The Impact of Intent in the Characterization …...The Impact of Intent in the Characterization Analysis of a Worker Nabeel Peermohamed Master of Laws Faculty of Law University of

The Impact of Intent in the Characterization Analysis of a Worker

by

Nabeel Peermohamed

A thesis submitted in conformity with the requirements for the degree of Master of Laws

Faculty of Law University of Toronto

© Copyright by Nabeel Peermohamed 2013

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The Impact of Intent in the Characterization Analysis of a Worker

Nabeel Peermohamed

Master of Laws

Faculty of Law University of Toronto

2013

Abstract

The Tax Court of Canada and the Federal Court of Appeal are regularly asked by taxpayers and

the Canada Revenue Agency to determine whether a worker is an employee or an independent

contractor. The distinction has significant tax consequences. The analysis and various legal tests

used by the courts to determine the characterization of a worker have been through significant

transformations over the last 15 years. The analysis remained objective for several years.

However, in 2002, courts began to consider the common intent held between the taxpayer and

the worker when characterizing that worker’s status as either an employee or an independent

contractor. Since its introduction, the courts have placed various levels of importance on this

common intent in the characterization process. This paper seeks to quantify the varied emphasis

placed by the courts on the intent held between a taxpayer and its worker.

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Table of Contents

List of Tables .......................................................................................................................................... v

List of Appendices ................................................................................................................................ vi

Part 1 Introduction .............................................................................................................................. 1

Part 2 The Characterization Process .............................................................................................. 3

1 The Objective Factors ................................................................................................................... 3

2 The Fall of Integration .................................................................................................................. 6

3 An Introduction to the Evolution of Intent ............................................................................ 8

4 A Detailed Account of the Evolution of Intent ....................................................................... 9

5 The Inconsistency caused by Intent ...................................................................................... 20

Part 3 The Study ................................................................................................................................. 22

1 Inspiration from the Wintermute Study .............................................................................. 22

2 Extrapolating Wintermute to the Present .......................................................................... 22

3 The “More Strongly than Royal Winnipeg” Standard ....................................................... 24

4 Methodology for Study .............................................................................................................. 27

4.1 The TCC or FCA’s Characterization (employee/independent contractor) ........................ 28 4.2 The Characterization of the MNR or TCC Below ......................................................................... 28 4.3 Finding of Common Intent (employee/independent contractor/none) ........................... 28 4.4 Finding Based on Factors (employee/independent contractor) .......................................... 29 4.5 The Courts’ Finding After an Application of each of the Four Wiebe Door factors (Control/Financial Risk/Ownership of Tools) ................................................................................... 29 4.6 Judge ......................................................................................................................................................... 29 4.7 Gender of the Judge .............................................................................................................................. 29 4.8 Province or Territory .......................................................................................................................... 30 4.9 Personal Service Business (PSB) ..................................................................................................... 30 4.10 Gender of the worker (male/female) .......................................................................................... 30 4.11 Nature of Organization (profit/non-‐profit) .............................................................................. 30 4.12 Industry of Organization ................................................................................................................. 30

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5 Assumptions ................................................................................................................................. 31

6 How to Interpret the Results ................................................................................................... 32

7 Results and Interpretation ....................................................................................................... 34

Part 4 Implications ............................................................................................................................ 43

1 Analysis is Mostly Objective .................................................................................................... 43

2 Emphasis and De-‐emphasis of Intent ................................................................................... 43

3 Property Management ............................................................................................................... 44

4 Reversed Decisions ..................................................................................................................... 44

5 Gender of Judge ............................................................................................................................ 44

Part 5 Conclusions ............................................................................................................................. 46

Bibliography ........................................................................................................................................ 48

Appendix: Additional STATA 12.0 Date Output Tables ......................................................... 50

v

List of Tables

• Table 1: Findings based on Common Intent

• Table 2: Court Findings based on Common Intent and Objective Factors

• Table 3: Example

• Table 4: The Probability of the Courts’ Characterization by Era

• Table 5: The Courts’ Emphasis on Intent by Era

• Table 6: The Courts’ Emphasis on Financial Risk by Era

• Table 7: The Courts’ Emphasis on Control by Era

• Table 8: The Courts’ Emphasis on Integration by Era

• Table 9: The Courts’ Emphasis on Ownership of Tools by Era

• Table 10: The Courts’ Emphasis in the Pre-Wolf Era

• Table 11: The Courts’ Emphasis in the Wolf to Tremblay Era

• Table 12: The Courts’ Emphasis in the Tremblay to Royal Winnipeg Era

• Table 13: The Courts’ Emphasis in the Royal Winnipeg to B-Pro Grooming Era

• Table 14: The Courts’ Emphasis in the B-Pro Grooming to Kilbride Era

• Table 15: The Courts’ Emphasis in the Kilbride to D.W. Thomas Era

• Table 16: The Courts’ Emphasis in the D.W. Thomas to TBT Personnel Era

• Table 17: The Courts’ Emphasis in the Post-TBT Personnel Services Era

vi

List of Appendices

• Appendix: Additional STATA 12.0 Data Output Tables

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Part 1 Introduction

The Tax Court of Canada (TCC) and the Federal Court of Appeal (FCA) are routinely called

upon to characterize a worker as an employee or an independent contractor for tax purposes.

More precisely, these courts have been asked to review such characterizations made by the

Minister of National Revenue (the “Minister” or the “MNR”) when assessing taxpayers under

the Income Tax Act1 (the “Act”). The characterization of a worker determines the deductions

available to the worker, the existence of a personal services business, and the liability of an

alleged employer to remit Employment Insurance (EI) premiums and Canada Pension Plan

(CPP) contributions.

The introduction of common intent into the analytical process of characterizing a worker as an

independent contractor or an employee has caused a significant amount of inconsistency in the

characterization approach taken by the courts. The 1986 decision in Wiebe Door v. MNR2

provided a four-fold objective test to characterize a worker. The four tests established were

control, financial risk, integration, and ownership of tools. Several subsequent decisions from the

FCA have resulted in litigation uncertainty for both taxpayers and the taxing authorities. The

2002 FCA decision in Wolf v. MNR3 introduced the concept that the common intention held

between contracting parties was important in the characterization process. The court said the

common intent element could break a tie that results after the application of the four objective

factors. In 2006, the role of intention was elevated by the FCA in Royal Winnipeg Ballet v.

MNR4 such that intent was an additional important factor when characterizing a worker, not only

as a tie-breaker. Finally, in 2011, the FCA in TBT Personnel Services Inc. v. MNR5 characterized

1 RSC 1985, c 1 (5th Supp), as amended. 2 (1986) 87 DTC 5025 (FCA), [1986] 3 FC 553. 3 2002 FCA 96, 2002 DTC 6853. 4 2006 FCA 87, [2007] 1 FCR 35. 5 2011 FCA 256, (2011) 343 DLR (4th) 100.

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a set of workers based on the four Wiebe Door factors alone. Thus, the last ten years of

jurisprudence has yielded significant variance regarding the role of intention in the

characterization process.

I explore here the trends in Canadian jurisprudence with respect to the characterization of a

worker. Beginning five years prior to the introduction of intent into the characterization process

in Wolf and including the ten years following, I analyze the jurisprudence according to several

variables such as the outcome, the judge, the province, the emphasis placed on intent, the

emphasis placed on each of the four objective factors, the gender of the worker, and the

corporate nature of the business. This analysis sheds light on this dynamic area of tax litigation

and helps to answer the question: how do the courts characterize a worker as an employee or an

independent contractor?

The paper proceeds as follows. Part 2 describes the characterization process by providing the

history of the four factors, the courts’ reduced emphasis on the integration test, the evolution of

intent, and the courts’ continued struggle with intent. Part 3 describes my study and the results in

detail. Part 4 discusses the implications of these results. Finally, Part 5 offers conclusions.

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Part 2 The Characterization Process

In the majority of cases where the court is asked to characterize a worker as an employee or an

independent contractor, the taxpayer involved in the litigation unambiguously operates a

business. The worker whose status must be characterized is one who has entered into a contract

with the taxpayer’s business to provide services. The Minister usually characterizes the worker

as an employee and thus assesses the taxpayer for its failure to remit EI and CPP payments that

are due. The taxpayer invariably argues the worker is an independent contractor who is in

business on his or her own account and as such there is no obligation to make the EI and CPP

payments. Before intention was introduced into the characterization process, the courts solely

relied on so-called objective factors in its analysis.

1 The Objective Factors Since 1997, the TCC and FCA have been asked to characterize a worker as an employee or an

independent contractor in more than 540 cases. Four objective factors have emerged in the

jurisprudence. The four factors, namely control, ownership of tools, chance of profit, and risk of

loss, were originally articulated in the 1947 case of Montreal v. Montreal Locomotive Works.6

In Montreal Locomotive, the respondent entered into a number of contracts with the appellant for

the design, construction, and equipment of a government plant.7 The issue was whether the

appellant could charge the respondent for taxes owed in respect of the plant. In order to decide

the respondent’s tax liability, the court needed to determine whom the occupant of the plant was.

The court noted that previous cases had relied on the single test of control.8 However, the court

said that control was not always conclusive and in the complex conditions of modern industry, a

6 [1947] 1 DLR 161, [1946] 3 WWR 748, 1946 CarswellQue 231 (Quebec Privy Council). 7 Ibid, at para 3. 8 Ibid, at para 19.

4

fourfold test has often been applied.9 Therefore, the court decided to apply the four factors:

control, ownership of tools, chance of profit, and risk of loss.

The court found, based on the four factors, that the respondent was the appellant’s agent, and that

the appellant was the occupant of the plant. Therefore, the respondent could not be held liable for

the taxes levied against it by the appellant. Montreal Locomotive marked the birth of the four

objective factors used to characterize a worker as an employee or an independent contractor. In

1986, the four factors were changed in Wiebe Door Services Ltd. v. MNR.10

In Wiebe Door, the integration test was introduced as a factor in the characterization process.

The taxpayer operated a door-installation business and hired workers to assist. The Minister

characterized 12 of the taxpayer’s workers as employees and thus, assessed the taxpayer for

owing EI premiums. The taxpayer argued that the workers were independent contractors such

that no premiums were owed. The TCC below based its decision on four tests: control,

ownership of tools, financial risk, and the integration test. In applying the integration test, the

TCC cited the decision of Lord Denning in Stevenson, Jordan and Harrison Ltd. v. MacDonald

and Evans.11 In Stevenson, the English House of Lords was called upon to distinguish an

employee (under a contract of service) from an independent contractor (under a contract for

service). Lord Denning stated:

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 to it, but is only accessory to it.12

The TCC, relying on this integration test, stated the taxpayer’s business could not function

without the door-installers. Thus, the court found the workers were integral to the taxpayer’s

door-installation business rather than incidental to it. As a result, the TCC characterized the

9 Ibid. 10 Supra note 2. 11 [1952] TLR 101, 69 RPC 10 (House of Lords). 12 Ibid, at 111, as cited in supra note 10, at para 3.

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workers as employees. The taxpayer appealed to the FCA. The FCA said that the TCC’s decision

was in error as the TCC failed to apply the integration test from the point of view of the workers

and sent the matter back to the TCC for a determination consistent with the reasoning of the

FCA.

After Wiebe Door, the four factors used to characterize a worker have been control, financial

risk, integration, and ownership of tools. Chance of profit and risk of loss were combined into a

single financial risk factor. The Supreme Court of Canada (SCC) in 671122 Ontario Ltd. v.

Sagaz Industries Canada Inc., 13 approved of this approach to characterizing a worker and set the

precedent for the use of the “total relationship test”.

