Date: 19990910
Dockets: 98-995-UI; 98-159-CPP
BETWEEN:
HI-RISE ELECTRIC & SIGNS LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
ISSUE:
[1] The issue is whether ten employees of the Appellant were, from March 1, 1997 to August 20, 1997 in "insurable employment" as that term is set out in section 5(1) of the Employment Insurance Act ("Act") and whether they were in pensionable employment within the meaning of the Canada Pension Plan ("CPP").
FACTS:
[2] Terry Scheiris ("Scheiris") bought the Appellant in October, 1995. He was and is a director of the Appellant and gave evidence on its behalf. Shortly after he purchased the company it experienced tremendous growth. Sales doubled and new employees were hired. In spite of the growth, productivity levels remained low. In early 1997 the Appellant decided to change his relationship with his workers in that they would no longer be employees but would have the option of signing contracts to work on projects as independent contractors. Scheiris testified that this was done in the hope that former employees would become more accountable for their time, work, materials, errors, et cetera. To that end, he consulted with the employees and with Revenue Canada and, after receiving guidelines from Revenue Canada, had contracts prepared and generally attempted to comply with those guidelines. An application to Revenue Canada for a ruling as to whether it had been successful in its mission failed. These appeals were commenced in respect of that ruling.
[3] The ten employees at the time of the institution of this new system were Marty Laliberte ("Laliberte"), William Heward ("Heward"), Trevor Scheiris ("Scheiris"), Bernadine Nelson ("Nelson"), Teresa Nuthall ("Nuthall"), Keith Stockbrugger ("Stockbrugger"), Darren Reiger ("Reiger"), Ron Kambeitz ("Kambeitz"), Stewart Monson ("Monson") and Walter Cebuliak ("Cebuliak"). Of these, only Kambeitz, Nuthall, Laliberte and Heward testified.
[4] Copies of the contracts entitled "Master Agreement" relating to six of the above persons and executed by them were introduced in evidence. Those not signing similar contracts were Walter Cebuliak ("Cebuliak"), William Heward ("Heward"), Damon Reiger ("Reiger") and Ronald Kambeitz ("Kambeitz").
[5] Scheiris testified that when the Appellant received a project from a client it would offer some or all of the workers the opportunities to work on a particular job, execute a written quote, execute a "Independent Contractor Agreement" specifying the services to be provided in connection with that job, the commencement date of same, the deadline for its completion, the fee to be paid to that worker by the Appellant and the penalty to be paid for late performance.
[6] Scheiris said that flat fees were negotiated between the Appellant and the workers for their services. Thus, a worker would receive his or her flat fee regardless of the amount of time spent. However, in situations where the Appellant's customer paid the Appellant an hourly fee for a job, the Appellant and the workers negotiated an hourly fee for the workers' services. In this situation the workers invoiced the Appellant for payment and charged the Good and Services Tax as required. Scheiris also testified that the workers were not entitled to any fringe benefits such as health insurance, paid vacations or paid sick days. He stated that the workers were required to provide and pay for all necessary tools and were required to pay for their travel expenses, meals, repairs and health insurance.
[7] Scheiris testified also that the workers were afforded many liberties. For example, they had the option of rejecting opportunities to work on projects. He submitted that they were at liberty to hire and pay qualified persons to assist or replace them on jobs. He said that the workers were at liberty to work for others and were under no obligation to provide services exclusively to the Appellant and further, the workers were at liberty to choose their hours and days of work. He also stated that the workers were not told by the Appellant how to perform their services.
[8] The Court heard evidence that as employees the workers were paid bi-weekly for not more than 88 hours with extra hours being "banked" for time off. They were switched to a system where they were paid twice per month.
[9] The contracts contained a clause regarding penalties which could be deducted from the "sub-contractor" invoices at the Appellant's discretion. Scheiris testified that this policy was created as a response to workers' increased overtime hours and tardiness with respect to the completion of projects under the former system. He testified that if the Appellant was penalized the workers would suffer corresponding penalties. The contract provided that if work was not completed to the satisfaction of the Appellant, the "sub-contractor shall have a grace period of three days from date of receipt to cure the defect". It also provided that the contract could be terminated at the Appellant's discretion if the defect were not corrected to its satisfaction.
[10] Large equipment was supplied by the Appellant. The employees supplied their own small tools. The Appellant put Laliberte and Heward in charge of supervisory duties both inside and outside the shop. Both were paid a flat monthly fee regardless of the number of hours they worked. Scheiris admitted that their varied responsibilities were not conducive to them being paid on a contract per project basis.
[11] Laliberte testified that he and other workers were reimbursed for out-of-town expenses and for small supplies that they bought while out of the shop. Laliberte said that he was entitled to use the Appellant's gas credit card. Although the workers were at liberty to bring someone else to assist them on a job at their own expense, both Laliberte and Heward testified that if they brought someone to a job it was likely because they were training that person and were not paying that person. Respecting other jobs, Laliberte indicated that he rarely worked for anyone other than the Appellant. Heward testified that he worked for no one other than the Appellant.
[12] Heward stated in evidence that he did not wish to be an independent contractor and wanted the benefits arising from the employee deductions. Kambeitz, who in the fall of 1997 asked to be changed back to the status of employee, was paid hourly for services performed by him. He was the supervisor of the inside operations and he attended during the same hours as when he was called an employee. He said that he asked for time off when he wanted same, stating that it was a matter of common courtesy. He also said that taking a week off did not affect his remuneration. He testified that others punched in and out of work. He said that he was not free to decide what jobs he performed. He said that he had supervised Trevor Scheiris, Cebuliak and Keith Stockbrugger ("Stockbrugger"). His concern about the proposed new status was evident by his having consulted an accountant respecting same.
[13] Heward said he felt that he was expected to be at the workplace both at the start and at the end of each working day. He said that his remuneration never changed when he took time off. He felt that he could not hire or fire workers but that this fell within the authority of Scheiris as "management". When asked exactly how he was managed by Scheiris, Heward testified that both he and Laliberte would attend and conduct weekly meetings which included discussions about upcoming projects, which projects needed to be done, who was working on those projects, et cetera. He also said that there was an understanding that he was entitled to only two weeks vacation time. He stated that he felt like an employee and that nothing had changed for him.
[14] Nuthall testified that she provided her own small tools such as knives, et cetera. However, large equipment such as the computer were supplied by the Appellant. When she worked by the hour she invoiced the Appellant accordingly. She provided initial drawings and if they were accepted by a prospective client she would continue to work on a contract basis according to hours budgeted by the Appellant. She testified that she had the choice to refuse work but never did so. She stated that she had occasion to hire an assistant whom she was advised to pay. She hired her husband or daughter to help with large jobs which required two persons. She stated that she also completed some projects for other companies during this time. She testified that the Appellant established her hourly rate and that her hours of work were recorded on a time sheet. She said that she punched in and out of work as per hours indicated on her time sheet. She said that she continued to do this out of courtesy to the Appellant who was attempting to keep a record of the projects being worked on. Similarly, as a matter of courtesy she would discuss her desired vacation times with the Appellant.
ANALYSIS AND CONCLUSION:
[15] The Appellant's evidence respecting the six persons who did not testify was, understandably, directed to achieving the result he sought.
[16] It is difficult for an Appellant to succeed in converting employees to independent contractors. There is little doubt that Scheiris, as the voice of the Appellant, continued to run the show with respect to the ten workers. The element of control that was evident throughout was not abandoned by the Appellant. The workers continued to act as employees while wearing masks of independent contractors having various degrees of persuasive force.
[17] The evidence respecting use of tools is of little effect. The large equipment and machinery belonged to the Appellants. Many employees use their own smaller tools while performing services for their employer. There was little evidence respecting opportunity for profit and risk of loss. Mainly, it was based upon assertions that the workers were free to perform services for someone other than the Appellant. Also, there was some evidence that the work was more profitable because the job could be finished in a shorter period. This evidence is not convincing so far as that test is concerned.
[18] Overall, it is my conclusion that the Appellant gave up very little, if any, element of control over the workers. Scheiris' evidence that he attempted to comply with Revenue Canada guidelines and then obtain a ruling from Revenue Canada indicates that he was trying to satisfy it in order to achieve the Appellant's goal rather than to establish that the workers were independent contractors, as a matter of law, regardless of Revenue Canada's policies. It fell short of constituting an elemental change in the status of the employees.
[19] Accordingly, the appeals fail.
Signed at Ottawa, Canada this 10th day of September, 1999.
"R.D. Bell"
J.T.C.C.