Date: 19990315
Dockets: 97-1213-UI, 97-131-CPP
BETWEEN:
COUNTRY VENTURES LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
AND
Dockets: 97-1217-UI, 97-132-CPP
BRIAN MACHNIAK,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasonsfor Judgment
Porter, D.J.T.C.C.
[1] These appeals were heard at Winnipeg, Manitoba on February 23, 1999. They were heard on common evidence, by consent of the parties.
[2] The Appellant Brian Machniak (hereinafter referred to as "Machniak") has appealed the decision of the Minister of National Revenue (the "Minister") dated January 30, 1997 that Canada Pension Plan contributions and unemployment insurance premiums were payable on the earnings paid to him by the Appellant, Country Ventures Ltd. (the "Company") for the period January 1, 1995 to April 30, 1996. The reason given for the decision is:
"... You were employed under a contract of service, and therefore
you were an employee."
The decision was said to be issued pursuant to subsections 27(1) of the Canada Pension Plan (the "Plan") and 61(1) of the Unemployment Insurance Act (the "Act") and was based on paragraphs 6(1)(a) of the Plan and 3(1)(a) of the Act respectively.
[3] The Company has also appealed the same decision of the Minister along with an identical decision of even date relating to Ken Zorn another of its workers. Ken Zorn has neither intervened in the appeal nor filed his own appeal. He was, according to counsel for the Minister, informed of the decision of the Minister and decided to take no action. His case however does remain a matter of appeal by the Company which has received an assessment from the Minister for unemployment insurance premiums and Canada Pension Plan contributions relating to both workers.
[4] The established facts reveal that the two workers were engaged by the Company by way of verbal agreements, throughout the period in question, to drive two of its long distance transport trucks for and under the operating authorities of Hunterline Trucking Ltd ("Hunterline"). The issue to be decided is whether they did so whilst engaged as employees or as independent contractors under contracts for services. It is a common issue and the same in each case.
The Law
[5] 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 in 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."
[6] I have also considered the following cases which were cited to me by counsel:
"Astro Towing (1988) Ltd. v. M.N.R., [1996] T.C.J. No. 1720, 96-1639(UI), December 17, 1996, Judge T. O'Connor, Tax Court of Canada
Fred Bond and Her Majesty the Queen, [1997] T.C.J. No. 89, 96-3116(IT)I, February 15, 1997, Deputy Judge D.W. Rowe, Tax Court of Canada
Custom Auto Carriers Ltd. and M.N.R. and Chris Rodgers, 97-780(UI), October 16, 1998, Deputy Judge Michael H. Porter, Tax Court of Canada
Fimrite Oilfield Services Ltd. and M.N.R. et al., 96-1607(UI), October 14, 1998, Judge G. Rip, Tax Court of Canada
Braaten Trucking Ltd. v. M.N.R., [1998] T.C.J. No. 672, 98-258(UI) and 98-45(CPP), July 22, 1998, Deputy Judge D.W. Rowe, Tax Court of Canada
F.G. Lister Transportation Inc. v. M.N.R., [1998] T.C.J. No. 558, 96-2163(UI) and 96-119(CPP), June 23, 1998, Deputy Judge D.W. Rowe, Tax Court of Canada
Summit Gourmet Foods Inc. and M.N.R. and Freeman Walters, 97-470(UI), November 24, 1997, Judge M. Mogan, Tax Court of Canada
S & S Investments Ltd. o/a Our Messenger Service v. M.N.R., 94-1872(UI), October 2, 1996, Judge R.E. Sobier, Tax Court of Canada"
[7] These then are the legal guidelines that I must bear in mind in deciding this issue.