In Sagaz, 671122 Ontario Ltd., (the “respondent”) lost one of its major clients to Sagaz (the

“appellant”). The client’s president terminated the business relationship with the respondent

because of a bribery scheme with the appellant. As part of the scheme, the marketing firm

(AIM), retained by the appellant, paid a bribe to the client’s president. The respondent alleged

that but for the bribes, it would have maintained its relationship with the client. The issue before

the court was whether the appellant was vicariously liable to the respondent for the actions of

AIM. The trial court held that AIM was an independent contractor and that the appellant was not

vicariously liable for the actions of an independent contractor.14 The Ontario Court of Appeal

reversed, finding AIM was an employee and thus part of the “Sagaz sales team”.15 On appeal to

the SCC, the court had to characterize AIM as either an employee of the appellant or an

independent contractor. Applying the Wiebe Door factors the court found AIM was an

independent contractor, and thus the appellant was not vicariously liable for AIM’s actions.16

Thus, the SCC confirmed that the objective factors were to be used when characterizing a worker

as an employee or an independent contractor. The “total relationship test” was to be used such

13 2001 SCC 59, [2001] 2 SCR 983. 14 Ibid, at para 16. 15 Ibid, at para 22. 16 Ibid, at para 57.

6

that a court was to consider all the objective factors to characterize a worker. However the SCC

did not apply the integration test. Since Sagaz, the courts’ emphasis on the integration test has

declined significantly.

2 The Fall of Integration Over the last decade, the courts have reduced their reliance on the integration test, and as a result

placed a greater emphasis on the other factors. In Preddie v. The Queen,17 the court decided not

to apply the integration test when characterizing the worker as an employee or an independent

contractor. In Preddie, the taxpayer was engaged by a tutoring service. He tried to deduct motor

vehicle expenses from his income as business expenses. The Minister regarded the taxpayer as

an employee of the tutoring service and denied these expenses. The Minister argued the taxpayer

earned employment income, and that section 8 of the Act limited the deductions available against

employment income. Specifically, the Minister argued that section 8 made no provision for the

deduction of motor vehicle expenses from employment income. The taxpayer argued he was an

independent contractor in business on his own account. He argued that he earned business

income and that motor vehicle expenses could be deducted from business income under section 9

of the Act. Therefore, the issue before the court was whether the taxpayer was an employee or an

independent contractor. The court applied the factors. Control and financial risk indicated the

taxpayer was an independent contractor while an application of the ownership of tools test was

inconclusive. The court then turned its mind to the integration test and said:

17 2004 TCC 181, 2004 DTC 2427.

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It is my understanding that Sagaz does not apply the integration test, formerly included as one of

the four tests set out in Montreal v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161 and

adopted by MacGuigan J. in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025. To do so is to

answer the question of whose business was it and that is the primary question before me. The tests

referred to are simply to be used as evidence in deciding whose business it was. As stated, Sylvan's

business was to attract the students, provide a premise and promote a learning environment, the

Appellant's business was to tutor independently.18

The court did not apply the integration test, but instead regarded the factors as a whole to answer

the question, “whose business was it?” The court found that the taxpayer was in business on his

own account. Thus, the court found the taxpayer was an independent contractor and allowed the

motor vehicle expenses to be deducted from the taxpayer’s income. In so doing, the court

disregarded the integration test in its analysis. In a subsequent decision, the court refused to

apply the integration test.

In Royal Winnipeg Ballet v. MNR,19 the TCC was charged with characterizing ballet dancers and

other performers as employees or independent contractors. The Minister characterized the

performers as employees and assessed the ballet company for its failure to remit EI and CPP

payments. The ballet company argued that the performers were independent contractors. Upon a

review of the factors, the court found the performers were employees. However, the court’s

comments about the integration test are noteworthy:

Secondly, with respect to the integration test, whatever clarity can be attributed to that term, there

has been considerable confusion as to whether it was part of the Wiebe Door Services Ltd. v.

M.N.R test, a stand-alone test, or even an appropriate test at all. The Supreme Court of Canada has

not offered the integration test as a factor to consider. I interpret this as the death knoll of this

particular test, and will refer to it no more.20

18 Ibid, at para 18. 19 2004 TCC 390, 2004 CarswellNat 1836. 20 Ibid, at para 32.

8

The court said the integration test was the “death knoll” of the characterization process and

refused to apply it. The court based this decision on the fact that the SCC in Sagaz had not

referred to the integration test. As a result, the emphasis placed on the integration test was further

reduced. Three years later, the TCC described the danger of the integration test, and in its

warning, urged future courts to avoid applying the test.

In Lang v. MNR,21 the court said that, “the integration or organization test is of no assistance and

is substantially discredited and any trial judge who relies upon it does so at his or her peril.”22 In

Lang, the taxpayers carried out a furnace and duct cleaning business. The taxpayers hired

workers to help provide these services. The issue before the court was whether the workers were

employees or independent contractors. The Minister concluded the workers were employees and

that the taxpayers were liable to remit EI and CPP contributions. The taxpayers argued the

workers were independent contractors. After a review of the evidence and application of the

factors, namely control, financial risk, and ownership of tools, the court found the workers were

independent contractors and allowed the appeal. The court did not apply the integration test,

finding the test was not helpful at all to the characterization process. Since Lang, the courts have

placed very little emphasis on the integration test. Coinciding with the fall of integration, over

the last 10 years, the subjective element of intention has emerged as a factor in the jurisprudence

and its relative weight given by the courts has varied significantly.

3 An Introduction to the Evolution of Intent In the majority of cases over the last 15 years when the court has been called upon to

characterize a worker as an independent contractor or an employee, the ultimate result reached

by the court has determined whether a taxpayer is obligated to remit EI premiums and CPP

payments to the CRA. As a result, we find taxpayers who are assessed as employers by the CRA

appealing to the TCC, and subsequently to the FCA, arguing that their workers are independent

21 2007 TCC 547, 2007 DTC 1754. 22 Ibid, at para 14.

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contractors. As previously mentioned, there is no obligation to remit EI premiums or CPP

payments on behalf of an independent contractor. However, since there is an obligation to remit

EI premiums and CPP payments on behalf of an employee, we usually find the CRA arguing that

a worker is an employee, such that the taxpayer is under an obligation to remit EI premiums and

CPP payments to the CRA. As a result, the courts are called upon to characterize a worker. The

manner in which the courts do that has changed repeatedly over the last 15 years.

The role of intent in the characterization process has evolved multiple times in the case law and

can be attributed to seven landmark cases: Wolf, Tremblay, Royal Winnipeg Ballet, B-Pro

Grooming, Kilbride, D.W. Thomas Holdings, and TBT Personnel Services. In each of these

cases, the court treated intent differently than in the previous landmark case. Therefore, we can

track the evolution of intent by analyzing these landmark cases. The following is a detailed

historical account of the evolution of intent in the jurisprudence.

4 A Detailed Account of the Evolution of Intent Before 2002, the courts had kept the characterization process of a worker purely objective. The

courts made their decisions, solely based on the four objective factors (with varying degrees of

weight), as to whether a worker was an employee or an independent contractor. However, that

changed after the FCA’s decision in Wolf.

The FCA in Wolf introduced the common intent held by the contracting parties into the

characterization process on March 15, 2002. The court said that if the objective four-fold test

was inconclusive, the subjective intention held by the contracting parties should be used to break

the tie. In Wolf, the taxpayer was an aerospace mechanical engineer who provided consulting

services to a corporation called Kirk-Mayer of Canada. Kirk-Mayer was able to subcontract

personnel to Canadair. Through this contract, the taxpayer was subcontracted by Kirk-Mayer to

Canadair. The taxpayer tried to deduct business expenses from his income. However, the

Minister characterized the taxpayer as an employee and denied these expenses. Therefore, the

issue before the FCA was whether the taxpayer was an employee or an independent contractor.

10

The TCC below found that the taxpayer was an employee of Kirk-Mayer when he worked for

Canadair. The TCC found that the factors of control, integration, and ownership of tools

indicated the taxpayer was an employee. The TCC also found that financial risk indicated the

taxpayer was an independent contractor. However, on balance, the TCC found the taxpayer was

an employee and disallowed the business expenses. On appeal, the FCA said that the Wiebe

Door factors overlooked an important element that captured the essence of the working

relationship between contracting parties. The court said:

I say, with great respect, that the courts, in their propensity to create artificial legal categories,

have sometimes overlooked the very factor which is the essence of a contractual relationship, i.e.

the intention of the parties.23

Therefore, the FCA paid careful attention to the contract between the taxpayer and Kirk-Mayer

and found the contracting parties intended the taxpayer would provide his services as an

independent contractor. The court said:

Taxpayers may arrange their affairs in such a lawful way as they wish. No one has suggested that

Mr. Wolf or Canadair or Kirk-Mayer are not what they say they are or have arranged their affairs

in such a way as to deceive the taxing authorities or anybody else. When a contract is genuinely

entered into as a contract for services and is performed as such, the common intention of the

parties is clear and that should be the end of the search. Should that not be enough, suffice it to

add, in the case at bar, that the circumstances in which the contract was formed, the interpretation

already given to it by the parties and usage in the aeronautic industry all lead to the conclusion that

Mr. Wolf is in no position of subordination and that Canadair is in no position of control. The

“central question” was defined by Major J. in Sagaz as being “whether the person who has been

engaged to perform the services is performing them as a person in business on his own account”.

Clearly, in my view, Mr. Wolf is performing his professional services as a person in business on

his own account.24

The court found that there was a bona fide contract between the contracting parties stating the

taxpayer was an independent contractor. The court found that the control and integration tests

23 2002 FCA 96, at para 117, 2002 DTC 6853. 24 Ibid, at para 119.

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were neutral, financial risk indicated the taxpayer was an independent contractor, and ownership

of tools indicated the taxpayer was an employee. Since the objective factors on balance yielded a

neutral result, the court relied on the contract. With regard to the objective factors and the

subjective intent gathered from the contract, the court found the taxpayer was an independent

contractor. Thus, Wolf set the precedent that the subjective intent gathered from a contract could

be used alongside the four objective factors to characterize a worker. Since Wolf, the FCA has

released six other landmark judgments. Each of these treats intent differently in the

characterization process.

First, on May 3, 2004, the FCA decided Canada v. Tremblay25 and used the common intent held

between the contracting parties when deciding the outcome of the integration test. In Tremblay,

the taxpayers worked for a forestry management business. The workers performed general labor

for the business. The TCC below held the taxpayers were employees. On appeal, the Minister

argued the taxpayers were independent contractors, and the FCA agreed. In its decision, the FCA

analyzed the contract between the workers and the business. The FCA found the contract was

akin to an equipment rental contract and thus indicated the workers were independent

contractors. The court then went on to apply the Wiebe Door factors. The court found control,

ownership of tools, and financial risk indicated the workers were independent contractors. With

respect to integration, the court relied on the contract. Specifically, as the contract provided for

the rental of the equipment necessary for the work to be completed, the court found the workers

were not integrated into the business.26 Therefore, the court found the integration test indicated

the workers were independent contractors, as well. Thus, the court found the workers were

independent contractors. In so doing, the court promoted the role of intent in the characterization

process, such that this subjective factor could be used when deciding the outcome of the

objective factors.

25 2004 FCA 175, [2004] FCJ No 802 (FCA). 26 Ibid, at para 29.

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Second, on March 2, 2006, the FCA decided Royal Winnipeg Ballet27 and stated that intention

was determinative of the relationship between the contracting parties insofar as it reflected the

reality of their relationship. On appeal from the TCC decision described above, the FCA was

tasked with characterizing the ballet performers as employees or independent contractors. In the

majority, Justices Sharlow and Desjardins of the FCA found the TCC’s decision was

unreasonable for failing to address the intent between the contracting parties, which indicated the

workers were independent contractors. The TCC relied on the proposition in Wolf, that the

intention of the parties is to be considered only to break a tie yielded by the Wiebe Door factors.

The majority of the FCA disagreed and said:

In these circumstances, it seems to me wrong in principle to set aside, as worthy of no weight, the

uncontradicted evidence of the parties as to their common understanding of their legal relationship,

even if that evidence cannot be conclusive. The Judge should have considered the Wiebe Door

factors in the light of this uncontradicted evidence and asked himself whether, on balance, the facts

were consistent with the conclusion that the dancers were self‑employed, as the parties understood

to be the case, or were more consistent with the conclusion that the dancers were employees.

