Date: 20011003
Docket: 2000-3223EI,
2000-3224-CPP
BETWEEN:
ADVOCATE PRINTING & PUBLISHINIG CO. LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasonsfor Judgment
Mogan J.
[1] The Appellant is a wholly-owned subsidiary of Hector Publishing Company Ltd. ("Hector"). Flyer Services (1989) Ltd. is also a wholly-owned subsidiary of Hector. The Appellant and Flyer Services (1989) Ltd. ("Flyer") are therefore sister corporations. At all relevant times, the Appellant acted as payroll agent for Flyer. These appeals, under the provisions of the Employment Insurance Act and the Canada Pension Plan, are concerned with the status of certain individuals who provided services to Flyer and were paid by Flyer through the Appellant as its payroll agent. The issue as to status is whether the individuals in question were independent contractors or employees of Flyer.
[2] The Respondent has taken the position that the individuals were employees of Flyer and has issued Notices of Assessment to the Appellant, as payroll agent for Flyer, with respect to employment insurance premiums and Canada Pension Plan contributions which were not remitted when the individuals were paid. The amounts assessed for 1996, 1997 and 1998 are as follows (see Exhibit A-1):
|
|
1996 |
1997 |
1998
|
|
CPP |
$2,230.34 |
$6,471.77 |
$2,749.22 |
|
EI |
5,116.90 |
14,998.98 |
5,242.81 |
|
Penalty |
734.73 |
2,147.07 |
799.20 |
|
Interest |
883.00 |
819.00 |
31.00 |
|
Total |
$8,964.97 |
$24,436.82 |
$8,822.23 |
[3] Although Advocate Printing & Publishing Co. Ltd. is the Appellant herein because it is the Company to whom the Notices of Assessment were issued, all of the evidence was in relation to Flyer as the Company to whom the individuals provide services. Flyer is in the business of delivering to personal residences in Nova Scotia printed advertisements for retail stores, commonly known as handbills or "flyers". Some significant clients of Flyer are Canadian Tire, Sobeys, Home Hardware and Zellers.
[4] In a typical week, the various clients (Canadian Tire, Sobeys, etc.) would deliver their handbills to the warehouse of Flyer at Kentville, NS by 1:00 p.m. on Thursday afternoon. Each week Flyer receives and delivers about 750,000 flyers. