ProBed Medical Technologies Inc . v. M.N.R.

ProBed Medical Technologies Inc . v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2003-04-09 Neutral citation 2003 TCC 107 File numbers 2002-3147(EI) Judges and Taxing Officers Theodore E. Margeson Subjects Employment Insurance Act Decision Content Citation: 2003TCC107 Date: 20030409 Dockets: 2002-3147(EI) 2002-3145(CPP) BETWEEN: PROBED MEDICAL TECHNOLOGIES INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and ROGER JOHN MAWDSLEY, Intervenor. ____________________________________________________________________ Appearances: Agent for the Appellant: Peter W. Short Counsel for the Respondent: Selena Sit (Student-at-Law) For the Intervenor: The Intervenor himself ____________________________________________________________________ REASONS FOR JUDGMENT (Delivered orally from the bench at Vancouver, British Columbia on January 14, 2003 and revised as to style and syntax at Ottawa, Ontario on April 9, 2003.) Margeson, J.T.C.C. [1] The matter before the Court at this time for decision is that of Probed Medical Technologies Inc. and the Minister of National Revenue ("Minister"). The questions before the Court are whether or not the alleged worker, Roger John Mawdsley, was engaged in insurable employment under the Employment Insurance Act ("Act"), whether or not he was engaged in pensionable employment under the Canada Pension Plan, ("Plan") and what was the amount of his pensionable earnings during the period January 15, 2001 to September 14, 2001 ("period"). [2] The position of the Appellant is that the worker was a volunteer. The position of the Respondent and of the worker is that he was not a volunteer, he was an employee employed under a contract of service during the appropriate period of time at a wage of $3,000 per month for the first three months, commencing January 15, 2001 and $5,000 per month for the next five months, to September 14, 2001, the period in issue. [3] The major issue in this case is that of credibility. Credibility looms large in every case, but here it takes on new significance, because the evidence of the principal witness called on behalf of the Appellant and the evidence introduced by the worker himself are completely at odds. If the evidence of one is accepted, the evidence of the other has to be rejected on the essential point, that is, as to whether or not there was a contract of service. The worker said that he was employed under a contract of service, the Appellant maintains that he was a volunteer and he was only to receive payment in the event that he was successful in obtaining funding for the Appellant and that funding was not forthcoming. [4] There is an issue between the Appellant and the alleged worker even on that issue as to whether or not funding was received. The worker said that funding was received and even if the agreement was that he would be paid only if he received funding, funding was received and therefore he should be paid in any event. [5] In the Reply to the Notice of Appeal ("Reply"), the Minister relied upon certain facts which facts were agreed upon by the Appellant except with respect to several of the items as follows. [6] With respect to paragraph 4(c) of the Reply, the Appellant did not agree exactly with what was said, that is, "on or about December 14, 2000 the Appellant offered Mr. Mawdsley a position as Chief Executive Officer commencing January 15, 2001". He said that something of that nature might have been offered. [7] With respect to paragraph (d), "the offer made by the Appellant to Mr. Mawdsley established a rate of pay at $3,000.00 per month for the first three months and $5,000.00 per month after that". This was completely denied by the Appellant. [8] With respect to paragraph (e), the only change that the witness made with respect to the Minister's allegations was that one should substitute the term "activities" for "duties". [9] This witness agreed with all of the other submissions except paragraph (l) where the Minister alleged that during the period, the Appellant paid $7,943.17 to Mr. Mawdsley on account of salary and wages. He said that this should be changed to "to defer expenses". [10] He agreed with paragraph (n), which was an assertion that a certain decision was made by another body other than this Court but it is not relevant to the issue here. [11] In order for the Appellant to succeed here, he has to establish, on a balance of probabilities, that the decision of the Minister was incorrect in deciding that the worker was engaged in insurable employment and pensionable employment during the period in question. The burden of proof is really on the Appellant to establish on a balance of probabilities that this was not insurable employment, considering the evidence given and in light of the presumptions set out by the Minister in the Reply. [12] But again, even in that, it all boils down to a question of credibility. If the Court believes the evidence of the witness called on behalf of the Appellant, then there was no agreement, there was no contract of service. His position was that the company put forward a proposal, which was Exhibit R-5, but it was a draft proposal only and this proposal was never signed or acted upon. The terms set out in the draft proposal would be considered as being terms of any