Azur Human Resources Ltd. v. The Minister of Revenue Dare Human Resources Corporation v. The Minister of Revenue

[Indexed as: Azur Human Resources Ltd. v. Ontario (Minister of Revenue)]

Ontario Reports Ontario Superior Court of Justice, Hackland J. September 5, 2018 142 O.R. (3d) 691 | 2018 ONSC 5212

Case Summary

Employment — Employer — Placement agencies which supplied temporary workers to federal government being "employers" of those workers for purposes of liability to pay employer health tax under Employer Health Tax Act — Employer Health Tax Act, R.S.O. 1990, c. E.11.

The appellants were placement agencies which supplied temporary workers to the federal government. Once placed into an assignment, the workers were in the client's workplace and under the client's control and direction in carrying out their work. The client paid the appellants for the workers' services, and the appellants then paid the workers lesser amounts, with the difference representing the appellants' revenue. The Employer Health Tax Act defines "employer" as a person or government who pays remuneration to an employee. The appellants appealed a series of assessments by the Minister of Revenue under the Act, arguing that they were not the employers of the workers in question and were therefore not liable to pay employer health tax.

Held, the appeals should be dismissed.

It is entirely possible to conclude that a placement agency is an employer for taxation purposes, but not necessarily for labour relations purposes. In this case, there was a tripartite arrangement, with the appellants controlling and administering the recruitment and staffing aspects of the workers' relationship and the negotiation of remuneration and administration of the payroll, while the client issued call-ups and controlled all aspects of the workplace and the work product. In order to determine the real employer in a tripartite relationship, one must first look to the applicable legislation for guidance. The provisions of the Act strongly indicated that the appellants were the real employers of the workers. They were the only persons who had contractual obligations to the workers to pay for their services. The appellants were therefore the only persons who could be the employers of the workers for the purposes of the Act.

Pointe-Claire (City) v. Quebec (Labour Court), [1997] 1 S.C.R. 1015, [1997] S.C.J. No. 41, 146 D.L.R. (4th) 1, 211 N.R. 1, J.E. 97-1055, 46 Admin. L.R. (2d) 1, 28 C.C.E.L. (2d) 177, 97 CLLC Â220 -039, 70 A.C.W.S. (3d) 475, apld

IBM Canada Ltd. v. Ontario (Minister of Finance) (2008), 89 O.R. (3d) 641, [2008] O.J. No. 1168, 235 O.A.C. 161, 2008 ONCA 216, 165 A.C.W.S. (3d) 182, consd

Other cases referred to

Dare Personnel Inc., [1996] OLRB Rep. 1014 (Div. Ct.), affg [1995] OLRB Rep. 935, [1995] O.L.R.D. No. 2463; Wiebe Door Services Ltd. v. M.N.R., [1986] F.C.J. No. 1052, [1986] 3 F.C. 553, [1986] 5 W.W.R. 450 (C.A.)

Statutes referred to

Employer Health Tax Act, R.S.O. 1990, c. E.11, ss. 1(1) [as am.], 2(1), (2) [as am.] Employment Standards Act, 2000, S.O. 2000, c. 41 Financial Administration Act, R.S.C. 1985, c. F-11 Income Tax Act, R.S.C. 1985, c. 1 (5th supp.), ss. 5, 6 [as am.], 7 [as am.] Labour Code, C.Q.L.R., c. C-27 Public Service Employment Act, S.C. 2003, c. 22, ss. 12, 13 [as am.]

Rules and regulations referred to

Canada Pension Plan Regulations, C.R.C. c. 385 Employment Insurance Regulations, SOR/96-332

APPEALS from tax assessments.

Gregory Sanders, for appellant. Lori E.J. Patyk, Jason DeFreitas and James Elcombe, for respondent.

HACKLAND J. : —

Overview

[1] The appellants appeal a series of assessments by the Minister of Revenue (Ontario), (the "Minister") under the Employer Health Tax Act, R.S.O. 1990, c. E.11 ("EHTA"). The appellants are placement agencies based in Ottawa who supply temporary workers to the Public Service of Canada and federal agencies pursuant to agreements between the appellants and the Government of Canada, known as "Standing Offers for Temporary Help Services" and "Supply Arrangements for Temporary Help Service". The employer health tax is a payroll tax paid by employers, the proceeds of which fund Ontario's health care system.

Issue

[2] The issue in these appeals is whether the appellants are the employers of the workers they place with the federal public service and agencies under the standing offers. The appellants argue they are not the employers of these workers and are therefore not liable to pay employer health tax under the EHTA.

The EHTA

[3] In terms of the legislative scheme, EHTA obligations are triggered when an employer pays remuneration to its employees. The charging provisions of the EHTA contained in s. 2(1) and (2) provide that employers shall pay employer health tax calculated on their total Ontario remuneration. Subsection 1(1) of the EHTA defines the concepts of employer, employee, remuneration and total Ontario remuneration. To summarize,

(1) an employer is defined as a person who pays remuneration to an employee; (2) an employee is defined as including an individual who is employed by an employer; (3) remuneration is defined as all payments that are required to be included in the recipient's income under ss. 5, 6, or 7 of the Income Tax Act, R.S.C. 1985, c. 1 (5th supp.) ("ITA"); (4) total Ontario remuneration of an employer is defined as including the total remuneration paid to all employees of the employer that are paid remuneration through a permanent establishment of the employer in Ontario.

[4] I set out the applicable provisions of the EHTA:

Definitions

1(1) . . .

"employee" means,

(a) an individual employed by an employer, (b) an individual who holds office from an employer and receives remuneration in respect of the performance of the duties of the office, (c) an individual who was formerly an employee within the meaning of clause (a) or (b);

"employer" means a person or a government, including the government of a province, a territory or Canada, who pays remuneration to an employee;

"remuneration" includes all payments, benefits and allowances received or deemed to be received by an individual that, by reason of section 5, 6 or 7 of the Income Tax Act (Canada), are required, or would be required if the individual were resident in Canada, to be included in the income of the individual for the purposes of that Act and, without limiting the generality of the foregoing, includes salaries and wages, bonuses, taxable allowances and commissions and other similar amounts fixed by reference to the volume of sales made or contracts negotiated, but does not include a pension, annuity or superannuation benefit paid by an employer to a former employee after retirement of the employee;

"total Ontario remuneration", in respect of an employer, means the total remuneration paid,

(a) to or on behalf of all of the employees of the employer who report for work at a permanent establishment of the employer in Ontario, and (b) to or on behalf of all of the employees of the employer who are not required to report for work at a permanent establishment of the employer but whose remuneration is paid from or through a permanent establishment of the employer in Ontario.

Tax

2(1) Every employer shall pay to the Crown in right of Ontario a tax calculated in accordance with this Act.

Calculations of Tax

(2) The amount of tax payable by an employer for a year is the amount equal to the product of the taxable total Ontario remuneration paid by the employer during the year multiplied by, . . .

The Facts

[5] In these reasons, I will use the terminology counsel used during the hearing -- the temporary work are "assignments", the persons placed in the assignments by the appellants are "workers" and the various government entities who issued "call ups" under the standing orders are "clients".

[6] The controlling shareholder and president of the appellants, Ms. Vitanza, testified to explain how the appellants operated their businesses in reference to the workers and the clients. She said the appellants are two among some 145 placement agencies in the Ottawa area which place temporary workers with the federal government under the standing offer process. The appellants maintain an inventory of thousands of workers who may be interested in temporary assignments with government departments and agencies. Many of these workers are registered with more than one placement agency. The appellants operate a website through which this inventory of workers is maintained, including their resumes and information as to their qualifications.

[7] Ms. Vitanza testified that when a client advises it wishes to hire temporary workers, her agency has a short window of time to respond with the names of qualified workers. This is a competitive process and the clients are free to deal with other placement agencies. When the appellants submit names to the client, they are required to identify appropriate qualified persons from their inventory, ascertain the person's willingness to apply and negotiate an hourly rate of pay for the placement. The prospective worker will be interviewed by the appellant and also quite possibly by the client. Once the assignment begins, the placement agencies' primary function is to pay the worker and administer the payroll. To support this function, the appellants obtain time sheets signed off by the client. The clients pay the appellants for the workers' services on a regular basis and the difference in hourly pay rate between the amount negotiated by the appellants with their workers and the higher amount paid by the client to the appellants pursuant to the call up arrangements, represent the appellants' revenue.

