Date: 19981016
Docket: 97-535-UI
BETWEEN:
DERRICK PINHORN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Cuddihy, D.J.T.C.C.
[1] This appeal was heard on September 18, 1998, in Sydney, Nova Scotia.
I- The appeal
[2] This is an appeal from a decision by the Minister of National Revenue (the "Minister") of December 16, 1996, where it was determined that the employment of the Appellant (the "Worker"), with Fishermen’s Association (the "Payor"), from May 2 to July 23, 1994, from May 1 to July 22, 1995 and from May 6 to July 27, 1996, was not insurable within the meaning of the Unemployment Insurance Act (the "old Act") now known as the Employment Insurance Act (the "new Act ") because, according to the Minister, the Worker was not engaged by the Payor under a contract of service pursuant to paragraph 3(1)(a) of the old Act and paragraph 5(1)(a) of the new Act.
II- The facts
[3] In rendering his decision the Minister relied on the facts and reasons outlined in his Reply to the Notice of Appeal and particularly in paragraph 4 as follows:
"(a) the Payor was an association of 13 self-employed fishermen operating from the same wharf;
(b) the South Bar fisherman's Association was made up of the same 13 fishermen as the Payor;
(c) the Appellant was engaged by the fishermen to act as a night watchman and protect their boats and gear;
(d) the appellant's hours of work were from dusk until 6 a.m. seven days a week for the 12 week lobster season;
(e) the Appellant's Records of Employment indicate the Appellant's rate of pay as $780.00 per week in 1994 and 1995 and $750.00 per week in 1996;
(f) the maximum weekly insurable earnings were $780.00 in 1994, $815.00 in 1995 and $750.00 in 1996;
(g) the Appellant's earnings in 1996 were reduced to the maximum insurable earnings as allowed by the Unemployment Insurance Act and the Employment Insurance Act.
(h) in 1996 the Appellant was paid $60.00 per week by each of 12 fishermen with class A licenses and $30.00 per week by 1 fisherman with a class B license;
(i) the Appellant or his spouse usually collected the money from each fisherman each week and if neither of them were able to do it, John Dwayne Fraser, a fisherman, would collect the money and take it to the Appellant's residence;
(j) the Appellant issued receipts for these payments to each fisherman at the end of the season;
(k) the amounts paid directly to the Appellant by the fishermen were treated as amounts paid by the Payor to the Appellant;
(l) the Appellant was responsible for paying both the employee and employer portions of payroll source deductions;
(m) the Appellant was not supervised by the Payor;
(n) the Appellant took instructions from each individual fisherman in regard to how he was to perform his services;
(o) the Appellant was free to substitute his personal services with that of another individual without first obtaining permission from the Payor;
(p) when the Appellant was unable to perform the services personally he chose his replacement and was still paid the full weekly amount by each of the fishermen;
(q) if a fisherman did not pay his weekly fee to the Appellant, this adjustment would not be reflected in the earnings on the Appellant's Record of Employment, and Income Tax, Unemployment/Employment Insurance premiums and Canada Pension Plan contributions were remitted as though the Appellant received the full amount;
(r) the Appellant and the Payor participated in a sham arrangement whereby they attempted to give the appearance of an employment relationship which did not exist;
(s) there was no contract of service between the Appellant and the Payor.
[4] The Appellant, admitted the allegations in subparagraphs (a) to (j). The allegations in subparagraphs (o) and (p) were admitted with explanations to be given at the hearing. The allegations in subparagraphs (l) to (n), (q) to (s) were denied. The allegation in subparagraph (k) was ignored.
III- The Law and Analysis
[5] i) Definitions from the Employment Insurance Act
"employment" means the act of employing or the state of being employed;
"Insurable employment" has the meaning assigned by section 5;
Paragraph 5(1)(a) of the new Act reads as follows:
"5. (1) Subject to subsection (2), insurable employment is
(a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise;
..."
Brief summary of the evidence
[6] The Appellant, Daniel Fortune, Dwayne Fraser and Mary Neville were heard in support of the appeal. Exhibits A-1 to A-8 were filed in the Court record.
[7] In 1990, a group of twelve fishermen decided that a watchman was required at their wharf. Dwayne Fraser, one of the twelve fishermen, applied to Revenue Canada and obtained a taxation account No. ELX005335 as a Payor, under the name "Fishermen's Association". This Payor was not a corporate person as such but the name was used for the purpose of filing to Revenue Canada, unemployment insurance premiums, Canada pension plan contributions and income taxes of the watchmen they had hired over the years.