final agreement if the proposal was ever put into effect. He said that it never went into effect because it was contingent upon the worker being successful in obtaining the financing which would enable the company, which was obviously in dire financial straits, to receive funding. That is what he said. [13] He said that the Appellant never received any salary. The Court questioned him on this when he was testifying and the Court asked him to explain, in light of his position, what was written in Exhibit R-3 and Exhibit R-4. Exhibit R-3 is the Appendix, which sets out the different amounts of money, which were received by the worker during the period February 8 to August 24, by way of cheque. The cheques are attached also. If the summary is accurate then what is in the summary is quite informative and quite significant. It is significant because as counsel for the Respondent argued, the periods which are covered by the payments appear to be on a regular basis over a period of every two weeks: February 8, February 23, March 2 and so on. This would appear to be consistent with the evidence of the worker, Mr. Mawdsley, that he expected to be paid every two weeks. That would be the normal way to be paid even though he said that he was to be paid on the basis of $3,000 a month for the first five months and $5,000 a month thereafter. In his evidence, he said that he would expect to have been paid every two weeks. [14] But, in any event, even if he did not expect to be paid, there is something to be drawn from the way in which the payments were made. They appeared to have been made on a regular basis. The payments would not appear to be consistent with somebody paying out expenses, because all of the amounts are basically similar amounts, $500 and $1,000. [15] There were only a couple of payments, which were odd amounts which one might fairly consider to be expense amounts. One was $605, but that was a rental amount. One might ask, why would a company pay somebody's rent? That could hardly be considered to be an expense on behalf of the company. It was obviously a personal expense. So one has to ask why, if the worker was not an employee, would the company be paying his rent? The only reason the company would do that, would be if it were making a payment on his behalf as part of his salary to pay one of his personal expenses and not an expense of the company. [16] The Appellant would have the Court believe that all of these amounts that were shown in Exhibit R-3 were amounts that were paid on account of expenses made by the worker on behalf of the company. But this belies reasonableness, because the very cheques themselves and the summary sets out what the amounts are supposed to represent. The February 8th cheque numbered 0340, says "$500 Payroll Advance". The February 23rd cheque numbered 0360, says "$500 Salary Advance", which just happens to be a portion of the amount that the worker said that he was supposed to receive on a monthly basis, $3,000 a month and $5,000 a month, except that he said he would be prepared to wait because he knew the company was in financial difficulties. Then on and on it goes and the only odd amounts, the only amounts which are not combinations of $500 during the periods in time were those above referred to amounts, $395 on June 29 and $605 on June 29, which were paid to his landlord to cover rent. [17] He would have the Court believe that these amounts were expenses, but he was not able to show the Court any evidence whatsoever as to what the total expenses of this worker were during that period of time. He had no records whatsoever to show what Mr. Mawdsley would have received during the period on the basis of submitted expenses. The only evidence on that was some evidence submitted by the worker himself. This was not completely satisfactory but it was the best that was presented. [18] The worker presented documents which were the type of expense claims which he said that he submitted. He gave evidence that the amount of the payments that represented expenses were not the amounts of $10,607.27 that he was paid during the period in question, but a small portion of that, roughly $2,500. The rest, approximately $7,500, would have been wages. [19] But again, the most significant factor is that when one looks at the documents themselves, which cannot be disregarded, they say "Payroll Advance", "Salary Advance", "Salary Draw", "Draw", "Draw", "Draw". The only one that referred to an expense was the last one at the bottom, which says "Expenses for Trip, Prince George and Calgary". All of the other payments, which were supposed to be for expenses do not specify that they were expenses, do not specify as to what particular trip was made or what the expenses related to, only the one of April 12. [20] He was asked point-blankedly by the Court: "Why would you indicate on these cheques that they were for "Payroll Advance", "Salary Advance", "Salary Draw", "Draw", "Draw", "Draw", then indicate "Expenses" on the one for $607.27 and then specify on the $605 one that it was for rent paid on behalf of the worker? He said: "Well, the first thing that came to my mind was put on there". Now, with due respect, the Court cannot accept that explanation, it does not really hold water. Nobody with the experience and the business