Date: 19991208
Dockets: 1999-1521-EI; 1999-1522-CPP; 1999-1523-EI; 1999-1524-CPP
BETWEEN:
KENNETH DYCK, BIGKNIFE OILFIELD OPERATING LTD.,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
Reasons for Judgment
Porter, D.J.T.C.C.
[1] These appeals were heard together on common evidence with the consent of the parties at Edmonton, Alberta on the July 23, 1999.
[2] The Appellants appeal the decisions of the Minister of National Revenue (the "Minister") dated the November 12, 1998 that the Appellant, Kenneth Dyck (hereinafter called “Dyck”) was employed by the Appellant, Bigknife Oilfield Operating Ltd. (hereinafter called “Bigknife”) during the period from February 21 to August 6, 1998 in insurable and pensionable employment respectively under the Employment Insurance Act (the "EI Act") and the Canada Pension Plan (the “Plan”).
[3] The reason given was:
“You were engaged under a contract of service and therefore were an employee of Bigknife ....”
[4] The established facts revealed that Bigknife at the material time was in the business of providing oilfield services which included providing maintenance for well sites and plants. Dyck, during that time, was responsible for the maintenance and supervision of the Red Willow/Donalda gas plant owned and operated by Fletcher Challenge Energy Canada Inc. (“Fletcher”). He was engaged to do this work by Bigknife by virtue of verbal contract which they both claim was a contract for services rather than an employment contract or contract of service. The Minister has decided to the contrary and that accordingly, both employment insurance premiums and pension plan contributions are due and payable. Thus, the first issue in this case is the nature of the working relationship between the Appellants.
[5] The Minister, upon the appeal being filed, has raised a further issue, namely that even if the working arrangement does not amount to a contract of service, Dyck was still in insurable and pensionable employment by virtue of subsection 6(g) of the Employment Insurance Regulations (the “EI Regulations”) and section 34 of the Canada Pension Plan Regulations (the “CPP Regulations”) which respectively read as follows:
“6(g) Employment of a person who is placed in that employment by a placement or employment agency to perform services for and under the direction and control of a client of the agency, where that person is remunerated by the agency for the performance of those services.
34(1) Where any individual is placed by a placement or employment agency in employment with or for performance of services for a client of the agency and the terms or conditions on which the employment or services are performed and the remuneration thereof is paid constitute a contract of service or are analogous to a contract of service, the employment or performance of services is included in pensionable employment and the agency or the client, whichever pays the remuneration to the individual, shall, for the purposes of maintaining records and filing returns and paying, deducting and remitting contributions payable by and in respect of the individual under the Act and these Regulations, be deemed to be the employer of the individual.
(2) For the purposes of subsection (1), “placement or employment agency” includes any person or organization that is engaged in the business of placing individuals in employment or for performance of services or of securing employment for individuals for a fee, reward or other remuneration.”
The Law
[6] The manner in which the Court should go about deciding whether any particular working arrangement is a contract of service and thus an employer/employee relationship or a contract for services and thus an independent contractor relationship, has been clearly laid out by the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025. The test to be applied has been further explained by that Court in Moose Jaw Kinsmen Flying Fins Inc. v. M.N.R., 88 DTC 6099. There are, following these cases, numerous decisions of this Court, some of which have been cited by counsel, which demonstrate how these appellate guidelines have been applied. In the Moose Jaw Kinsmen Flying Fins Inc. case, above, the Federal Court of Appeal said this:
"[Analysis]
The definitive authority on this issue in the context of the Act, is the decision of this Court in Wiebe Door Services Ltd. v. The Minister of National Revenue, 87 DTC 5025. MacGuigan J. speaking on behalf of the Court, analyzed Canadian, English and American authorities, and, in particular, referred to the four tests, for making such a determination enunciated by Lord Wright m City of Montreal v. Montreal Locomotive Works Ltd., [1974] 1 D.L.R. 161 at 169-70. He concluded at page 5028 that:
Taken thus in context, Lord Wright's fourfold test [control, ownership of tools, chance of profit, risk of loss] is a general, indeed an overarching test, which involves "examining the whole of the various elements which constitute the relationship between the parties". In his own use of the test to determine the character of the relationship in the Montreal Locomotive Works case itself, Lord Wright combines and integrates the four tests in order to seek out the meaning of the whole transaction.
