European Staffing Inc. v. R. – TCC: Taxpayer was a placement agency for EI and CPP purposes – employees were subject to EI and CPP withholding

European Staffing Inc. v. R. – TCC:  Taxpayer was a placement agency for EI and CPP purposes – employees were subject to EI and CPP withholding

European Staffing Inc. (March 11, 2019 – 2019 TCC 59, Hogan J.).

Précis:   The taxpayer provided workers for its clients and paid those workers itself, passing the cost on to its clients as part of its fees.  It did not withhold EI or CPP in connection with these workers. CRA assessed the taxpayer on the basis that it was a placement agency within the provision of the EI and CPP legislation and thus subject to EI and CPP withholding.  The Court accepted CRA’s position and dismissed the taxpayer’s appeals.

Decision:   The EI and CPP regimes contain specific rules governing placement agencies assimilating them to the position of employers:

[33]  Paragraph 6(g) of the Employment Insurance Regulations  includes in insurable employment the “employment” of a person placed under the direction and control of a “client” by a placement agency where that person is paid by the agency: 

Employment in any of the following employments [ … ] is included in insurable employment:

[ … ]

(g) employment of a person who is placed in that employment by a placement or employment agency to perform services for and under the direction and control of a client of the agency, where that person is remunerated by the agency for the performance of those services.

[34]  Pursuant to the Insurable Earnings and Collection of Premiums Regulations, in such a case the placement agency is deemed to be the employer of the worker for the EI premiums purposes:

7 Where a person is placed in insurable employment by a placement or employment agency under an arrangement whereby the earnings of the person are paid by the agency, the agency shall, for the purposes of maintaining records, calculating the person’s insurable earnings and paying, deducting and remitting the premiums payable on those insurable earnings under the Act and these Regulations, be deemed to be the employer of the person.

[35]  Although the EI Act and regulations contain no definition of the term “placement agency”, this Court has on several occasions applied the definition found in the CPP Regulations to achieve consistency. This Court on other occasions has given the term its ordinary meaning in context, namely “an organization engaged in matching requests for work with requests for workers.”  Both definitions are quite similar.

[Footnotes omitted]

In essence the Court found that the taxpayer fell clearly within this regime and rejected its attempt to distance itself from the application of this rule:

[66]  I have found that the Appellant placed Workers in employment and/or for the performance of services in exchange for a fee. However, the Appellant argues that it was not a placement agency because it provided a service for its clients that went beyond simply supplying them with Workers. In S K Manpower Ltd v Minister of National Revenue, Sheridan J. quoted Deputy Judge Porter on this point:

The question as I see it is not so much about who is the ultimate recipient of the work or services provided ... but rather who is under obligation to provide the service. If the entity alleged to be the Placement Agency is under an obligation to provide a service over and above the provision of personnel, it is not placing people, but rather performing that service and is not covered by the Regulations.

[67]  What additional service did European Staffing provide to its clients? The Appellant’s Notice of Appeal states that the Appellant’s “role is exclusively to connect skilled workers with businesses in need of such specialized services.” [Emphasis added.]  Mr. Banach testified that he often visited the work sites and would be involved in checking the working conditions. Even if one accepts that he was on site, as he said, it is unclear what service this provides. In S K Manpower, the agency guaranteed a certain output to its clients and was liable to them for the results of the Workers’ labour. The Appellant here did no similar thing. There is also minimal corroboration of Mr. Banach’s evidence as to his visits. No documentary evidence was submitted in support of it, and Mr. Kenny and Ms. Simoiu never saw him on site. Only Mr. Pajecki affirmatively corroborated ever seeing him on site, although he stated that “sometimes I didn’t – most I didn’t see him, yes.” 

[68]  I therefore cannot accept the proposition that European Staffing provided a service to its clients beyond supplying Workers. The Appellant is a placement agency for the purposes of the CPP and the EI Act.

[Footnotes omitted]

Thus the taxpayer’s appeals were dismissed.