Date: 19990811
Docket: 98-1182-UI
BETWEEN:
ABANDONRITE ENVIRO SERVICES CORP.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
PORTER, D.J.T.C.C.
[1] This appeal was heard at Calgary, Alberta on May 27, 1999.
[2] The Appellant appeals the determination of the Minister of National Revenue (the "Minister") made on August 17, 1998 that the employment of one John Davis with the Corporation from November 1, 1997 to January 9, 1998 was insurable employment under the Employment Insurance Act (the "Act"). The reason given was:
"... John Davis was engaged under a contract of service and therefore was your employee. Therefore John Davis' employment was included in insurable employment."
[3] The decision was said to be issued pursuant to section 93 of the Act and was based on paragraph 5(1)(a) of that Act.
[4] The established facts reveal that John Davis worked on a trial basis as a sales or marketing person for the Appellant in its business of the closing down and reclamation of oil and gas wells. It did not work out very well and lasted only a little more than two months. The issue before the Court is whether in doing so, the Worker was employed under a contract of service or a contract for services. If he was engaged to work under a contract of service, such would constitute insurable employment under the Act. If on the other hand he was engaged by way of a contract for services, that would not be insurable employment.
The Law
[5] The manner in which the Court should go about deciding whether any particular working arrangement is a contract of service and thus an employer/employee relationship or a contract for services and thus an independent contractor relationship, has been clearly laid out by the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025. The test to be applied has been further explained by that Court in Moose Jaw Kinsmen Flying Fins Inc. v. M.N.R., 88 DTC 6099. There are, following these cases, numerous decisions of this Court, some of which have been cited by counsel, which demonstrate how these appellate guidelines have been applied. In the Moose Jaw Kinsmen Flying Fins Inc. case, above, the Federal Court of Appeal said this:
"[Analysis]
The definitive authority on this issue in the context of the Act, is the decision of this Court in Wiebe Door Services Ltd. v. The Minister of National Revenue, 87 DTC 5025. MacGuigan J. speaking on behalf of the Court, analyzed Canadian, English and American authorities, and, in particular, referred to the four tests for making such a determination enunciated by Lord Wright in City of Montreal v. Montreal Locomotive Works Ltd., [1974] 1 D.L.R. 161 at 169-70. He concluded at page 5028 that:
Taken thus in context, Lord Wright's fourfold test [control, ownership of tools, chance of profit, risk of loss] 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.
At page 5029 he said:
...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.
At page 5030 he had this to say:
What must always remain of the essence is the search for the total relationship of the parties.
He also observed "there is no escape for the trial judge, when confronted with such a problem, from carefully weighing all the facts."
...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."
[6] The nature of the tests referred to by the Court can be summarized as follows:
a) The degree or absence of control exercised by the alleged employer;
b) Ownership of tools;
c) Chance of profit and risk of loss;
d) Integration of the alleged employee's work into the alleged employer's business.
[7] I also take note of the further words of MacGuigan J., in the Wiebe case, above, where he approved the approach taken in the English courts:
"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 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."
[8] To this I would add the words of Decary, J.A. in Charbonneau v. Canada (M.N.R.) [1996] F.C.J. No. 1337, where speaking for the Federal Court of Appeal he said this:
"The tests laid down by this Court ... 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 ... or, whether there is ..., such a degree of autonomy that there is a contract of enterprise or for services. ... In other words, we must not pay so much attention to the trees that we lose sight of the forest. ... The parts must give way to the whole."
[9] These then are the legal guidelines that I must bear in mind in deciding this issue.
The Facts
[10] The assumptions of fact upon which the Minister relied are set out in the Reply to the Notice of Appeal. They are as follows:
"(a) the Appellant operated a gas and oil services company whose main business was the closing down and reclamation of gas and oil wells;
(b) the president of the Appellant was L. Scott Darling;
(c) the Appellant and Davis were not related and dealt with each other at arm's length;
(d) Davis was hired by the Appellant as a sales person and his duties were to solicit business from various companies in the industry;
(e) Davis was paid a salary of $2,500.00 per month plus ½% of the Appellant's revenue for the month;
(f) the Appellant supplied Davis with office space, a computer and telephone as well as secretarial services;
(g) the Appellant reimbursed any expenses incurred by Davis in the performance of his duties;
(h) L. Scott Darling gave instruction and direction to Davis;
(i) Davis worked the Appellant's office hours which were Monday to Friday 8:00 a.m. to 5:00 p.m.
(j) Davis' performance was monitored by L. Scott Darling;
(k) Davis was not exposed to any risk of loss in the performance of his duties."
[11] The Appellant through its agent admitted items (a) to (e) (he agreed with the amount but disputed that it was a salary as opposed to a fee) and (f) to (h). The Appellant denied item (i), indicating that the Worker was free to work his own hours, indicated with respect to item (j) that this was no different to the monitoring that he did with respect to any other subcontractor and indicated that he did not understand the reference to risk of loss in item (k).
[12] The sole evidence was given by Larry Scott Darling, the President of the Corporation. He indicated that the Worker was engaged to try a different way of promoting the Corporation's business. Apparently, the Worker had expertise in sales and marketing. He indicated that the Corporation had both full-time employees and engaged a number of subcontractors. He gave examples of the latter who, I understood, worked mostly out on the rigs, often doing the actual physical clean-up work. The full-time employees worked out of the head office and were subject to corporate policies relating to such things as hours of work. The Worker in this case was engaged on the basis of a signed 'Agreement with Independent Subcontractor'. This seems to have been signed on September 30, 1997 some months before the work started. The form of agreement appears to be that used by the Corporation for its subcontractors out in the field. It deals amongst other things with Occupational matters and Workers Compensation and talks about a basic safety orientation programme. It is trite law to say that it is not the form of the agreement, or the title put upon it by the parties that governs this matter, but rather the substance. All too often the Court sees in these situations that the parties simply put a title to their arrangement and think that is all they have to do in order to establish it as such. Whilst the Court should, in the case of some ambiguity, give some deference to the original intention of the parties, the law is clear that if in effect the arrangement is one of a contract of service it matters not what title the parties accord to it.
[13] Quite clearly the arrangement with the Worker in this case was considerably different to those made with the regular employees working out of the office. That does not mean in itself that it is not a contract of service. It can simply be a different category of employee arrangement.
[14] Much was made by the witness that the Worker undertook other work during the same time period for another unrelated business doing paving work in Bragg Creek. This is certainly an indication of a different arrangement to the regular employment relationships in the Corporation but again I do not find it conclusive of anything one way or the other, as there are many people in our society today who take on more than one working arrangement at a time. So again whilst this is a factor to be taken into account it does not lead automatically to the result that the arrangement with the Corporation was not a contract of service.
[15] It is clear that the financial compensation to the Worker involved a base salary and a percentage of the Corporate profits as a whole and thus had nothing to do directly with the amount of business brought in or generated by the Worker. This seemed significant to me as it is often a mark of regular employment rather than a contract for services.
[16] Also of significance in my mind was the fact that Scott Darling said that he went out with the Worker to the potential customers, which was a clear indication of it all being part of the business of the Corporation.
[17] In summary the evidence seemed to show that the Worker was engaged on account of his sales and marketing expertise, on a trial basis to see how much new business he might generate. His hours were not controlled, he had full access to the company offices, secretarial services and computer equipment, although he in fact did not make any great use of it. He went about his work often accompanied by the corporation President. His hours were flexible. He was paid a base salary plus a percentage of the profits as a whole. He was not on a sales commission because Scott Darling wanted to make sure that he did not starve during the initial stages. Nonetheless a salary it seems to have been. Finally after a comparatively short period of time he left the Corporation on a voluntary basis, Scott Darling being of the view that there was really not enough benefit to the Corporation to warrant continuing the arrangement.
Application of the Tests to the Evidence
[18] With regard to the control aspect of the tests there seems to have been very little direct control. The hours of work were completely flexible. However the Worker was accompanied to potential customers by the president of the Corporation and certainly this would indicate a measure of control. Control is always a difficult measure to assess in the case of a professional, as to coin an old phrase one does not buy a dog and bark as well. Nonetheless, it is the right to control rather than the actual exercise of control that is relevant. It would seem to me that there was retained by Scott Darling a measure of this right to control the work of the Worker, over and above the general monitoring that he said he undertook with respect to his other subcontractors. This aspect of the test is somewhat ambivalent.
[19] It is clear that generally speaking the Corporation supplied all the equipment including, in particular, the cell phone used by the Worker. The Worker used his own car, but was reimbursed for all his expenses. He also had full access to the corporate secretarial services and computers. This aspect of the test leans towards a relationship of an employee rather than an independent contractor.
[20] With respect to the aspect of the test relating to the opportunity of the Worker to make a profit or the risk of sustaining a loss, the evidence points clearly to a contract of service. There was no risk of loss, taken on by the Worker nor was there any chance of making a profit over and above his salary arrangements: certainly not in any entrepreneurial sense.
[21] With regard to the integration test, it seems to me that the work of the Worker was fully integrated into the business of the Appellant. There was no entrepreneurial independence demonstrated in this situation at all. The business was that of the Appellant. The Worker supposedly had some skills but they were used entirely in the development of the business of the Corporation. It does not seem to me that the Worker was in business for himself.
Conclusion
[22] In conclusion I am of the view that the arrangement between the Appellant and the Worker throughout this period of time was a contract of service. Quite frankly the Appellant has not established that the Worker enjoyed the necessary measure of entrepreneurial independence in order to term the arrangement one of a contract for services.
[23] In the result the appeal is dismissed and the decision of the Minister is confirmed.
Signed at Calgary, Alberta, this 11th day of August 1999.
"Michael H. Porter"
D.J.T.C.C.