http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/180248/index.do
Monjazeb v. M.N.R. (September 13, 2016 – 2016 TCC 196, C. Miller J.).
Précis: Mr. Monjazeb was an audio engineer working for PCS Pacific Cabling Solutions Ltd. (“PCS”). Initially he clearly wanted to be an independent contractor and submitted invoices for his work on a periodic basis and charged GST. After the end of his employment with PCS he claimed to have been an employee. CRA initially sided with him but after an internal appeal concluded that he was an independent contractor. Mr. Monjazeb appealed that decision to the Tax Court. The Court reviewed the well-know factors. There was no clarity of intention on the part of PCS and Mr. Monjazeb. Factors such as the payment of vacation pay pointed to employment. Control was a strong factor pointing to employment. On balance the Court concluded that Mr. Monjazeb was an employee but stated that it would have ordered costs against him if it had the jurisdiction to do so since he was the author of most of the confusion insisting that he be treated as an independent contractor to increase his disposable income.
Decision: This was a case of a worker changing his mind after originally insisting on being treated as an independent contractor:
[1] Shahrokh Monjazeb, the Appellant, claims to have been an employee of PCS Pacific Cabling Solutions Ltd. (“PCS”) for the period in issue, January 1, 2014 to April 28, 2015 (the “Period”) notwithstanding he invoiced PCS twice a month for “system design, product support and training consulting fees” and charged GST. Mr. Brown, the principal of PCS, claims Mr. Monjazeb was an independent contractor for the Period notwithstanding PCS provided paid vacation leave, paid a base salary plus commission and direct deposited the remuneration to Mr. Monjazeb’s bank account. It is an interesting twist on the stereotypical employee versus independent contractor issue: normally the one asserting employment tends to create employment-like trappings and, similarly, the one asserting independent contractor attempts to create independent contractor-like trappings – not the other way around.
[2] The Canada Revenue Agency (“CRA”) initially sided with Mr. Monjazeb, ruling on August 12, 2015 that he was in insurable and pensionable employment under the auspices of the Employment Insurance (“EI”) and Canada Pension Plan (“CPP”) legislation. However, upon PCS’s appeal of this ruling, the CRA overturned the ruling and on November 16, 2015 decided that Mr. Monjazeb was an independent contractor for purposes of the EI and CPP legislation. Mr. Monjazeb appeals that decision.
In the course of reviewing the well-known tests in this area the Court first concluded that the
“intention” test was not helpful:
[23] So, does what was intended, even if it can be figured out, assist in this analysis? I agree with Mr. Brown that the relationship morphed, to use his word, from a clear independent contractor relationship into some sort of hybrid. I accept that Mr. Brown wanted to cement the relationship as an employment relationship. I accept as evidence that he made this offer on several occasions, formalizing the written offer of April 1, 2014. I view this as a recognition by Mr. Brown that Mr. Monjazeb was, in most respects, other than with respect to source deductions, already an employee, and that Mr. Brown needed to solidify that position.
[24] While Mr. Monjazeb says he accepted the April 2014 offer, he clearly did not do so vis-à-vis the actual formalizing of an employment relationship, as he continued to insist on submitting invoices and charging GST rather than accept the standard employee source deductions. I can only conclude that any mutual intention is unclear and an attempt to rely on intention as shaping the real working relationship is unhelpful. Frankly, this is a conclusion that I have reached in many an employee versus independent contractor cases. The relationship is more readily determined by addressing the traditional factors confirmed by the Supreme Court of Canada in the Sagaz Industries Canada Inc. v 671122 Ontario Limited and which I identified earlier.
[Footnote omitted]
The “control” test favoured a finding of employment:
[31] With respect to substitute workers, I find Mr. Monjazeb could not have sent anyone in his place to perform the technical and sales service he was hired to do. While he did have an assistant, her work had nothing to do with the sales work at PCS. Clearly, this evokes employment.
[32] Concerning freedom to come and go as he pleased, I am satisfied both Mr. Monjazeb and Mr. Brown had the expectation that Mr. Monjazeb was to be at work from 9:00 a.m. until 5:00 p.m. Yes, Mr. Monjazeb took only a half hour lunch, but it was within the time set by Mr. Brown. The very fact of a limited time for lunch is indicative of employment.
[33] Mr. Brown points to Mr. Monjazeb’s unilateral decision to go to the CES convention in Las Vegas. I agree that does accord with the freedom of an independent contractor, but it is only one instance and I am not swayed it overwhelms the everyday requirement of PCS which was much more a sign of employment.
[34] On balance, I find the control factor favours a finding of employment.
The factors of ownership of equipment, risk of loss and responsibility for investment and management also pointed to a finding of employment. While there was a theoretical possibility of profit it never happened.
On balance the Court concluded that the factors pointed in the director of an employment relationship:
[39] The analysis supports a finding of employment notwithstanding not all factors point overwhelmingly in that direction: sufficient do, however, on balance.
Although it allowed the appeal, the Court did however express displeasure with Mr. Monjazeb’s conduct:
[40] I have considerable sympathy for Mr. Brown. He was caught between a rock and a hard place. He had a worker who, I believe, he realized was truly an employee, but who refused to formalize that status due to the consequent impact on income earned by deduction of the source deductions. Mr. Brown simply let it go. He could have insisted on the employment contract and run the risk of losing a top salesman, or he could carry on with the invoicing arrangement and “pretending” Mr. Monjazeb was an independent contractor. It is understandably irksome to Mr. Brown that Mr. Monjazeb now turns around and demands the benefits of employment, with the financial impact on PCS that flows from that. Yet, I conclude that in law, Mr. Monjazeb was an employee. But I also conclude that he is responsible for creating this unnecessary and unfortunate litigation. If I were able to award costs against Mr. Monjazeb in PCS’s favour, I would do so. Regrettably, our Rules do not permit such.
[41] I allow the Appeal and vacate the Minister of Revenue’s decision of November 16, 2015 on the basis that Mr. Monjazeb was an employee for purposes of the EI and CPP legislation.