Two recent decisions of the Tax Court of Canada confirm that the intention of the parties is an important consideration in the determination of whether there is an employee-employer relationship, or an independent contractor relationship.
In Prue v. Canada (Minister of National Revenue), Prue worked as a product demonstrator at grocery stores in the Vancouver area. Prue was not supervised, determined the duration of the demonstrations herself, and provided her own transportation to the stores and the materials and equipment, where necessary. She had no investment in the company, was not exposed to financial risk, and was not guaranteed income. In addition, Prue could choose to accept or refuse any assignment, and could – and did – provide her services to another company.
Prue stopped working for the company and claimed Employment Insurance (EI) benefits. The Minister of National Revenue determined that Prue was an independent contractor, not an employee. Therefore, her work was not insurable under EI, nor pensionable under the Canada Pension Plan.
On appeal to the Tax Court of Canada, Prue argued that she had previously believed herself to be an independent contractor but, upon reflection, believed she must in fact be an employee.
In addition to the intention of the parties, the judge examined: the level of control the employer had over the person performing the services, the provision of equipment and tools, the degree of financial risk and responsibility for investment and management, and the opportunity for profit in the performance of tasks. The judge found that, based on the circumstances, Prue had acted as a person doing business on her own account, providing her services as an independent contractor.
The Tax Court judge dismissed the appeal, finding that Prue had at one point acknowledged that she was an independent contractor for a period of time, only to change her interpretation of the events after the fact. The judge explained that the parties had conducted themselves in accordance with an employer-independent contractor relationship, and that he could not understand Prue’s re-characterization of her working status.
In Smith v. Canada (Minister of National Revenue), the same principles were applied.
Stuart Smith drove a truck two days per week for a delivery company, in return for 45 percent of the revenue generated by the operation of the truck. Smith also did similar trucking work for other companies. The Minister of National Revenue found that Smith was an independent contractor, and thus ineligible for EI and Canada Pension Plan coverage.
On appeal, the Tax Court found that the parties had clearly intended for the relationship to be that of an independent contractor, and Smith’s appeal was dismissed.
These decisions confirm that, in addition to considering the circumstances of the relationship, a significant factor in deciding whether an individual is an employee or an independent contractor under the EI/CPP legislation is the intention of the parties.