[8] The Appellant was hired in 1991. At the time, Dwayne Fraser took care of the books and paper work and acted as the lead fisherman or organizer and participated in the hiring of the Appellant.
[9] The duties of the Appellant were to arrive at dusk and leave at around sunrise. He worked 10 hours a day, seven days a week for a total of 70 hours. He used his car as a shelter and patrolled the wharf on foot. He was to assure in general the security of the area, the boats and their equipment.
[10] He was paid $780.00 a week in 1994 and 1995, and $750.00 per week in 1996.
[11] The Appellant was hired for the twelve-week duration of the lobster season. The maximum insurable earnings were $780.00 in 1994, $815.00 in 1995 and $750.00 in 1996. The Appellant’s earnings in 1996, were reduced to the maximum insurable earnings as allowed by the Unemployment Insurance Act and Employment Insurance Act.
[12] In 1994, Mary Neville took over the book work from Dwayne Fraser. She explained how the Appellant was paid and what she did to remit all the necessary deductions for the Worker.
[13] The evidence established that the 12 fishermen agreed to pay the Worker a sum of money which, in total, would amount to his gross pay including the employer's contributions for social benefits. The Worker would provide each fisherman with a receipt . This money was collected by or for the Worker and kept at his residence. Once every month, the Worker’s wife would remit to Mary Neville, at her request, what money was owed to Revenue Canada which included unemployment insurance premiums, Canada pension plan contributions and taxes (Exhibits A-3 to A-5). Mary Neville would then once a month deposit this money in the account of Revenue Canada.
Concluding analysis
[14] These fishermen needed a watchman. It was Dwayne Fraser, after consultation with the other fishermen, who initiated the steps to obtain from Revenue Canada a taxation number, under the name of "Fishermen's Association". The Appellant did not take part in these consultations.
[15] The Appellant, who was not the first watchman to be hired, began to work in 1991 until 1996. In 1994 and 1995, there was another employee, Sheila Fougere, who, in the day time, accomplished the same duties as the Appellant. In 1996, the fishermen could no longer afford two people and retained the services of the Appellant for the night watch.
[16] Was there a contract of service between the Payor and the Appellant?
[17] In order to determine the existence of a true contract of service I refer to the following excerpts from Wiebe Door Services Ltd v. M.N.R., 87 DTC 5025, where Justice MacGuigan, F.C.A. at pages 5027 to 5030 stated:
"[Control test]
The question of whether a contract is one of service, in which case it indicates a master-servant or employment relationship, or for services, in which case the relationship is between independent contractors, has arisen most often in the law of torts, as surveyed recently by Professor Joseph Eliot Magnet, Vicarious Liability and the Professional Employee (1978-79), 6 C.C.L.T. 208, or in labour law, as recently summarized by Professor Michael Bendel, The Dependent Contractor: An Unnecessary and Flawed Development in Canadian Labour Law (1982), 32 U.T.L.J. 374.
The traditional common-law criterion of the employment relationship has been the control test, as set down by Baron Bramwell in R. v. Walker (1858), 27 L.J.M.C. 207, 208:
It seems to me that the difference between the relations of master and servant and of principal and agent is this: A principal has the right to direct what the agent has to do; but a master has not only that right, but also the right to say how it is to be done.
That this test is still fundamental is indicated by the adoption by the Supreme Court of Canada in Hôpital Notre-Dame de l'Espérance and Theoret v. Laurent et al., [1978] 1 S.C.R. 605, 613, of the following statement: "the essential criterion of employer-employee relations is the right to give orders and instructions to the employee regarding the manner in which to carry out his work.
Nevertheless, as Professor P.S. Atiyah, Vicarious Liability in the Law of Torts, London, Butterworths, 1967, p. 41, has put it, "the control test as formulated by Bramwell, B.,... wears and air of deceptive simplicity, which... tends to wear thin on further examination." A principal inadequacy is its apparent dependence on the exact terms in which the task in question is contracted for: where the contract contains detailed specifications and conditions, which would be the normal expectation in a contract with an independent contractor, the control may even be greater than where it is to be exercised by direction on the job, as would be the normal expectation in a contract with a servant, but a literal application of the test might find the actual control to be less. In addition, the test has broken down completely in relation to highly skilled and professional workers, who possess skills far beyond the ability of their employers to direct.
[Entrepreneur test]
Perhaps the earliest important attempt to deal with these problems was the development of the entrepreneur test by William O. (later Justice) Douglas, Vicarious Liability and the Administration of Risk (1928-9), 38 Yale L.J. 584, which posited four differentiating earmarks of the entrepreneur: control, ownership, losses, and profits. It was essentially this test which was applied by Lord Wright in Montreal v. Montreal Locomotive Works Ltd. et al., [1947] l D.L.R. 161, 169-70:
In earlier cases a single test, such as the presence or absence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortuous liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated tests have often to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive. Thus the master of a chartered vessel is generally the employee of the shipowner though the charterer can direct the employment of the vessel. Again the law often limits the employer's right to interfere with the employee's conduct, as also do trade union regulations. In many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties. In this way it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior...
Taken thus in context, Lord Wright's fourfold test is a general, indeed an overarching test, which involves "examining the whole of the various elements which constitute the relationship between the parties." In his own use of the test to determine the character of the relationship in the Montreal Locomotive Works case itself, Lord Wright combines and integrates the four tests in order to seek out the meaning of the whole transaction.
[Organization test]
A similar general test, usually called the "organization test" (though termed the "integration test" by the Tax Court here), was set forth by Denning L.J. (as he then was) in Stevenson, Jordan and Harrison, Ltd. v. MacDonald and Evans, [1952] l T.L.R. 101, 111:
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.
The organization test was approved by the Supreme Court of Canada in Cooperators Insurance Association v. Kearney, [1965] S.C.R. 106, 112, where Spence J. for the Court quoted with approval the following passage from Fleming, The Law of Torts (2nd ed. 1961) 328-9:
Under the pressure of novel situations, the courts have become increasingly aware of the strain on the traditional formulation [i.e., the control test], and most recent cases display a discernible tendency to replace it by something like an "organization" test. Was the alleged servant part of his employer's organization? Was his work subject to co-ordinational control as to "where" and "when" rather than to "how"?
As Bendel points out, supra, at p. 381, the organization test is now "firmly established in Canada." He explains its attractiveness as follows, supra, at p. 382:
The aspect of the organization test which makes it so attractive in the labour relations context is that integration into another person's business, the key feature of the test, is a very useful indicator of economic dependence. The relationship between integration and economic dependence has been explained this way by the Ontario Labour Relations Board (in a case predating the Ontario dependent contractor amendments):
The essence of operating a business is holding out to a market society the availability of goods and services at the best possible price having regard to competing pressures exacted upon a particular market. It seems patently obvious to this Board that a particular business will not flourish in circumstances where growth is totally integrated with the operations of a particular customer. The essence of resolving and distinguishing the contractor from employee is his independence... In instances where the driver's means of financial support is [sic] inextricably bound up with the respondent we are of the view that he cannot be considered an independent contractor.
(Underlining by undersigned)
...
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.
[Analysis]
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.
(Underlining by undersigned)
...
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?"
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 Lork 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 has 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.
(Underlining by undersigned)
There is no escape for the trial judge, when confronted with such a problem, from carefully weighing all of the relevant factors, as outlined by Cooke J."
[18] Desjardins, J.A of the Federal Court of Appeal in Hennick,[1] reiterated the position of the Court:
"While this test is well known, it might be useful at the outset to emphasize that in his analysis of both Lord Wright's fourfold test (control, ownership of the tools, chance of profit, risk of loss) and of Lord Denning's organization or integration test, MacGuigan, J.A., in Wiebe Door Services Ltd., stressed all along that what remains of the essence is the search for the total relationship of the parties. He first quoted at length Lord Wright in Montreal v. Montreal Locomotive Works Ltd.[2]
In earlier cases a single test, such as the presence or absence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortious liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated tests have often to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive. Thus the master of a chartered vessel is generally the employee of the shipowner though the charterer can direct the employment of the vessel. Again the law often limits the employer's right to interfere with the employee's conduct, as also do trade union regulations. In many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties. In this way it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior." (Emphasis in text)
Then, he added:[3]
". . . 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.
. . . . .
What must always remain of the essence is the search for the total relationship of the parties . . .
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?" (my emphasis)
[19] In 1997, Décary, J. of the Federal Court of Appeal in Normand Charbonneau,[4] also stated:
"...
Two preliminary observations must be made.
The tests laid down by this Court in Wiebe Door Services Ltd. v. M.N.R. [5] - on the one hand, the degree of control, the ownership of the tools of work, the chance of profit and risk of loss, and on the other, integration - are not the ingredients of a magic formula. They are guidelines which it will generally be useful to consider, but not to the point of jeopardizing the ultimate objective of the exercise, which is to determine the overall relationship between the parties. The issue is always, once it has been determined that there is a genuine contract, whether there is a relationship of subordination between the parties such that there is a contract of employment (art. 2085 of the Civil Code of Québec) or, whether there is not, rather, such a degree of autonomy that there is a contract of enterprise or for services (art. 2098 of the Code)...
Moreover, while the determination of the legal nature of the contractual relationship will turn on the facts of each case, nonetheless in cases that are substantially the same on the facts the corresponding judgments should be substantially the same in law. As well, when this Court has already ruled as to the nature of a certain type of contract, there is no need thereafter to repeat the exercise in its entirety: unless there are genuinely significant differences in the facts, the Minister and the Tax Court of Canada should not disregard the solution adopted by this Court.
In our view, when the judge of the Tax Court of Canada allowed the respondent’s appeals in this case and found that the contract was a contract of employment, he fell into the trap of doing a too mathematical analysis of the tests in Wiebe Door, and as a result he wrongly disregarded the solution adopted by this Court in Attorney General of Canada v. Rousselle et al.[6] and upheld in Attorney General of Canada v. Vaillancourt."[7]
[20] The element of control appeared clearly to rest with Dwayne Fraser, who did the books prior to 1994 and who appeared to be the lead person from then on. He did say that he "checked on the Appellant". The Appellant was therefore supervised in the sense required in this type of situation. The Appellant was trusted to do his job without the necessity of continual supervision which, according to the evidence, was not required. He could not go and come as he pleased. He could not be replaced by someone else. It is accepted however that the Appellant did have a replacement on one single occasion when he was so sick he could not work.
[21] The Appellant had no opportunity for profit. It was admitted that he could lose some pay if one of the fishermen did not pay but this was not of any great significance. The evidence did not show that he actually lost any money.
[22] The Appellant used his car to go and come from work and as a shelter at night. This element was not disputed.
[23] The last element is integration. The work was not integrated into the Payor’s work as fisherman but was incidental to it in that it worked in conjunction with the fishing season while the boats were left unattended during the night time.
[24] This evidence did demonstrate the existence of a contract. What must be analyzed further is whether there was a relationship of subordination between the parties such that there is a contract of employment or whether there is not rather, such a degree of autonomy that there is a contract of enterprise or services.
[25] The only evidence before the Court was that of the Appellant and his witnesses. It did show a sufficient degree of subordination and from seeing and hearing the Appellant and his witnesses, whose credit was not impeached, I did not feel that there existed a degree of autonomy sufficient to conclude to a contract of enterprise or for services.
[26] The Minister alleged that what was done was a sham arrangement whereby there was an attempt to give the appearance of an employment relationship which did not exist.
[27] The evidence showed under what circumstances Revenue Canada permitted Dwayne Fraser to obtain a taxation account under the name "Fishermen's Association". As a result, remittances were made to the Respondent, as explained, for not only the Appellant but other workers over the years even before the Appellant was hired. No evidence was put forward by the Respondent as to what rules govern the issuing of an account number. One must also accept that when an account number is issued by the Respondent he does not act without making some sort of inquiry to ascertain the purpose and the need of the request. The Court cannot conclude on the evidence heard that this procedure was illegal or inappropriate or part of a sham between the Appellant and the Payor. The procedure was already in place before the Appellant was hired. Unless some other evidence exists which was not heard, it would follow that the procedure followed was accepted by the Respondent.
[28] It is accepted that the manner that the money was paid and the remittances made was rather unusual. However, I cannot conclude that the Appellant did not work and that the contract was a sham. The Appellant was receiving his pay from each fisherman acting as a group and the money remitted to the Appellant included the employer portion of payroll source deductions, which he caused to be remitted to Mary Neville, who kept the payroll and was the responsible person for seeing that the remittances to Revenue Canada were made.
[29] The manner by which the Appellant was paid and the procedure followed to make the remittances to Revenue Canada do not lead conclusively to the inexistence of a contract of service. Furthermore, nothing was heard on behalf of the Respondent that could lead the Court not to accept the evidence of the Appellant and his witnesses.
[30] I am thus satisfied that the Appellant has proven on a balance of probabilities the existence of a contract of service.
[31] I do not consider this decision to be a precedent for any other past or future periods of employment of the Appellant or other workers with the Payor or anyone else, the Minister maintaining the right to investigate any other periods of employment of workers for unemployment insurance purposes.
[32] This decision applies to the Appellant for the periods of employment under review only, because these are the only periods of work that may be considered by this Court.
IV- Decision
[33] The appeal is allowed and the Minister’s decision is vacated.
Signed at Dorval, Quebec, this 16th day of October 1998.
"S. Cuddihy"
D.J.T.C.C.