[8] Importantly, the workers, once placed into an assignment, are in the client's workplace and are under the client's control and direction in carrying out their work. Ms. Vitanza was inclined to portray the appellants as mere staffing and payroll administrators: "we only process the time sheets", we "process (the workers') payments", the client "directs us to issue the workers' T4's". Only in cross-examination did she admit the placement agency could also be involved in performance or discipline issues should problems arise in the workplace. She did acknowledge the placement agencies' significant role and responsibility in making sure the workers proposed for assignments had the qualifications required, including carrying out testing where required and the obtaining of security clearances and other certifications.

[9] A review of the government contractual documentation pertaining to the standing orders makes it clear that it is the government's intention that the workers are to be regarded as employees of the placement agencies and not employees of federal government. The appellants participated in this staffing process and in the contractual relationships inherent in the standing order process. I find that the appellants fully appreciated that the client, the federal government, required the placement agencies to be seen and identified as employers of the workers and that is a key aspect of this staffing regime. As for the workers themselves, they had to have been aware that they had not become employees of the federal government when they accepted the temporary work assignments.

Position of the Appellant

[10] The appellants argue that the issue in these appeals is not whether the workers are employees or independent contractors, but simply "whether the appellants are the workers' employer in the context of an increasingly common tripartite relationship . . ."

[11] The appellants submit the appeals must be decided by the application of the controlling appellate case law dealing with workplace arrangements involving temporary workers, specifically the decisions of the Supreme Court of Canada in Pointe-Claire (City) v. Quebec (Labour Court), [1997] 1 S.C.R. 1015, [1997] S.C.J. No. 41 and the Ontario Court of Appeal in IBM Canada Ltd. v. Ontario (Minister of Finance) (2008), 89 O.R. (3d) 641, [2008] O.J. No. 1168, 2008 ONCA 216. The appellants argue that the question is "which party has the most control over all aspects of the individual's work" and they contend that the evidence shows that this is not the appellants, but is the client, i.e., the Government of Canada.

[12] The appellants answer the point that they are required by law, as "employer" of the workers whom they share with their clients, to deduct and remit E.I., C.P.P. and Employment Standards entitlements. They point out that they are, as placement agencies, "deemed" to be the employer under the relevant Employment Insurance Regulations, SOR/96-332, Canada Pension Plan Regulations, C.R.C. c. 385 and the Employment Standards Act, 2000, S.O. 2000, c. 41, whereas, in contrast, there is no such deeming provision to be found in the EHTA.

[13] The appellants also rely on a 1995 decision of the Ontario Labour Relations Board which held that it (Dare Personnel Inc.) was not the employer of the workers for collective bargaining purposes: see Dare Personnel Inc., [1995] OLRB Rep. 935, [1995] O.L.R.D. No. 2463, affd [1996] OLRB Rep. 1014 (Div. Ct.).

Position of the Respondent, (Minister of Revenue)

[14] The respondent points out that the EHTA is a taxing statute, which imposes a payroll tax on employers. The tax is triggered when an employer pays remuneration to its employees. The EHTA defines an employer as a person who pays remuneration to an employee. The words of the EHTA are precise and unequivocal in this regard. The respondent says this is virtually determinative of the issue in the present appeals.

[15] The respondents argue further that even if the provisions of the EHTA are not a complete answer to whether the appellants are the employers of the workers, then, as the Supreme Court of Canada set out in the Pointe-Claire decision, the inquiry into who should be considered the "real employer" under a statute arises where there is a splitting of the employer's identity in the context of a tripartite relationship; for example, a relationship between a worker, a placement agency and the client with whom the worker is placed.

