Date: 20000114
Dockets: 1999-1695-EI; 1999-1696-CPP
BETWEEN:
ET'S ELECTRICAL SERVICES LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
CAIN, D.J.T.C.C.
[1] These are appeals by ET's Electrical Services Ltd., hereinafter referred to as the "Appellant", from assessments of the Minister of National Revenue, hereinafter referred to as the "Respondent", dated September 22, 1997 in the amount of $7,103.67 for unemployment and employment insurance premiums plus penalties for the years 1996 and 1997 and in the amount of $10,533.20 for Canada Pension contributions plus related penalties and interest for the years 1995, 1996 and 1997.
[2] Attached to the Notice of Assessment was a list of workers in respect to whom it was alleged that premiums and contributions should have been paid. Those workers were as follows:
1. DAVID ADRIAANSE
412 TRAVISS DRIVE
NEWMARKET, ON L3Y 7J9
2. PETER J. BARNAS
RR3
TOTTENHAM, ON L0G 1W0
3. DARYL BRODERICK
731 KROSNO BLVD.
PICKERING, ON L1W 1G4
4. ALLEN COX
36 CLOSS SQUARE
AURORA, ON L4G 5H5
5. MARK J. DEXTER
383 DAVIS DRIVE
NEWMARKET, ON L3Y 2N8
6. WILLIAM FINNERTY
RR4
MARMORA, ON K0K 2M0
7. ELMER OILING
31 JELLICOE AVENUE
ETOBICOKE, ON M8W 1W2
8. CLAYTON STALLARD
P O BOX 78 STN MAIN
BRADFORD, ON L3Z 2A7.
[3] Notice of the Assessment was sent to all of the above workers listed but none filed Notices of Intervention. One of the workers, Peter J. Barnas appeared at the hearing and was called to give evidence on behalf of the Appellant.
[4] The parties agreed that evidence be led in respect to the appeal under the Unemployment and Employment Insurance Acts and that evidence would then become evidence in the appeal under the Canada Pension Plan without the necessity of recalling the witnesses or formally re-reading that evidence into the record.
[5] The Respondent relied on the following assumptions of fact as they relate to both appeals. Wherever premiums are referred to therein they shall be read as Canada Pension Plan contributions as the assumptions related to that appeal:
"(a) the appellant is operating as a partnership;
(b) the partners are Edward and Leanne Taylor, 50% each;
(c) the partners are related as husband and wife;
(d) the Appellant's business is electrical contracting – service, maintenance and installations;
(e) Edward Taylor controlled the day-to-day operations and made the major business decision;
(f) the Workers were hired to perform various types of electrical work;
(g) some Workers were hired under a written agreement and others were hired under a verbal agreement;
(h) the Workers performed their duties at various sites;
(i) the Workers had to fill out a complete time sheet per the instructions given by the Appellant;
(j) time sheets are to be submitted on Thursday evenings and cheques will be issued on the following Friday;
(k) the Workers' hours of work were, in general, Monday to Friday, 8:00 to 4:00;
(l) the Workers' rates of pay were between $8.00 to $28.00 per hour depending on the level of knowledge and difficulty of projects;
(m) the Workers were paid by cheque on a weekly basis;
(n) the Appellant and/or his licensed electricians supervised the Workers;
(o) the Appellant maintained the right to terminate the Workers' services;
(p) the Appellant provided all the materials and equipment required, at no cost to the Workers except the small tools which were provided by the Workers;
(q) the Appellant was responsible for resolving customer complaints;
(r) the Workers' duties were an integral part of the Appellant's business;
(s) the Workers were employed by the Appellant pursuant to contracts of service;
(t) the Appellant did not withhold unemployment/employment insurance premiums from the Workers' remuneration."
[6] The Appellant admitted assumptions (b) to (e), (h) to (j), (l), (o) and (t). It denied each and every other assumption set out.
DECISION
[7] In respect to assumption (a) the Appellant testified that in 1994 the charter of ET's Electrical Services Limited was surrendered by reason of non payment of the annual filing fee. This was only discovered by the principals of the Company in 1998 and Application for Revival was made and the charter was revived. No evidence was led or submissions made in respect to the legal effect of the revival but since the Company was required to file all outstanding corporate income tax returns for the years during which the charter was surrendered, this Court will proceed on the basis that the revival in fact reconstituted the Appellant as an incorporated company during the years for which the assessments have been made.