Failing to take that approach led the Judge to an incorrect conclusion.28

The court found that when there is “uncontradicted” evidence regarding the intention between

contracting parties as to the nature of their relationship, that evidence should be regarded

alongside the Wiebe Door factors in the characterization analysis. The court described the correct

approach when characterizing a worker:

if the intention of the parties is uncontested, save by third parties, as in the case at bar, the

common-law judge has nevertheless the responsibility to “look to see” if the terms used and the

surrounding circumstances are compatible with what the parties say their contract is. The

common-law judge must make sure that what the parties say they have agreed upon is in fact what

is contained in the contract they have signed.29

27 Supra note 4. 28 Ibid, at para 64. 29 Ibid, at para 72.

13

The court said that the Wiebe Door factors were generally not inconsistent with the intent of the

parties. The majority thus reversed the decision of the TCC below and found the workers were

independent contractors. In doing so, the court elevated the role of intent even higher than that

done in Tremblay, to the extent that intent could be used as a standard against which the Wiebe

Door factors were applied when determining the nature of a worker as either an employee or an

independent contractor.

Third, on October 24, 2007, the FCA decided B-Pro Grooming v. MNR30 and said that intention

was not determinative but rather an element of consideration in addition to the four objective

tests. In B-Pro Grooming, the taxpayer operated a pet-grooming store and hired several workers

to assist with the business. The Minister, characterizing the workers as employees, assessed the

taxpayer for its failure to remit EI and CPP payments. The taxpayer argued the workers were

independent contractors. On appeal, the FCA upheld the reasons of the TCC. In particular, the

FCA supported the TCC’s determination on intent – that “the expressed intention of the parties is

not determinative of their relationship.”31 The court said that intention was not determinative and

that the Wiebe Door factors were to be considered when characterizing a worker. In dismissing

the appeal, the FCA demoted the role of intent in the characterization process below that which it

was given in Royal Winnipeg Ballet.

Fourth, on October 29, 2008, the FCA decided Kilbride v. Her Majesty the Queen32 and said that

the common intention between contracting parties was to be discarded when such intention was

not supported by the four objective tests. In Kilbride, the taxpayer worked as a bookkeeper for a

company that manufactured heating systems. He tried to deduct business expenses under section

18 of the Act. However, the Minister characterized the taxpayer as an employee and denied the

deductions. On appeal to the FCA, the issue was whether the taxpayer was an employee or an

independent contractor. Justice Sexton delivered a unanimous judgment dismissing the appeal,

30 2007 FCA 334, (2007) 371 NR 38. 31 Ibid, at para 7. 32 2008 FCA 335, 2009 DTC 5002.

14

thus characterizing the worker as an employee. The TCC below found control was inconclusive,

but that ownership of tools and financial risk indicated the worker was an employee. The TCC

did not apply the integration test, because of its criticism of the test in the jurisprudence, but

noted the test indicated the taxpayer was an employee, as well. The TCC found these factors did

not reflect the intent of the parties to treat the worker as an independent contractor. The FCA

upheld the TCC’s reasoning and dismissed the appeal. The FCA said:

This is not a close case where the Wiebe Door test is inconclusive, requiring the court to give

greater weight to the intention of the parties. Although the trial judge found that the parties may

have intended the appellant to be an independent contractor, she concluded that the actual

relationship did not reflect that understanding and their subjective intention must be disregarded.33

The FCA supported the finding that the taxpayer was an employee, denied the expenses, and

dismissed the appeal. By doing so, the court demoted the role of intent below that given to it in

B-Pro Grooming, stating that the intent between contracting parties was to be discarded if not

congruent with the finding upon which the application of the Wiebe Door factors was based.

Fifth, on December 14, 2009, the FCA decided D.W. Thomas Holdings v. Canada34 and said that

a worker was to be characterized based on the intention of the parties if such intention was

reflected by the factors. In D.W. Thomas, the taxpayer operated a commercial fishing business

and hired a worker to assist in its business. The Minister characterized the worker as an

employee and assessed the taxpayer for its failure to remit EI and CPP payments. The taxpayer

argued the worker was an independent contractor. The TCC found the worker was an employee.

The TCC found the intention indicating the worker was an independent contractor was not

supported by the Wiebe Door factors. The TCC thus disregarded the intention and characterized

the worker based on the factors alone. On appeal, the FCA also found the worker was an

employee. The FCA supported the TCC’s finding and dismissed the taxpayer’s appeal. The court

33 Ibid, at para 11. 34 2009 FCA 371, 2009 CarswellNat 4307.

15

further demoted the role of intention in the characterization process to say that the intent between

contracting parties will be disregarded if not supported by the Wiebe Door factors.

Sixth, on September 22, 2011, the FCA decided TBT Personnel Services Inc. v. MNR.35 In this

case, the FCA went through the characterization process for the workers involved. The court split

the workers into two groups based on whether or not they signed an agreement describing the

workers as independent contractors. The court said:

Such intention clauses are relevant but not conclusive. The Wiebe Door factors must also be

considered to determine whether the contractual intention suggested by the intention clauses is

consistent with the remaining contractual terms and the manner in which the contractual

relationship operated in fact.36

Therefore, the court applied the Wiebe Door factors to determine if the contractual intent was

reflective of the true nature of the working relationship. For the first group, the court found the

conclusions drawn from the objective factors contradicted the intention in the agreement. For the

second group, the court found no common intention and classified the workers as employees

based on the objective factors. In the end, the court found the workers were employees and

effectively disregarded the common intention held between the parties. In doing so, the FCA

demoted the role of intent to a secondary factor that simply confirmed the true character of a

worker determined primarily by the Wiebe Door factors.

Since TBT Personnel Services Inc. the courts have grappled with the role of intention when

characterizing a worker.37 There are three possible scenarios for the consideration of intent in the

jurisprudence. There is either no evidence of intention presented to the court, conflicting

evidence of intention, or evidence of a common intention held between the contracting parties.38

35 Supra note 5. 36 Ibid, at para 35. 37 Nabeel Peermohamed, “The Role of Intent in Characterizing a Worker” (2013) 3:1 Canadian Tax Focus. 38 Ibid.

16

In cases such as Dean v. MNR,39 where there is no evidence of intention, or in cases such as A&T

Tire & Wheel Limited v. MNR,40 and 875527 Ontario Inc. v. MNR,41 where there is conflicting

evidence of intention, the court characterizes workers as employees or independent contractors

based on the Wiebe Door factors alone.42

In Dean, the taxpayer operated a business, which provided home care services to seniors and

hired four caregivers. The Minister characterized the caregivers as employees and assessed the

taxpayer for delinquent EI and CPP payments. The taxpayer argued the caregivers were

independent contractors. The tax court applied the Wiebe Door factors and found control

indicated the caregivers were employees. The court also found ownership of tools and financial

risk were neutral factors. The court did not apply the integration test. Lastly, the court turned its

mind to intention. The court found the application of the Wiebe Door factors led to the

conclusion that the caregivers were employees and thus it was unnecessary to consider the

intention of the contracting parties. Also, the court acknowledged the record showed there was

no evidence of a common intention between the parties so that intention was not a relevant

factor. The court said:

In any event, the evidence suggests that there was no common intention between the parties. There

is little evidence that the Workers put their mind to the nature of the relationship or that Ms. Dean

discussed it with them. The Workers who testified were not sophisticated in business matters and

they may not have understood that Ms. Dean was treating them as independent contractors by not

taking source deductions. Intention is not a relevant factor in this case.43

Thus, the court disregarded intention as a relevant factor because there was no evidence of

common intention and characterized the workers based on the Wiebe Door factors alone.

39 2012 TCC 370, 2012 CarswellNat 4072. 40 2012 TCC 150, 2012 CarswellNat 1405. 41 2012 TCC 214, 2012 CarswellNat 1926. 42 Supra note 37. 43 Supra note 39, at para 28.

17

In A&T Tire, the taxpayer operated a small tire sales, installation, and service business. The

taxpayer hired five workers who were characterized by the Minister as employees. The Minister

further assessed the taxpayers for failure to remit EI and CPP payments. The taxpayer argued the

workers were independent contractors. The court analyzed the evidence regarding intent before

applying the Wiebe Door factors. There were significant discrepancies in the evidence regarding

the intent of the parties. Some workers felt they were employees while others said they agreed to

work as independent contractors. There was also evidence that the taxpayer initially hired the

workers through a verbal contract and later had the workers sign a written contract after the

Minister began an audit of the taxpayer’s business. The court relied on TBT Personnel Services

and said:

The Wiebe Door factors must be applied to determine whether the workers’ declared intentions, if

any, conform to the true nature of their relationship with the employer. Applying these tests, does

the evidence show that a particular worker is performing his services in the course of a business

conducted for his benefit? 44

Thus, the court relied exclusively upon the Wiebe Door factors, except integration, in its

characterization of the workers. The court found control and financial risk indicated the workers

were employees, while ownership of tools could be viewed as a neutral factors. Presented with

conflicting evidence of intention, the court characterized the workers as employees, relying

exclusively on the Wiebe Door factors.

In 875527 Ontario Inc., the taxpayer manufactured and sold customized wooden signs bearing

the names of children. The taxpayer hired a sales agent. The Minister characterized the sales

agent as an employee and assessed the taxpayer for its failure to remit EI and CPP payments. The

taxpayer argued the sales agent was an independent contractor. The court first analyzed the

intention between the parties, and found the taxpayer intended the sales agent to work as an

independent contractor, while the sales agent assumed she was an employee. The court thus

44 Supra note 40, at para 25.

18

found, “the parties did not have a mutual intention as to the nature of the relationship”45 and

proceeded to characterize the sales agent based on the Wiebe Door factors alone. The court found

control indicated the sales agent was an employee while the other factors were neutral.

Therefore, the court found the sales agent was an employee and dismissed the taxpayer’s appeal.

Thus, in cases where there is conflicting evidence of intention or no evidence of common

intention, the courts rely on the Wiebe Door factors when characterizing a worker. However,

where there is evidence of a common intent held between the contracting parties, the courts

struggle to apply that intent in the characterization process. Between 2011 and 2012, the TCC

seems to have applied several of the approaches from the evolution of intent described above in

the span of only one year.

On October 5, 2011, the TCC in Integrated Automotive Group v. MNR46 characterized the

worker on the four factors alone, as done in Wiebe Door. In Integrated Automotive, the taxpayer

operated a marketing business in the automotive industry. The taxpayer hired a project manager.

The Minister argued the project manager was an employee and that the taxpayer was liable for EI

and CPP payments. The taxpayer argued the project manager was an independent contractor. The

evidence supported it was the common intent of the contracting parties that the project manager

would provide work as an independent contractor. The issue before the court was whether that

intent was reflected in the reality of the working relationship. The court decided that the Wiebe

Door factors must be applied first. The court found control and ownership of tools indicated the

project manager was an independent contractor and that financial risk was neutral. Since the

factors indicated the project manager was an independent contractor, it was unnecessary to

consider intent. The court thus characterized the worker based on the objective factors alone, as

was done prior to Wolf.

45 Supra note 41, at para 12. 46 2011 TCC 468, 2011 CarswellNat 4048.

19

On August 8, 2012 the TCC in Zoltan v. MNR47 revitalized the tiebreaker approach originally

stated in Wolf. In Zoltan, the taxpayer operated an electrical installation and maintenance

business, and hired an electrician to assist. The Minister characterized the electrician as an

employee and assessed the taxpayer for its failure to remit EI and CPP payments. The taxpayer

argued the electrician was an independent contractor. The court decided to analyze intent first

and found the contracting intended the electrician to work as an independent contractor. The

court then applied the Wiebe Door factors, after which, it said:

The parties agreed to an independent contractor relationship at the outset of their relationship.

Their intention should be respected unless the application of the Wiebe Door factors shows that the

facts are inconsistent with that intention. The control factor points to an independent contractor

relationship. The chance of profit/risk of loss criterion is more indicative of an employee-employer

relationship. I place greater weight on intention and on the control factor.48

Therefore, the court found the objective factors resulted in a tie, but in an effort to respect the

intent of the contracting parties, placed more weight on the control factor, which led to a decision

congruent with that intent. The court thus characterized the electrician as an independent

contractor.

