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A-531-85
Wiebe Door Services Ltd. (Applicant)
v.
Minister of National Revenue (Respondent)
INDEXED AS: WIEBE DOOR SERVICES LTD. v. M.N.R. (F.CA.)
Court of Appeal, Pratte, Mahoney and Mac- Guigan JJ.—Calgary, May 1; Ottawa, June 18, 1986.
Master and servant — Application to set aside Tax Court decision upholding assessment of company for unemployment insurance premiums and Canada Pension Plan contributions — Applicant's business carried on through door installers and repairers who agreed to make own unemployment insurance and Canada Pension Plan payments — Tax Court finding workers engaged in insurable employment — Application allowed — Error in use of Lord Denning's "integration" or "organization" test — Test criticized as difficult to apply — Prefer general test applied by Lord Wright in Montreal Locomotive Works case as emphasizes combined force of whole scheme of operations — Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 28.
Unemployment insurance — Nature of relationship between company and door installers and repairers — Understanding that workers running own businesses and responsible for own tax, unemployment insurance and Canada Pension Plan pay ments — Tax Court erred in application of "integration" test to find workers in insurable employment — Better approach test in Montreal Locomotive Works — Necessary to weigh all relevant factors.
This is an application to set aside the Tax Court's decision upholding an assessment for the payment of Unemployment Insurance premiums and Canada Pension Plan contributions. The applicant installs doors and repairs overhead doors. It carries on its business through the services of installers. It has a specific understanding with each installer that he would be running his own business and would be responsible for his own taxes, unemployment insurance premiums and Canada Pension Plan contributions. The Tax Court found that the applicant's employees were engaged in insurable employment by applying the "integration test" set out by Lord Denning in Stevenson Jordan and Harrison, Ltd. v. Macdonald and Evans. The integration test is that under a contract of service, a man is employed as part of the business and his work is done as an integral part thereof while under a contract for services, his work is not integrated into the business, but is only accessory to it. The Tax Court held that the work done by the installers was an integral part of the applicant's business. The applicant contends that the Tax Court erred in using the integration test,
which applies only to workers having a high degree of profes sional skill.
Held, the application should be allowed.
In response to certain inadequacies in the traditional control test used to determine the employment relationship, Lord Wright applied a different test in Montreal v. Montreal Locomotive Works Ltd. It involved (1) control (2) ownership of the tools (3) chance of profit, and (4) risk of loss. In context, the test is general and involves "examining the whole of the various elements which constitute the relationship between the parties". The test set out by Lord Denning (usually termed the "organization test" but referred to herein by the Tax Court as the "integration test") is also a general one and is firmly established in Canada. It has, however, had less popularity in other common-law jurisdictions where a "multiple" test, taking all the factors into account, has been preferred. Lord Wright's test is more general than Lord Denning's, emphasizing "the combined force of the whole scheme of operations." Lord Denning's test is more difficult to apply as often the answer is dictated by the form of the question, by showing that without the work of the "employees" the "employer" would be out of business. Thus applied this is not a fair test, because in a factual relationship of mutual dependency it must always result in an affirmative answer. If the businesses of both parties are so structured as to operate through each other, they could not survive independently without being restructured. But that is a consequence of their surface arrangement, and not necessarily indicative of their intrinsic relationship. The total relationship of the parties remains of the essence. Lord Denning's organiza tion test produces acceptable results when properly applied, i.e. when the question of organization or integration is approached from the persona of the "employee", and not from that of the "employer". The Trial Judge must weigh all the relevant factors. The contention that Lord Denning's test should be applied only in the case of highly skilled workers is not support able. However, the Tax Court erred in law in its use of that test.
CASES JUDICIALLY CONSIDERED
APPLIED:
Montreal v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161 (P.C.); Market Investigations, Ltd. v. Minis ter of Social Security, [1968] 3 All E.R. 732 (Q.B.D.); Ferguson v John Dawson & Partners (Contractors) Ltd, [1976] 3 All ER 817 (C.A.).
CONSIDERED:
Regina v. Walker (1858), 27 L.J.M.C. 207; Hôpital Notre-Dame de l'Espérance and Théoret v. Laurent, [1978] 1 S.C.R. 605; Stevenson Jordan and Harrison,
Ltd. v. Macdonald and Evans, [1952] 1 T.L.R. 101 (C.A.); Co-Operators Insurance Association v. Kearney, [1965] S.C.R. 106.
