Naztron Technologies Inc. c. M.R.N.

Naztron Technologies Inc. c. M.R.N. Court (s) Database Tax Court of Canada Judgments Date 2004-07-27 Neutral citation 2004 TCC 509 File numbers 2003-719(EI) Judges and Taxing Officers Alain Tardif Subjects Employment Insurance Act Decision Content Docket: 2003-719(EI) BETWEEN: NAZTRON TECHNOLOGIES INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] _______________________________________________________________ Appeal heard on June 30, 2004, at Montréal, Quebec Before: The Honourable Judge Alain Tardif Appearances: Agent for the Appellant: Yvon Nazon Counsel for the Respondent: Agathe Cavanagh _______________________________________________________________ JUDGMENT The appeal filed pursuant to the Employment Insurance Act, regarding a determination made by the Minister of National Revenue (the "Minister"), dated December 10, 2002, is allowed, and the decision of the Minister is amended to take into consideration the fact that Mr. Bernard Jules, whose services were retained by the Appellant, performed his work during the two years at issue under a contract for services made between Multimedia Consulting 2000+ and the Appellant, and not under a contract of service, in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 27th day of July 2004. "Alain Tardif" Tardif J. Translation certified true on this 5th day of January 2005. Colette Dupuis-Beaulne, Translator Citation: 2004TCC509 Date: 20040727 Docket: 2003-719(EI) BETWEEN: NAZTRON TECHNOLOGIES INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Tardif J. [1] This is an appeal from a determination, dated December 10, 2002, whereby the Respondent concluded that, from November 18, 2001, to April 12, 2002, Mr. Bernard Jules performed work for Naztron Technologies Inc. under a contract of service. [2] In making his determination, the Respondent relied on the following assumptions of fact: (a) The Appellant has operated an electronic engineering consulting business since November 2000. (b) The Appellant is held, in equal parts, by Mr. Yves Nazon and Mr. Ron Rinkembach. (c) The Appellant hired the worker to develop a new market in information technology. (d) The worker's main duties were: - to solicit new clients; - to define the services the Appellant could provide to its clients; - to supervise the Appellant's salesperson who called clients on the telephone; and - to develop the Appellant's Web site. (e) The worker performed approximately 50% of his duties at the Appellant's office, 25% from his home, and 25% on the road, meeting clients. (f) The worker was not required to fill in time sheets, because the Appellant controlled his workload and assessed his results. (g) The worker was required to perform the work himself; he could not have someone replace him. (h) Weekly meetings took place between the worker and the Appellant, during which time oral reports were exchanged between the parties. (i) The worker's work was supervised by any one of the Appellant's shareholders. (j) The worker was remunerated on a monthly basis upon submitting an invoice; he received $1,280 per week for 37.5 hours of work, which is equal to $34.13 per hour. (k) The worker had a company called "Consultation Multimédia 2000+." (l) The Appellant issued the worker's paycheque to "Consultation Multimédia 2000+." (m) The Appellant paid GST and QST on the remuneration paid to the worker. (n) The Appellant provided the working tools and reimbursed the worker for all of the expenses he incurred in the course of his work. [3] The Appellant admitted the content of all the paragraphs, except paragraphs (e), (f), (g), (i), (j), (l), and (n). [4] The Notice of Appeal summarizes the evidence filed by the Appellant fairly well. The following is an excerpt of this document: [TRANSLATION] [...] I would like to appeal from a decision of the Canada Customs and Revenue Agency. The following is the information relating to this decision: Decision: Control: Date of mailing: Company name: Address: Representative: Telephone: CE 0226 2093 8363 0762195 December 10, 2002 Naztron Technologies Inc. 2050 Marlowe, Montréal, Quebec H4A 3L5 Yvon Nazon (President) 514-482-6495 (office), 514-993-8973 (cellular) Naztron Technologies is appealing from the decisions on the following grounds: 1- Naztron Technologies hired "Multimedia Consulting 2000+," a consulting firm for which Mr. Bernard Jules was working. 2- The two parties agreed, in good faith, that Mr. Jules would work as a consultant. The purpose of the operation was not, for either party, to disguise regular employment as self-employment. 