McPhee v. M.N.R.

McPhee v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2005-08-26 Neutral citation 2005 TCC 502 File numbers 2004-4283(EI), 2004-4285(CPP) Judges and Taxing Officers Eric A. Bowie Subjects Employment Insurance Act Decision Content Citation: 2005TCC502 Date: 20050826 Docket: 2004-4283(EI), 2004-4285(CPP) BETWEEN: DANIEL LESLIE McPHEE, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ For the Appellant: The Appellant himself Counsel for the Respondent: Marie-Claude Landry ___________________________________________________________________ REASONS FOR JUDGMENT (Delivered orally from the Bench at Fredericton, New Brunswick, on July 28, 2005) BowieJ. [1] This appeal is brought from a decision of the Minister of National Revenue determining that the Appellant's employment with Atlantic Forestry Services Ltd. (Atlantic) between July 21, 2003 and December 12, 2003 was not insurable employment under the Employment Insurance Act, paragraph 5(1)(a), and was not pensionable employment under the Canada Pension Plan, paragraph 6(1)(c). [2] The appeal raises an issue that comes before this Court much too often. Was the Appellant employed under a contract of service, or was he an independent contractor employed under a contract for services when he worked for Atlantic? In the Minister's view of it, he was an independent contractor. For the reasons that follow I disagree with that view. [3] Mr. McPhee has worked in the woods in New Brunswick for about 34 years. He is not a sophisticated man. He knows how to cut and haul wood, but he is not familiar with the fine distinctions that the law makes between a contract of service and a contract for services. He owns a skidder and he knows how to operate it and how to maintain it, but he knows nothing of the decisions of the Privy Council in Montreal(City) v. Montreal Locomotive Works Ltd.[1] or the Supreme Court of Canada in 671122 Ontario Limited v. Sagaz Industries Canada Inc.[2] [4] Mr. McPhee's employment by Atlantic was agreed on between himself and an Atlantic supervisor named Mark. The arrangements were made between them orally. They discussed the location in which wood was to be cut, and the number of hours per week that Mr. McPhee was expected to work, and the remuneration that he would be paid. The remuneration, as is common in this kind of work, was on a piece work basis, and the hours to be worked as I understood it were essentially driven by the amount of earnings that Mr. McPhee felt that he wanted and needed, and the area that Atlantic wanted cut before the season ended. Work of this type is done by teams of two, a cutter and a skidder operator. Mr. McPhee owned a skidder, and he proposed to Mark that his son, also named Daniel, be hired as a cutter. That was done. It is important to note that his son Daniel McPhee Jr. was hired by Atlantic as its employee; there was no suggestion in the evidence that it was otherwise. No doubt Mark was free to hire Daniel McPhee Jr. or anybody else that he wanted to, but it is not surprising that he accepted the Appellant's recommendation. [5] It is common practice that two people will work together as a team at this type of work, frequently for many years, even though they are employees of the company for whom they are doing the work. It is also common practice that the skidder operator is the owner of the skidder that is used; it would be unusual if it were otherwise. The Appellant and his son worked together from July 21, 2003 until December 12, 2003, cutting and hauling the wood that they were directed to cut and piling it by the roadside where they were directed to pile it, all on lands owned or leased by Atlantic. The Appellant's son did the cutting and limbed the trees. The Appellant then hauled the trees to the roadside with the skidder, about twelve trees at a time, and approximately twelve loads per ten-hour day. It is unfortunate that the Appellant and Atlantic did not enter into a written contract, either with respect to the Appellant's labour or the use of his skidder. Nor was there a written contract between Daniel McPhee, Jr. and Atlantic. I am therefore left to ascertain the terms of contract, or contracts, from the testimony of Mr. McPhee and the few exhibits that were filed at the hearing. Neither Daniel McPhee, Jr. nor Mark testified. [6] The first of three exhibits filed is a questionnaire that was completed by the Appellant at the request of the Respondent. It is undated. The second exhibit is the report completed by Ms. Arseneau, the appeals officer who testified before me for the Respondent. The only other exhibit is a copy of a three-page document, apparently downloaded from the Internet, entitled "CPP/EI Policy Manual Specific Employment - Forestry Industry - Tools, Equipment and Machinery". That document says that its purpose is to clarify the policy, and that I take to mean the policy of the Respondent, in relation to workers in the forest industry who, in addition to providing services to a contractor, rent their heavy machinery to the same contractor. I notice that the wording the Minister uses when expressing that is "to provide services" as opposed to "working under a contract of service". Whether that indicates a particular mindset or not is hard to say. [7] It is often difficult to ascertain the precise terms of an oral contract. I am satisfied, however, that Mr. McPhee was an honest and reliable witness, and I accept his evidence without reservation. The difficulty in ascertaining the terms of the contract is not one of having confidence in his evidence, but simply