REFERRED TO:
Massey v. Crown Life Insurance Co., [1978] 1 W.L.R. 676 (Eng. C.A.); Narich Pty. Ltd. v. Commr. of Pay-roll Tax (1983), 58 A.L.J.R. 30 (P.C.); Mayer v. J. Conrad Lavigne Ltd. (1979), 27 O.R. (2d) 129 (C.A.); Re/Max Real Estate Calgary South v. M.N.R., decision dated July 14, 1982, Umpire under Unemployment Insurance Act, 1971, N.R. 1069, not reported; Sairoglou v. M.N.R., decision dated August 6, 1982, Umpire under Unemploy ment Insurance Act, 1971, N.R. 1085, not reported; Terra Engineering Laboratories Ltd. v. M.N.R., decision dated August 28, 1979, Umpire under Unemployment Insurance Act, 1971, N.R. 858, not reported; Barnard v. T.M. Energy House Ltd., [1982] 4 W.W.R. 619 (B.C. Co. Ct.).
COUNSEL:
Michael A. Wedekind for applicant. Larry Huculak for respondent.
SOLICITORS:
Foster Wedekind, Calgary, for applicant.
Deputy Attorney General of Canada for respondent.
The following are the reasons for judgment rendered in English by
MACGUIGAN J.: This section 28 [Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10] application is brought to set aside a decision by the Tax Court, which upheld an assessment against the applicant for the payment of Unemployment Insurance pre miums and Canada Pension Plan contributions for the years 1979, 1980 and 1981. Counsel for the applicant admitted before this Court that the assessment for the 1979 year was correct, in that the only two persons then in question were admit tedly employees in that year, but contended that the twelve persons in relation to whom the appli cant was assessed in 1980 and 1981 were all independent contractors rather than employees.
The applicant is in the business of installing doors and repairing overhead doors in the Calgary
area, with about 75% of its business being on the repair side. It carries on its business through the services of a considerable number of door installers and repairers, with each of whom it has a specific understanding that they would be running their own businesses and would therefore be responsible for their own taxes and any contributions for workers' compensation, unemployment insurance and Canada Pension Plan. Such an agreement is not of itself determinative of the relationship be tween the parties, and a court must carefully examine the facts in order to come to its own conclusion: Massey v. Crown Life Insurance Co., [1978] 1 W.L.R. 676 (Eng. C.A.); Narich Pty. Ltd. v. Commr. of Pay-roll Tax (1983), 58 A.L.J.R. 30 (P.C.).
The essential part of Tax Court's reasons for decision is as follows:
The Court must determine whether the Appellant's employees were engaged in insurable employment during the years 1979, 1980 and 1981. Regarding the year 1979, the Appellant admitted that he had two employees, Paul Jeffrey and Clint Fayant in whom he'd taken a special interest. They had no truck in 1979, and in that year were hired as employees. Insofar as these two employees are concerned, for the assess ment made for the year 1979, this appeal is dismissed.
Section 3(1) of the Unemployment Insurance Act defines insurable employment as:
"employment in Canada by one or more employers under any express or implied contract of service, or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person, and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise."
Case law has established a series of tests to determine whether a contract is one of service or for the provision of services. While not exhaustive the following are four tests most commonly referred to:
(a) The degree or absence of control, exercised by the alleged employer.
(b) Ownership of tools.
(c) Chance of profit and risks of loss.
(d) Integration of the alleged employees work into the
alleged employers business.
Let us now subject the evidence to each of the above tests.
Firstly: The Control Test
The workers worked mostly on their own. They were free to accept or refuse a call. They were not required to work or attend at the Appellant's place of business, except to pick up a door or parts. The Appellant did exercise some measure of
control over the workers. Firstly, the Appellant assigned the jobs to the installer. The job was guaranteed for one year. Within that time the Appellant would require the installer to correct any faulty or defective installation or repair. On the basis of the Control Test, the evidence is indecisive.
Secondly: Ownership of Tools
Each worker owned his own truck and tools. The appellant provided only the special racks for transporting doors and the special cement drill, when required. On the basis of this test, the workers would seem to be independent contractors.
Thirdly: Chance of Profit or Risk of Loss
Each worker had a limited chance of profit. He got paid by the job. If he worked quickly and efficiently he could do more jobs per day if these were available. If on the other hand he was careless and did not properly complete the job, he would be required at his own expense as to gas, parts and services to redo or correct his work. On the basis of this test the workers would seem to be independent contractors.