[16] The respondents submit that the workers are clearly not independent contractors, i.e., they are not in business on their own account as that concept is explained in Wiebe Door Services Ltd. v. M.N.R., [1986] F.C.J. No. 1052, [1986] 3 F.C. 553 (C.A.). I would observe that this is undoubtedly a correct submission and the appellants are not contending that the workers are independent contractors.

[17] The respondents' position is that in view of the working relationships of the workers, in the context of this tripartite relationship (the worker/the placement agency/the client) and considering the EHTA is a taxing and not a labour relations statute, the court should find that the appellants are employers for EHTA purposes and must therefore remit amounts due under the Act, just as they are required to do for other statutory deductions.

Analysis

[18] I begin by observing that as the workers are not self-employed independent contractors, then some entity must be the employer. The employer could only be either the placement agency (the appellants) or their client, the Government of Canada. This is undoubtedly what the Supreme Court referred to as a tripartite relationship in Pointe-Claire. The court stated (at para. 26), in words applicable to the present appeal,

Personnel agencies are occupying an increasing share of the labour market. These agencies might be described as intermediaries in that they supply businesses with the services of employees they recruit. That supply of services gives rise to a triangular relationship among the parties -- the agency, the client and the employee -- whose legal relationship is not clearly defined by labour legislation. While it is easy to identify the employee in such a tripartite relationship, the identification of the employer is another matter. Generally speaking, both the agency and the client have some of the traditional attributes of an employer within the meaning of the [Quebec] Labour Code. There is accordingly a certain splitting of the employer in the tripartite relationship.

[19] In Pointe-Claire, the City of Pointe-Claire hired a temporary employee through a placement agency for two temporary assignments. The agency recruited, assigned, evaluated and paid the employee (the agency would invoice the city). The employee's general working conditions -- hours of work, breaks and statutory holidays -- were determined by the city. If an employee was unqualified or had difficulty adapting, the city would have informed the agency, which would have taken the appropriate action. The Supreme Court of Canada held that it was not patently unreasonable for the Quebec Labour Court to conclude that the city was the employee's employer for the purposes of the Quebec Labour Code, C.Q.L.R., c. C-27.

[20] In IBM Canada, employees of IBM Canada (referred to in the decision as "expatriates") occasionally took assignments to work abroad for one of IBM Canada's foreign affiliates. The issue was whether IBM Canada was required to pay employer health tax under the EHTA while its workers were on foreign assignments. The expatriates were paid by IBM Canada while on these assignments, but IBM was reimbursed by the foreign affiliate. The terms and conditions of the expatriate's assignment were outlined in a letter prepared by IBM Canada and signed by the expatriate. The foreign affiliate was not a party to the assignment letter. IBM Canada and the foreign affiliate would separately enter into an agreement pursuant to which the foreign affiliate would agree to reimburse IBM Canada for all payments made to the expatriate. The foreign affiliate would determine the expatriate's work assignments, working hours and holidays. The foreign affiliate would address day-to-day discipline matters; however, only IBM Canada could terminate the expatriate for cause. The expatriate would be covered by IBM Canada's pension, medical and dental plans while working for the foreign affiliate. IBM Canada would also continue to make CPP payments in respect of the expatriate. IBM Canada also guaranteed the employee a job on his or her return to Canada.

[21] The Ontario Court of Appeal held an employer-employee relationship continued between IBM Canada and the expatriate while the latter was on assignment abroad and therefore employer health tax was payable under the EHTA. In making this determination, the court focused on the following factors: the intention from the outset was that the expatriate would return to IBM Canada, which would reintegrate the expatriate into its operations; the contract whereby an expatriate provided services to the foreign affiliate in exchange for wages and other benefits was exclusively between the expatriate and IBM Canada; the salary paid to expatriates and the amount of any bonuses were determined by IBM Canada's salary bands and payout schedules; expatriates would continue to participate in IBM Canada's pension, medical, dental and stock option plans; CPP contributions continued while expatriates were abroad; and IBM Canada was responsible for any termination of employment and any severance package.

