Flair Apparel Inc. v. M.N.R.

Flair Apparel Inc. v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2006-06-08 Neutral citation 2006 TCC 330 File numbers 2005-3040(EI) Judges and Taxing Officers Cameron Hugh McArthur Subjects Canada Pension Plan Employment Insurance Act Decision Content Docket: 2005-3040(EI) 2005-3044(CPP) BETWEEN: FLAIR APPAREL INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeals heard on May 19, 2006, at Vancouver, British Columbia By: The Honourable Justice C.H. McArthur Appearances: Agent for the Appellant: Sylvia W. Cheung Counsel for the Respondent: Sara Fairbridge ____________________________________________________________________ JUDGMENT The appeals pursuant to subsection 103(1) of the Employment Insurance Act and section 28 of the Canada Pension Plan are allowed and the rulings of the Minister of National Revenue on the appeals made to him under section 91 of the Act and section 27.1 of the Plan, are vacated on the basis that Chui Hua Dai was not employed in insurable and pensionable employment during the period September 7, 2003 to December 1, 2004. Signed at Ottawa, Canada, this 8th day of June 2006. "C.H. McArthur" McArthur J. Citation: 2006TCC330 Date: 20060608 Docket: 2005-3040(EI) 2005-3044(CPP) BETWEEN: FLAIR APPAREL INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. REASONS FOR JUDGMENT McArthur J. [1] These appeals are from rulings of the Minister of National Revenue made under the Employment Insurance Act and the Canada Pension Plan, determining that Chui Hua Dai ("Dai") was employed in insurable and pensionable employment during the period September 7, 2003 to December 1, 2004. The Appellant retained the services of Dai as a "trimmer", and the issue is whether she was engaged under a contract of service or a contract for service or, more commonly, was she an employee or an independent contractor during the period in question. [2] The Appellant is a corporation, the shares of which are owned by Kam W. Kwok and Sylvia W. Cheung, and it carried on the business of clothes manufacturing until it closed about September 2004, due to the illness of Mr. Kwok. At the hearing, the Appellant was represented by Sylvia Cheung but for the most part, evidence and submissions were made by Mr. Kwok. Twenty-three former workers for the Appellant were present throughout the one-day hearing, in support of the Appellant's position. For practical purposes, only two witnesses of these 23 workers gave evidence, although I believe they were all prepared to testify to the integrity of Mr. Kwok, and their former employer, and to the fact that while under the Appellant's employ, they understood that they were not employees, but independent contractors. In addition to the two witnesses and Mr. Kwok giving evidence on behalf of the Appellant, Dai gave evidence on behalf of the Respondent. [3] During the term of the Appellant's business, it employed approximately 20 to 25 seamstresses and six to ten trimmers. Most of the 23 supporters mentioned above had worked with Dai doing similar work. They were predominantly well-groomed, young women who required a Cantonese interpreter, as did Mr. Kwok. [4] Dai's job was to trim loose threads from completed garments. She could perform this work at home or at the Appellant's place of business. She chose to always work at the Appellant's place of business for several practical reasons, including that she had no room to spread out at home, and had no car to carry the bundles of garments. She worked when the Appellant informed her work was available, and she was free to work elsewhere including for competitors of the Appellant. The Appellant had a pool of trimmers from which to call when needed. She was on a price rate calculation, for example 30 ¢ per dress (dependent on the complexity). The more she trimmed, the more she made. The Appellant had permanent employees as well, who were paid by the hour with the usual deductions, and they worked specific hours. [5] Dai could work when she wanted, choosing the bundles she wished to work on. Some workers had a preference for the type of garment they trimmed. Some hard-working trimmers would trim several hundred garments daily. Dai was treated in the same manner as all other trimmers. The Appellant did not control her work. If she missed threads, she would have to correct her work at her expense and time. I do not believe this occurred often, if at all. She worked on the days she was called, and if she refused or was not reached, it made little difference to the Appellant. She brought her own scissors which was the only tool needed, other than a table and chair at the Appellant's premises, if she chose to use the premises. Dai testified that she would call if she was not coming in to work because it was impolite not to call. She was paid twice monthly, without deductions, according to the number of garments she had trimmed. [6] Since 1986, the decision of the Federal Court of Appeal in Wiebe Door Services Ltd. v. Minister of National Revenue,[1] has been a useful guide. It sets out the four tests of control, ownership of tools, chance of profit or risk of loss and integration, to be considered in finding the distinction between employee and independent contractor. Further, the Wiebe Door decision has been confirmed by the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.[2] Major J., writing for the Court, restated the tests as follows at paragraphs 47 and 48: 47 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. 48 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. [7] Major J. further relied on the decision of Cooke J. in Market Investigations Ltd. v. Minister of Social Security[3] where it was stated: 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 he takes, 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. [Emphasis added.] And determined that the question that should be asked is whose business was it. [8] Each factor must be assigned an importance when considering the entire facts. Also, in Royal Winnipeg Ballet v. M.N.R.,[4] the Federal Court of Appeal appears to have placed emphasis on the intention of the parties. [9] In the present case, it is very clear that the Appellant intended that Dai be an independent contractor. I do not believe Dai knew which category she fell in, although she must have known she was treated much differently than the Appellant's employees. It is clear the control test favours the Appellant, since the Appellant had very little control over Dai. [10] Chance of profit and risk of loss is connected to the question, whose business was it. Clearly the trimmers had the chance of profit or loss. While the Appellant set the rate of pay per garment, the workers were free to work the hours they wanted, and their income was dependent on such hours. [11] With respect to tools, Dai worked at the Appellant's premises but she was free to work at home or elsewhere, if she so chose. She supplied her own scissors. This test is in the Appellant's favour. Dai had the freedom to work at home for the same remuneration as she received working at the factory. Originally, the Appellant paid 20% more to those who worked at home, but during Dai's period, all trimmers received the 20% extra, without regard to where they worked. [12] Considering the "combined force of the whole scheme of operations", to use Lord Wright's phrase in Montreal (City) v. Montreal Locomotive Works Ltd.,[5] as quoted by MacGuigan J.A. in Wiebe Door, the conclusion is obvious that Dai was working on her own account. She was a skilled trimmer providing services to the Appellant under a contract for service. While she used the Appellant's facilities, she clearly had the option to do her trimming wherever she chose. She was not paid a fixed salary, but paid only for the work she produced during the time she chose to work. [13] The law is clear that the manner in which the parties describe their relationship is not determinative, yet the terms of an oral contract set by the Appellant cannot be entirely ignored. This forms part of the overall picture in describing "the combined force of the whole scheme of the operations". [14] The appeals are allowed and the rulings of the Minister of National Revenue that Dai was employed in insurable and pensionable employment during the period in question are vacated. Signed at Ottawa, Canada, this 8th day of June 2006. "C.H. McArthur" McArthur J. CITATION: 2006TCC330 COURT FILE NO.: 2005-3040(EI) and 2005-3044(CPP) STYLE OF CAUSE: FLAIR APPAREL INC. AND M.N.R. PLACE OF HEARING: Vancouver, British Columbia DATE OF HEARING: May 19, 2006 REASONS FOR JUDGMENT BY: The Honourable Justice C.H. McArthur DATE OF JUDGMENT: June 8, 2006 APPEARANCES: Agent for the Appellant: Sylvia W. Cheung Counsel for the Respondent: Sara Fairbridge 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] 87 DTC 5025. [2] [2001] 2 S.C.R. 983. [3] [1968] 3 All E.R. 732 (Q.B.D.). [4] 2006 FCA 87. [5] [1946] 3 W.W.R. 748.