3- Mr. Jules' work was invoiced by "Multimedia Consulting 2000+." Naztron was not ever required to pay fees directly to Mr. Jules. "Multimedia Consulting 2000+" also charged GST and QST for the work performed by Mr. Jules. 4- Naztron established a minimum amount of time that Mr. Jules would spend on Naztron activities in accordance with the fees paid to "Multimedia Consulting 2000+" and in relation to market restraints. Naztron did not require a set schedule or a constant presence in its offices. Mr. Jules was free to work for any other company once he had completed the minimum number of hours required. 5- With respect to reimbursement for expenses, it is current practice with this type of contract that the consultant be reimbursed for expenses for material or hospitality relating directly to the work performed for his client. That is why we reimbursed some of the expenses incurred by "Multimedia Consulting 2000+". You will also note that we reimbursed Mr. Jules for travel expenses incurred to attend meetings at Naztron's offices. All of the regular equipment (computers and software) that Mr. Jules used in his work are the property of "Multimedia Consulting 2000+" and have not been paid by Naztron as a reimbursement of expenses. 6- The work carried out at Naztron is performed on a teamwork basis. In order to coordinate the work of the various team members, we required (for a short period) that Mr. Jules submit weekly reports. These reports were required for the purpose of coordination, and not for the purpose of control. I believe that the grounds listed above will give you a better understanding of the reasons for our objection. Thank you for your cooperation, [Signature] Yvon Nazon [5] In addition to Mr. Nazon, Mr. Bernard Jules testified. The two testimonies are quite consistent, and the Court did not note any significant contradictions in the interpretation of the facts. [6] Prior to the agreement made at the outset of the period at issue, Bernard Jules was not working, but he was the owner of Multimedia Consulting 2000+, a business with an Internet address. [7] Yvon Nazon was aware of Multimedia Consulting 2000+'s skills and expertise, and he knew its owner, Mr. Bernard Jules. A meeting took place and discussions were held about the possibility of associating Multimedia Consulting 2000+ and Bernard Jules in a project to develop a new market. The parties agreed on a monthly amount and the potential duration of the agreement. [8] The work began. Mr. Jules and Mr. Nazon gave progress reports on a fairly regular basis. Mr. Jules presented his initiatives and Mr. Nazon made some suggestions; on occasion, Mr. Nazon provided the names of some of the clients of the Appellant's business, Naztron Technologies Inc. [9] At one point, Mr. Jules hired Mélanie Guindon to develop a Web site for the Appellant. [10] Ms. Guindon was selected, hired, and paid by Bernard Jules, who passed on the expenses to the Appellant. The initial agreement was respected. Each month, Multimedia Consulting 2000+ invoiced the Appellant, Naztron Technologies Inc., who paid the invoice and the applicable taxes. [11] The following is the information contained in a sample invoice used to pay for the time spent. [TRANSLATION] Multimedia Consulting 2000+ 4711 Beneche Pierrefonds, Quebec H9J 3R1 Tel/Fax: 696-2771 GST No.: 872835814 QST No.: 2247383385 Invoice To: Naztron Technologies Inc. 2050 Marlowe Montreal, Quebec H4A 3L5 Invoice number: MC-000001 Date: November 5, 2001 Engineering consulting services rendered between September 30th, 2001, and October 27, 2001. Fees: 64.00 hours at $80/hour GST (7%) QST (7.5%) Total (net 7 days) $5,120.00 $358.40 $410.88 $5,889.28 Bernard Jules [12] All of the expenses were invoiced in the same manner. The following is a sample invoice used for the reimbursement of expenses. Naztron Technologies Bernard Expenses Item Consulting services Expense Consulting services Expense Consulting services Expense Consulting services Total paid until today Consulting services Expense Consulting services Expense Total due Period/Date 05-Nov-01 05-Nov-01 13-Dec-01 20-Dec-01 11-Jan-02 11-Jan-02 11-Feb-02 February Jan-Feb March March Amount $ 5,889.28 693.93 7,361.60 1,856.04 5,889.28 986.18 5,889.28 $28,565.59 $ 5,889.28 984.43 5,889.28 3,000.00 $15,762.99 Grand total (tax included) Grand total $ 44,328.58 $ 38,538.21 Total consulting services (tax included) Total consulting services Total expenses (tax included) Total expenses $ 36,808.00 $ 32,000.00 $ 7,520.58 $ 6,538.21 [13] Mr. Bernard Jules testified at the request of counsel for the Appellant. He acknowledged that he has always enjoyed considerable freedom in his work. He described himself as a self-employed professional consultant with experience and expertise in a specialized