Fourthly: The Integration Test
The Appellant was in the business of servicing and installing overhead electrically controlled doors. All the work performed by the installers formed an integral part of the Appellant's business. Without the installers, the Appellant would be out of business.
In Stevenson Jordan et al vs. MacDonald and Evans, (1951) T.L.R. 101 at page 111, Lord Denning put forth his often repeated test in these words:
"One feature which seems to run through the instances is that, under a contract of service, a man is employed as part of the business and his work is done as an integral part of the business: whereas, under a contract for services his work, although done for the business, is not integrated into it but is only accessory to it."
Lord Denning's test has been applied and followed in our Courts on many many occasions. In the case before me, this test tips the scales in favour of a contract of service, and not a contract for services.
This appeal is therefore dismissed, and the determination of the Respondent is upheld.
The applicant argued before us that the Tax Court committed an error of law in its use of the so-called "integration" test, which it contended was rightly applied only in relation to workers possessed of a high degree of professional skill and therefore not applicable at all to the present facts.
The question of whether a contract is one of service, in which case it indicates a master-servant or employment relationship, or for services, in which case the relationship is between independent
contractors, has arisen most often in the law of torts, as surveyed recently by Professor Joseph Eliot Magnet, "Vicarious Liability and the Profes sional Employee" (1978-79), 6 C.C.L.T. 208, or in labour law, as recently summarized by Professor Michael Bendel, "The dependent contractor: An unnecessary and flawed development in Canadian labour law" (1982), 32 U.T.L.J. 374.
The traditional common-law criterion of the employment relationship has been the control test, as set down by Baron Bramwell in Regina v. Walker (1858), 27 L.J.M.C. 207, at page 208:
It seems to me that the difference between the relations of master and servant and of principal and agent is this:—A principal has the right to direct what the agent has to do; but a master has not only that right, but also the right to say how it is to be done.
That this test is still fundamental is indicated by the adoption by the Supreme Court of Canada in Hôpital Notre-Dame de l'Espérance and Théoret v. Laurent, [1978] 1 S.C.R. 605, at page 613, of the following statement: "the essential criterion of employer-employee relations is the right to give orders and instructions to the employee regarding the manner in which to carry out his work."'
Nevertheless, as Professor P. S. Atiyah, Vicari ous Liability in the Law of Torts, London, Butter- worths, 1967, page 41, has put it, "the control test as formulated by BRAMWELL, B., ... wears an air of deceptive simplicity, which ... tends to wear thin' on further examination." A principal inadequacy is its apparent dependence on the exact terms in which the task in question is contracted for: where the contract contains detailed specifica tions and conditions, which would be the normal expectation in a contract with an independent contractor, the control may even be greater than where it is to be exercised by direction on the job, as would be the normal expectation in a contract with a servant, but a literal application of the test might find the actual control to be less. In addi tion, the test has broken down completely in rela-
' Although this is a civil-law case, the Court's expressed view is that that law is in this respect the same as the common law.
tion to highly skilled and professional workers, who possess skills far beyond the ability of their employers to direct.
Perhaps the earliest important attempt to deal with these problems was the development of the entrepreneur test by William O. (later Justice) Douglas, "Vicarious Liability and Administration of Risk I" (1928-29), 38 Yale L.J. 584, which posited four differentiating earmarks of the entre preneur: control, ownership, losses, and profits. It was essentially this test which was applied by Lord Wright in Montreal v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161 (P.C.), at pages 169-170:
In earlier cases a single test, such as the presence or absence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortious liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated tests have often to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive. Thus the master of a chartered vessel is generally the employee of the shipowner though the charterer can direct the employment of the vessel. Again the law often limits the employer's right to interfere with the employee's conduct, as also do trade union regulations. In many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties. In this way it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior. In the present case the business or undertaking is the manufacture of the warlike vehicles. The respondent might have been making them with a view to selling them to the Government for its own profit. The Government as purchaser might in that case advance funds or subsidize the work: the Crown might, as it would presumably, take powers of supervision, inspection and regulation, having specified the tests which each vehicle is to satisfy. The Govern ment might even provide the material or the factory to the actual manufacturer. These and kindred powers might be very wide, without the result being that the manufacturer was not doing the work for his own profit and at his own risk. But in reviewing in the present case the contracts which are the determining matters, their Lordships with great respect to the Judges below who have taken a different view, find themselves in agreement with the judgment of the Supreme Court. The combined force of the whole scheme of operations seems to them to admit of no other conclusion. The factory, the land on which it was built, the plant and machinery were all the property of the Government which had them appropriated or
constructed for the very purpose of making the military vehi cles. The materials were the property of the Government and so were the vehicles themselves at all stages up to completion. The respondent supplied no funds and took no financial risk and no liability, with the significant exception of bad faith or wanton neglect: every other risk was taken by the Government. It is true that the widest powers of management and administration were entrusted to the respondent but all was completely subject to the Government's control. A "fee" was payable in respect of each completed vehicle, but when the whole plan is considered, that was solely as a reward for personal services in managing the whole undertaking. It was something very different from the risk of profit or loss which an independent contractor has to assume; every item of expense was borne by the Crown, just as the Government took every possible risk of loss or damage except in the very unlikely event, as already noted, of bad faith or wilful neglect on the part of the respondent. The undertaking throughout was the undertaking of the Government and not the undertaking of the respondent which was simply an agent or mandatory or manager on behalf of the Crown. The accuracy of the positive announcement in each of the contracts that the respondent was acting throughout under the contracts for and on behalf of the Government and as its agent cannot be controverted. [Emphasis added.]
