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