[8] In respect to assumption (f) the Appellant testified that it engaged workers to perform electrical services but from time to time also engaged other trades when customers required work to be done by those trades.
[9] In respect to assumption (g) the Appellant testified that all workers were hired under a written agreement that they were being employed as sub-contractors but the rate of remuneration was verbally agreed to in all cases.
[10] In respect to assumption (k) the Appellant led evidence to show that while workers may have worked from 8:00 a.m. to 4:00 p.m. on given days, the work could be performed outside of those hours as long as its completion met the construction schedule of the customer.
[11] In respect to assumption (m) the Appellant led evidence that workers were paid when their time sheets were filed, but Exhibit R-1 which is headed "Payment Schedule" reads as follows:
"Please note that effective November lst, 1996, payment will be held back one week to ensure completion of time sheets.
All incomplete time sheets will be placed in a box labelled "Incomplete Time Sheets". It is your responsibility to check this box and fix any errors or omissions. Failure to do so will result in non-payment until completed properly and re-submitted.
Time sheets are to be submitted Thursday evenings.
Cheques will be issued the following Friday.
The Management"
[12] Prior to the posting of the above schedule, it must be presumed that the Appellant was paying his workers with little or no control over time sheets. The posting of such a schedule would suggest that proper time sheets were not being kept by employees engaged in contracts of service and this was a control mechanism designed to ensure that they were properly recording their hours. Such a mechanism would not be appropriate in a contract for service relationship. The employer or contractor would return improperly completed invoices to the sub-contractor with a request for further or better particulars.
[13] In respect to assumption (m) the evidence is inconclusive whether there was any direct supervision on the job. Edward Taylor, the President of the Appellant, was on the job working himself from time to time and that would represent a form of supervision. Peter J. Barnas testified that when he first went to work with the Appellant, he was individually supervised until the Appellant was satisfied that he could perform the tasks assigned without supervision. This would suggest that at the time of his initial employment, Barnas would not have been sufficiently skilful enough to be a sub-contractor.
[14] In respect to assumption (p) the Appellant's evidence supports it except that workers with equipment needed on any job that the Appellant would, under normal circumstances, be required to rent and provide, were paid a higher hourly rate.
[15] The denials in respect to the above assumptions were subtle and although those subtleties may raise questions as to be validity of those assumptions, they do not represent a "demolishing" of the assumptions and are not considered by the Court to be of any significance in the determination of the status of the workers affected by the assessment.
[16] From the evidence of the Appellant the Court makes the following findings of fact.
[17] The Appellant is an incorporated company but in reality is a one man electrical contractor. Its speciality was renovations and it worked almost exclusively on a cost and material basis. It entered into contracts with customers to supply men at an hourly rate and materials at cost plus a percentage mark up. In turn it hired men to perform the services and negotiated hourly rates and the material cost that would assure the Appellant a profit.
[18] The Appellant employed a consultant to advise it in respect to its operation and the principals of the Appellant and the consultant created a scheme to relieve itself of the administrative responsibility of collecting and remitting unemployment-employment insurance premiums and Canada Pension Plan contributions from persons engaged and of attracting liability for an employer's share of such premiums and contributions.
[19] The scheme was based on the principle that the Appellant would have no employees as such and would engage all personnel as sub-contractors and a letter on the Appellant's stationary was created to be signed by all personnel so engaged. The following is a reproduction of one such letters which was included in Exhibit A-4 which was signed by one P. Barnas who gave evidence for the Appellant and confirmed its authenticity:
"ET'S ELECTRICAL SERVICES LTD.
RR# 1 CEDAR VALLEY, ONTARIO, L0G 1E0
727-6909
836-9546
TO WHOM IT MAY CONCERN:
This letter is to outline the terms of employment between E.T.'s Electrical Services Ltd. and P. Barnas.
At all times P. Barnas is to be considered as self-employed and as such E.T.'S ELECTRICAL SERVICES LTD. is not required to make deductions for Income Tax, Canada Pension Plan or Unemployment Insurance from any payments which are made to P. Barnas.