At page 5029 he said:
... I interpret Lord Wright's test not as the fourfold one it is often described as being but rather as a four-in-one test with emphasis always retained on what Lord Wright, supra, calls "the combined force of the whole scheme of operations," even while the usefulness of the four subordinate criteria is acknowledged.
At page 5030 he had this to say:
What must always remain of the essence is the search for the total relationship of the parties.
He also observed "there is no escape for the trial judge, when confronted with such a problem, from carefully weighing all the facts.
... like MacGuigan J. we view the tests as being useful subordinates in weighing all of the facts relating to the operations of the Applicant. That is now the preferable and proper approach for the very good reason that in a given case, and this may well be one of them, one or more of the tests can have little or no applicability. To formulate a decision then, the overall evidence must be considered taking into account those of the tests which may be applicable and giving to all the evidence the weight which the circumstances may dictate.”
[7] The nature of the tests referred to by the Court can be summarized as follows:
a) The degree or absence of control exercised by the alleged employer;
b) Ownership of tools;
c) Chance of profit and risk of loss;
d) Integration of the alleged employee's work into the alleged employer's
business.
[8] I also take note of the further words of MacGuigan J., in the Wiebe case, above, where he approved the approach taken in the English courts:
"Perhaps the best synthesis found in the authorities is that ofCooke J. in Market Investigations, Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732, 738-9:
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 be taken, 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. The application of the general test may be easier in a case where the person who engages himself to perform the services does so in the course of an already established business of his own; but this factor is not decisive, and a person who engages himself to perform services for another may well be an independent contractor even though he has not entered into the contract in the course of an existing business carried on by him."
[9] To this I would add the words of Décary, J.A. in Charbonneau v. Canada (M.N.R.) [1996] F.C.J. No. 1337, where speaking for the Federal Court of Appeal he said this:
"The tests laid down by this Court ... are not the ingredients of a magic formula. They are guidelines which it will generally be useful to consider, but not to the point of jeopardizing the ultimate objective of the exercise, which is to determine the overall relationship between the parties. The issue is always, once it has been determined that there is a genuine contract, whether there is a relationship of subordination between the parties such that there is a contract of employment ... or, whether there is ..., such a degree of autonomy that there is a contract of enterprise or for services. ... In other words, we must not pay so much attention to the trees that we lose sight of the forest. ... The parts must give way to the whole.”
Review of the Evidence
[10] In the Replies to the Notices of Appeal, the Minister was said to have relied upon the following assumptions of fact (same in each case):
1999-1523(EI)
“(a) the Appellant is in the business of providing oil field services which includes providing maintenance for well sites and plants;
(b) the Appellant will assign a group of sites to a particular worker who is then responsible to make required checks and maintain appropriate records and charts;
(c) the Appellant assigned a group of sites that Dyck was responsible for;
(d) the Appellant expected Dyck to check all of his assigned sites on a daily basis;
(e) the Appellant set minimum requirements that Dyck had to meet, however, Dyck may also have additional duties as directed by the clients of Appellant;
(f) Dyck was paid as follows:
(i) a basic rate of $256.00 per day;
(ii) $32.00 per hour for additional “call outs” where Dyck’s vehicle is required;
(iii) $23.00 per hour for additional “calls” where Dyck’s vehicle is not required;
(iv) $14.00 per hour for incidental duties where the Appellant’s equipment is used;
(g) Dyck invoiced the Appellant and in turn the Appellant invoiced their clients;
(h) Dyck notified the Appellant of any leave requirements and the Appellant arranged replacement;
(i) Dyck kept track of his hours of work and invoiced the Appellant monthly;
(j) Dyck’s performance was monitored by the Appellant’s clients;
(k) Dyck is hired for his expertise so he has to perform the work personally.”
[11] The Appellants agreed with Items (a), (f), (g), and (i), but disputed the remaining assumptions of fact.
[12] In addition, the Minister was said to have agreed with the following statements in the Notices of Appeal:
(1999-1523(EI))
“The Appellant is a corporation resident in Canada for the purposes of the E.I. Act and the CPP.
The Appellant carries on the business of contracting with oil producers for the operation and maintenance of crude oil and natural gas field installations.
Dyck ... was responsible for obtaining his own safety certificates and his own licenses.
Dyck determined the methods he utilized in providing services to the Appellant under the Facility Subcontract. The services provided by Dyck were provided without any supervision by the Appellant, and any supervisory role was performed by Fletcher Challenge employees.
The Appellant did [not] supervise Dyck on any basis.