On October 19, 2012, the TCC in North Delta Real Hot Yoga v. MNR49 based the

characterization of the worker on the objective factors alone and found that the intent between

the contracting parties did not reflect the reality of their relationship, as was done in Kilbride. In

North Delta, the taxpayer operated a yoga studio and hired a worker. The Minister characterized

the worker as an employee and assessed the taxpayer for delinquent EI and CPP payments. The

taxpayer argued the worker was an independent contractor. The court turned its mind to the

Wiebe Door factors first. The court found control indicated the worker was an employee while

47 2012 TCC 286, 100 C.C.E.L. (3d) 218, 2012 CarswellNat 2917. 48 Ibid, at para 34. 49 2012 TCC 369, 2012 CarswellNat 4036.

20

the other factors were neutral. The court then found the intent of the parties was not consistent

with this finding. The court said:

The actual dealings between the parties, however, were not consistent with an independent

contractor relationship. If parties wish to have an independent contractor relationship respected for

purposes of the Employment Insurance Act and the Canada Pension Plan, their actions need to be

consistent with their intent. Unfortunately for the appellant in this case, the evidence as a whole

suggests that the parties did not act in a manner consistent with an independent contractor

relationship.50

Therefore, the court found the intent between the taxpayer and the worker did not reflect the

reality of their relationship, and thus characterized the worker on the factors alone. A review of

these recent cases demonstrates that the introduction of intent into the characterization process

has given rise to several varied approaches to characterizing a worker, which has resulted in

several inconsistent characterization approaches prescribed by the FCA.

5 The Inconsistency caused by Intent The problem with the introduction of intent into the characterization process is that over the last

decade, the courts’ treatment of intention has varied significantly creating substantial uncertainty

in tax litigation for both taxpayers and the tax authorities. The court’s frustration with the varied

approaches prescribed in previous FCA decisions was evident in Lang.51 After a review of the

relevant jurisprudence, Chief Justice Bowman of the TCC (as he then was) expressed his

frustration with the FCA’s inconsistent approach to the characterization process.

The court summarized the four approaches observed over time. The first approach observed was

that intention is irrelevant to the characterization process, as done in Wiebe Door. The second

approach observed was that intention served as a tiebreaker, as done in Wolf. The third approach

observed was that intention was determinative, as done in Royal Winnipeg Ballet. The final

50 Ibid, at para 25. 51 Supra, note 21.

21

approach observed was that the weight to be placed on intention depended on the circumstances.

Fortunately, all four approaches yielded the same result in Lang so the Chief Justice did not have

to decide among the four. However, his expressed frustration with the emergence of four

approaches from the FCA struggling to place common intention alongside the four objective

factors in the characterization process is reflective of the litigation uncertainty caused by the

introduction of intent. The magnitude of the impact of intent on the characterization process can

be determined through an empirical study.

22

Part 3 The Study

1 Inspiration from the Wintermute Study In his study, Wintermute52 conducted a trend analysis between 2000 and 2007 regarding the role

of intent in the characterization process. He took a random sample of 40 cases in each of the four

periods he studied: 2000-2002, 2003-2004, 2005-2006, and 2006-2007.53 He characterized each

case based on whether the decision made reference to a common intention held by the

contracting parties and on the ultimate decision reached.54 He found that after Royal Winnipeg

Ballet was decided, the courts’ reliance on contractual intent increased significantly.

2 Extrapolating Wintermute to the Present If Wintermute’s study were extrapolated to analyze the present case law from the TCC and FCA,

we find a marked emphasis on intent after Royal Winnipeg Ballet and a significant de-emphasis

on intent placed afterwards.

Following Wintermute, I selected a random sample of 40 cases in each of eight periods

demarked by the landmark cases from the FCA described above. I analyzed each case based on

the previous ruling, the ultimate decision, and reference to a common intention between the

contracting parties. However, I also analyzed the cases for incidents where the factors and

common intent pointed in opposite directions. In such cases, I recorded whether the factors or

common intent prevailed.

52 Kurt G Wintermute, “A Worker’s Status as Employee or Independent Contractor: Recent Case Law, Trends, and Planning,” Report of Proceedings of Fifty-Ninth Tax Conference, 2007 Tax Conference (2008) 34:1. 53 Ibid, page 16. 54 Ibid.

23

Table 1: Findings based on Common Intent Era Common Intent of

Independent Contractor Found and Independent Contractor Found

Common Intent of Independent Contractor Found and Employee Found

January 1, 2000 to March 15, 2002 (Wolf) 50% 50% March 16, 2002 to May 3, 2004 (Tremblay) 73% 27% May 4, 2004 to March 2, 2006 (Royal Winnipeg Ballet) 71% 29% March 3, 2006 to October 24, 2007 (B-Pro Grooming) 86% 14% October 25, 2007 to October 29, 2008 (Kilbride) 57% 43% October 30, 2008 to December 14, 2009 (D.W. Thomas) 53% 47% December 15, 2009 to September 22, 2011 (TBT) 65% 35% September 23, 2011 to December 31, 2012 (Present) 50% 50%

As seen from Table 1, prior to Wolf and the introduction of intention as a consideration in the

characterization process, whether a common intent was found or not made no difference to the

court – the court was 50% likely to characterize a worker as an independent contractor and 50%

likely to characterize a worker as an employee.

Over the years however, that trend grew significantly one-sided up to March 2, 2006. This makes

sense because Tremblay said common intention could be implemented into the four-factor test

and specifically deployed common intention into the integration test. As seen from the review of

the case law above, taxpayers generally argue their intention to treat their workers as

independent contractors to avoid EI and CPP payments. A melding of intention and the four

factors explains the increased likelihood for a court to find in favor of that intention. The next

period shows an even greater likelihood of the court to find in favor of a common intent. After

Royal Winnipeg Ballet, which said a common intention was determinative of the characterization

of a worker, the trend shows the courts were 86% likely to find in favor of the intention held

between contracting parties. Subsequent courts then started to apply Royal Winnipeg Ballet as a

standard to assess the degree of factors indicating an employment relationship.

24

3 The “More Strongly than Royal Winnipeg” Standard During my review of the case law, I observed an interesting emergence of a standard used by the

courts in the characterization process – the “more strongly than Royal Winnipeg Ballet” standard.

This standard demonstrates the effect the FCA’s Royal Winnipeg Ballet decision had on the

characterizations of a worker in the subsequent jurisprudence. On September 13, 2007, the TCC

decided Maxwell C. Bishop o/a Ultra-Max Construction v. MNR.55 In Maxwell, the taxpayer

carried out a general construction contracting business and hired five workers to assist. The

Minister argued the workers were employees and that the taxpayer owed EI and CPP payments

for the relevant taxation years. The taxpayer argued the workers were independent contractors. In

its decision the court employed a “more strongly than Royal Winnipeg Ballet” standard and said:

The application of the facts to the Wiebe Door factors in Royal Winnipeg Ballet was not sufficient

to alter the arrangement from that which was intended by the parties. Therefore, unless the

application of the facts in this case to the Wiebe Door factors would more strongly indicate an

employer-employee relationship than in the case of the Royal Winnipeg Ballet, it seems to me

that the individuals, for whom the intention was to create an independent contractor relationship,

would be independent contractors.56 (emphasis added)

The court found the contracting parties mutually intended the workers were independent

contractors. The court then proceeded to determine if the application of the Wiebe Door factors

could alter this intention. The court found that control, ownership of tools, or financial risk, did

not suggest an employer-employee relationship “more strongly than did the facts in Royal

Winnipeg Ballet.”57 Thus, the court found the workers were independent contractors and allowed

the taxpayer’s appeal.

Interestingly, this “more strongly than Royal Winnipeg Ballet” standard was adopted by the

courts for exactly four years. On September 13, 2011, the TCC decided SIP Distribution Inc. v

55 2007 TCC 541, 2007 CarswellNat 2996. 56 Ibid, at para 9. 57 Ibid, at para 18.

25

MNR,58 and employed the “more strongly” standard in its characterization of a worker as an

employee or an independent contractor. In SIP Distributions, the taxpayer imported and sold

building materials and retained a worker to handle the marketing and administrative tasks. The

Minister characterized the worker as an employee and argued the taxpayer owed EI and CPP

payments. The taxpayer argued the worker was an independent contractor. The court found the

contracting parties mutually intended the worker was an independent contractor and deployed the

“more strongly than Royal Winnipeg Ballet” standard. The court said:

In the Royal Winnipeg Ballet case, the facts related to the dancers and the circumstances of their

work were not sufficient to alter the arrangement from that which was intended by the parties.

Therefore it seems to me that “in keeping with the approach set out in Royal Winnipeg Ballet”, the

relevant facts in this case, as determined by the factors as set out in Wiebe Door and Sagaz,

would have to more strongly indicate an employer-employee relationship than did the facts

in the case of the Royal Winnipeg Ballet in order for Erin Hrushowy to be considered to be an

employee. In both the Royal Winnipeg Ballet case and in this case, there was an intention to create

an independent contractor relationship and not an employer-employee relationship.59 (emphasis

added)

The court found the control and financial risk factors did not indicate an employment

relationship more strongly than that in Royal Winnipeg Ballet. The court found ownership of

tools was not useful in the analysis because very little equipment was required. Thus, the court

characterized the worker as an independent contractor and allowed the appeal.

After SIP Distributions, the “more strongly than Royal Winnipeg Ballet” standard was not

applied by the courts. However, referring to Table 1, during the standard’s four years in the

limelight, a reduced emphasis on intention can be observed. It is logical to find a reduced

likelihood of the courts to find in favor of intention after cases such as B-Pro Grooming and

Kilbride, which demoted the role of intention. Finally, a return to the 50% likelihood is observed

after TBT Personnel Services Inc., which characterized the relevant workers according to the

58 2011 TCC 423, 2011 CarswellNat 3519. 59 Ibid, at para 11.

26

objective factors alone. Although this trend reflects the history of the jurisprudence, I was

interested to learn whether the objective factors or subjective intent prevailed in cases where the

conclusions from each led in opposite directions.

Table 2: Court Findings based on Common Intent and Objective Factors Era Independent

Contractor Intent Overrides Factors

Independent Contractor Factors Override Intent

Employee Intent Overrides Factors

Employee Factors Override Intent

January 1, 2000 to March 15, 2002 (Wolf) 0% 55% 0% 95% March 16, 2002 to May 3, 2004 (Tremblay) 0% 39% 0% 95% May 4, 2004 to March 2, 2006 (Royal Winnipeg Ballet) 0% 62% 0% 100% March 3, 2006 to October 24, 2007 (B-Pro Grooming) 17% 25% 6% 81% October 25, 2007 to October 29, 2008 (Kilbride) 15% 60% 0% 95% October 30, 2008 to December 14, 2009 (D.W. Thomas) 5% 45% 0% 89% December 15, 2009 to September 22, 2011 (TBT) 8% 38% 0% 88% September 23, 2011 to December 31, 2012 (Present) 8% 25% 0% 100%

Based on Table 2, the objective factors override intent exclusively from January 1, 2000 to

March 2, 2006. However, when after Royal Winnipeg Ballet, we see the start of intent overriding

the objective factors. This makes sense because that case said intention was determinative.

Slowly, however, we see the incidence of intention overriding the objective factors reducing to

present day. However, it is interesting to find that even after TBT Personnel Services Inc. was

decided, there are still cases where intention has been followed over the objective factors. Cases

such as Zoltan can explain this trend, where the TCC has struggled to place a consistent weight

on intent in the characterization process.

Although this survey is not that sophisticated, it serves to preliminarily demonstrate a general

trend. However, for a more precise and reliable trend analysis, more sophisticated tools and

analysis must be implemented. I therefore expand my study to cover a greater period of time, a

greater number of cases, and a greater number of variables for a more complete and reliable

trend analysis employing technical statistical regression.

