and how he was compensated for that work. Exhibit A-1 is a series of 16 work orders which are each a printed form bearing the name "Chanor Truck and Auto Repairs Ltd.". Most of those work orders are filled out by Mr. Pittman but some are filled out by Mr. Muir. They cover the period from October 24 to November 2, 1995 and represent all of the work orders of the Appellant on which Dean Muir did any work. Someone has printed the name "Dean" on each work order in Exhibit A-1 indicating that it is a work order from which Dean Muir's time has to be considered.
[5] Exhibit A-2 is an invoice prepared by Dean Muir or his wife listing the work orders appearing in Exhibit A-1 from October 24 to November 2 and showing the number of hours which Dean Muir recorded on each work order. In the right-hand column under the heading "Amount" there is a computation showing the result obtained when the number of hours is multiplied by $20.00. The gross amount owing is shown at $673.20 but it is reduced by two work orders (24480 and 24513 attached to Exhibit A-1) which were parts ordered by Dean Muir for his own personal use but charged to the Appellant. For those two work orders, Dean owed to the Appellant the amounts of $19.43 and $77.22. When these two amounts are subtracted from the gross fees owing to Dean Muir with respect to hours worked ($673.20) there is a net balance owing to Mr. Muir of $576.55. Exhibit A-3 is a photocopy of the Appellant's cheque issued to Dean Muir dated the 11th of November, 1995 in the amount of $576.55 being payment in full of the invoice shown in Exhibit A-2.
[6] Exhibit A-4 is a series of 15 monthly calendar pages from October 1995 to December 1996 showing the hours worked by Dean Muir each day over those 15 months. Exhibit A-4 was prepared by Annette Petel, the office administrator of the Appellant, for the hearing of this appeal to show the irregular hours which Dean Muir worked over the period in question. There is no doubt that Mr. Muir's hours are irregular but they are also consistent in the sense that he was in regular (almost daily) attendance at the Appellant's service garage throughout that 15-month period.
[7] Exhibit A-5 is a four-page summary of the payments made by the Appellant to Dean Muir from November 1995 to October 1997. Although the payments are erratic in amount showing that he did not work regular hours, they are consistent in the sense that they show the Appellant paying Dean Muir some amounts almost every month over that 24-month period from November 1995 to October 1997.
[8] Exhibit R-1 is a package of approximately 47 invoices prepared by Dean Muir or his wife and submitted to the Appellant to show the hours worked for which the Appellant was required to pay compensation. The 47 invoices run from October 16, 1995 through to October 15, 1997 covering a period of precisely 24 months. The first invoice in Exhibit R-1 is the same as the invoice already identified as Exhibit A-2. I have not matched all of the invoices in Exhibit R-1 with the list of payments in Exhibit A-5 but, from a quick perusal, it appears that the amounts invoiced by Dean Muir on the various invoices in Exhibit R-1 match the actual payments made by the Appellant to Mr. Muir as shown in Exhibit A-5. In summary, the six documentary exhibits (Exhibits A-1 to A-5 plus R-1) supplemented by the oral testimony of Mr. Pittman and Mr. Muir demonstrate beyond doubt that Mr. Muir was in regular attendance at the Appellant's garage from October 1995 to October 1997 working as an auto mechanic.
[9] Those documents also demonstrate that Mr. Muir was paid on an inconsistent basis and not in accordance with a regular 40-hour week. I am satisfied that the documents reflect the actual arrangement which was made between Mr. Pittman and Mr. Muir concerning the pattern of Mr. Muir's work. Although the Appellant had employees working a regular 40-hour week in its service garage, and those employees were paid a regular hourly wage for a 40-hour week, Mr. Muir did set his own hours and he was compensated at a different hourly rate because there were no source deductions. I conclude that Mr. Muir did ask the Appellant if he could be put on a separate basis as an independent contractor so that he would have no source deductions; and the Appellant complied with that request.
[10] Mr. Pittman acknowledged that he sought out Dean Muir in the fall of 1995 and asked him to come to work for the Appellant because it was difficult to find qualified auto mechanics in Cache Creek and because Mr. Muir was known as an experienced and competent auto mechanic. Also, Mr. Muir had worked for the Appellant prior to the fall of 1995. There were some areas in which Mr. Muir disputed Mr. Pittman's testimony. Specifically, he stated that he was not free to set his own hours and that he worked regularly from nine to five each day (Monday to Friday) or until the work was done. When he did not show up within those hours, he said that Mr. Pittman would often speak to him about his poor performance in hours. Notwithstanding his erratic hours, he said that he averaged 45 to 100 hours every pay period which was every two weeks.
[11] Prior to working at the Appellant's garage in October 1995, Mr. Muir and three others had operated a repair garage under the name "Boyz Shop" when their main hobby was repairing and conditioning race cars. He said that they did not have a business license and had not registered for GST purposes. Apparently, the garage operating as the Boyz Shop was closed down about the time when Mr. Muir came back to work at the Appellant's garage.