During the term of the Facility Subcontract, Dyck also provided services to clients other than the Appellant.
Dyck purchased and supplied a vehicle, small hand tools and protective equipment required in his performances of the Facility Subcontract. He was also responsible in his own time and at his own expense for any safety courses necessary in providing any services under the Facility Subcontract.
Dyck ... could work for other customers at any time, which he did.
... Every month Dyck billed the Appellant for services performed.
Dyck was a registrant for goods and services tax (“GST”).
Dyck was paid a set rate of $256 per day for work performed ...
...Dyck billed the Appellant $32.00 an hour as a call-out rate, ...
Dyck ran the risk of loss from mechanical breakdowns of equipment. He also incurred various expenses in the course of providing his services under the Facility Subcontract.
Dyck was highly skilled in the methods necessary to perform his services, and was retained by the Appellant on this basis.
Dyck also provided some services to the Appellant for the purposes of oilfield lease maintenance, most notably grass cutting. In providing these services Dyck utilized equipment arranged for by the Appellant, and was paid the rate of $14 per hour."
(1999-1521(EI))
“... He was responsible for obtaining his own safety certificates and his own licenses.
Bigknife ... did [not] supervise the Appellant on any basis.
During the term of the Subcontract, the Appellant also provided services to different clients other than Bigknife.
The Appellant purchased and supplied a vehicle, small hand tools and protective equipment required in his performances of the Subcontract. He was also responsible on his own time and at his own expense for any safety courses necessary in providing any services under the Subcontract.
The Appellant ... could work for other customers at any time, which he did.
... Bigknife never supervised the work of the Appellant, ...
... Every month the Appellant billed Bigknife for services performed.
The Appellant was a registrant for goods and services tax (“GST”).
The Appellant was paid a set rate of $256 per day ....
... The Appellant billed Bigknife $32.00 an hour as a call-out rate, ...
The Appellant ran the risk of loss from mechanical breakdowns of equipment. He also incurred various necessary expenses in the course of providing his services under the Subcontract.
The Appellant was highly skilled in the methods necessary to perform his services, and was retained by Bigknife on this basis.
The Appellant also provided some individual services to Bigknife for the purposes of oilfield lease maintenance, most notably grass cutting. In providing these services Dyck utilized equipment provided by Bigknife, and was paid the rate of $14 per hour.”
[13] Evidence was given by Kenneth Dyck on his own behalf, as well as by Norman Hamilton, President and 50% shareholder in Bigknife.
[14] The basic facts are really quite clear. The interpretation to be put upon them is somewhat more difficult. There are no questions of credibility here. I found both Kenneth Dyck and Norman Hamilton honest and straightforward witnesses, and I have no hesitation in accepting their evidence.
[15] Kenneth Dyck was originally employed by other corporations as an employee to look after the gas plant in question. In late 1997 or early 1998, the plant was sold to Fletcher. Representatives of this company sought out Dyck and requested that he stay on for three months to look after the plant and either train or supervise their own personnel until the latter came on stream. They indicated to him, however, that the arrangements would have to be done through Bigknife as they arranged all their personnel through that latter company.
[16] The arrangement as it was explained by Norman Hamilton was that Bigknife would bid on oil and gas fields to provide all the necessary personnel to operate the facilities in a field. In this way, a company like Fletcher would only have to deal with one payment to one company and that the latter company would deal with all the personnel, whether they be employees, sub-trades, independent contractors or something else.
[17] Fletcher entered into such an agreement with Bigknife in February 1998. Quite clearly, at the time they told Bigknife that they wished to have Dyck operating the facility at Red Willow/Donalda for the first while until they brought their own personnel on stream. Bigknife then had negotiations with Dyck to engage him to carry out pretty much the same duties as he had for the previous owner. There was talk of a three-month contract. Dyck would do some training or supervising of the new people. The talk was of a contract where he would bear his own working expenses. He had previously been paid $23 per hour as an employee. In the new arrangement, which he understood to be an independent contractor status, he negotiated a daily rate of $256 which was based on an estimated eight-hour day at $32 per hour. Originally, he had negotiated for an hourly rate of $35, but had accepted $32. The additional $9 per hour over and above his previous pay, obviously reflected the fact that he would henceforth be responsible for all his own expenses. I say this as for the first few days, he had neither truck nor tools, and billed his time at the same rate of $23 per hour.
[18] This was an oral contract between the parties. Every month Dyck would bill Bigknife and receive a gross payment. Apparently, he charged GST on the amounts and he attended to his income tax returns on the basis of a sole proprietorship.