[8] In the Reply to the Notice of Appeal filed by the Deputy Attorney General of Canada on behalf of the Minister, the latter in coming to his decision is said to have relied upon the following assumptions of fact, which are the same in each case:
"(a) the facts admitted, supra;
(b) the Appellant operates a trucking business;
(c) the Appellant owns trucks and hires drivers to drive the trucks;
(d) the Workers were hired as truck drivers by the Appellant;
(e) the trucks were owned by the Appellant;
(f) the Appellant paid for all operating expenses of the trucks;
(g) the Appellant had an agreement with Hunterline where the Appellant would supply a truck and driver to Hunterline;
(h) the agreement between Hunterline and the Appellant was that once a trip was completed, Hunterline would pay the Appellant 75% of the profit of the trip and then the Appellant would pay the Worker 25% of its 75% amount;
(i) Hunterline controlled the trips through a dispatcher and scheduled the trucking assignments for the Workers;
(j) Hunterline scheduled the trips that the Workers drove;
(k) the Workers were paid semi-monthly by cheque by the Appellant;
(l) the Workers were required to maintain a record of their hours driven in logbook and submit the hours to Hunterline;
(m) the Workers have no risk of loss;
(n) the Appellant had the right to terminate the employment arrangement with the Workers if they were not performing their duties properly;
(o) the Workers did not solicit their own business;
(p) the Workers could not drive the trucks for any other purpose, other than Hunterline or the Appellant's business;
(q) the Workers were not in business on their own account."
[9] The Appellants, through their counsel, agreed with items (a) to (j) (except that it was more accurate to say that "Hunterline gave out the assignments" rather than "scheduled the trips" which the drivers did themselves once assigned), (k), (l), (n) and (o) (only to a point ) and (p).
[10] The Appellants took issue with items (m) and (o).
[11] David Boychuk gave evidence on behalf of the Appellants as did the Appellant Machniak. There was no additional evidence called on behalf of the Minister.
[12] David Boychuk said in evidence that he was the President of the Company and had a personal knowledge of the matters. He explained that the Company owned a number of trucks which it operates and that it also operates a trucking repair business in Saskatchewan. Some of its trucks are driven by regular employees who are paid on a mileage basis regardless of the amount received by the Company for the trip. These drivers also receive statutory benefits and are clearly under the control and direction of the company.
[13] Other drivers, as in the case of Zorn and Machniak, work under a different arrangement. The Company has a general contract with Hunterline, a large truck operating corporation, whereby it (the Company) supplies trucks and drivers to Hunterline, who then assign trips directly to those drivers. Hunterline has all the necessary operating authorities and also supplies the trailers containing the cargoes, which are to be attached to the trucks for transportation.
[14] The drivers deal directly with Hunterline to arrange their trips. Once assigned to a trip they are free to make their own plans as to how and where they go. They are also free to take a trip or not, although it was clear from the evidence that if they refused too many they would not be kept on.
[15] Hunterline paid to the Company 75% of the profit for the trip. The Company in turn paid the drivers 25% of that 75%. The Company paid all the operating expenses of the truck such as insurance, licences and registration, gas and oil as well as all the maintenance and repairs to the truck.
[16] The trucks when new were worth in 1995 approximately $75,000.00 to $80,000.00 each.
[17] The drivers provided some equipment such as tarpaulins to cover the loads, straps and tie downs, chains and a cab protector, which was required just for certain loads. This equipment if purchased new would cost about $5,000.00, although Machniak said in his evidence that he had accumulated his over the years and it would last a lifetime provided one looked after it. Nonetheless the drivers provided this equipment at their own expense.
[18] The drivers were responsible for damage to their truck and to third party property at least to the extent of any insurance deductible, as well as damage to, loss of or shortage in the cargo, again to the extent that it was not covered by insurance. They were also at risk with their own equipment. They were paid every two weeks by cheque from the Company. They did not report to the Company on any kind of regular basis in the same way that the regular employees were required to do. They were simply trusted and expected to get on with the job like the professionals they were. When the drivers were engaged in this manner it was generally because they were already experienced and did not need training or everyday supervision. They were however required to file daily logs with Hunterline in accordance with the law.