27

4 Methodology for Study I have conducted and analyzed a survey of all the decisions from the TCC and FCA

characterizing a worker as an employee or an independent contractor. I have expanded the

timeframe of my survey beyond my previous analysis to include the five years prior to Wolf in

order to gain a perspective of the relevant jurisprudence leading up to the introduction of intent

in the characterization process (i.e. from October 14, 1997 to March 14, 2002)60. There are 540

decisions over the 15-year period I cover, which have been broken down into the following eras:

• October 14, 1997 to March 15, 2002 (pre-Wolf)

• March 16, 2002 to May 3, 2004 (Wolf to Tremblay)

• May 4, 2004 to March 2, 2006 (Tremblay to Royal Winnipeg Ballet)

• March 3, 2006 to October 24, 2007 (Royal Winnipeg Ballet to B-Pro Grooming)

• October 25, 2007 to October 29, 2008 (B-Pro Grooming to Kilbride)

• October 30, 2008 to December 14, 2009 (Kilbride to D.W. Thomas)

• December 15, 2009 to September 22, 2011 (D.W. Thomas to TBT Personnel Services)

• September 23, 2011 to December 31, 2012 (Post-TBT Personnel Services)

Using STATA 12.0’s probative regression function, I hope to find statistically significant results

that reveal any trends in the jurisprudence. Specifically, I set out to determine what statistically

significant factors contribute to the probability of the court characterization of a worker as either

an employee or an independent contractor. I have set out to establish how the relative emphasis

on intent has fluctuated over the past 15 years. I have also set out to determine if any other

factors contribute to the courts characterization of a worker. Therefore, I consider the following

variables and offer an explanation of their importance.

60 The first case I found dealing with the characterization process was W.A. Pacific Rim Co. v. MNR, 1997 TCC 942355, 1997 CanLII 96, decided on October 14, 1997.

28

4.1 The TCC or FCA’s Characterization (employee/independent contractor)

This is the responding or dependent variable in the regression. The court’s final characterization

of the worker will be extremely relevant to the entire analysis, as it will show how the courts

finding is affected by the controlled or independent variables. A dummy variable of 0 for

employee and 1 for independent contractor has been used. Dummy variables are useful because

trends can be detected when each variable is recorded in the same fashion. Thus, if I use 0s and

1s for all the variables, I am essentially comparing apples to apples rather than apples to oranges.

Several cases reported at the TCC level have been appealed to the FCA. I record both the TCC

and FCA decisions in my survey for a more complete analysis of the jurisprudence. I assume the

court’s ultimate characterization is dependent upon the following independent variables.

4.2 The Characterization of the MNR or TCC Below This variable will show which finding is appealed more often in the jurisprudence. A dummy

variable of 0 for employee and 1 for independent contractor has been used. Maintaining a

consistent dummy variable for the dependent variable and the independent variables will reveal

any trends after the regressions are conducted. Examining this variable may show a trend

regarding which decisions (either decisions that a worker is an employee or independent

contractor) have been appealed more so over time. As stated earlier, I have included decisions

from the TCC (appeals from decisions by the MNR) and decisions from the FCA (appeals from

decisions by the TCC) for a more complete picture of the characterization process in the

jurisprudence.

4.3 Finding of Common Intent (employee/independent contractor/none)

This factor is still highly relevant to the analysis. I record the courts’ finding on intent to

determine how heavily the courts rely on intent when characterizing a worker. The dummy

variable of 0 for employee, 1 for independent contractor, and 0.5 if common intent is not found

in the decision shall be used. Many times, the courts are presented with evidence of common

29

intent. I record this variable based on the courts’ finding regarding intent. If a common intention

is found, I have recorded the result. If a common intention is not found or not relied upon in the

decision, I record the result as neutral. The regressions will show the trend between this variable

and the courts’ ultimate characterization.

4.4 Finding Based on Factors (employee/independent contractor)

This variable will also be relevant to determine the emphasis placed on the factors over intent. In

their decisions, the courts find on balance which direction the Wiebe Door factors point to. The

dummy variable will be used (0 for employee, 1 for independent contractor, and 0.5 for neutral).

4.5 The Courts’ Finding After an Application of each of the Four Wiebe Door factors (Control/Financial Risk/Ownership of Tools)

This variable will be useful to determine which factor the courts most heavily weigh. The

dummy variable for each factor shall be used (0 for employee, 1 for independent contractor, and

0.5 for neutral or no consideration shall be used). I record the courts’ finding on each individual

factor to determine which factor is most heavily relied upon. I also hope to establish an ordering

of the factors for each time period and determine if that priority of factors changes over time.

4.6 Judge This variable will tell me which judges from the TCC or FCA are more likely to characterize a

worker as an employee or an independent contractor. This will indicate how widespread the

positions of bench are. The names of the judges will be recorded for the purposes of this

variable.

4.7 Gender of the Judge The gender of the judge may reveal a trend where either male judges or female judges from the

TCC or the FCA are more likely to characterize a worker one way or the other. A dummy

variable will be used – 0 for a male judge and 1 for a female judge.

30

4.8 Province or Territory As the TCC and FCA sit in each province and territory, analyzing this variable may show a trend

that indicates workers from certain provinces are more likely to be characterized one way over

the other. The name of the province will be recorded for the purposes of this variable.

4.9 Personal Service Business (PSB) PSBs (or incorporated employees) are used by taxpayers for the ability to deduct more expenses

from income than normally allowed. However, there are anti-avoidance rules in place that

depend on the characterization process between employee and independent contractor to prevent

PSBs. Therefore, this variable may show the courts’ treatment of PSBs in an effort to prevent tax

avoidance. A dummy variable will be used – 1 for found, 0 for not found, and 0.5 if PSBs were

not relevant to the decision.

4.10 Gender of the worker (male/female) The gender of the worker may indicate a trend, or it may not. Thus, I will record the gender just

in case. A dummy variable of 0 for male and 1 for female will be used.

4.11 Nature of Organization (profit/non-profit) The courts are cognizant of the financial restraints on non-profit organizations. The courts’

finding may be affected in this regard. Therefore, to examine this trend I will record the nature of

the organization in this regard using a dummy variable of 0 for profit and 1 for non-profit.

4.12 Industry of Organization A trend may emerge regarding the industry of the organization. Therefore, I will record the

industry of the organization the worker provided services to. The cases I have surveyed can be

placed in the following industries:

31

Accounting Information technology/telecommunications Arts and entertainment Insurance Auto repair Legal Broadcasting/marketing Manufacturing Church/charity Native affairs Cleaning Natural resources (lumber, oil and gas, etc.) Construction/landscaping Property management Consulting Restaurant/bar Education Retail/sales Employment placement service Safety/security Engineering Salon/spa Finance Software development Fitness/recreation Taxi service Food processing/farming Technical service and repair Health services/residential care Trucking/delivery

After conducting regressions on all of these variables, I not only hope to determine how the

reliance on intent and the Wiebe Door factors have shifted over time, but also if there are any

other factors that affect the courts’ finding in any statistically significant way.

5 Assumptions In my approach, I have surveyed the 540 cases over the last 15 years for the purposes of

identifying any discernable trends, specifically with regards to the emphasis or de-emphasis on

intention as an analytical factor used by the courts. Grouping the last 15 years of jurisprudence

on the characterization of a worker as either an independent contractor or employee in this

manner requires certain assumptions to be made.

I assume that both taxpayers and the CRA litigate the same issue in the same way over time even

though the law gradually shifts. I believe this is a reasonable assumption to make for the

purposes of this survey because I separate my analysis of the 15 years of case law by eight

separate eras. In each of these eras the legal analysis used by the courts changes. Different

trends, such as the “more strongly than Royal Winnipeg Ballet” standard, emerge in the case law

during these eras. The purpose of my survey is to quantify the effects of these trends on the

outcome ultimately reached by the courts.

32

I also ignore whether the taxpayers or the CRA change their litigation strategy, such as the

evidence called or the arguments used, over time. I have narrowed my survey of the case law to

only the characterization process used by the courts. I believe this is also reasonable. Courts will

base their ultimate characterization of a worker on the findings of fact and application of the

prevailing jurisprudence to those facts. This approach remains constant. What does change is the

characterization analysis the court employs and thus, this is the target of my survey.

6 How to Interpret the Results I have used STATA 12.0 to run the regressions on the 540 cases I gathered. Characterizing each

case based on the variables previously described, I was able to run regressions on different

combinations of variables to determine if any had a statistically significant effect on the courts’

characterization of a worker. However, before I present and interpret the results, I think it is

helpful to first demonstrate how results from the output generated by STATA are presented in

the Appendix and how they should be interpreted.

Consider the following example. If I want to examine how the outcome of a case, represented by

X, was affected by the independent variables A, B, C, D, E, F, G, and H, I would record each

variable in a spreadsheet. I would take each case, record the X value, and then record the value

of A, B, C, D, E, F, G, and H gathered from each case’s decision. STATA is then able to run

regressions on that data set. From the output generated, any trends STATA detects are then

displayed in the output. As an example, consider Table 3. Table 3 provides an example output of

data from a regression.

33

Table 3: Example Variable

Coefficient z P-value 95% Confidence Interval

A 0 (omitted) B 0.010

(0.179) 0.06 0.954 -0.340 0.361

C 0.397 (0.174)

2.27 0.023 0.054 0.740

D 0.403 (0.198)

2.03 0.042 0.014 0.791

E 0.070 (0.228)

0.31 0.759 -0.377 0.517

F 0.132 (0.237)

0.56 0.576 -0.332 0.598

G 0.272 (0.267)

1.02 0.308 -0.251 0.796

H 0.055 (0.179)

0.31 0.758 -0.296 0.407

constant -0.132 (0.113)

-1.17 0.241 -0.355 0.089

As can be seen in Table 3, each of the independent variables I chose to consider have been

displayed. I have run the “probit” regression using all the variables to determine how the

probability of X changes based on changes in the value of all the independent variables. Each

variable has been listed, along with a constant value, for the regression equation. STATA detects

trends by using certain variables it determines are appropriate to use as a base. In Table 3,

STATA has determined that A is an appropriate base from which to detect trends that variables B

through H have on the probability of X’s outcome. The coefficient, standard error in parentheses,

z-score, P-value, and 95% confidence interval is generated by STATA. The standard error of

each coefficient is used to calculate the z-score, which in turn is used to calculate the P-value.

It is inappropriate to interpret results that are not statistically significant. From the outset, it was

determined that statistically significant results would have a P-value of less than 0.05. The

convention is to only consider results with a P-value of less than 0.05. I have thus set the level of

significance to 5%. Doing so eliminates results that are considered extraordinary. In other words,

results with P-values grater than 0.05 are observed by chance, and are not statistically significant.

Significant results (those with P-values less than 0.05) are in blue.

The coefficient of each variable indicates by how much the probability of X will change with

one-unit change of the observed variable. Thus, the probability of X of changing (if C is

34

increased by one unit) is 0.397, or 39.7%. However, it is inappropriate to interpret the results

with this much certainty, and therefore, one must also consider the 95% confidence interval.

The 95% confidence interval provides an upper and lower limit on the coefficient to 95%

confidence. Considering the variable C, using A as a base, I am 95% confident that with one unit

increase in C, the probability of X will increase between 0.054 and 0.740, or between 5.4% and

74%. These principles should be kept in mind when interpreting the following results. After

running the regressions, these are the results I encountered.

7 Results and Interpretation The following tables and those in the Appendix show the affects of the listed independent

variables on the responding/dependent variable, which is the courts’ characterization of a worker

as an employee or an independent contractor. Table 4 shows the probability of the courts’ finding

in each of the eight eras described above.

Table 4: The Probability of the Courts’ Characterization by Era Era


Pre-Wolf 0 (omitted) Wolf-Tremblay 0.010

(0.179) 0.06 0.954 -0.341 0.362

Tremblay-Royal Winnipeg Ballet 0.398 (0.175)

2.27 0.023 0.055 0.740

Royal Winnipeg Ballet-B-Pro Grooming

0.403 (0.198)

2.03 0.042 0.015 0.792

B-Pro Grooming-Kilbride 0.070 (0.228)

0.31 0.759 -0.378 0.518

Kilbride-D.W.Thomas 0.133 (0.238)

0.56 0.576 -0.333 0.599

D.W. Thomas-TBT Personnel Services 0.273 (0.267)

1.02 0.308 -0.251 0.796

Post-TBT Personnel Services 0.055 (0.180)

0.31 0.758 -0.297 0.408

Constant -0.132 (0.113)

-1.17 0.241 -0.355 0.089

As can be seen in Table 4, the statistically significant results are in the eras between Tremblay

and B-Pro Grooming. With 95% confidence and using the Pre-Wolf era as a base, between

Tremblay and Royal Winnipeg Ballet, the courts were between 5% and 74% more likely to find a

worker was an independent contractor. That range rose after Royal Winnipeg Ballet was decided.