[19] He purchased the truck which he had previously been driving for his former employer, along with a number of tools which he would need. He paid $9,000 in total. He was not reimbursed over and above the $256 per day for any expenses he incurred. He paid his own truck expenses, including gas and oil, and had to maintain his tools himself. He also had to pay for his own upgraded training and his certificates and licenses.
[20] Bigknife provided him with a pager for which they paid so that he could be on-call.
[21] Sometimes he worked the full eight hours in a day, sometimes he worked less, and sometimes more. He did not charge overtime unless there were a significant number of extra hours worked, and then would charge it at 1 ½, 2 or 3 times the usual rate. He took no time off during the first three-month period by way of vacation or otherwise. If he was called out in the night for emergencies, he billed out his time at $32 per hour from the time he left home until he returned.
[22] Although the situation never arose, he felt that he could have hired someone in his place, but that person would have had to have been approved by Fletcher.
[23] He had no set schedule and seems to have reported to no one. He simply went about his work as he thought appropriate. He knew the facility very well and as long as things kept working, which apparently they did, there was no need to check in with anyone else at Fletcher. It was clear from the evidence, however, that if the need had arisen, it would have been Fletcher that he called to discuss the matter or take instructions, not Bigknife who had no place in the working of the facility. Their responsibility was to have someone working there and looking after it.
[24] Dyck was obviously very experienced and thus needed little or no guidance in his work.
[25] He also took on another contract mowing the grass around a number of leases, ten in total, for which he was paid an additional $14 per hour. Fletcher provided the mower. Dyck decided where and when he would mow. He just had to keep the grass mowed down around the various leases as he saw fit. He spent a total of 13 days doing this throughout the six months.
[26] Dyck was of the view that he could have equally as well have entered into his contract directly with Fletcher, save for two things. One was that it was their policy to engage all lease personnel through Dyck. Secondly, as a sole proprietor, he could not obtain Workers’ Compensation, which was a requirement of the job. Workers’ Compensation is established for employees not independent contractors. Thus, he had to appear as an employee on the books of Bigknife for that purpose. Bigknife paid his premiums in this respect.
[27] Furthermore, Dyck had no liability insurance for his work, and again relied upon and was covered by Bigknife for this at their expense.
[28] During the second three-month period, a Fletcher employee came on board. He and Dyck worked out their schedule between themselves. With his former employee, Dyck had worked with another employee, and their schedule had been set by head office.
[29] Dyck was not of the view that he had to supervise this other employee. He showed him around for one day and then filled in for him over the second three months when the other employee was not working. He felt during this time, that he was free to refuse work on any particular day. He said he would work if it suited his schedule. It was the same for any call-outs at night.
[30] Dyck said that because he was bearing his own expenses, he was more fiscally prudent in how he went about things than when he had been as an employee. Thus, if he was careful he could keep more of the money than if it was expended on expenses.
[31] Norman Hamilton said that he, as well, worked for Bigknife as an independent contractor. However, as he was a more than 40% shareholder, that was not likely to have been tested and I am also not entirely clear on the terms of his contract and how it might have differed, if at all, from the contract with Dyck. Thus, this evidence is not entirely helpful.
[32] Those, then, are the salient facts as I find them. I must now, in turn, consider how that evidence relates to the four-part legal test outlined above.
Application of the Four Part Test
[33] As is often the case in these situations, there is a measure of both employer/employee state and independent contract or status. Thus, I find the words of Décary J.A. in the Charbonneau case above so very helpful, to consider the overall situation. Clearly here there was a genuine contract. It is perhaps most unfortunate that it was not reduced to writing. In any event, the law is clear that it is not the name that the parties put upon any particular working arrangement that counts, but rather the substance of that relationship. In the absence of clear evidence to the contrary, the Court should give due weight to the clearly expressed intention of the parties. Here, however, the exact nature of that intention is far from clear, in any event.
[34] The Court must then consider whether there is a relationship of subordination between the parties, or whether there is such a degree of autonomy that there is a contract of enterprise or for services. Looking at it another way I have to ask myself whether there was such a degree of entrepreneurship in the arrangement that it was taken out of the realm of the contract of employment between employer and employee.
[35] Control: When I consider the control aspect of the test, I must remind myself that it is not actual control which is so important as the right to control. The more experienced a professional or tradesperson, the less control is necessary for his or her day-to-day work. However, the question is whether Bigknife had the right to control Dyck’s work.