Taken thus in context, Lord Wright's fourfold test is a general, indeed an overarching test, which involves "examining the whole of the various ele ments which constitute the relationship between the parties." In his own use of the test to deter mine the character of the relationship in the Mon- treal Locomotive Works case itself, Lord Wright combines and integrates the four tests in order to seek out the meaning of the whole transaction.
A similar general test, usually called the "organ- ization test" (though termed the "integration test" by the Tax Court here), was set forth by Denning L.J. (as he then was) in Stevenson Jordan and Harrison, Ltd. v. Macdonald and Evans, [1952] 1 T.L.R. 101 (C.A.), at page 111:
One feature which seems to run through the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.
The organization test was approved by the Supreme Court of Canada in Co-Operators Insur ance Association v. Kearney, [1965] S.C.R. 106, at page 112, where Spence J. for the Court quoted with approval the following passage from Fleming, The Law of Torts (2nd ed., 1961), at pages 328-329:
Under the pressure of novel situations, the courts have become increasingly aware of the strain on the traditional formulation [of the control test], and most recent cases display a discernible tendency to replace it by something like an `organization' test. Was the alleged servant part of his employ er's organization? Was his work subject to co-ordinational control as to `where' and `when' rather than to `how'?
As Bendel points out, supra, at page 381, the organization test is now "firmly established in Canada." He explains its attractiveness as follows, supra, at page 382:
The aspect of the organization test which makes it so attrac tive in the labour relations context is that integration into another person's business, the key feature of the test, is a very useful indicator of economic dependence. The relationship be tween integration and economic dependence has been explained this way by the Ontario Labour Relations Board (in a case predating the Ontario dependent contractor amendments):
The essence of operating a business is holding out to a market society the availability of goods and services at the best possible price having regard to competing pressures exacted upon a particular market. It seems patently obvious to this Board that a particular business will not flourish in circumstances where growth is totally integrated with the operations of a particular customer. The essence of resolving and distinguishing the contractor from the employee is his independence ... In instances where the driver's means of financial support is [sic] inextricably bound up with the respondent we are of the view that he cannot be considered an independent contractor.
The organization test has recently been described by MacKinnon A.C.J.O. for the Ontario Court of Appeal as an enlargement of, and pre sumably an advance upon, Lord Wright's test: Mayer v. J. Conrad Lavigne Ltd. (1979), 27 O.R. (2d) 129 (C.A.), at page 132. However, it has had less vogue in other common-law jurisdictions. In fact A. N. Khan, "Who is a Servant?" (1979), 53
Austr. L.J. 832, at page 834, makes bold to say of the English and Australian cases:
However, the "integration" or "organization" test if applied in isolation can lead to as impractical and absurd results as the control test. The courts, therefore, came to the conclusion that a "multiple" test should be applied, in that all the factors should be taken into account. Thus in Morren v. Swinton & Pendlebury Borough Council [[1965] 1 W.L.R. 576] Lord Parker C.J. stated that the control test was perhaps an over simplification. His Lordship added that: "clearly superintend ence and control cannot be the decisive test when one is dealing with a professional man, or a man of some particular skill and experience." Thus the courts started modifying and transform ing the test into "common sense" test, [Somervell L.J. in Cassidy v. Minister of Health, [1951] 2 K.B. 343] or "multi- ple" test [see Mocatta J. in Whittaker v. Minister of Pensions & National Insurance [1967] 1 Q.B. 156].