35

Between Royal Winnipeg Ballet and B-Pro Grooming, the courts were between 1.5% and 79%

more likely to characterize a worker as an independent contractor.

Table 5: The Courts’ Emphasis on Intent by Era Era x intent (interaction variable)


Pre-Wolf 0.004 (0.201)

0.02 0.982 -0.390 0.399

Wolf-Tremblay 0.198 (0.266)

0.74 0.456 -0.323 0.720


1.26 0.208 -0.150 0.690

Royal Winnipeg Ballet-B-Pro Grooming 0.675 (0.248)

2.72 0.007 0.188 1.163


0.40 0.692 -0.506 0.762


0.84 0.398 -0.335 0.842


1.23 0.219 -0.237 1.036


1.02 0.307 -0.218 0.693

constant -0.146 (0.124)

-1.18 0.238 -0.391 0.097

Using an interaction variable, any trends in each era between variables can be detected. Table 5

shows how intent interacted with each era described. Between Royal Winnipeg Ballet and B-Pro

Grooming, the courts’ finding was between 19% and 116% dependent on the common intent

held between the contracting parties.

Table 6: The Courts’ Emphasis on Financial Risk by Era Era x Financial Risk (interaction variable)


Pre-Wolf 1.864 (0.240)

7.75 0.000 1.393 2.336


7.57 0.000 1.503 2.553


7.93 0.000 2.192 3.631


6.27 0.000 2.202 4.203


5.02 0.000 1.374 3.134


4.34 0.000 1.401 3.706


4.92 0.000 1.445 3.360


6.95 0.000 1.700 3.035

constant -0.998 (0.093)

-10.71 0.000 -1.181 -0.815

36

Table 7: The Courts’ Emphasis on Control by Era Era x Control (interaction variable)


Pre-Wolf 2.578 (0.260)

9.89 0.000 2.067 3.089


7.48 0.000 2.242 3.835


8.58 0.000 2.495 3.972


6.99 0.000 2.279 4.053


5.74 0.000 1.897 3.866


5.53 0.000 1.583 3.322


4.34 0.000 1.849 4.898


8.37 0.000 2.156 3.475

constant -1.286 (0.102)

-12.57 0.000 -1.487 -1.086

Table 8: The Courts’ Emphasis on Integration by Era Era x Integration (interaction variable)


Pre-Wolf 2.382 (0.300)

7.94 0.000 1.794 2.970


6.86 0.000 1.724 3.103


8.11 0.000 2.410 3.946


7.14 0.000 2.267 3.981


4.67 0.000 1.301 3.180


4.61 0.000 1.329 3.296


4.76 0.000 1.620 3.889


6.30 0.000 1.651 3.143

constant -1.167 (0.131)

-8.89 0.000 -1.424 -0.909

37

Table 9: The Courts’ Emphasis on Ownership of Tools by Era Era x Ownership of Tools (interaction variable)


Pre-Wolf 1.643 (0.248)

6.62 0.000 1.157 2.130


6.69 0.000 1.439 2.633


7.33 0.000 1.684 2.914


6.30 0.000 1.639 3.119


4.02 0.000 0.904 2.626


3.52 0.000 0.835 2.934


3.97 0.000 1.408 4.162


5.50 0.000 0.951 2.004

constant -0.808 (0.091)

-8.88 0.000 -0.986 -0.629

As seen in Tables 6 to 9, the courts in all the eras relied heavily on Control, Financial Risk,

Integration, and Ownership of Tools with statistical significance. These indicators are very

powerful given the P-values are 0.

Table 10: The Courts’ Emphasis in the Pre-Wolf Era Pre-Wolf Era (interaction variable)


Control 1.950 (0.361)

5.40 0.000 1.242 2.658

Intent -1.911 (0.344)

-5.56 0.000 -2.585 -1.237

Integration 0.869 (0.470)

1.85 0.064 -0.052 1.790

Financial risk 0.204 (0.396)

0.52 0.606 -0.572 0.982

Ownership of tools 0.290 (0.430)

0.67 0.500 -0.552 1.133

constant 0.007 (0.060)

0.12 0.906 -0.111 0.125

Though the courts in the Pre-Wolf era heavily relied upon Control when characterizing a worker,

the court hardly relied upon Intent. In Table 10, the coefficient of Intent is negative, which

means an increase in Intent reduced the likelihood of the court finding the worker was an

independent contractors.

38

Table 11: The Courts’ Emphasis in the Wolf to Tremblay Era Wolf to Tremblay Era (interaction variable)


Control 2.257 (0.571)

3.95 0.000 1.138 3.377


2.79 0.005 0.570 3.255


2.95 0.003 0.546 2.705

Intent -2.699 (0.627)

-4.30 0.000 -3.929 -1.468

Integration -1.057 (0.839)

-1.26 0.208 -2.703 0.588

constant 0.005 (0.058)

0.09 0.927 -0.108 0.119

As seen in Table 11, the courts have established a priority of factors they rely on in the

characterization process. The courts rely on Control, then Ownership of Tools, then Financial

Risk. The courts place the reliance on Intent and that factor actually has a negative impact on the

outcome of the characterization process.

Table 12: The Courts’ Emphasis in the Tremblay to Royal Winnipeg Era Tremblay to RWB Era (interaction variable)


Control 2.098 (0.577)

3.63 0.000 0.965 3.230


2.05 0.040 0.070 3.105

Intent -1.565 (0.497)

-3.15 0.002 -2.541 -0.590


-0.48 0.630 -2.299 1.392


0.61 0.542 -1.078 2.053

constant -0.052 (0.058)

-0.90 0.368 -0.167 0.062

As in the previous era, the courts prior reliance on Control is maintained in the Tremblay to

Royal Winnipeg Ballet era. The courts place a reduced emphasis on Financial Risk than in the

previous era. Finally, the courts still place very little reliance on intent, and the coefficient is still

negative. This means the court is more likely to characterize a worker in a manner opposite that

intended by the contracting parties. However, the coefficient on Intent is weaker in this era than

in the previous era.

39

Table 13: The Courts’ Emphasis in the Royal Winnipeg to B-Pro Grooming Era RWB to B-Pro Grooming Era (interaction variable)


Control 2.114 (0.666)

3.17 0.002 0.808 3.421


2.08 0.037 0.096 3.238


-1.61 0.106 -3.079 0.297

Ownership of tools -0.509 (0.807)

-0.63 0.528 -2.091 1.072

Intent -0.294 (0.432)

-0.68 0.496 -1.141 0.552

constant -0.037 (0.056)

-0.65 0.516 -0.148 0.074

As seen in Table 13, the only statistically significant results found are the courts’ reliance on

Control and then Financial Risk. Using these interaction variables, no statistically significant

reliance can be found on Intent in this era. However, if we look back at Table 5, the only

statistically significant reliance on Intent amongst all the eras, was found in the Royal Winnipeg

Ballet to B-Pro Grooming era. Thus, although Intent was relied upon most heavily in that era,

that reliance is outweighed by the courts’ reliance on Control and Financial Risk.

Table 14: The Courts’ Emphasis in the B-Pro Grooming to Kilbride Era B-Pro Grooming to Kilbride Era (interaction variable)


Control 3.791 (1.165)

3.25 0.001 1.507 6.076


1.97 0.048 0.015 4.453


-1.36 0.173 -4.754 0.853

Ownership of tools -1.436 (1.230)

-1.17 0.243 -3.848 0.975

Intent -1.684 (0.997)

-1.69 0.091 -3.639 0.269

constant 0.016 (0.055)

0.29 0.770 -0.093 0.125

As seen in Table 14, the courts have maintained their reliance on Control and Financial Risk. No

other statistically significant results were found regarding the courts’ reliance on the other

objective factors or Intent.

40

Table 15: The Courts’ Emphasis in the Kilbride to D.W. Thomas Era Kilbride to D.W. Thomas Era (interaction variable)


Control 1.620 (0.671)

2.41 0.016 0.304 2.937


-1.38 0.167 -3.259 0.563


1.28 0.201 -0.576 2.743


0.88 0.381 -0.980 2.565

Intent -0.676 (0.485)

-1.39 0.164 -1.628 0.275

constant 0.011 (0.055)

0.20 0.838 -0.097 0.120

Table 16: The Courts’ Emphasis in the D.W. Thomas to TBT Personnel Services Era D.W. Thomas to TBT Era (interaction variable)


Control 2.986 (1.516)

1.97 0.049 0.014 5.958


-1.53 0.126 -5.894 0.726


0.73 0.466 -1.097 2.397


1.25 0.209 -1.155 5.271

Intent -1.476 (1.265)

-1.17 0.243 -3.957 1.004

constant 0.005 (0.055)

0.11 0.915 -0.102 0.114

In the Kilbride to D.W. Thomas and the D.W. Thomas to TBT Personnel Services eras, the only

significant result was the courts’ reliance on Control.

Table 17: The Courts’ Emphasis in the Post-TBT Personnel Services Era Post-TBT Era (interaction variable)


Control 1.950 (0.361)

5.40 0.000 1.242 2.658

Intent -1.911 (0.344)

-5.56 0.000 -2.585 -1.237

Integration 0.869 (0.470)

1.85 0.064 -0.052 1.790


0.52 0.606 -0.572 0.982


0.67 0.500 -0.552 1.133

constant 0.007 (0.060)

0.12 0.906 -0.111 0.125

41

Interestingly, the significant results show the courts’ reduced reliance on Control as compared to

other eras. Also, the courts’ do not rely on Intent in this era. The results show that in this era, the

courts’ characterization of a worker is opposite that intended by the contracting parties. This is a

similar trend found in the eras before Royal Winnipeg Ballet was decided.

The remaining tables can be found in the Appendix. After a review of the industries and

according to Table 18, the only statistically significant result found was that for the Property

management industry. The results show that in that industry, a worker is between 1.32% and

147% likely to be found an independent contractor than an employee.

Taking all the judges into account in Table 19, no statistically significant results can be found.

Thus, no one judge is more likely to characterize a worker as either an independent contractor or

an employee. Separating the judges by their court, we see in Table 20, that no one judge from the

FCA characterizes a worker one way or the other in a statistically significant way. Examining the

TCC however, reveals an interesting result. According to Table 21, Justice Sheridan was found

more likely to find a worker as an independent contractor. With all due respect to Justice

Sheridan, the results show that she was approximately 80% more likely to characterize a worker

as an independent contractor than an employee than the omitted justices.

As seen in Table 22, the province of the hearing has no statistically significant bearing on the

courts’ characterization of a worker.

However, a very strong trend observed is where the court reverses. Either the TCC reverses the

characterization of the Minister, or the FCA reverses the characterization made by the TCC. In

either circumstance, when the court reverses the decision below, it is more likely to characterize

the worker as an independent contractor. According to Table 23, with 95% confidence, I can say

when the court reverses, it is between 146% and 195% more likely to characterize a worker as an

independent contractor than an employee.

Table 24 reveals a very interesting trend. Though the gender of the worker has no statistically

significant bearing on the characterization finding, the gender of the judge does. It seems that a

42

female judge between 5.5% and 56% more likely to find a worker is an independent contractor

than a male judge. Tables 25 and 26 confirm this.

According to Table 25, after isolating for the gender of the judge, we see that indeed, with 95%

confidence, a female judge is between 5.5% and 56% more likely to characterize a worker as an

independent contractor. The opposite is true for a male judge. According to Table 26, we also see

that with 95% confidence, a male judge is between 5.5% and 56% less likely to find a worker is

an independent contractor. Instead, a male judge is more likely to find a worker is an employee.