acumen of this witness would so indicate that it was an advance on payroll or a draw, when he meant that it was to be a reimbursement of expenses. [21] This witness must have been at least somewhat conversant with the Income Tax Act, which requires one to specify what payments are made for. It was argued by the Respondent that if the expenses were not specific and properly identified then any amounts that are received are considered to be receipts on account of income according to bookkeeping standards. [22] The Court looks for some evidence of corroboration for the evidence of one or the other. Exhibit I-5, was a fax letter sent to Mr. W.T. (Terry) Plummer by Mr. Mawdsley on September 19, 2001, just shortly after Mr. Mawdsley resigned or withdrew from working for the company. This letter is consistent with Mr. Mawdsley's position that he was an employee working under a contract during the relevant period of time, that he was owed back pay, and that he was expecting to be paid because he said: As you are probably aware I am no longer employed by ProBed Medical Technologies Inc. effective September 15, 2001. I simply cannot continue working without a paycheque any longer. Accordingly, please let receipt of this letter serve as my resignation from the position of Director of the company, immediately. I would also like to draw to your attention the fact that, effective September 15, 2001 the net wages owing to me from the company amount to $18,265.74. Should you have access to these funds, I would appreciate receiving them soon. Otherwise I will have to take affirmative action to recover them. In addition ProBed now has a liability for source deductions in the amount of $14,053.75 for source deductions that should have been made and remitted to the Receiver General for Canada on my behalf. I draw this matter to your attention because as a director of ProBed you and the other board members may have a personal liability for these amounts. [23] The evidence of Mr. Mawdsley in Court was that he never received any response to that letter. There was no denial of its content, no statement was made by anybody in the company that that letter was incorrect until after the complaint was made in this matter. Not until a complaint was made was there any indication that Mr. Mawdsley was a pro bono worker or that he was a volunteer until he decided that he was going to do something about it. [24] First of all, the letter is corroboration, at least, of the worker's testimony in the sense that it is consistent with the position that he took here today. The fact that nobody on behalf of the company rejected these statements set out in his letter of September 19, 2001 as being incorrect is of some significance because such rejection would be consistent with the position that the Appellant takes here today that the worker was not an employee but was only a pro bono worker or a volunteer. [25] Those pieces of evidence, particularly Exhibit R-3, the evidence in general of the worker, Mr. Mawdsley, in conjunction with the statement of facts set out in the Reply, which to a large extent have been unrebutted are significant. The Court looks at that evidence and asks the question, "On a balance of probabilities, has the Appellant established that the worker was a volunteer or a pro bono worker and was not an employee?" It is reasonable to conclude on a balance of probabilities that the evidence of the worker was more than likely to be correct than that of the party who testified on behalf of the company. [26] On the question of credibility, which is important here, where the evidence is at odds in the most material respects, the Court has to decide which one it is to believe. The Court believes the evidence of the worker, Mr. Mawdsley in this case and does not accept the evidence of the witness who testified on behalf of the company. [27] Further, on the evidence, it would be unreasonable for the Court to conclude that Mr. Mawdsley would come down to Vancouver from Ontario, whether he came once or twice or three times, but he came finally and stayed here, and worked in the hope that the 100,000 shares that he was going to receive would be his reward if they became valuable in the future. These shares at the time were worthless. It is likewise unreasonable to conclude that his only remuneration would be received in the event that he was successful in obtaining financing for the company. [28] It would be unreasonable for the Court to conclude that anybody would do that. In this case it would be particularly unreasonable in light of his own indication that he was financially strapped himself. He was just coming off one job and he was doing a considerable amount of work. Further, it would be unlikely that any company would give to a volunteer worker the authority that he had and allow him to do the type of work or activity that this worker was doing if he was going to be a volunteer. [29] There is some merit to Mr. Mawdsley's argument that you do not do that to volunteers, but you do that so somebody who is going to be a Chief Executive Officer. Further, it would be highly unlikely that one would offer to a volunteer the position of Chief Executive Officer of a company and expect them to work for nothing in the event that the funding was not received. The Court finds