[12] The heavy equipment (hoist, drill press, tire installation, etc.) was owned and installed and available at the Appellant's garage but the mechanics were expected to own and bring their own tools so that they would be responsible for their maintenance and safe-keeping. According to Mr. Pittman, Dean Muir frequently did not have his own tools and on at least one occasion his pay was reduced from $20.00 per hour to $15.00 per hour because he did not have his own tools but was borrowing tools from the Appellant or other mechanics working in the garage.
[13] As part of Exhibit R-1, there is attached to the invoice for the period October 15 to October 31, 1996 a hand-written memorandum dated October 21 and addressed to "Dean/Rick/Blake". The memorandum is signed by Annette Petel and, because it is short, I will set it out in full:
* REMINDER *
#1. Your pay cheques will be completed 5 to 7 days after I receive your hours and payroll information. Your pay cheques will be available for pick up after 5 p.m. on pay day.
#2. Anyone under the influence of drugs or alcohol will be sent home without pay.
If you have any questions or concerns please contact me as soon as possible.
Thank you
"Annette Petel"
Accounting
In oral testimony, Ms. Petel explained that the memo was addressed to Dean Muir, Rick Gene and Blake DeCraene who all worked at the garage. Ms. Petel explained that although the memorandum was addressed to three workers, in her mind, item number 1 was directed only to Rick and Blake while item number 2 was directed only to Dean Muir. She said that Mr. Pittman had had some trouble with Dean Muir in connection with the subject matter of item number 2.
[14] As stated above, the issue is whether Dean Muir was an employee of the Appellant or an independent contractor. The same issue arose in Moose Jaw Kinsmen Flying Fins Inc. v. M.N.R., 88 DTC 6099. In the Flying Fins case, the Federal Court of Appeal stated that the definitive authority on this issue was the decision of the same Court in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5020. The decision in Wiebe Door has been cited countless times in this Court. MacGuigan J.A. writing the decision for the Court in Wiebe Door stated at page 5029:
Professor Atiyah, supra, at pp. 38-9, ends up with Lord Wright's test from the Montreal Locomotive Works case, as he finds it more general than Lord Denning's, which he sees as decisive in only some cases.
I am inclined to the same view, for the same reason. I interpret Lord Wright's test not as the fourfold one it is often described as being but rather as a four-in-one test, with emphasis always retained on what Lord Wright, supra, calls "the combined force of the whole scheme of operations," even while the usefulness of the four subordinate criteria is acknowledged. ...
[15] Subsequent cases have taken the four-in-one test to be (i) control; (ii) ownership of the tools; (iii) chance of profit or risk of loss; and (iv) integration. I will apply those tests in order. Having regard to the oral testimony of Mr. Pittman, Dean Muir was able to negotiate a considerable amount of freedom with respect to regular working hours because there was a shortage of skilled auto mechanics in Cache Creek and Mr. Pittman really needed the services of Mr. Muir. The irregular hours for which Dean Muir was paid as recorded in Exhibits A-4 and R-1 clearly demonstrate that he did not work a regular 40-hour week.
[16] Although Exhibits A-4 and R-1 demonstrate that Dean Muir did not work regular hours, they do demonstrate that he worked for the Appellant as part of a regular pattern week in, week out over a two-year period from October 1995 until October 1997. The constancy of his attendance at the Appellant's place of business indicates that he was a regular worker at that location whether he was an employee or an independent contractor. I am inclined to the view that Dean Muir was able to negotiate flexible hours because of his unusual bargaining position vis-à-vis the Appellant but that the Appellant otherwise did have control over Mr. Muir's work. For example, either Mr. Pittman or his office administrator, Annette Petel, assigned the work among the persons working at the Appellant's garage and determined which person would work on which car. Ms. Petel stated that it would depend upon the nature of the work required on a particular car whether she would assign that car to Mr. Muir or to one of the other persons employed by the Appellant. Mr. Muir referred to the other persons employed by the Appellant as "tire guys" because they could work on tires and the more simple problems of auto repair but they were not qualified mechanics like him. I have no reason to disbelieve Mr. Muir's evidence but it does not detract from the fact that either Mr. Pittman or Annette Petel determined which of the persons in the shop would work on which car. Balancing Mr. Muir's flexible hours with his constant attendance at the Appellant's garage and the Appellant's ability to assign work, I conclude that the test of "control" points more towards employment than independent contractor.
[17] The second test is ownership of tools. The heavy machinery was supplied by the Appellant. I am referring to the hoist for raising cars, the drill press, the machinery to facilitate the changing of tires, and any diagnostic equipment used to determine the trouble with an automobile engine. According to Mr. Pittman, every person working at his garage was expected to provide his own hand tools because these tools were so easily lost or exchanged or stolen. It was only by requiring each worker to provide his own hand tools that the worker could be made responsible for seeing that the hand tools were kept in one place and under his control. Dean Muir had his own hand tools but, apparently, he frequently neglected to bring them to the Appellant's garage. In Exhibit R-1, Mr. Muir's invoice for January 16-31, 1997 shows that his pay for that period was reduced from $20.00 per hour to $15.00 per hour because he had not brought his tools to work during that period. This notation on the second page of the invoice not only demonstrates that he was expected to bring his own hand tools but is also evidence of a measure of control by the Appellant over Mr. Muir.