I wanted to see in which era the gender of the judge had the greatest effect on the

characterization process. In Table 27, isolating for each era and the gender of the judge, we find

that the gender of the judge had a statistically significant affect on the characterization of a

worker in the Tremblay to Royal Winnipeg Ballet era. With 95% confidence, a female judge was

between 1.55% and 111% more likely to find a worker was an independent contractor than an

employee.

As previously mentioned, the gender of the worker had no statistically significant influence in

the characterization process. For completeness, I checked that result against each era. According

to Table 28, the gender of the worker is not a statistically significant variable in any of the eras.

According to Table 29, the type of representation the taxpayer has, whether it by a lawyer or an

agent, or if the taxpayer is self-represented, has no statistically significant bearing on how the

worker will be characterized.

In the next part, I outline the implications of the observations described above.

43

Part 4 Implications

1 Analysis is Mostly Objective As we saw in Tables 6 through 9, there are very powerful statistical results that indicate the

courts’ reliance on the four objective factors. Control is also the most heavily relied upon factor

in the courts’ analysis. Interestingly enough however, is the courts’ reliance on integration

despite Chief Justice Bowman’s comments in Lang. There is still a powerful reliance on

integration found in all the eras over the last 15 years. Therefore, regardless of the fluctuation of

intent, the courts’ have maintained the characterization analysis as mostly an objective process.

2 Emphasis and De-emphasis of Intent Intent was negative in the eras before Royal Winnipeg Ballet. Also, the courts’ reliance on Intent

was only statistically significant in the Royal Winnipeg Ballet to B-Pro Grooming era. After this

era, no statistically significant reliance on intent was observed until the Post-TBT Personnel

Services era. Here we saw the coefficient of intent drop back down into the negative value. This

indicates that the courts have returned to a similar reliance on intent as observed before Royal

Winnipeg Ballet. This also means that the courts’ have returned to a more objective

characterization process. Intent was not significantly relied upon before Royal Winnipeg Ballet.

After Royal Winnipeg Ballet, intent was significantly relied upon and we also observed the

“more strongly” standard adopted by the courts. This was the case until TBT Personnel Services

was decided, after which we observed an abandonment of the “more strongly” standard and the

reduced reliance on intent. Thus, the emphasis on intent has more or less come and gone, and the

courts have returned to a more objective characterization process. Intent still remains a

consideration, though the amount of weight given to it has dropped dramatically in the Post-TBT

Personnel Services era.

44

3 Property Management None of the industries revealed any statistically significant trend, except for Property

management. The court is more likely to find a worker in Property management is an

independent contractor, rather than an employee. This means that unless the worker is in

Property management, the industry will have no statistically significant bearing on the

probability of the courts’ characterization of a worker.

4 Reversed Decisions As seen in Table 23, if the court reverses the decision made below it, the court is likely to find a

worker is an independent contractor, rather than an employee. This means that the previous

characterization was that of an employee. Thus, on appeal, if the court reverses, the

characterization is then that of an independent contractor.

5 Gender of Judge Amongst all the factors I considered, such as the province, adjudicative forum, type of

representation, gender of the judge, gender of the worker, consideration of PSBs, and whether

the taxpayer was in the profit or non-profit sector, only the gender of the judge showed a

statistically significant result. The gender of the worker does not yield a statistically significant

result, but the gender of the judge does.

As found in Tables 24 to 27, female judges are more likely to find a worker is an independent

contractor and male judges are more likely to find a worker is an employee. Also, as seen in

Table 27, this trend is only statistically significant in the Tremblay to Royal Winnipeg Ballet era.

After the courts decided Royal Winnipeg Ballet and said intent was determinative of the nature of

the relationship between contracting parties, no statistically significant results regarding the

gender of the judge were observed.

45

I can only say with 95% confidence that a female judge is between 5% and 56% more likely to

find a worker is an independent contractor. However, it was an interesting trend I found in the

540 cases I analyzed.

46

Part 5 Conclusions

After conducting my study, my ultimate conclusion is that intent was prevalent in the courts as a

factor heavily relied upon in the characterization process after Royal Winnipeg Ballet was

decided. My study also revealed many other significant trends. To my surprise, the process over

the last 15 years has remained relatively objective. Only between Royal Winnipeg Ballet and B-

Pro Grooming was a spike in the courts’ reliance on intent observed. Observing the courts

keeping the analysis mainly objective was comforting.

Also comforting is the finding that most of the non-legal factors, such as province, forum,

industry, gender of the worker, and type of representation the taxpayer had, all yielded

statistically insignificant results. The courts are not influenced by such matters, nor should they

be. The courts should make their findings based on the merits of each case. And in large part

they do. The only observable trend I found that is disconcerting is that female judges are more

likely to find a worker is an independent contractor, and male judges are more likely to find a

worker is an employee. I cannot explain this trend. All I can say is that I observed this trend and

that the trend was statistically significant.

However, the most important part of this study was to discover the magnitude of the fluctuation

of the courts’ reliance on intent over the last 15 years of characterizing a worker. I found the

objective factors have been most heavily relied upon, with powerful statistical descriptors. I have

also found relatively few statistically significant trends with respect to intent. Other than the

spike after Royal Winnipeg Ballet and the decline after TBT Personnel Services, no other trends

regarding intent were observed. Therefore, it seems that while the courts placed a heavy reliance

on intent after Royal Winnipeg Ballet, the present era shows the courts have reduced their

reliance on intent to that of the Pre-Wolf era, before intent was introduced into the

characterization analysis.

In conclusion, I have observed the characterization process has evolved several times over the

last 15 years. Precedential case law has changed and the courts below have applied the law as it

47

has transformed. Different standards and trends have emerged and disappeared while others have

remained. This study has led to several interesting deductions regarding the role of intent in the

characterization process. It will be interesting to see how the courts move forward and establish

new eras in the case law for further studies to be conducted.

48

Bibliography Statutes

1. Income Tax Act, RSC 1985, c 1 (5th Supp), as amended.

Jurisprudence

2. 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 SCR 983.

3. 875527 Ontario Inc. v. MNR, 2012 TCC 150, 2012 CarswellNat 1405.

4. A&T Tire & Wheel Limited v. MNR, 2012 TCC 214, 2012 CarswellNat 1926.

5. B-Pro Grooming v. MNR, 2007 FCA 334, (2007) 371 NR 38.

6. Canada v. Tremblay, 2004 FCA 175, [2004] FCJ No 802 (FCA).

7. Dean v. MNR, 2012 TCC 370, 2012 CarswellNat 4072.

8. D.W. Thomas Holdings v. Canada, 2009 FCA 371, 2009 CarswellNat 4307.

9. Integrated Automotive Group v. MNR, 2011 TCC 468, 2011 CarswellNat 4048.

10. Kilbride v. Her Majesty the Queen, 2008 FCA 335, 2009 DTC 5002.

11. Lang v. MNR, 2007 TCC 547, 2007 DTC 1754.

12. Maxwell C. Bishop o/a Ultra-Max Construction v. MNR, 2007 TCC 541, 2007 CarswellNat 2996.

13. Montreal v. Montreal Locomotive Works, [1947] 1 DLR 161, [1946] 3 WWR 748, 1946 CarswellQue 231 (Quebec Privy Council).

14. North Delta Real Hot Yoga v. MNR, 2012 TCC 369, 2012 CarswellNat 4036.

15. Preddie v. The Queen, 2004 TCC 181, 2004 DTC 2427.

16. Royal Winnipeg Ballet, 2004 TCC 390, 2004 CarswellNat 1836.

17. Royal Winnipeg Ballet v. MNR, 2006 FCA 87, [2007] 1 FCR 35.

49

18. SIP Distribution Inc. v. MNR, 2011 TCC 423, 2011 CarswellNat 3519.

19. Stevenson, Jordan and Harrison Ltd. v. MacDonald and Evans, [1952] TLR 101, 69 RPC 10 (House of Lords).

20. TBT Personnel Services Inc. v. MNR, 2011 FCA 256, (2011) 343 DLR (4th) 100.

21. W.A. Pacific Rim Co. v. MNR, 1997 TCC 942355, 1997 CanLII 96.

22. Wiebe Door v. MNR, (1986) 87 DTC 5025, [1986] 3 FC 553 (FCA).

23. Wolf v. MNR, 2002 FCA 96, 2002 DTC 6853.

24. Zoltan v. MNR, 2012 TCC 286, 100 C.C.E.L. (3d) 218, 2012 CarswellNat 2917.

Scholarship

25. Nabeel Peermohamed, “The Role of Intent in Characterizing a Worker” (2013) 3:1 Canadian Tax Focus.

26. Kurt G Wintermute, “A Worker’s Status as Employee or Independent Contractor: Recent Case Law, Trends, and Planning,” Report of Proceedings of Fifty-Ninth Tax Conference, 2007 Tax Conference (2008) 34:1.

50

Appendix: Additional STATA 12.0 Date Output Tables

51

Table 18: The Courts’ Characterization based on Industry Industry (trucking, 59, as a base) Coefficient z P-value 95% Confidence Interval Accounting 0.274

(0.590) 0.47 0.642 -0.881 1.431

Arts and entertainment 0.251 (0.315)

0.83 0.426 -0.366 0.869

Auto repair -0.653 (0.425)

-1.53 0.125 -1.487 0.181

Broadcasting and marketing 0.178 (0.354)

0.50 0.615 -0.516 0.873

Church and charity -0.092 (0.412)

0.27 0.822 -0.901 0.715

Cleaning 0.095 (0.345)

0.28 0.783 -0.581 0.771

Construction and landscaping -0.007 (0.251)

-0.03 0.975 -0.500 0.484

Consulting 0.160 (0.338)

0.48 0.634 -0.502 0.824

Education 0.328 (0.287)

1.29 0.253 -0.235 0.892

Employment agency -0.544 (0.528)

-0.97 0.302 -1.579 0.490

Engineering 0.021 (0.428)

0.05 0.960 -0.818 0.861

Finance -0.232 (0.590)

-0.39 0.694 -1.388 0.924

Fitness -0.118 (0.338)

-0.31 0.726 -0.781 0.544

Food and farming 0.021 (0.337)

0.06 0.950 -0.640 0.682

Healthcare -0.005 (0.245)

0.10 0.982 -0.485 0.474

Information technology 0.303 (0.341)

0.89 0.374 -0.365 0.972

Insurance -0.409 (0.461)

-0.89 0.375 -1.314 0.495

Legal -0.503 (0.447)

-1.12 0.261 -1.380 0.374

Manufacturing -0.129 (0.299)

-0.43 0.665 -0.717 0.458

Native affairs -0.946 (0.630)

-0.99 0.133 -2.181 0.289

Natural resources 0.510 (0.365)

1.44 0.163 -0.206 1.226

Property management 0.742 (0.372)

2.00 0.046 0.013 1.472

Restaurant and bar -0.409 (0.461)

-0.89 0.375 -1.314 0.495

Retail 0.263 (0.246)

1.07 0.285 -0.219 0.746

Safety and security -0.158 (0.503)

-0.32 0.753 -1.145 0.828

Salon and spa -0.544 (0.390)

-1.39 0.163 -1.310 0.221

Taxi 0.757 (0.417)

1.82 0.069 -0.060 1.575

Technician -0.481 (0.398)

-1.21 0.228 -1.263 0.300

Trucking 0 (omitted) constant -0.021

(0.163) -0.13 0.896 -0.341 0.298

52

Table 19: The Courts’ Characterization based on the Judges Judge Coefficient z P-value 95% Confidence Interval Angers 0.475

(0.492) 0.96 0.335 -0.490 1.440

Archambauld 0 (omitted) Beaubier 0.727

(0.742) 0.98 0.327 -0.728 2.183

Bedard -0.718 (0.553)

-1.30 0.194 -1.804 0.366

Bell -0.114 (0.732)

-0.16 0.876 -1.549 1.320

Bocock 0 (omitted) Bonner 0.316

(0.650) 0.49 0.627 -0.959 1.592

Bowie -0.407 (0.517)

-0.79 0.431 -1.422 0.607

Boyle -0.544 (0.505)