[19] In arranging their trips they established the best working relationship they could with the dispatchers at Hunterline as these persons could arrange more profitable trips for them. Further if after a trip there was no cargo available for the return trip they sometimes went about finding a cargo for that return trip from other sources. However they were still required to deal with any cargo they so found through the offices of Hunterline. They were not free to just go out and obtain cargoes to transport on their own account and this I find to be significant. The sides of the trucks were painted with the name of Hunterline and all was done with respect to the operation of those trucks under the auspices of Hunterline.
[20] It is clear that the more trips they made the more the drivers were paid. However for every dollar they made for themselves they also made several for the Company. Their rate of pay always remained constant and the source was a single one, through the Company from Hunterline. They often, however, could make better deals with Hunterline than the Company could directly and thus the work was more profitable than working as an employee on a straight mileage basis.
[21] Their agreements with the Company were not in writing.
[22] They could not drive the trucks nor transport goods for any other organisation without going through Hunterline.
[23] They scheduled their own time out. They received nothing for sick pay or vacation pay. They were both farmers and in peak seasons, such as when they were attending to their harvests, they did not drive. Otherwise they organised themselves full time driving these trucks. They could, and in the case of Machniak once did, arrange for another driver to substitute for them in their truck. In that case that other driver had to be approved by Hunterline, who would check his driving credentials such as his driving abstract before giving permission. I gleaned from the evidence that this was not a common practice. When it did occur the one time, Machniak was paid by the Company in the usual way and he in turn paid his substitute driver. I viewed this more as an anomaly rather than an established procedure.
[24] No provision was made for GST in payments to the drivers. Although the evidence indicated that in anyone year each driver received more than the minimum amount to be GST exempt. No deductions were made for tax, unemployment insurance premiums or Canada Pension Plan contributions.
[25] Those are the basic facts that I took from the evidence of the witnesses. There was no real dispute on the facts between the Minister and the Appellants. The issue rather involved the interpretation to be put on those facts. There is no doubt that there was a considerable distinction to be made between the arrangements made by these drivers and the regular employees. The question then arises whether they were different classes of employees or whether they were truly independent contractors. The parties' intent was to provide for independent contractors according to their evidence. The Court however is not bound so much by their expressed intent as by the terms of the arrangement they in fact set up. The substance of the arrangement is more critical to this decision than the label the parties chose to put upon it. Their intent in any event is not evidenced by any written contract. Had there been a written contract in the absence of clear evidence that the substance was not the same as the intent, the Court might be inclined to give considerable deference to any clearly expressed intent. In the present circumstances however the parties must be considered to have intended to set up that which they did in fact set up. They may have hoped or thought that it would not fall into the category of contracts of service but that is now a matter of mixed fact and law to decide.
Application of the Tests to the Facts
[26] The aspect of control or supervision has to rest primarily on the right to control or supervise, whether or not it was actually exercised. These were experienced drivers and like all experienced professionals or trade persons, in whatever line of work, they did not necessarily need day-to-day supervision. They could handle the job and, the better and more efficiently they handled it, the more money both they and the Company made. The Company however had the right to terminate their services at any time and put another driver in the truck. To that extent although it did not in fact exercise that right, it did control the work of the drivers. Counsel for the Appellants urged upon the Court that this would be so whether they were employees or independent contractors. However the question to be asked I suppose is what there would be left to the driver if the Company exercised this option. In the case of an independent contractor he would still have a business to run. In the case at hand, in such circumstances, he would have nothing.
[27] It seems to me that the Company controlled another significant aspect, that is it imposed the requirement that the driver do all his work through the offices of Hunterline. These drivers were not free to go wherever they wanted whenever they wanted for whoever they wanted. They were confined to the business arranged by or through Hunterline. They were free to refuse a trip but not free to arrange an outside trip. That restriction, it seems to me, was a substantial measure of control exercised by the Company. Any work they had depended solely on their continued relationship with the Company and could be terminated or changed at any time by the latter. This aspect of the test very much leans towards a contract of service in my view.