[36] The control, if any, in this case would, as I see it, have come from Fletcher. They had the right to insist on certain procedures in their facility and Dyck would, no doubt, have been required to follow them. Theoretically, they could have been passed onto him by Bigknife, but this was unlikely to happen and apparently never did happen. Dyck was engaged as a result of his expertise, and was very much left to his own resources as a professional, and would only report to Fletcher if some particular need arose. Thus, this aspect of the test lends itself somewhat more to the situation of an independent contractor. He might be engaged for a particular site, as might be an electrician on a building site, and told what needed to be done, but on the whole, it was up to him when, where, and how it was done. Control was exercised in the sense that he could not work on the facility without Workers’ Compensation or insurance and both of these were provided by Bigknife and this aspect leans more to an employee situation.
[37] Clearly the tools were provided by Dyck; the truck and tools he purchased himself and received a higher hourly rate as a result thereof. Thus, in a sense Bigknife provided the tools as they provided the means to obtain them. Nevertheless, they did, apart from the pager, belong to Dyck. It is true that some tradespeople, employees, do provide their own tools on a job and their hourly employment rate reflects this. In this case, however, traditionally the tools belonged to the employer in an employer/employee situation and that changed. Again, this aspect of the test would tip the scale just slightly in favour of an independent contractor status.
[38] With regard to the profit or loss element, it seems to me that there was little prospect for Dyck to experience either. His work was regular, his rate of pay regular. It incorporated an allowance for his tools. He would have had to have been extraordinarily inept to have lost money in that situation. He had no need to go out and do any marketing or to run an office. He had one simple invoice to complete and send out each month. True he worked for a couple of short electrical jobs for other companies and mowed the grass, but this was all of such little significance in the total order of things that I do not consider it worth taking into account. The entrepreneurial aspect of this test lends itself very much to a contract of service and not an independent contractor situation.
[39] Lastly, I must consider the question of the integration of the work into the corporate business. Clearly, Fletcher’s business was the operation of the facility on the lease. Clearly, the business of Bigknife was to provide qualified personnel to oil and gas pump operators. I must look at this from the point of view of the worker and not the employer, and ask the question, whose business was it? In my view, it was very much the business of Fletcher. Bigknife was in the business to acquire and supply personnel to work in Fletcher’s business. No doubt, it could engage by way of an independent contract for services. In this case, however, the entrepreneurial aspect of an independent business, in all reality, is lacking. There are aspects to it, particularly the independence and the tools. The onus, however, is upon the Appellants and although their counsel has ably advanced certain points in their favour, on balance, they have not met the onus cast upon them by law. There are significant pointers in my view, but not sufficiently significant to get over the fact that in all reality, there was not entrepreneurial aspect to the work of Dyck. I have struggled with this and it has come close, but I cannot say at the end of the day when I look at the whole forest rather than the individual trees, that there existed a contract for services as opposed to a contract of service.
[40] The position of the Minister is that Bigknife acted in this situation as a placement or employment agency. The EI Regulation in question was changed in 1997 and thus, previous case law is not particularly helpful. However, the logic of Teskey, J. in Rod Turpin Consulting Ltd. o/a Tundra Site Services v. The Minister of National Revenue ([1997] T.C.J. No. 1052, DRS 97-17672, Court File No. 97-19(UI)) seems as relevant today as it was then. Bigknife was not a general contractor. It was only responsible to supply qualified personnel. There was no individual fees for the different people who were engaged, but no doubt, that was all built into the overall contract. It places Dyck, to the extent that he needed it in providing his services under the direction and control of Fletcher. They had the right to control his work. In my view, EI Regulation 6(g) and CPP Regulation 34 do each apply in this situation.
Conclusion
[41] For the reasons expressed above, I hold that Kenneth Dyck was engaged by Bigknife Oilfield Services Ltd. by way of a contract of service during the period in question and was thus an employee and not an independent contractor. He was in insurable and pensionable employment under the EI Act and the Plan respectively.
[42] Further, the work was included in insurable and pensionable employment by virtue of Regulation 6(g) of the Employment Insurance Regulations and section 34 of the Canada Pension Plan Regulations.
[43] In the result, the appeals are dismissed and the decisions of the Minister are confirmed.
Signed at Calgary, Alberta, this 8th day of December 1999.
“Michael H. Porter”
D.J.T.C.C.