Andrew Tolomizenko is corporate counsel for a large production company and provides legal services to outside clients in the television commercial and film industries.

I am excited about this, my first article for On The Spot magazine. In the months ahead, I plan to write about various legal issues affecting the television commercial industry. This month’s topic was inspired by a recent Federal Court of Appeal decision in the case of Precision Gutters Ltd. v. Canada (M.N.R.) [2002] F.C.J. No. 771, FCA 207.

One of the recurring legal issues I am asked to advise upon is the classification of crew members. That is, which crew members are employees and which are independent contractors? A proper determination is important since a Canada Customs and Revenue Agency auditor has the authority to audit a company’s payroll records up to four years prior. In the event that a production company has erred in its classification of crew members, as determined by CCRA, the production company will be asked to remit tax, U.I., and C.P.P. for all crew members improperly classified. This can be costly to a production company, as well as to crew members whose expenses may be denied.

This issue is what Precision Gutters was forced to deal with when a tax auditor, and subsequently a tax court judge, found that a number of eaves trough installers were employees of Precision.

Precision had been treating all of its installers as independent contractors. Facing the prospect of making a significant payment to the CCRA, Precision appealed the tax court’s decision to the Federal Court of Appeal. The Federal Court reversed the decision and found that the installers were independent contractors.

So what? Based on the facts it appears as though Precision is similar to a production company, and eaves trough installers are similar to crew. For example, Precision negotiated the contracts with its clients and then hired installers to perform the work. The installers did not provide their services exclusively to Precision.

Precision would sometimes issue a cheque to one person who would then pay the rest of the crew. Contracts were paid based on a per foot amount. The majority of the time, installers would accept the contract amount offered by Precision without negotiation.

Precision owned the gutter-roll machines and provided the aluminum for installation. Typically, one installer would pick up the machines and the rest of the crew would go directly to the job site. The work was not supervised and the work was not inspected.

In its analysis the Federal Court of Appeal applied the long-standing four-fold test to determine an individual worker’s status. The four criteria of the test are: (1) the amount of control exercised by the employer; (2) ownership of tools; (3) chance of profit; (4) risk of loss. A fifth criterion, being the integration test, was also applied.

With respect to the control portion of the test, the Tax Court judge found that Precision did not exercise enough control to characterize the installers as employees. The Federal Court agreed and provided no further analysis on this issue. Of interest was how the Federal Court dealt with the chance of profit, risk of loss and ownership of tools portions of the test, and its comments regarding the application of the integration test.

The Tax Court judge concluded that, because the rates were agreed upon most of the time, there was no opportunity for profit by the installers. In its analysis, the Federal Court delved deeper into the relationship between the installers and Precision and after applying all the facts to the chance of profit/risk of loss tests, reversed the lower court’s decision on this issue.

Among the facts applied that led the Federal Court to an independent contractor characterization of the installers were the following: the installers could refuse work; they could take other jobs with other gutter companies; an installer could choose to work alone or employ others to help him/her; there were no fringe benefits paid; and there was no guarantee of work from day to day.

Regarding the ownership of tools, it has been argued that since the production company supplies the cameras, lights, dollies, cranes, etc., the ownership of tools is in the hands of the production company. However, in Precision the Federal Court found that the personal, incidental tools owned by the installers such as hammers, tape measures, saws, etc. could satisfy the ownership of tools criterion.

With respect to the integration test, it has been argued that crew members are integral to the business of the production company and, therefore, should be classified as employees. In Precision, the Federal Court found that there might be two businesses in this case, one on the part of Precision and a second on the part of the installers.

Although there are facts in Precision that could distinguish it from the typical commercial crew, Precision is persuasive for making arguments in favor of an independent contractor characterization of certain crew members.

Also, it should be noted that the law allows the CCRA to assess each individual crew member’s status on a case-by-case basis. Therefore, it is possible that a crew member may be classified as an independent contractor for one production and the same class of crew member may be classified as an employee for another production.

Finally, it should be noted that a determination of an individual crew member’s status by the CCRA is not binding on the Ministry of Labour, Work Place Safety and Insurance, or the Ministry of Finance.