1392644 Ontario Ltd v MNR, 2013 FCA 85

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The Role of Mutual Intention in Characterizing Working Relations

1392644 Ontario Ltd v MNR, 2013 FCA 85

There were two issues in this case:

  1. Was the TCC correct in referring to findings of fact made in other, previous, cases?
  2. What is the role of parties’ intentions in characterizing a relationship of that contract of services or contract for services?

The FCA held that a trial judge referring to previous factual decisions made by other trial judges in actions between the same parties, on the basis of the same or similar facts, was not inappropriate so long as the trial judge did not find himself to be bound by those previous findings of fact.  What was required by a party asking the court to make different findings of fact than previous trial judges was some basis to distinguish the previous cases or to show how the finding was not appropriate in these circumstances.

The FCA also clarified the role that parties’ intentions play in classifying a work relationship as being either a contract of services or a contract for services.  The test consists of two steps: (1) ascertain the subjective intention of the parties (and presumably ensure that there is a common intention); and (2) use the common subjective intention as a prism through which to objectively test the relationship, in fact, using the factors in Wiebe Door and Sagaz.


Though the test proposed by the court is not in itself problematic (and arguably simply a distillation of the test already in place), the manner the test was applied to the facts in this case (as highlighted by the court) may turn out to be problematic.  The court referred to the control exercised through a manual that was based on government regulations, the financial limitations of hourly rates or per diem rates, and the lack of financial risk other than a mobile phone and a computer.  These factors are present in many modern knowledge-based independent contractor relationships, and cannot be taken lightly when characterizing those relationships.  The Courts must be alive to changing work environments and economic arrangements, and not be overly reliant on old ways of understanding work relationships.


The appellant ran a number of foster homes and employed a number of individuals to perform services at these homes.  The contracts all stipulated that the employment was in the form of contract for services, making those providing services independent contractors.  The MNR reassessed and held that the parties were in an employer-employee relationship and that the services were not provided by independent contractors.

The TCC referred to past decisions involving a predecessor of the appellant where on identical facts the TCC had held the relationship to be that of employer and employee.  The TCC did review the evidence before it in light of the factors in Wiebe Door Services Ltd v Canada (Minister of National Revenue), [1986] 3 FC 553, and concluded that the workers were employees on the basis that “Common Homes and Connor Group Homes exercised significant control over the workers, that there was no chance for workers to increase their income by reducing their expense or producing more, and that only few tools were required from the workers (cell phone and computer).  The TCC also dismissed the submissions based on the intent of the parties, as the manner in which the relationship in fact operated was not consistent with an independent contractor relationship.


The FCA first identified the appropriate standards of review as set out in Housen v. Nikolaisen, 2002 SCC 33: (1) Questions of law and procedural fairness attract standard of correctness; (2) questions of fact or mixed fact and law attract the standard of reasonableness.  The FCA then outlined the applicable legislative schemes by quoting the provisions.

Placing weights on acts in other judgments

The FCA restated that a judge is not bound by findings of fact made in other cases, but went on to say:

That being said, however, when similar acts are submitted repeatedly by the same party to different judges, and where the same conclusions are being drawn from these facts by all the judges, it is certainly not inappropriate for a trail judge to note this. […] but the party which is relying on the same or similar facts to draw another conclusion should provide some explanation as to why the findings of the other judges are distinguishable from the case at hand or inappropriate in the circumstances

Test to determine whether a worker is an employee or an independent contractor

The FCA noted that although the test to differentiate between an employee and an independent contractor is simple: is the person performing the services as his own business or on his own account? (1671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2011 SCC 59 at para. 47). However, the application of the test is far from simple due to the fact-specific nature of the inquiry.

The FCA noted that the differentiation is more important today than in the past by saying:

Since the trend in the workforce for the past few years has been toward increased out-sourcing and short-term contracts, this question has taken on added importance, and has led to much litigation in the Tax Court of Canada.