[28] With respect to the tools and equipment used, the substantial tool was clearly the truck. It is true they also needed other equipment. However by providing other equipment they obtained better remuneration terms. It would seem that employees often do that. The substantial and major part of the equipment, in essence the substance of the work, was the truck and this belonged to the Company. If the drivers had leased the trucks they might have held some proprietary rights but they did not. The trucks remained squarely in the hands of the Company. Furthermore the Company paid all the expenses for the trucks including all the servicing and repairs. The drivers had absolutely no stake in the trucks and their investment in the equipment which they carried, paled in comparison to the value of the trucks. This aspect of the test tends to show that the arrangement had more to do with them as employees than as independent contractors.
[29] With respect to whether there was a chance of profit or risk of loss, whilst the drivers were possibly responsible for potential damage or loss claims they had little stake in the affair. If the truck broke down or was lost for some reason that was not their affair. Apart from the relatively low investment in the equipment they had no financial stake save and except if they drove more trips and drove them more efficiently they could earn more. There was no generation of business equity however. If the truck sat idle they were not responsible for lease or purchase payments as was the Company. In such a situation they simply would not generate income but they would not be losing their money at the same time. That is what is envisaged by this aspect of the test. In short there was no entrepreneurial aspect to what they were doing. I am of the view that this aspect of the test also lends itself squarely to an employee status rather than that of an independent contractor.
[30] Lastly I must consider the integration part of the tests. I have to look at this from the point of view of the drivers and ask the question whose business it was. In my mind it is clear that the business was that of the Company. It purchased the trucks and then made the agreement with Hunterline to furnish them with the trucks along with drivers, to be available to do hauls for them. If not these drivers, the Company would have put in other drivers. The drivers picked were expected to be experienced and resourceful enough to arrange trips in an economically advantageous way both to the Company and to themselves. However it was the Company which had the arrangement with Hunterline, not the drivers. All they had to do was to make the individual arrangements for the driving. Hunterline paid the Company for the truck and driver and the Company in turn paid the drivers. It was clearly the business of the Company. No invoices were submitted by the drivers. No GST was charged. The whole arrangement was in my view no more than a sophisticated arrangement to pay by the piece.
Conclusion
[31] At the end of the day, when I look, not just at the individual trees, all of which in my view bear the markings of contracts of service, but stand back and look at the whole forest, I see only a picture of an employment situation and not that of independent contractors. In my view there is not sufficient independence from the Company on the part of the drivers to say that they were engaged by way of contracts for services.
[32] In the result all the appeals are dismissed and the decisions of the Minister are confirmed.
Signed at Calgary, Alberta, this 15th day of March 1999.
"Michael H. Porter"
D.J.T.C.C.
COURT FILE NO.: 97-1213(UI)
STYLE OF CAUSE: Country Ventures Ltd. and M.N.R.
PLACE OF HEARING: Winnipeg, Manitoba
DATE OF HEARING: February 23, 1999
REASONS FOR JUDGMENT BY: the Honourable Deputy Judge
Michael H. Porter
DATE OF JUDGMENT: March 15, 1999
APPEARANCES:
Counsel for the Appellant: William P. Narvey
Counsel for the Respondent: Tracy Harwood-Jones
COUNSEL OF RECORD:
For the Appellant:
Name: William P. Narvey
Firm: Southport Law Group
Winnipeg, Manitoba
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE NO.: 97-131(CPP)
STYLE OF CAUSE: Country Ventures Ltd. and M.N.R.
PLACE OF HEARING: Winnipeg, Manitoba
DATE OF HEARING: February 23, 1999
REASONS FOR JUDGMENT BY: the Honourable Deputy Judge
Michael H. Porter
DATE OF JUDGMENT: March 15, 1999
APPEARANCES:
Counsel for the Appellant: William P. Narvey
Counsel for the Respondent: Tracy Harwood-Jones
COUNSEL OF RECORD:
For the Appellant:
Name: William P. Narvey
Firm: Southport Law Group
Winnipeg, Manitoba
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE NO.: 97-1217(UI)
STYLE OF CAUSE: Brian Machniak and M.N.R.