that, as is to be expected in this type of contract between these types of parties, many things were not discussed and therefore were not specifically agreed upon. However, from all the evidence before me, I find the following facts to be established. Mr. McPhee owned a 1974 skidder that had a value at the relevant time of approximately $16,000. He used that skidder throughout the period while working for Atlantic, and it was his responsibility under their agreement to maintain it and to supply the necessary fuel. He paid the initial cost of moving the skidder to the first job site. When the job site changed thereafter, Atlantic paid to move it, and when the work ended in December Atlantic paid to return the skidder to the place from which it had originally come. [8] Mr. McPhee's job was, along with his son, to limb the trees, load the trees onto the skidder and transport them to and pile them at the roadside. It was certainly agreed that only he was allowed to use the skidder. Atlantic could not assign someone else to operate it. Mr. McPhee was concerned that this was a valuable asset, and he did not want to risk it being damaged through someone else's operation of it. [9] Mr. McPhee was paid each week by two checks, one for his work and one for "the skidder rental". The skidder rental checks were for $862.50, which was made up of $750.00 per week rental payment, plus $112.50 for Harmonized Sales Tax (HST), which Mr. McPhee remitted to the Receiver General. Mr. McPhee did not insure the skidder for liability that year, although he had in previous years. It was covered in respect of any damage it might do by a $2 million business liability policy purchased and paid for by Atlantic to cover all its operations. [10] Mark gave the McPhees directions as to where they were to cut, and specific trees were marked for them to cut. He visited the job site during the first week or so, perhaps twice per day, but after the job was under way he visited about once a day only. [11] The agreement was that they would work 50 hours per week. Mr. McPhee's son's pay and his own pay for working were, as I have said, to be calculated on a piece work basis. However, they were given cheques each week, which in the case of the Appellant were for $544.28 during each of the first three weeks and $543.30 thereafter. The Appellant's understanding was that these amounts were paid in effect as a draw. If the amount of wood cut was less than required to justify earnings at that level, he understood that at the end of the job an adjustment would be made so that the total pay for the job would be brought into line with the volume of wood cut and hauled, as ultimately measured. Although he did say that this had not been done by the summer of 2005 when his appeal was heard, he still anticipated that some adjustment would be made. [12] I shall examine now the criteria that the common law has established to be considered to differentiate between a contract of service and a contract for services. I begin with the ownership of tools. [13] Mr. McPhee and his son each owned and used a chainsaw on the job. It is the invariable practice at the time and place where they worked, and in the industry in which they work, that people working in the woods, whether they be employees or contractors, must provide their own power saw. Indeed, it would not be possible for them to get work if they did not own a saw. The value of Mr. McPhee's saw, he said, was about $850. He also had some $400 to $500 worth of tools for use in maintaining his skidder, which as I have said was itself worth about $16,000. [14] When considering the ownership of tools, as the jurisprudence requires me to do, I do not take into account the skidder or the tools to maintain it. My appreciation of the evidence is that the skidder was rented by Atlantic from Mr. McPhee under a contract separate from the contract to provide his labour. A number of factors lead to this conclusion. First, the Minister's reply in paragraph 10(j) states that he assumed that the payments of $862.50 per week were "attributed to the skidder rental". Clearly, the Minister viewed it as a rental agreement. Second, there would be no reason for Atlantic to give Mr. McPhee two cheques each week if the skidder were not rented to Atlantic separately from his contract to work for Atlantic. Third, Mr. McPhee did not carry liability insurance for the skidder during that period, but Atlanticconsidered it to be covered under its liability policy (see Exhibit R-2, paragraph 24). Finally, when Mr. McPhee filed his income tax return, he apparently treated the rental payments on the skidder as income from a business. That income tax return was not made an exhibit, but I think that is a reasonable inference to be drawn from the evidence of the witness Arseneau, who looked into that matter. [15] I have no doubt that the Minister's assumption that there was a rental contract is quite correct. Certainly, it was not displaced by the evidence before me. The Minister's counsel argued that there could not be a rental contract because Atlantic was not free to assign another individual to operate the skidder. However, I see no reason why equipment could not have been rented to Atlantic subject to that or any other limitation on the use of it that the parties might choose to agree upon. [16] The tools other than the power saw would properly be considered assets of Mr. McPhee's rental business. I find that there was a rental contract whereby Atlantic rented the skidder on terms that included an obligation on the part of Mr. McPhee to maintain it and supply fuel, and on condition that Atlantic could not assign anyone other than Mr. McPhee to operate it. The rental fee was $750 per week, and of course it was subject to tax under the Excise Tax Act. That tax was collected and remitted by the Appellant. As to the power saw, it is usual practice in many industries for employees to own their own tools. Mechanics and carpenters are two examples. It is an invariable practice in the industry with which we are dealing here, at least in this location. Anyone who wants to work in the woods in New Brunswick must own his own power saw. That is simply the way the trade has always operated. [17] I shall consider next the chance of profit and risk of loss. The Minister's position, as I understood it from both Exhibit R-2 and counsel's argument, is that the Appellant's pay being fixed, as it was, on the basis of strict piece work would militate in favour of a contract of employment, but for the risk of loss that the Minister believed Mr. McPhee ran in respect of his skidder. If it were somehow damaged or destroyed, the loss to him would be disastrous. That, as I understand it, is the only reason that the Minister took the view that this part of the common law test favoured finding a contract for services. The fallacy in this reasoning, however, is that any risk of loss to the skidder that Mr. McPhee ran was not a risk associated with his work for Atlantic but with his rental contract with Atlantic. The question before me, however, relates only to their work relationship. The Minister is quite correct to say that, as to matters other than the skidder rental, this element of the test favours the conclusion that the contract was one of service. [18] I turn now to the question of control. Counsel for the Minister argues that there was little supervision of the Appellant and his work, and that I should consider this factor to favour a finding that he was an independent contractor. The most obvious fallacy of that argument is that the degree of supervision of the Appellant, Mr. McPhee, Sr., was exactly the same degree as was exercised over Mr. McPhee, Jr., who quite clearly was an employee of Atlantic. More important perhaps, it is trite that the significant question in respect of control is not what degree of control did the employer actually exercise over the employee, but what degree of control was the employer entitled to exercise. In the present case there is really no direct evidence on that point. That is not really surprising. Mr. McPhee had worked for more than 30 years in the woods doing exactly this kind of work. There was no reason that he and Mark would discuss any question of supervision, nor was there any reason for Atlantic to feel that it needed to exercise any great degree of supervision over somebody having such a long experience in the trade. I do not think in the circumstances that this particular aspect of the test should be given a great deal of weight, but to the extent it is given any weight, it favours a contract of service rather than a contract for services, simply because the tenor of Mr. McPhee's evidence before me was to the effect that Mark was the boss, and that he would do what the boss told him to do. [19] Integration is still a factor that should be looked at when applying the Sagaz test, but it must be considered from the perspective of the worker. The efforts of Mr. McPhee were fully integrated into the operations of Atlantic. He worked exclusively for Atlantic for some 50 hours a week. He had no time to work elsewhere until the job ended in December, nor is there any evidence that he wanted to, or that he looked for other work or could have accepted other work if it came to him. This factor, to the extent that it has any significance, favours a contract of service rather than a contract for services. [20] If the Minister's delegate when considering this appeal had asked herself Lord Wright's question, as reformulated in 1968 by Mr. Justice Cook in Market Investigations v. Minister of Social Security:[3] Is the person who has engaged himself to perform these services performing them as a person in business on his own account? and had considered this question in respect of his work for Atlantic as distinct from his rental of the skidder to Atlantic, then she would have been bound, I think, to answer "No". It must be remembered that at the point of decision-making, she understood there to be a rental contract covering the skidder. [21] In my view, it is always useful to consider how the well-informed bystander would answer Mr. Justice Cook's question, the formulation of which has been approved by the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R.[4] by the Privy Council in Lee Tuig Sang v. Cheung Chi Keung[5] and by the Supreme Court of Canada in Sagaz.[6] [22] Applying the common-law test, then, as it has been reaffirmed by the Supreme Court in Sagaz, and considering the matter of the work done by Mr. McPhee for which he was paid $543 or $544 per week, but not his rental to Atlantic of his skidder, I find that the opportunity for profit and risk of loss, the ownership of tools and the integration of Mr. McPhee's work into the business of Atlantic all militate in favour of finding a contract of employment. I am inclined to give little or no weight to the question of control, simply because the evidence with respect to the right to exercise control was virtually non-existent. I would answer Mr. Justice Cook's question in the negative. I cannot imagine that anybody fully aware of all the circumstances surrounding Mr. McPhee's work for Atlantic would consider him to be an entrepreneur, except with respect to the separate rental contract. [23] Counsel for the Respondent referred me to a number of decisions of this Court dealing with superficially similar fact situations. I did not find any of them to be particularly helpful. The principles to be applied in cases such as this have been repeatedly stated and restated in cases such as Wiebe Door and Sagaz. What is required in each case is not to embark on a search for identical facts, because identical facts never exist. What is required is to examine the evidence, determine what the facts of the particular case are, and then apply the well-settled principles to the unique facts of the case at bar. [24] The cases arising in the province of Quebec are particularly unhelpful in deciding those cases that arise in the common-law provinces, as the Quebec Civil Code makes specific provision defining contracts of service and contracts for services on the basis of the right of the employing party to control the activities of the employee in respect of the manner of doing the work, or the absence thereof. The decision of the Federal Court of Appeal in Tremblay v. Canada,[7] does contain some discussion of the application of the Minister's policy bulletin. It appears to be a policy bulletin slightly different from, but similar in its content to, Exhibit R-3 before me. With respect, I do not find that bulletin to be particularly helpful, as it attempts to establish rules that must be followed by employees and employers in situations where the employee uses a skidder owned by him in doing work for the employer. I have no doubt that the document is helpful to those in the industry on both sides of the contract of employment, to guide them when they enter into their contracts. If they follow the guidelines set out there, presumably those who administer the Act on the Minister's behalf will act in accordance with the guidelines, and so litigation may be avoided. However, once litigation has arisen the guidelines are no more than the Minister's view of the law. This Court is bound to apply well-settled legal principles to the facts of each case, and it is bound to ascertain those facts from the evidence. I should say in passing that I am surprised that counsel for the Respondent did not bring this decision of the Federal Court of Appeal to my attention, as she made the policy paper a main part of her position at trial. Counsel's duty of candour certainly required that. [25] I should perhaps add in closing that recent decisions of the Federal Court of Appeal such as Order of St. John of Jerusalem v. Canada,[8] Mayne Nickless Transport Inc. v. M.N.R[9] and Wolf v. Canada[10] all suggest that it is not irrelevant to consider the intention of the parties in determining whether their contracts are of service or for services. Such evidence as there is in this case certainly supports the view that the contract was a contract of service. Mr. McPhee testified that he would not have taken the job with Atlantic except as an employee, presumably because he knows from long experience that work in the woods is seasonal and that it would end in December, and because he needed the employment insurance benefits to bridge the gap between then and the start of work in the spring or summer. He also said that he had been refused work with another employer because it only hired independent contractors and he did not qualify. [26] There was no direct evidence of intention from Atlantic, but there was evidence that Atlantic paid Workers Compensation premiums in respect of both the Appellant and his son. Atlantic would, of course, have known that it was only required to make such payments in respect of employees engaged under a contract of service. If it had regarded the Appellant as a contractor rather than an employee, it undoubtedly would not have made those payments. Furthermore, Atlantic paid HST on the skidder rental payments, as it was required to do. If it had hired Mr. McPhee as the operator under a contract for services, it would have been required to pay HST on the total of its payments to him. It clearly did not do so. There is therefore every reason on the evidence before me to consider that both of these parties held a genuine and serious belief that their contract in respect of Mr. McPhee's labour, as distinct from their contract in respect of the rental of his skidder, was a contract of service and not a contract for services. Mr. McPhee's employment was therefore insurable under the Employment Insurance Act and pensionable under the Canada Pension Plan. [27] His appeals are therefore allowed, and the matter is remitted to the Minister for redetermination accordingly. Signed at Ottawa, Canada, this 26th day of August, 2005. "E.A. Bowie" Bowie J. CITATION: 2005TCC502 COURT FILE NO.: 2004-4283(EI), 2004-4285(CPP) STYLE OF CAUSE: Daniel Leslie McPhee and The Minister of National Revenue PLACE OF HEARING Fredericton, New Brunwick DATE OF HEARING July 26, 2005 REASONS FOR JUDGMENT BY: The Honourable Justice E.A. Bowie DATE OF JUDGMENT August 8, 2005 APPEARANCES: For the Appellant: The Appellant himself Counsel for the Respondent: Marie-Claude Landry COUNSEL OF RECORD: For the Appellant: Name: N/A Firm: N/A For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada [1] [1947] 1 DLR 161, [2] [2001] 2 S.C.R, 983. [3] [1968] 3 All ER 732, pages 737 to 738. [4] [1986] 3 F.C. 553. [5] [1990] 2 H.C. [6] Supra. [7] [2004] F.C. 175. [8] 2004 FCA 345. [9] 97-1416-UI, February 26, 1999 (TCC). [10] [2002] 4 F.C. 396.