it very difficult to accept the position that the Appellant takes in this matter. [30] In argument, counsel for the Respondent said that there were three issues: (1) Was Mr. Mawdsley an employee or was he a volunteer? (If he was not an employee, it does not matter what he was.) (2) What were the net earnings for employment purposes? (3) What were the pensionable earnings? [31] Counsel discussed the various sections of the Act, which the Court has taken into account, and there is no doubt that under paragraph 5(1)(a), an agreement can be written or oral. In respect of the Plan, it is subsection 6(1) of the Act. [32] On the issue of whether or not he was an employee, he argued that there was evidence that the written agreement was not signed. Mr. Mawdsley said that he attempted on a number of occasions to get the written agreement signed but the company would not sign it, did not sign it and kept putting it off. But the only reasonable conclusion to draw from what was said was that they were putting it off not because they did not believe that he was an employee, but because they were too busy or they were doing other things. That is the impression that the Court draws from what Mr. Mawdsley said. [33] Counsel took the position that there was an agreement, not a written agreement, but that some of the terms that were in the written agreement were superseded by an oral agreement. This was made later on between the parties. This was put into effect when the worker came down to British Columbia to work and did indeed work during the period in issue. The terms of that agreement were that the worker would receive $3,000 a month for the first three months and $5,000 per month for the next five months (as it turned out), and that if he did not receive all of his money during the period that he was working, he would be repaid after the funding was received. [34] Counsel looked at the relationship between the company and the alleged employee and said that he worked full-time for the period. He was reimbursed for his expenses. The company supplied all of the tools, the workplace, the office, the computer and the telephone. His duties were carried out mostly on the premises, although some duties were carried out off of the premises. He worked a regular shift, eight-hours per day, Monday to Friday. He was put in possession of keys to enter the building. He had signing authority. He had an e-mail address supplied by the company. He was paid some salary as the cheques indicate. He received in excess of $7,000 in wages and only about $2,500 was expenses. [35] He received 125,000 shares. He was to receive a portion of his money after the funds were received as income came in during the year. That is how he was to be paid. He did receive income on a regular basis as part of his salary. He received $10,607.27 in total. Cheques were issued roughly every two weeks. The amounts were regular amounts. It was not as if he was receiving expenses. He did provide statements to show that he made claims for expenses in a regular way by way of regular expense reports and these were separate from the pay amounts. [36] The Court concludes that there was a shortcoming in the evidence on behalf of the company. It should have been able to show what expenses were being paid out. Surely the company would have been able to find some documents, which would establish that the amounts that the worker received were reimbursement of expenses and were not income, in light of the very statements on the cheques themselves. That would only be reasonable. [37] There was no evidence given by anybody except the one witness. There were other executives or board members who should have been available to corroborate the evidence of the person who testified on behalf of the company today, but they were not here. The Court does not know what they would have said. One would think that in a case like this where notations on the cheques were contrary to the position of the company, there would have been evidence to substantiate or corroborate the evidence of the principal witness on behalf of the company, but that was not forthcoming. [38] Counsel said that at all material times the worker was an employee. She referred to the various provisions with respect to insurable earnings. The applicable section does show that insurable earnings include amounts that are unpaid and that pensionable earnings do not include amounts that were unpaid. However, the amount of insurable earnings can be calculated for the period in issue. According to the evidence, the amount of $2,500 was the amount of the expenses. The rest that was received was salary or wages, $7,500. [39] There was a verbal contract in place and the worker was to receive remuneration in accordance with his evidence. He was also to receive vacation pay for six weeks. [40] With respect to pensionable earnings her position was that the worker received $7,500 in wages and therefore his pensionable earnings should be based upon that $7,500. He received insurable earnings that should be calculated on the basis of the period of time that he was employed, as he indicated, at the rate of $3,000 a month for the first five months and then at the rate of $5,000 per month for the next three months. [41] The matter should be referred back to the Minister