Question

PROBLEM ONE Bill Watkins is a Chartered Professional Accountant. He carried on a professional business as a tax consultant for 12 years. By the end of 2019, the practice had grown very large. Bill was overworked and under pressure to hire additional staff or take a partner. He was interested in education and several years earlier had contracted with a publisher to write a book on taxation for university students. Because of the pressures of his practice, this project made little progress. To optimize his work life, Bill decided to dose his professional practice and enter into an arrangement with Anthony & Anthony a national firm of Chartered Professional Accountants. According to the agreement, he would work a minimum of 600 hours per year for the firm; he would also be free to pursue his writing and other interests. He would provide the 600 hours mainly during the winter months and would not be expected at the office every day of the week. Anthony & Anthony made a formal announcement in the newspaper that Bill was now associated with their firm and provided him with business cards stating both his name and the firm's. The firm did not give him a specific title, though most of its employees had one, whatever their level. The firm did provide him with an office of the same size as was given to partners) and a secretary at no cost to him. As a tax consultant, Bill met with the clients of the firm and corresponded with them under the firm's letterhead. Jobs were assigned to him by any partner who required his services. Usually, he charged any time spent on a client directly to the particular partner's account; that partner, in turn, billed the client and collected the fees. Anthony & Anthony charged clients for Bill's time at $150 per hour. The agreement stated that he was to be paid $100 for each hour charged to a client, whether the client paid the fee or not. At the end of each month, he prepared an invoice requesting that the firm pay $100 for each hour charged that month. Throughout the year, Bill paid for his own parking and for his own subscriptions to several tax services, the latter being necessary for him to carry out his duties. Whenever the firm held a social function, Bill was invited. In 2020, he gave three speeches to various business groups and was always introduced as "Bill Watkins, a tax consultant with Anthony & Anthony." In 2020, Bill worked 820 hours for the firm. He spent the balance of his working time writing his book and giving tax seminars to various professional groups. Required: image object Was Bill employed or self-employed in 2020? Give reasons to support your conclusions and reasons to support the opposing Page 114 view

Answer 1

Whether a person is an employee or an independent contractor carrying on business is a question of fact to be judged by the circumstances of each situation. The leading cases are:

Sagaz Industries Canada Inc. v 671122 Ontario Ltd., 2001 SCC 59

Wolf v The Queen, 2002 FCA 96

Royal Winnipeg Ballet v. MNR., 2006 FCA 87

Dynamic Industries v. The Queen , 2005 FCA 211

Wiebe Door Services Ltd. v MNR, 2 FC

The four basic legal principles that are used to determine whether a worker is carrying on his/her own business as an independent contractor, or, is an employee working in his/her employers business are as follows.

Control: the level of control the employer has over the workers activities will always be a factor. Where an employee/employer relationship exists, the employer has the right to tell the employee, not only what is to be done, but, where, when, and how to do it. The fact that the employer does not exercise this right is not important. Sagaz Industries and Wolf state that the importance of control over how work is done diminishes as the skill of the worker increases. Where relevant, control is compared to the control that the employer exerts over its employees, doing similar work.

Ownership of Tools: An independent contractor carrying on business normally supplies the equipment and helpers required to do the job; an employer normally provides the tools to an employee. The value of the investment in tools is considered. See, for example, Gagnon v. R, 2007 FCA 33, where the taxpayers $1,000 investment in tools was normal for workers employed in the industry in union jobs and did not assist the taxpayers case.

Chance of Profit, Risk of Loss: An independent contractor carrying on business risks incurring losses due to bad debts, damage to equipment or materials, unforeseen delivery delays, and other operating costs, while at the same time having an opportunity for profit. The method of compensation is relevant (a fixed fee, piece work or commission basis would indicate independent contractor status, whereas an hourly rate would be an indicator of employee status).

Integration: This test examines whether the worker is economically dependent on the payer organization and how integral to the business is the worker. Evidence of the worker receiving the economic rights, privileges and benefits normally enjoyed by employees would be facts supporting employment status. Benefits normally enjoyed by employees include job security, paid vacation and statutory holidays and access to employee-type benefits. Evidence of the worker having other clients (or the ability to have other clients) would support self-employed status. See, for example, W.B. Pletch Co. v. R, 2005, TCC 400 and Dynamic Industries v. R , 2005 FCA 211.

In summary, an employer controls (or has the right to control) the employees hours and working conditions; the employee uses the employers equipment and facilities; the employee does not share the employers risk, the employee is an integral part of the business; and the employee may receive normal employee benefits. Where these factors are missing, the worker is likely an independent contractor earning business income.

The decision of the Federal Court of Appeal in Royal Winnipeg Ballet v. MNR., 2006 FCA 87, and in Wolf v The Queen, 2002 FCA 96 highlight the importance of the parties intention and the existence of a written contract as evidence of their intention, as long as the contact is in accordance with the facts and not a sham.

Watkins

In this case the relationship between Watkins, who provides the service, and Anthony &Anthony who receives the service is difficult to establish.

Factors supporting an employee/employer relationship and that the only business being carried on is that of Anthony & Anthony:

Watkins closed his professional practice and now provides service to only one entity.

Public was informed that he is part of the Anthony & Anthony organization.

Anthony & Anthony provides Watkins with an office and secretary similar to other employees.

Watkins corresponds with Anthony & Anthony clients under the firm's letterhead.

He works for several partners of the firm and charges time to their accounts as directed.

He is not responsible for collecting fees. He is paid for client work even if the client fails to pay the firm.

Participates in firm's social activities as if he is a member of the firm.

Makes speeches as a representative of the firm.

Holds business cards as a representative of the firm.

All of the above factors indicate that Watkins and Anthony & Anthony have an employer/employee relationship.

Factors supporting an independent contractor relationship, earning business income:

Watkins is not a partner, nor is he designated in any of the employee ranks with Anthony & Anthony

He has committed only 600 hours of service but can do more at his option.

Free to pursue other professional interests outside of the firm.

Not required to report to work every day or at certain times as other employees do.

Uses an office of the style normally designated to partners.

Was paid in the form of a fee by providing an invoice indicating the hours of service and the related fee.

Watkins pays for his own parking and subscriptions to several tax services.

All of the above factors indicate that Watkins has a different relationship than any employee of Anthony & Anthony. We are not told if the contract clearly sets out the common intention as to the relationship.

Conclusion:

It is the opinion of the authors that Watkins is an independent contractor. His special relationship with Anthony & Anthony is sufficiently different from that of all other employees and this factor appears predominant. However, it is recognized that the opposite view is also arguable.