-1.08 0.281 -1.535 0.445

Bowman 0.374 (0.500)

0.75 0.454 -0.606 1.355

C Miller 0 (omitted) Cudihy -0.114

(0.963) -0.12 0.906 -2.003 1.774

Cain 0.316 (0.838)

0.38 0.706 -1.327 1.960

Campbell -0.070 (0.444)

-0.16 0.873 -0.942 0.800

Darcy 0 (omitted) D’Auray 0 (omitted) Desjardins 0.316

(0.838) 0.38 0.706 -1.327 1.960

Evans 0 (omitted) Favreau 0.065

(0.608) 0.11 0.914 -1.127 1.258

Hamlyn -0.114 (0.636)

-0.18 0.858 -1.361 1.133

Hershfield -0.017 (0.514)

-0.03 0.973 -1.026 0.990

Hogan -0.367 (0.681)

-0.54 0.590 -1.704 0.969

Jorre 0 Lamarre -0.187

(0.485) -0.39 0.699 -1.140 0.764

Lamarre-Proulx 0.139 (0.681)

0.20 0.838 -1.197 1.475

Layden-Stevenson 0 (omitted) Letourneau 0 (omitted) Linden 0 (omitted) Little 0.204

(0.495) 0.41 0.680 -0.766 1.175

MacLatchy -0.544 (0.486)

-1.12 0.263 -1.498 0.408

Malone -0.114 (0.963)

-0.12 0.906 -2.003 1.774

Margeson -0.114 (0.732)

-0.16 0.876 -1.549 1.320

McArthur 0.065 (0.506)

0.13 0.897 -0.927 1.059

Mogan -0.462 (0.541)

-0.86 0.392 -1.523 0.597

Nadon 0 (omitted) Noel 0 (omitted) O’Connor 0.139 0.25 0.801 -0.941 1.220

53

(0.551) Paris

0.204 (0.589)

0.35 0.729 -0.950 1.359

Pizzitelli -0.114 (0.963)

-0.12 0.906 -2.003 1.774

Porter -0.210 (0.428)

-0.49 0.623 -1.051 0.629

Prevost 0 (omitted) Rip -0.462

(0.541) -0.86 0.392 -1.523 0.597

Rothstein 0 (omitted) Rowe -0.306

(0.412) -0.74 0.458 -1.115 0.502

Sarchuk 0.316 (0.838)

0.38 0.706 -1.327 1.960

Savoie 0.234 (0.541)

0.43 0.665 -0.825 1.295

Sexton -0.544 (0.650)

-0.84 0.402 -1.820 0.730

Sharlow 0 Sheridan 0.824

(0.488) 1.69 0.091 -0.132 1.781

Somers -0.114 (0.636)

-0.18 0.858 -1.361 1.133

Strayer 0 (omitted) Tardif -0.367

(0.681) -0.54 0.590 -1.704 0.969

Taylor 0 Teskey 0.560

(0.779) 0.72 0.472 -0.967 2.088

V Miller 0 (omitted) Webb 0.560

(0.509) 1.10 0.271 -0.438 1.558

Weisman -0.432 (0.459)

-0.94 0.347 -1.333 0.468

Woods -0.059 (0.460)

-0.13 0.897 -0.961 0.842

constant 0.114 (0.378)

0.30 0.763 -0.628 0.856

*Omitted because predicted failure perfectly

Table 20: The Courts’ Characterization based on the FCA Judges

FCA Judge Coefficient z P-value 95% Confidence Interval Desjardins 0.406

(0.750) 0.54 0.588 -1.064 1.877

Evans 0 (omitted) Layden-Stevenson 0 (omitted) Letourneau 0 (omitted) Linden 0 (omitted) Malone -0.024

(0.887) -0.03 0.978 -1.764 1.715

Nadon 0 (omitted) Noel 0 (omitted) Rothstein 0 (omitted) Sharlow 0 (omitted) Sexton -0.455

(0.532) -0.86 0.392 -1.498 0.587

Strayer 0 (omitted) constant 0.024

(0.055) 0.44 0.659 -0.083 0.132

54

Table 21: The Courts’ Characterization based on the TCC Judges TCC Judge Coefficient z P-value 95% Confidence Interval Archambault 0 (omitted) Beaubier 0.706

(0.660) 1.07 0.285 -0.587 2.001

Bedard -0.739 (0.437)

-1.69 0.091 -1.597 0.118

Bell -0.134 (0.648)

-0.21 0.836 -1.406 1.136

Bocock 0 (omitted) Bonner 0.296

(0.555) 0.53 0.594 -0.792 1.384

Bowie -0.428 (0.391)

-1.09 0.274 -1.194 0.338

Bowman -0.565 (0.374)

-1.51 0.131 -1.299 0.168

Boyle 0.354 (0.367)

0.96 0.336 -0.367 1.075

C Miller 0 (omitted) Cuddihy -0.134

(0.902) -0.15 0.881 -1.902 1.633

Cain 0.296 (0.767)

0.39 0.700 -1.207 1.799

Campbell -0.091 (0.287)

-0.32 0.750 -0.654 0.471

Darcy 0 (omitted) D’Auray 0 (omitted) Favreau 0.045

(0.505) 0.09 0.929 -0.944 1.035

Hamlyn -0.134 (0.538)

-0.25 0.803 -1.190 0.920

Hershfield -0.038 (0.386)

-0.10 0.921 -0.795 0.719

Hogan -0.388 (0.591)

-0.66 0.512 -1.547 0.771

Jorre 0 (omitted) Lamarre -0.208

(0.347) -0.60 0.549 -0.889 0.472

Lamarre-Proulx 0.118 (0.591)

0.20 0.841 -1.040 1.277

Little 0.183 (0.360)

0.51 0.610 -0.523 0.890

MacLatchy -0.565 (0.348)

-1.62 0.105 -1.248 0.118

Margeson -0.134 (0.648)

-0.21 0.836 -1.406 1.136

McArthur 0.045 (0.376)

0.12 0.904 -0.692 0.783

Mogan -0.483 (0.421)

-1.15 0.251 -1.309 0.342

O’Connor 0.118 (0.434)

0.27 0.785 -0.733 0.970

Paris 0.183 (0.481)

0.38 0.703 -0.760 1.127

Pizzitelli -0.134 (0.902)

-0.15 0.881 -1.902 1.633

Porter -0.231 (0.262)

-0.88 0.377 -0.744 0.282

Prevost 0 (omitted) Rip -0.483

(0.421) -1.15 0.251 -1.309 0.342

Rowe -0.327 (0.234)

-1.39 0.164 -0.787 0.133

55

Sarchuk 0.296 (0.767)

0.39 0.700 -1.207 1.799

Savoie 0.214 (0.421)

0.51 0.611 -0.611 1.039

Sheridan 0.804 (0.350)

2.29 0.022 0.116 1.491

Somers -0.134 (0.538)

-0.25 0.803 -1.190 0.920

Tardif -0.388 (0.591)

-0.66 0.512 -1.547 0.771

Taylor 0 (omitted) Teskey 0.539

(0.701) 0.77 0.442 -0.835 1.915

V Miller 0 (omitted) Webb 0.539

(0.379) 1.42 0.155 -0.204 1.284

Weisman -0.453 (0.310)

-1.46 0.144 -1.06 0.154

Woods -0.080 (0.310)

-0.26 0.796 -0.689 0.529

constant 0.134 (0.168)

0.80 0.423 -0.194 0.464

Table 22: The Courts’ Characterization based on the Provinces/Territories Province/Territory Coefficient z P-value 95% Confidence Interval Alberta -0.307

(0.290) -1.06 0.289 -0.875 0.261

British Columbia -0.439 (0.264)

-1.66 0.096 -0.957 0.078

Manitoba -0.193 (0.357)

-0.54 0.589 -0.893 0.507

New Brunswick -0.113 (0.342)

-0.33 0.741 -0.784 0.558

Newfoundland -0.307 (0.917)

-0.33 0.738 -2.105 1.490

Nova Scotia -0.108 (0.374)

-0.29 0.773 -0.841 0.625

Northwest Territories* 0 (omitted) Ontario -0.246

(0.252) -0.98 0.329 -0.741 0.248

Quebec -0.442 (0.283)

-1.56 0.118 -0.998 0.113

Saskatchewan** 0 (omitted) Yukon*** 0 (omitted) constant 0.307

(0.236) 1.30 0.194 -0.156 0.771

*Northwest Territories omitted because predicts success perfectly

**SK omitted because of collinearity

***YK omitted because predicts failure perfectly

56

Table 23: Overview Variable Coefficient z P-value 95% Confidence Interval Representation 0.004

(0.152) 0.03 0.976 -0.293 0.302

Gender of Judge 0.260 (0.151)

1.72 0.086 -0.036 0.558

TCC 0.064 (0.292)

0.22 0.826 -0.508 0.637

FCA 0 (omitted) Previous finding 0.225

(0.134) 1.68 0.093 -0.037 0.488

Court reverses 1.709 (0.125)

13.66 0.000 1.464 1.954

Profit or non-profit -0.440 (0.256)

-1.72 0.086 -0.943 0.062

Gender of worker -0.011 (0.141)

-0.08 0.938 -0.287 0.265

PSB -1.728 (1.107)

-1.56 0.118 -3.899 0.441

constant -0.090 (0.621)

-0.14 0.885 -1.308 1.128

Table 24: The Courts’ Characterization based on Gender Gender Coefficient z P-value 95% Confidence Interval Judge 0.308

(0.129) 2.39 0.017 0.055 0.561

Worker -0.044 (0.121)

-0.37 0.715 -0.283 0.194

constant -0.039 (0.073)

-0.54 0.586 -0.183 0.103

Table 25: The Courts’ Characterization if a Female Judge Presides Gender Coefficient z P-value 95% Confidence Interval Female Judge 0.308

(0.129) 2.38 0.017 0.054 0.560

constant -0.054 (0.061)

-0.88 0.378 -0.174 0.066

Table 26: The Courts’ Characterization if a Male Judge Presides Gender Coefficient z P-value 95% Confidence Interval Male Judge -0.308

(0.129) -2.38 0.017 -0.560 -0.054

constant 0.253 (0.113)

2.23 0.025 0.031 0.475

57

Table 27: The Courts’ Characterization based on the Gender of the Judge by Era Era (interaction variable with judge gender)


Pre-Wolf -0.085 (0.423)

-0.20 0.840 -0.915 0.745

Wolf-Tremblay -0.059 (0.383)

-0.16 0.876 -0.812 0.692


2.02 0.044 0.015 1.116


1.85 0.064 -0.031 1.085


1.23 0.220 -0.371 1.612


1.28 0.201 -0.258 1.228


1.23 0.220 -0.371 1.612


0.24 0.808 -0.383 0.492

constant -0.054 (0.061)

-0.88 0.378 -0.174 0.066

Table 28: The Courts’ Characterization based on the Gender of Worker by Era Era (interaction variable with judge gender)


Pre-Wolf -0.115 (0.218)

-0.53 0.598 -0.542 0.312

Wolf-Tremblay -0.117 (0.245)

-0.48 0.631 -0.598 0.363


0.40 0.688 -0.436 0.660


1.77 0.077 -0.056 1.093

B-Pro Grooming-Kilbride -0.349 (0.327)

-1.07 0.286 -0.992 0.293


0.40 0.691 -0.640 0.966

D.W. Thomas-TBT Personnel Services -0.554 (0.486)

-1.14 0.254 -1.508 0.398

Post-TBT Personnel Services -0.169 (0.273)

-0.62 0.537 -0.706 0.367

constant 0.028 (0.067)

0.42 0.672 -0.103 0.159

Table 29: The Courts’ Characterization based on Type of Representation Coefficient z P-value 95% Confidence Interval Representation (Lawyer, Self, or Agent) 0.025

(0.125) 0.20 0.840 -0.221 0.271

constant 0.007 (0.070)

0.10 0.918 -0.130 0.144

The Impact of Intent in the Characterization …...The Impact of Intent in the Characterization Analysis of a Worker Nabeel Peermohamed Master of Laws Faculty of Law University of

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