for variation. It should be varied on the basis that the worker was employed under a contract of service, that his insurable earnings should be based upon the amount of income that he earned during the relevant period of time at the rate of $3,000 a month for the first five months and $5,000 a month for the next three months. The Minister should be ordered to calculate his insurable earnings on that basis. [42] The worker should be found to have been engaged in pensionable employment. The pensionable employment should be based upon the amount of income that he received only, which was $7,500. The Minister should calculate pensionable earnings in that way. His insurable earnings should be what he received together with the six weeks vacation pay as well. The Court should vary the decision to that effect. [43] The Appellant argued that the worker was a very knowledgeable person and a businessperson. When he came to the company he knew all of the conditions of the company and he chose to come in under those circumstances. He came to British Columbia not only once, not twice, but three times. He knew what he was getting in for and he came in as a volunteer. There never was a verbal agreement to pay him except in the event that the funding was received. That funding, which was the basis for the contract, was not received. [44] The worker saw this as an opportunity to make money, maybe even a killing, in the event that the 100,000 shares that he was going to be issued might shoot up in value sometime later. That might happen. But it was just a chance that he was taking. He was at the end of a job. He felt that he might be able to make something for himself after a period of time. He knew the problems that the company had. The company could not afford to pay him, he knew the company could not afford to pay him wages and salary on a regular basis and he decided to come in as a volunteer. [45] Only after he left in a huff, for his own reasons, which the witness attributed to him looking for a job somewhere else, "sour grapes set in" and he decided to file a complaint as of a late date due to bitterness. There was no contract of service and the appeal should be allowed. [46] The Intervenor agreed basically with the submissions made on behalf of the Respondent that the oral agreement superseded all of the clauses with respect to the requirements that the Community Futures Program funding be received. Volunteers do not do these types of things. He, as the worker, agreed to take payments on an accrual basis in the expectation that he would get his back pay later on. But, he said, if the Court should find that the hiring, the paying and the employment was contingent upon the company obtaining funding, that funding was received and therefore he has met the requirement and he should be paid anyway. [47] The cheques should be taken at face value. Any attempt to make them appear to say something other than what they do say is mere folly and it is a mere fabrication. Further, the issue of him being a volunteer was not even raised until after the complaint was made. That was his position. The appeal should be dismissed. [48] That is the evidence. Those are the arguments. On the basis of the evidence given and the credibility the Court attaches to the various witnesses, the Court is satisfied that the Appellant has not met the burden upon him of showing that the worker was not engaged in insurable employment. The Court is satisfied that the evidence shows that the worker was engaged under a contract of service during the appropriate period of time, that is from January 15, 2001 to September 14, 2001. That is the period in issue. He was under a contract of service within the meaning of paragraph 5(1)(a) of the Act. [49] The Court is further satisfied that the Appellant had insurable earnings, which the Court directs the Minister to calculate in accordance with the period of employment, which is January 15, 2001 to September 14, 2001, at the rate of $3,000 for three months and $5,000 for five months, together with vacation pay during that period, which was agreed upon, of six weeks. [50] With respect to pensionable employment, the Court is satisfied that the Appellant was engaged in pensionable employment during the period of time and that the pensionable employment should be calculated on the basis of the wages that the Appellant was paid during the period of time, which was $7,500. [51] The Court will allow the appeal and vary the findings of the Minister as indicated above. Signed at Ottawa, Canada this 9th day of April 2003. "T.E. Margeson" J.T.C.C. CITATION: 2003TCC107 COURT FILE NO.: 2002-3147(EI) and 2002-3145(CPP) STYLE OF CAUSE: Probed Medical Technologies Inc. and The Minister of National Revenue and Roger John Mawdsley PLACE OF HEARING: Vancouver, British Columbia DATE OF HEARING: January 13, 2003 REASONS FOR JUDGMENT BY: The Honourable T.E. Margeson DATE OF JUDGMENT: January 21, 2003 DATE OF REASONS FOR JUDGMENT: April 9, 2003 APPEARANCES: Agent for the Appellant: Peter W. Short Counsel for the Respondent: Selena Sit (Student-at-Law) For the Intervenor: The Intervenor himself COUNSEL OF RECORD: For the Appellant: Name: Peter W. Short, President Firm: Probed Medical Technologies Inc. For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada