Aircotech International Inc. c. M.R.N.

Aircotech International Inc. c. M.R.N. Court (s) Database Tax Court of Canada Judgments Date 2004-06-08 Neutral citation 2004 TCC 392 File numbers 2003-2667(EI) Judges and Taxing Officers François M. Angers Subjects Employment Insurance Act Decision Content Docket: 2003-2667(EI) BETWEEN: AIRCOTECH INTERNATIONAL INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and GASTON AUDY, DONALD C. MACDONALD, JOHN J. CALDWELL, Interveners. [OFFICIAL ENGLISH TRANSLATION] ____________________________________________________________________ Appeal heard on April 20, 2004, in Montréal, Quebec Before: The Honourable Justice François Angers Appearances: Counsel for the Appellant: Michel Roy Counsel for the Respondent: Counsel for the Interveners: Antonia Paraherakis Michel Roy ____________________________________________________________________ JUDGMENT The appeal is allowed and the decision by the Minister of National Revenue is set aside, in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 8th day of June 2004. "François Angers" Angers J. Translation certified true on this 27th day of September 2004. Ingrid B. Miranda, Translator Citation: 2004TCC392 Date: 20040608 Docket: 2003-2667(EI) BETWEEN: AIRCOTECH INTERNATIONAL INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and GASTON AUDY, DONALD C. MACDONALD, JOHN J. CALDWELL, Interveners. [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Angers J. [1] This is an appeal from an assessment dated September 20, 2002, by the Minister of National Revenue (the "Minister") against the Appellant in connection with employer and employee employment insurance premiums relating to 21 Workers with respect to 2001. The three Interveners are three of the said Workers. On April 24, 2003, the Minister confirmed the assessment issued with respect to 2001 on the grounds that the Workers' employment constitutes a contract of service and on the basis of paragraph 5(1)(a); subsection 93(3); sections 67, 68, 82 and 85 of the Employment Insurance Act; and section 5 and subsection 2(1) of the Insurable Earnings and Collection of Premiums Regulations. [2] In so assessing the Appellant, the Minister relied on the following assumptions of fact, which were admitted or denied: (a) the Appellant was incorporated on March 5, 1996; [admitted] (b) Roger Boutin is the sole shareholder of the Appellant; [admitted] (c) the head office of the Appellant was in St-Nicolas, Quebec; [admitted] (d) the Appellant operated a business in the field of pilotage and maintenance of CL215 and CL415 air tankers; [denied] (e) Bombardier was the Appellant's main client; [admitted] (f) Bombardier had agreements with foreign government authorities to fight forest fires; [denied] (g) Bombardier asked the Appellant to seek out, on Bombardier's behalf, all the necessary Workers to fly and maintain the planes involved in fire-fighting abroad; [denied] (h) the Appellant hired pilots and mechanics; [denied] (i) the Workers were ordinarily resident in Canada; [admitted] (j) the Workers had the option of accepting or refusing engagements with the Appellant; [denied] (k) Workers who accepted an engagement with the Appellant would sign a contract; [denied] (l) the terms and conditions of such contracts stipulated the duration of the engagement with respect to each Worker; [admitted] (m) the terms of the contract stipulated a daily compensation of $100 to $300 per day; [admitted] (n) the terms of the contract also included a $300 expense allowance. The expenses were distributed as follows: $150 for the hotel room; $65 for meals; and $85 for car rental expenses; [admitted] (o) also, depending on the agreement, there was a maximum compensation stipulated for the duration of the entire contract; [admitted] (p) employees of the Appellant would travel and work abroad; [admitted] (q) their working schedule was variable, but the Workers had to be available 7 days a week; [denied] (r) the Workers were under the supervision of the dispatcher who worked in the local air base; [denied] (s) the Workers had to submit daily flight sheets to the dispatcher relating to their trips; [admitted] (t) the Appellant would compensate the Workers according to the individual contracts entered into with each one of them; [admitted] (u) the Appellant paid the Workers by cheque or by direct deposit; [admitted] (v) the Appellant assumed the transportation costs of the Workers; [admitted] (w) the Workers were responsible for the expenses incurred with respect to their uniforms and their cellular telephones; [admitted] (x) the Workers had no chance of profit nor assumed any risk of financial loss; [denied] (y) the planes belonged to Bombardier or to the government of the countries in which the Workers were assigned to work; [admitted] (z) the duties of the Workers were integrated into the Appellant's operations; [denied] (aa) the Workers' employment would constitute insurable employment if the work were performed in Canada; [denied] (bb) the Workers' employment is not insurable under the laws of the countries where the work is performed. [no knowledge] [3] Roger Boutin attended the hearing to clarify the assumptions of fact alleged by the Minister. Mr. Boutin specified that the Appellant's role is to seek out personnel on behalf of its main client, Bombardier Inc. Bombardier's clients, who rent or buy planes from Bombardier, need qualified pilots and technicians to fly and maintain the aircraft. Moreover, since Bombardier's clients consist of government organizations from various countries, the Appellant must find pilots and technicians who speak the languages spoken in those countries. [4] The Appellant has what is referred to as an "engagement" with Bombardier. Aircotech contacts the pilots who are likely to agree to provide the required services and then offers them an engagement. Most of the time, the engagements are for pilotage and maintenance of aircraft used for firefighting. Most of the pilots who deal with the Appellant are retired and they are free to accept or to reject the engagements offered by the Appellant. Mr. Boutin qualified the Workers as very independent and sometimes oversensitive. Once they accepted an engagement, most of them signed a contract, some amended its terms and conditions, and some were satisfied with a simple handshake to signify their acceptance of the contract. [5] Four types of contracts were produced as evidence. They contain, inter alia, the sentences reproduced in the Reply to the Notice of Appeal, in subparagraphs (l) to (p) of paragraph 8, inclusively. The Appellant has used these contracts for more than ten years to hire pilots, mechanics and technicians for the various engagements undertaken for Bombardier. Three of the contracts submitted are signed by a pilot and by a company. Some of the terms and conditions that were brought to the attention of the Court were subject to further explanations. [6] According to Mr. Boutin, Article 1 is inaccurate. Thus, the description of the services offered by the Appellant, "services of full operation responsibility" is apparently false. Mr. Boutin also affirmed that the Appellant does not decide how the pilots or mechanics would work, since the governmental organizations of the countries where the services are provided decide how to use air tankers. The Appellant retains the services of the pilot or the mechanic. Article 1 also provides that the pilot is hired as a self-employed worker who must assume all responsibilities in connection with the performance of his work. [7] Mr. Boutin also specified that Article 3 is not actually applied. This article mandates that the pilot or the mechanic be directly accountable to the representative of the Appellant who will provide all necessary advice and direction with respect to the engagement. Apparently, this situation only happened once. According to Mr. Boutin, the pilot or the mechanic is in fact accountable to the government organization of the country where the engagement takes place, and not to him. The organization assigns the tasks and prepares work schedules. [8] The agent for the Appellant also stated that, although the contract includes a clause permitting the contract to be extended, pilots and mechanics are allowed to refuse. He maintained that the contract was not properly drafted. He also added that, even though the contract provides that one of the parties may terminate the contract upon notice, the fact remains that Bombardier or the pertinent government organization of the countries where the pilots and mechanics are assigned to work hold the authority to decide whether to keep or fire the Workers. [9] The contract also provides that pilots and mechanics must indemnify the Appellant of any claim that may arise. It also provides for a 10% holdback on expense allowances granted to the pilots and mechanics under the terms of the contract. According to the agent for the Appellant, the latter clause has never been applied by the Appellant. Finally, there is a non-competition clause to protect the Appellant's business deal with Bombardier or its competitors. Mr. Boutin specified that, in fact, pilots and mechanics were free to offer their services to other parties and that the penalty provided for breach of this undertaking was never imposed. In fact, in one of the contracts produced as evidence, the said clauses have been struck. [10] Sometimes the compensation provided in the contract was modified, but this happened very rarely. Because of forest fires, pilots and mechanics had to be available seven days a week, to answer the needs of Bombardier or the government organizations of the countries to which they were assigned. They were supervised by the local air base dispatchers and the latter were not employed by the Appellant. In any event, Bombardier could refuse to use a pilot or a mechanic. [11] Gaston Audy is a retired pilot who accepts engagements offered by the Appellant. He considers himself an independent worker, free to work for other companies. He is an air tanker pilot and he holds all the necessary licenses. He finances his own training at Bombardier and he assumes all the expenses necessary to keep his qualifications as a pilot. He buys all the necessary books, software and material to keep up-to-date. He takes care of his own medical examination and deals directly with Transport Canada. [12] According to Mr. Audy, his pilot permit allows him to accept certain engagements. The Appellant finds engagements for him and, once he accepts the engagements, he is no longer accountable to the Appellant. He reports to the dispatcher in the country to which he was assigned and establishes his work schedule with that dispatcher. His performance is not assessed by the Appellant, since there are no agents for the Appellant in situ. He does not need to submit daily sheets, he just needs to update the logbooks of the aircraft he flies. He must comply with the aviation rules of the country where he works and he is subject to disciplinary action in the said country if he breaches the rules. Mr. Audy does not receive any employee benefits from the Appellant. He affirmed that, if he fails to comply with his undertakings, he does not receive compensation. He receives his daily allowance and does not worry about the contract he believes he has signed with the Appellant. On this issue, he added that some pilots have never met the agent for the Appellant. He finished his testimony by saying that he assumes all the liabilities that may arise in the performance of his duties as a pilot. [13] The report prepared by the appeals officer was produced as evidence. He met the agent for the Appellant and three of the twenty-one Workers concerned. The information provided to him by these three Workers confirms the testimony of Mr. Audy with respect to a number of characteristics of their relationship with the Appellant. Thus, all the pilots consider themselves self-employed individuals; they assume all the expenses connected with the renewal of their permits, books, material, clothing, their cellular telephones, the flight simulator software programs, insurance, computers and loss of income if they must stay in the hotel longer. They are allowed to work for clients other than the Appellant. They have no contact with the Appellant and are accountable to the dispatcher in the country where they work. They have the right to refuse some destinations or assignments. The report also reveals that the Workers were paid monthly once they had forwarded their invoices. The airplane maintenance costs were assumed by the owners. All the expenses incurred abroad, such as room, meals, car rental, etc. were the responsibility of the pilots and mechanics; and they were required to use the daily fixed allowance stipulated in the contract. [14] It should be noted that the Appellant assumed all travel expenses incurred by the Workers when they were travelling to the work site. [15] In Wiebe Door Services Ltd. v. Minister of National Revenue, [1986] 3 F.C. 553, the Federal Court of Appeal established useful tests to distinguish a contract of service from a contract for services. The Supreme Court of Canada, in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983, confirmed these tests and provided the following summary of the law at paragraphs 47 and 48: Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks. It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case. [16] In Charbonneau v. Canada, [1996] F.C.J. No. 1337 (Q.L.), Marceau J. reminds us that these factors are useful guidelines to consider. However, their use should not compromise the ultimate purpose of the whole exercise, which is an overall assessment of the relationship between parties. [17] In my opinion, applying the control test seems inappropriate for the case at bar by reason of the specialization of the Workers, particularly the pilots. In Wolf v. Canada, 2002 FCA 96, Desjardins J. summarized the manner in which the control test should be applied in similar situations, at paragraphs 75 and 76: In practice, such a distinction is difficult to apply as both the worker and the employer usually hold some measure of control over the work that is performed. A pilot hired by an air carrier, for instance, is generally an employee, although no one tells him how he should fly the plane (see Marc Noël, supra, at pages 723-724). A doctor working in a clinic may be an employee although he is the master of his professional conduct. The control test can therefore be inadequate in situations like these where, because the skills and expertise of the worker exceeds those of the employer, little control or supervision can be exercised over the manner in which the work is performed. (See Joanne E. Magee, in her article entitled "Whose Business is it? Employees Versus Independent Contractors" (1997), 45 Can. Tax J. 584, at page 596.) While the control test is the traditional civil law criterion of employment, it is often inadequate because of the increased specialization of the workforce. The Court in Wiebe Door, supra, essentially stated that the control test, while still important, is no longer regarded as conclusive on its own. In agreeing that there is no "magic" test to be applied, Major J. reiterates the necessity of examining the total relationship of the contracting parties in order to determine "whose business is it?". [18] Once the Worker has accepted the assignment, he is accountable to the government organization in the country where the assignment is performed. Then the dispatcher of the said country assigns the tasks to be accomplished and establishes the work schedules. Performance is assessed by the dispatcher in the country that benefits from the services of the Workers. As to the work to be performed, the Workers are highly specialized, which leaves very little control in the hands of the Appellant. Therefore, it is difficult to conclude that the control imposed by the Appellant establishes a relationship of subordination between the Appellant and the Workers. [19] Although Article 3 of the contracts stipulates that the Appellant, through its agent, shall provide the pilots and mechanics with all the necessary advice and directions concerning the engagement, the contract is simply a guideline to help the Workers identify the engagement to be performed, the type of aircraft they will fly or