Professor Atiyah, supra at pages 38-39, ends up with Lord Wright's test from the Montreal Locomotive Works case, as he finds it more gener al than Lord Denning's, which he sees as decisive in only some cases.
I am inclined to the same view, for the same reason. 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 opera tions," even while the usefulness of the four subor dinate criteria is acknowledged.
Lord Denning's test may be more difficult to apply, as witness the way in which it has been misused as a magic formula by the Tax Court here and in several other cases cited by the respondent, 2 in all of which the effect has been to dictate the answer through the very form of the question, by showing that without the work of the "employees" the "employer" would be out of business ("With- out the installers, the Appellant would be out of
2 See Umpires' decisions in Appeals from M.N.R.'s decisions in Re/Max Real Estate Calgary South v. M.N.R., decision dated July 14, 1982, N.R. 1069, not reported; Sairoglou v. M.N.R., decision dated August 6, 1982, N.R. 1085, not report ed; Terra Engineering Laboratories Ltd. v. M.N.R., decision dated August 28, 1979, N.R. 858, not reported; Barnard v. T.M. Energy House Ltd., [1982] 4 W.W.R. 619 (B.C. Co. Ct.).
business"). As thus applied, this can never be a fair test, because in a factual relationship of mutual dependency it must always result in an affirmative answer. If the businesses of both par ties are so structured as to operate through each other, they could not survive independently with out being restructured. But that is a consequence of their surface arrangement and not necessarily expressive of their intrinsic relationship.
What must always remain of the essence is the search for the total relationship of the parties. Atiyah's counsel in this respect, supra, at page 38,
is, I believe, of great value:
[I]t is exceedingly doubtful whether the search for a formula in the nature of a single test for identifying a contract of service any longer serves a useful purpose.... The most that can profitably be done is to examine all the possible factors which have been referred to in these cases as bearing on the nature of the relationship between the parties concerned. Clearly not all of these factors will be relevant in all cases, or have the same weight in all cases. Equally clearly no magic formula can be propounded for determining which factors should, in any given case, be treated as the determining ones. The plain fact is that in a large number of cases the court can only perform a balancing operation, weighing up the factors which point in one direction and balancing them against those pointing in the opposite direction. In the nature of things it is not to be expected that this operation can be performed with scientific accuracy.
This line of approach appears to be in keeping with what LORD WRIGHT said in the little-known Privy Council decision in Montreal Locomotive Works... .
Of course, the organization test of Lord Den- ning and others produces entirely acceptable results when properly applied, that is, when the question of organization or integration is approached from the persona of the "employee" and not from that of the "employer," because it is always too easy from the superior perspective of the larger enterprise to assume that every con tributing cause is so arranged purely for the conve nience of the larger entity. We must keep in mind that it was with respect to the business of the employee that Lord Wright addressed the question "Whose business is it?"
Perhaps the best synthesis found in the authori ties is that of Cooke J. in Market Investigations, Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732 (Q.B.D.), at pages 737-738: 3
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 consider ations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task. 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.
There is no escape for the Trial Judge, when confronted with such a problem, from carefully weighing all of the relevant factors, as outlined by Cooke J.
It is patently obvious that the applicant's con tention that Lord Denning's test should be applied only in the case of highly skilled workers is in no way supportable. It is, however, equally apparent that the Tax Court has erred in law in its use of that test.
What was the effect of the error of law in this case? If we excise the Tax Court's erroneous application of the organization or integration test from its decision, we are left with an inconclusive result, though on two tests out of three it found for
3 This test has been widely cited. For example, it was referred to by all three Court of Appeal judges in Ferguson y John Dawson & Partners (Contractors) Ltd, [ 1976] 3 All ER 817, and the two majority judges, supra, at pp. 824, 831, each described it as "very helpful."
the applicant. This Court cannot on a section 28 application engage in an examination of the evi dence as such, unless a particular result is so inevitable on the facts that any other conclusion would be perverse. I would therefore allow the application, set aside the decision of the Tax Court Judge in respect of the 1980 and 1981 tax years, and refer the matter back to the Tax Court Judge for a determination consistent with these reasons.
PRATTE J.: I agree. MAHONEY J.: I agree.
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