PLACE OF HEARING: Winnipeg, Manitoba
DATE OF HEARING: February 23, 1999
REASONS FOR JUDGMENT BY: the Honourable Deputy Judge
Michael H. Porter
DATE OF JUDGMENT: March 15, 1999
APPEARANCES:
Counsel for the Appellant: William P. Narvey
Counsel for the Respondent: Tracy Harwood-Jones
COUNSEL OF RECORD:
For the Appellant:
Name: William P. Narvey
Firm: Southport Law Group
Winnipeg, Manitoba
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE NO.: 97-132(CPP)
STYLE OF CAUSE: Brian Machniak and M.N.R.
PLACE OF HEARING: Winnipeg, Manitoba
DATE OF HEARING: February 23, 1999
REASONS FOR JUDGMENT BY: the Honourable Deputy Judge
Michael H. Porter
DATE OF JUDGMENT: March 15, 1999
APPEARANCES:
Counsel for the Appellant: William P. Narvey
Counsel for the Respondent: Tracy Harwood-Jones
COUNSEL OF RECORD:
For the Appellant:
Name: William P. Narvey
Firm: Southport Law Group
Winnipeg, Manitoba
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
97-1213(UI)
BETWEEN:
COUNTRY VENTURES LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on common evidence with the appeals of Country Ventures Ltd. (97-131(CPP)) and Brian Machniak (97-1217(UI) and 97-132(CPP)), on February 23, 1999, at Winnipeg, Manitoba, by
the Honourable Deputy Judge Michael H. Porter
Appearances
Counsel for the Appellant: William P. Narvey
Counsel for the Respondent: Tracy Hardwood-Jones
JUDGMENT
The appeal is dismissed and the decision of the Minister is confirmed in accordance with the attached Reasons for Judgment.
Signed at Calgary, Alberta, this 15th day of March 1999.
|
"Michael H. Porter" |
D.J.T.C.C.
97-131(CPP)
BETWEEN:
COUNTRY VENTURES LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on common evidence with the appeals of Country Ventures Ltd. (97-1213(UI)) and Brian Machniak (97-1217(UI) and 97-132(CPP)), on February 23, 1999, at Winnipeg, Manitoba, by
the Honourable Deputy Judge Michael H. Porter
Appearances
Counsel for the Appellant: William P. Narvey
Counsel for the Respondent: Tracy Hardwood-Jones
JUDGMENT
The appeal is dismissed and the decision of the Minister is confirmed in accordance with the attached Reasons for Judgment.
Signed at Calgary, Alberta, this 15th day of March 1999.
|
"Michael H. Porter" |
D.J.T.C.C.
97-1217(UI)
BETWEEN:
BRIAN MACHNIAK,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on common evidence with the appeals of Country Ventures Ltd. (97-1213(UI) and 97-131(CPP)) and Brian Machniak (97-132(CPP)), on February 23, 1999, at Winnipeg, Manitoba, by
the Honourable Deputy Judge Michael H. Porter
Appearances
Counsel for the Appellant: William P. Narvey
Counsel for the Respondent: Tracy Hardwood-Jones
JUDGMENT
The appeal is dismissed and the decision of the Minister is confirmed in accordance with the attached Reasons for Judgment.
Signed at Calgary, Alberta, this 15th day of March 1999.
|
"Michael H. Porter" |
D.J.T.C.C.
97-132(CPP)
BETWEEN:
BRIAN MACHNIAK,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on common evidence with the appeals of Country Ventures Ltd. (97-1213(UI) and 97-131(CPP)) and Brian Machniak (97-1217(UI)), on February 23, 1999, at Winnipeg, Manitoba, by
the Honourable Deputy Judge Michael H. Porter
Appearances
Counsel for the Appellant: William P. Narvey
Counsel for the Respondent: Tracy Hardwood-Jones
JUDGMENT
The appeal is dismissed and the decision of the Minister is confirmed in accordance with the attached Reasons for Judgment.
Signed at Calgary, Alberta, this 15th day of March 1999.
|
"Michael H. Porter" |
D.J.T.C.C.