After reviewing the leading cases on the question (see Wiebe Door; Sagaz; Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161 (P.C.); [1946] 3 W.W.R. 748), the court noted that there is an apparent lack of consistency in how the intention of the parties is to be treated (Wolf v. The Queen, 2002 D.T.C. 6053 (F.C.A.) (“Wolf”); Royal Winnipeg Ballet v. Canada (Minister of National Revenue) 2006 FCA 87 (“Royal Winnipeg Ballet”); Dean Lang and Sharon Lang v. M.N.R., 2007 TCC 547; City Water International Inc. v. Canada, 2006 FCA 350; Combined Insurance Company of America v. Canada (National Revenue), 2007 FCA 60; Kilbride v. Canada, 2008 FCA 335).

The FCA identified the social importance of the distinction:

Because the employee-employer relationship has important and far reaching legal and practical ramifications extending to tort law (vicarious liability), to social programs (eligibility and financial contributions thereto), to labour relations (union status) and to taxation (GST registration and status under the Income Tax Act), etc., the determination of whether a particular relationship is one of employee or of independent contractor cannot simply be left to be decided at the sole subjective discretion of the parties. Consequently, the legal status of independent contractor or of employee is not determined solely on the basis of the parties declaration as to their intent. That determination must also be grounded in a verifiable objective reality.

The FCA set out to clarify the use of parties intentions and identified a two-step test (paras 37 – 38).  The first step identifies the subjective intent of each party using either the written agreement or the parties’ actual conduct.  The second step is to determine whether an objective reality sustains the subjective intent of the parties.  Thus, the subjective intention of the parties cannot trump the objective reality of the relationship.  In the second step, the intent of the parties and the terms of their contract are taken into account as they “colour s [sic] the relationship”, but the facts must be considered in light of the tests set out in Wiebe Door  and Sagaz (para 40).  The court concluded that :

[41]           The central question at issue remains whether the person who has been engaged to perform the services is, in actual fact, performing them as a person in business on his own account. As stated in both Wiebe Door and Sagaz, in making this determination no particular factor is dominant and there is no set formula. The factors to consider will thus vary with the circumstances. Nevertheless, the specific factors discussed in Wiebe Door and Sagaz will usually be relevant, such as the level of control over the worker’s activities, whether the worker provides his own equipment, hires his helpers, manages and assumes financial risks, and has an opportunity of profit in the performance of his tasks.

The first step in the analysis is always to ascertain the subjective intention of the parties (if there is a mutual intention), and then use the intent identified as a “”prism” in determining the second question of the parties relationship in fact.

In this case, the FCA stated that the intent of the parties was to be independent contractors.  However, the facts of the case reflect a relationship that is not consistent with that subjective intention.  In this case, the appellant exercises a significant degree of control through the means of Policies and Procedures Manuals (based on provincial legislation), and it was expected by the contract that the works abide by the Manual.  The FCA also stated that even beyond the manual, the appellant controlled the individuals’ duties on a day-to-day basis: “The appellants dictated administrative tasks and imposed mandatory attendance at staff meetings to discuss work procedures, work scheduling and day-to-day occurrences in the homes. The appellants also provided guidance and instruction to the individuals regarding how to manage difficult situations with clients, as well as marketing activities to be undertaken on their behalf” (para 45).

In addition to control that resembled that of an employer over an employee, there were financial limitations in the form of fixed hourly rates based on Ministry allotment, or a per diem rate per child. The FCA recognises that there was an ability to control finances though the hours of work, but this was illusionary as the schedules prevented the workers from realising this benefit.  The workers didn’t take a financial risk, were not expected to take out loans, make capital investments, buy specialized equipment, or maintain operating funds.  The FCA stated that the only requirement of being available on a mobile phone and having a personal computer was commonly expected from many employees today, such that it cannot be taken as an indicator of the relationship between the parties.

The FCA stated that:

[51]           Taken together, the reality of this arrangement by which the workers’ tasks were dictated by manuals and  arried out under the supervision of the appellants, where rates of pay were fixed and hours scheduled by the appellants, and where no significant financial risks or investments were required of the concerned workers, is not sufficient to qualify the legal relationship between the parties as that of an independent contractor arrangement.

The conclusion drawn was that these workers were not operating an independent business of their won, but were working as employees in the appellant’s business for the appellant’s benefit

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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