In signing this letter P. Barnas agrees to assume all responsibility for these taxes and holds E.T.'S ELECTRICAL SERVICES LTD. harmless in any action in this regard."
[20] The letter was signed by P. Barnas and a witness, but the signature of the witness is illegible.
[21] Clearly the letter is aimed at making the relationship between Barnas and the Appellant that of contractor and sub-contractor. And while the letter may be of some legal significance as between the Appellant and those that signed them, this Court must consider the actual relationship that existed between the Appellant and the signatories during the periods in question with reference to the Unemployment/Employment Insurance Acts and the Canada Pension Plan. The fact that the parties to the letter described their relationship as one of contractor – sub-contractor does not make it so. Whether that relationship exists is a question of fact to be decided in each case (see M.N.R. v. Standing [1992] 147 N.R. 238 (C.A.)).
[22] Initially Mr. Edward Taylor, the President of the Company, testified that all contracts were entered into with engaged tradesmen on a specified time and material basis, that is that they agreed to do the work for a fixed time at a fixed hourly rate. However, he later conceded that while he may at times have refused to pay to a tradesman the actual time reported because it included time not actually spent at work, he conceded that he usually paid the tradesmen the actual hours worked at the agreed hourly rate. Barnas testified that his employment was not on a profit or loss basis but that he expected and was always paid for the actual number of hours worked at the agreed hourly rate.
[23] Taylor testified that the tradesmen were required to correct any deficiencies that he or a government inspector might find without remuneration and this was corroborated by Barnas. However, no specific examples were given and from the evidence the Court concludes that these return visits to correct deficiencies were rare and involved minor adjustments.
[24] In summary the Appellant operated an electrical contracting business. It hired electricians and at times other trades to fulfil contact undertakings.
[25] These tradesmen worked on projects owned by the Appellant's customers. They were paid an agreed hourly rate by the Appellant and were paid for all legitimate hours worked. Their work was subject to the Appellant's and the Customer's inspection and approval and the President of the Appellant was on the site sometimes working at the trade himself or inspecting the work.
[26] The tradesmen reported directly to the construction site and from time to time would work daily for periods of months. Barnas testified that he worked at one job daily for several months. The Appellant was responsible for the overall performance of the work. No evidence was led to show that any of these tradesmen ever had a risk of loss.
[27] The workers were required to report their actual hours of work and they did so on forms provided by the Appellant. No invoices were submitted by any of the workers on their own letterhead or billhead. While the tradesmen at times were not required to work specified hours each day, they were governed by the time constraints imposed by the Customer.
[28] The tradesmen were required to provide their own hand tools which is a trade requirement but the Appellant was and did from time to time rent and provide at its cost equipment and scaffolding that would be used by the workers in the performance of their work.
[29] Clearly the tradesmen were not working for their own business. Their work was an integral part of the Appellant's business. No evidence was led by the Appellant to show that any of the workers reported their income as self-employed earnings.
[30] Applying the tests set out in Wiebe Door Services Ltd. and M.N.R. [1986] 3 F.C. 553, the workers were supervised sufficiently taking into consideration that on site continuous supervision is not required for skilled tradesmen; that the tools other than hand tools were provided to the workers except to those who were in possession of such equipment and in those cases they were paid an higher hourly rate for such supply; that they did not face risks of loss or chance of profit over and above their agreed hourly rate; and finally their work was an integral part of the Appellant's business.
[31] The Court finds that the workers hereinabove listed were engaged by the Appellant in insurable and pensionable employment during the periods in question set out in the Notices of Assessment and the Court hereby confirms the assessments made by the Respondent.
[32] The Appellant requested that the Court give consideration to ruling that the penalties and interest portion of the Assessments be waived since the evidence showed that the Appellant's failure to remit premiums and pensions deductions was not callous or an obvious attempt to defeat the legislation. No authority was cited in support of such a jurisdiction and the Court has been unable to find any authority to vary the Assessments of the Minister without finding that the Assessments were made otherwise than in accordance with the Acts involved.
Signed at Rothesay, New Brunswick, this 14th day of January 2000.
"M.F. Cain"
D.J.T.C.C.