[22] IBM Canada differs significantly on its facts from the present appeal. In particular, there is no continuing employment scenario with placement agencies such as the appellants. Further, the appellants do not maintain pension or benefit plans for the workers. On the other hand, in IBM Canada the Court of Appeal was clearly not persuaded that the foreign affiliate was the employer of the workers based on its control of the workplace or the fact that the foreign affiliate reimbursed IBM Canada for the wages paid to the expatriate workers.

[23] What IBM Canada does make clear is that for the purposes of the EHTA, it is necessary to undertake a comprehensive review of the relevant factors to determine if an employer/employee relationship exists and this includes a review of both the working relationships, and the contractual and statutory framework.

[24] In my view, it is entirely possible, depending on the factual and statutory matrix, to conclude that a placement agency is an employer for taxation purposes, but not necessarily for labour relations purposes. Labour and employment statutes are directed toward protection of workers in the workplace, which the employer normally controls. In contrast, in regard to a revenue generating payroll tax, payable by employers, the employer may well be the entity that is contractually mandated to administer the payroll. I do not see this distinction as being inconsistent with the court's "comprehensive and flexible approach" in St-Claire and IBM.

[25] According to Pointe-Claire, in order to determine the real employer in a tripartite relationship, one must first look to the applicable legislation for guidance. In the present appeal, the applicable legislation consists of the EHTA (including references therein to provisions of the ITA) and the legislation governing employment in the federal public service (given that the principal client of the appellants was the government of Canada), including the Public Service Employment Act, S.C. 2003, c. 22, ss. 12, 13 and the Financial Administration Act, R.S.C. 1985, c. F-11.

[26] As noted, where the legislation does not provide sufficient indications of how to determine the real employer, Pointe-Claire suggests that a "comprehensive and flexible approach" must be employed, whereby the court considers a host of factors touching on the relationship between the three parties, including the selection process, hiring, training, discipline, evaluation, supervision, assignment of duties, remuneration and integration into the business. The list of factors mentioned in Pointe-Claire is non-exhaustive.

[27] I accept the Minister's submission that the provisions of the EHTA strongly indicate that the appellants are the real employers of the workers. As stated in Pointe-Claire [at para. 55], "whenever the legislature has wanted to make the paying of remuneration to an employee probative in identifying the employer, it has made this intention explicit". In the present case, the EHTA does specify that the employer is the person who pays remuneration to an employee. Thus, the Minister submits that the payment of remuneration is conclusive, because any person who pays remuneration to an employee is an employer for purposes of the EHTA.

[28] In the present case, the appellants are the only persons that have contractual obligations to the workers to pay for services provided by the workers. There is no contractual relationship between Canada or any other client and the workers to pay for services provided by the workers. The appellants are therefore the only persons who could be the employers of the workers under the EHTA.

[29] In terms of the statutory context in which the appellants and their client, the Government of Canada interact, it is clear there are regulated statutory processes under the Public Service Employment Act and the Financial Administration Act which govern hiring in the public service and it can be concluded from the call up staffing arrangement for temporary staff involving the appellants and other placement agencies, that the intent of the arrangements is that placement agencies will be the employer and there is to be an avoidance of any appearance of the Government of Canada being the employer.

[30] On the evidence in this case, the appellants and their client, the Government of Canada, each possess some, although not all, of the recognized indicia of an employer. This is a tripartite arrangement as contemplated by the Supreme Court in St-Claire. Generally speaking, the appellants control and administer the recruitment and staffing aspects of the workers' relationship and the negotiation of remuneration and administration of the payroll, while the client issues the call ups under the standing orders and controls all aspects of the workplace and the work product.

[31] In summary, viewing the relationships between the appellants and their clients, as previously discussed, and considering the EHTA's imposition of a payroll tax based on the payment of remuneration, the functioning and set up of the standing order arrangements and the significant factors pointing to the appellants as employers, and in applying the comprehensive and flexible approach mandated in St-Claire, I have concluded that the Minister's position is correct and the appellants are the employers of the workers for the purposes of the EHTA.

[32] Accordingly, these appeals are dismissed.

[33] I understand the parties are in agreement as to the costs of these appeals.

Appeals dismissed.