field. He was hired by the Appellant to work in his area of specialization. He admitted that the purpose of this project was to develop a new market niche. [14] This particular project was outside of the Appellant's regular field of activities. It was made clear at the outset that this was a trial venture. [15] Mr. Jules confirmed that the parties obviously would have renegotiated the agreement, had he succeeded in opening up this new market. He then added that a commission-based formula would have been an option. [16] Bernard Jules used his own technology tools exclusively to complete his work. He owned everything that he needed to do his work. [17] Yvon Nazon indicated that the Appellant had invested nearly $40,000 in this failed venture and that a decision had been made to end it. [18] At the end of the project, Mr. Jules's company had no other contracts and, consequently, he was out of work. It appears that he looked into the possibility of receiving employment-insurance benefits. [19] In his testimony, Mr. Jules described himself as a self-employed worker. [20] Was Bernard Jules' work for Naztron Technologies Inc. governed by a contract of service or a contract for services? [21] The Appellant provided documentary and testimonial evidence showing that, on the balance of probabilities, it had dealt with Mr. Jules's company, Multimedia Consulting 2000+, and not with Bernard Jules himself. Invoices for services provided by the company were paid to Multimedia Consulting 2000+, as were the expenses. The Quebec sales tax (QST) and the Goods and Services Tax (GST) were added to the invoice and paid by the Appellant. [22] Multimedia Consulting 2000+ owned the tools required for Mr. Jules's work. All of the costs associated with the use and repair of the equipment, as well as depreciation costs, were the sole responsibility of Bernard Jules. [23] None of the expense or work-related documents refers to Mr. Jules personally. They do, however, refer to his business, Multimedia Consulting 2000+. [24] Did Bernard Jules wind up his business? Did he take possession of Multimedia Consulting 2000+'s equipment? Did he surrender his registration number to the tax authorities? Did he inform his clients that he was working on his own behalf? These are some questions that remain unanswered. [25] Mr. Jules does not automatically become an employee of the Appellant because the Appellant was Multimedia Consulting 2000+'s only client during the period at issue. [26] The Respondent referred to section 2085 of the Civil Code of Québec which reads as follows: 2085. A contract of employment is a contract by which a person, the employee, undertakes for a limited period to do work for remuneration, according to the instructions and under the direction or control of another person, the employer. [27] This provision cannot be ignored. However, the evidence has not shown that a direct employer-employee relationship existed between the Appellant and Bernard Jules. [28] The Respondent's reasoning and account of events completely neglect Multimedia Consulting 2000+ in its analysis of the facts. Although the burden of proof did not rest with the Appellant in this matter, nothing in the evidence leads the Court to conclude that Mr. Bernard Jules, Consultant, stopped carrying on business, temporarily or permanently, through Multimedia Consulting 2000+. To the contrary, Mr. Jules continued to use the same invoices and carefully added the GST and the QST. At times, he added the notation: "Total (Net 10 days)." [29] Where the Respondent's argument is followed to its logical conclusion, it could lead us to determine that Bernard Jules was employed by Yvon Nazon personally, since he was the one who talked to him and who requested progress reports and general information. In fact, Mr. Nazon was acting on behalf of the Appellant, Naztron Technologies Inc., and Mr. Jules was acting on behalf of Multimedia Consulting 2000+. [30] Where two businesses deal with each other to perform work, the individuals who perform the work on behalf of the Payor do not become employees subject to the control of the Payor, unless it can be shown in the particular situation that a specific agreement and clear facts exist. [31] In this case, no evidence was presented to show that Bernard Jules had renounced his business to carry out the contract at issue. On the contrary, he himself spoke of flexibility, freedom, non-exclusivity, and the fact that he was a self-employed worker. [32] The Respondent developed a number of theories on the basis of the various exchanges, follow-ups, updates, etc. that took place in the course of fulfilling the contract. [33] On this point, I feel it is