the type of maintenance they will provide. [20] As to the ownership of the tools that are necessary to perform the work, the evidence shows that the air tankers either belonged to the country where the assignment took place or the planes were rented by the country. The pilot of such a plane could very well be a self-employed worker: in fact, it is difficult to establish which thesis is better supported by the test in the specific circumstances of this case. As to the mechanics, I am unable to determine this issue from the evidence adduced, except that it seems rather difficult for these Workers to take with them the tools they require to the country in which their engagement will take place. [21] The test concerning the chance of profit and the risks of loss provides, with respect to the case at bar, an element that may weigh in favour of the thesis that the Workers are self-employed. Each one of the pilots assumes the responsibility of renewing his permit and paying the renewal fees. The pilots make their own arrangements to attend the annual training course prescribed by Transport Canada; however, Bombardier pays the training costs pursuant to the contract. The pilots also make their own arrangements to undergo the prescribed medical examination. In order to better perform their duties, pilots own computers and buy flight simulator software, and all the pertinent literature. They pay their own health insurance premiums and assume all the professional liabilities connected with the performance of their duties. [22] During their engagements, Workers must use the allowance they receive for room and meal expenses. However, according to the evidence, it seems that pilots are sometimes obliged to get two hotel rooms owing to unusual circumstances: when that is the case, the pilot assumes the additional expenses. These Workers are also responsible for their own training and they manage their own expenses. Moreover, the evidence shows that if they do not perform the engagements they have undertaken, they go home and receive no compensation. [23] The Appellant is not in charge of fire fighting and is not hired by the government organizations in question. It provides a service to Bombardier, who in turn seeks out pilots and mechanics capable of meeting the requirements of various government organizations that buy or rent Bombardier planes. The tasks performed by these pilots and mechanics address the needs of these various government organizations in charge of fire fighting. The integration test is therefore rather difficult to apply and is not appropriate for the case at bar. [24] In my opinion, we are confronted with a situation in which we must examine how the parties characterize their relationship. In order to do so, we must examine the contracts that have been filed as evidence and the clauses pertinent to such characterization. We must also take into account the fact that some of the Workers amended the terms of the contract after negotiations. For instance, the non-competition provisions and the applicable penalties were struck in some of the contracts. Some of the Workers did not even sign the model contract and only agreed to them by way of a simple handshake. Finally, we must take note that at least two of the three contracts not only bear the signature of the Worker, but also the name of a company. [25] According to the agent for the Appellant, the latter has been using this type of contract for over ten years. From time to time, the contract has been amended and some remaining clauses are no longer accurate. For instance, he explained that article 1 indicating that the Appellant is fully responsible for the operations is inaccurate. In fact, the foreign government organizations involved deal with the pilots and mechanics and see that the latter complete their engagements. [26] According to the contract, the Workers are self-employed and, as such, are liable with respect to all tax and insurance deductions that may be required in the country where they are working. Moreover, the contract provides that the Workers are responsible for the performance of their work. Article 3 provides that the Workers are accountable to the agent for the Appellant; however, this is limited to guidelines for the engagement. In my opinion, this clause is necessary to explain the engagement and its requirements. Once Workers agree to the contract, they report to the government organization needing the services at issue; that organization then directs the operations and the Workers. [27] The other provisions of the contract relate to fees and the duration of the contract. These clauses do not help us resolve the issue at bar. Article 9 provides that the Workers are responsible for the performance of their work and that the Appellant is entitled to compensation if any claim were to arise. I do not attach much significance to articles 10 and 11 since they are not always applicable. The clause providing that the Workers undertake to project a positive image of the Appellant is frequently used in employment contracts. [28] Considering all the circumstances of the case, I find that in the overall relationship that exists among the parties, the Workers are self-employed. On these grounds, the appeal is allowed and the assessment is vacated. Signed in Ottawa, Canada, this 8th day of June 2004. "François Angers" Angers J. Translation certified true on this 27th day of September 2004. Ingrid B. Miranda, Translator