[18] On this second test, the two facts which influence me most are (i) the heavy equipment necessary for automobile repairs was all owned by the Appellant; and (ii) all of the work had to be done at the Appellant' garage. This was not a situation in which an independent contractor could pick up work at a particular site and take it home to work in his own shop. With respect to hand tools, it appears to be a standard practice with all automobile mechanics that they own and work with their own hand tools so that they will have a personal responsibility for safeguarding those tools. The requirement that Dean Muir provide his own hand tools is not a significant factor in favour of independent contractor in the special circumstances of this case. I conclude that the second test points more toward employment than towards independent contractor.
[19] The third test is chance of profit or risk of loss. Dean Muir was paid on an hourly basis for the hours he actually worked on cars brought to the Appellant's garage for servicing. He had no risk of loss except for those infrequent situations when he might have to work for no compensation because his recent work was under warranty or because there was a defect in the work he had recently done.
[20] All of the documentary exhibits prove that Dean Muir was paid only for the hours he actually recorded on the various work orders. In contrast, the other workers at the Appellant's garage appear to have been paid for a 40-hour work week without regard to how their work was billed out by the Appellant. I do not regard this as a significant distinction because it seems to be a result of the separate arrangement Dean Muir had negotiated for flexible hours. If he could not be relied upon to attend at the Appellant's garage on the basis of regular hours 8:00 a.m. to 5:00 p.m. five days per week, then he could be compensated for only the hours he actually recorded on the various work orders.
[21] It is important to note from Exhibit A-1 that all the work performed by Dean Muir was recorded on the Appellant's work orders bearing the Appellant's name "Chanor Truck and Auto Repairs Ltd.". In other words, the customers whose cars and trucks were repaired looked to the Appellant and not to Dean Muir as the person who did the work on their vehicles. The customers were all customers of the Appellant and not customers of Dean Muir. It was either Mr. Pittman or Annette Petel who printed the word "Dean" on the face of each work order on which Dean Muir had recorded some hours of work. This was an internal administrative matter on the Appellant's part so that the Appellant would know the precise hours for which Dean Muir should be compensated. It had nothing to do with a business connection between Dean Muir and the Appellant's customers. In applying the third test, I would say that Dean Muir did not have any chance of profit or risk of loss but, rather, he had a fixed remuneration of $20.00 per hour for every hour that he worked at the Appellant's garage. The third test points more towards employment and less towards independent contractor.
[22] Having regard to the fourth test (integration), I will set out the statement of Lord Denning as quoted by MacGuigan J.A. in Wiebe Door at page 5029:
One feature which seems to run through all the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.
As I understand this test, if Dean Muir was under a contract of service, his work would have been done as an integral part of the Appellant's business but, if he was an independent contractor, his work would not have been integrated into the Appellant's business but would have been only accessory to it. A skilled worker like a welder or an electrician could be brought to the Appellant's garage to work on a specific project and then depart. Such a skilled worker would clearly be an independent contractor because his work would not be integrated into the Appellant's business. On the other hand, someone like Dean Muir who worked only at the Appellant's premises and was there almost everyday of the week performed work that was an integral part of the Appellant's business. Applying the integration test, I conclude that Dean Muir was more of an employee and less of an independent contractor.
[23] In my opinion, the four-in-one tests referred to by MacGuigan J.A. in Wiebe Door point towards a characterization of Dean Muir as an employee and not an independent contractor. Counsel for the Appellant argued that Dean Muir was an independent contractor because of (i) his flexibility with respect to hours; (ii) the manner in which he invoiced the Appellant for hours worked on separate invoices as in Exhibits A-2 and R-1; and (iii) his prior auto repair business with three partners carried on under the name "Boyz Shop". Those are indications of an independent contractor but, when contrasted with the four-in-one test in Wiebe Door, the four tests point consistently towards employment and not independent contractor.
[24] I believe Mr. Pittman when he testified that Dean Muir negotiated his compensation on the basis that there would be no source deductions. In other words, Dean Muir did not want deductions at source for income tax or Employment Insurance premiums or Canada Pension Plan contributions but that kind of arrangement does not necessarily lead to the conclusion that he was, in law, an independent contractor. On the facts of this case, I have decided that Dean Muir was an employee of the Appellant. In circumstances of this kind, a payor (like the Appellant) is required to recognize the essence of the relationship and insist upon source deductions if the worker is going to provide services for the payor. Mr. Pittman's failure to insist upon source deductions does not mean that there was not, at law, an employer/employee relationship between the Appellant and Dean Muir. For the above reasons, I would dismiss the appeal and uphold the assessment against the Appellant.
Signed at Ottawa, Canada, this 4th day of June, 1999.
"M.A. Mogan"
J.T.C.C.