relevant to cite an excerpt from a recent decision in Le livreur plus Inc. v. M.N.R., [2004] F.C.J. No. 267 (Q.L.), whereby the Honourable Judge Létourneau of the Federal Court of Appeal reiterated the various aspects of the issue. He said the following: [17] What the parties stipulate as to the nature of their contractual relations is not necessarily conclusive, and the Court may arrive at a different conclusion based on the evidence before it: D & J Driveway Inc. v. The Minister of National Revenue, 2003 FCA 453. However, if there is no unambiguous evidence to the contrary, the Court should duly take the parties' stated intention into account: Mayne Nickless Transport Inc. v. The Minister of National Revenue, 97-1416-UI, February 26, 1999 (T.C.C.). Essentially, the question is as to the true nature of the relations between the parties. Thus, their sincerely expressed intention is still an important point to consider in determining the actual overall relationship the parties have had between themselves in a constantly changing working world: see Wolf v. Canada, [2002] 4 F.C. 396 (F.C.A.); Attorney General of Canada v. Les Productions Bibi et Zoé Inc., 2004 FCA 54. [18] In these circumstances, the tests mentioned in Wiebe Door Services Ltd. v. M.N.R., 87 D.T.C. 5025, namely the degree of control, ownership of the work tools, the chance of profit and risk of loss, and finally integration, are only points of reference: Charbonneau v. Canada(Minister of National Revenue - M.N.R.)(1996), 207 N.R. 299, paragraph 3. Where a real contract exists, the Court must determine whether there is between the parties a relationship of subordination which is characteristic of a contract of employment, or whether there is instead a degree of independence which indicates a contract of enterprise: ibid. [19] Having said that, in terms of control the Court should not confuse control over the result or quality of the work with control over its performance by the worker responsible for doing it: Vulcain Alarme Inc. v. The Minister of National Revenue, A-376-98, May 11, 1999, paragraph 10, (F.C.A.); D & J Driveway Inc. v. The Minister of National Revenue, supra, at paragraph 9. As our colleague Décary J.A. said in Charbonneau v. Canada (Minister of National Revenue - M.N.R.), supra, followed in Jaillet v. Canada (Minister of National Revenue - M.N.R.), 2002 FCA 394, "It is indeed rare for a person to give out work and not to ensure that the work is performed in accordance with his or her requirements and at the locations agreed upon. Monitoring the result must not be confused with controlling the worker". [20] I agree with the applicant's arguments. A subcontractor is not a person who is free from all restraint, working as he likes, doing as he pleases, without the slightest concern for his fellow contractors and third parties. He is not a dilettante with a cavalier, or even disrespectful, whimsical or irresponsible, attitude. He works within a defined framework but does so independently and outside of the business of the general contractor. The subcontract often assumes a rigid stance dictated by the general contractor's obligations: a person has to take it or leave it. However, its nature is not thereby altered, and the general contractor does not lose his right of monitoring the results and the quality of the work, since he is wholly and solely responsible to his customers. [34] On the balance of probabilities, Mr. Bernard Jules was not, at any time, employed by the Appellant; it had business dealings with the corporation owned by Bernard Jules. The work performed by Bernard Jules was carried out in accordance with a contract concluded between his corporation and the Appellant. [35] For all of these reasons, the appeal is allowed and the decision of the Minister is amended to take into consideration the fact that Mr. Bernard Jules, whose services were retained by the Appellant, performed his work during the two years at issue under a contract for services concluded between Multimedia Consulting 2000+ and the Appellant, not under a contract of service. Signed at Ottawa, Canada, this 27th day of July 2004. "Alain Tardif" Tardif J. Translation certified true on this 5th day of January 2005. Colette Dupuis-Beaulne, Translator CITATION: 2004TCC509 COURT FILE No.: 2003-719(EI) STYLE OF CAUSE: Naztron Technologies Inc. v. Her Majesty the Queen PLACE OF HEARING: Montréal, Quebec DATE OF HEARING: June 30, 2003 REASONS FOR JUDGMENT BY: The Honourable Judge Alain Tardif DATE OF JUDGMENT: July 27, 2004 APPEARANCES: Agent for the Appellant: Yvon Nazon Counsel for the Respondent: Agathe Cavanagh COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada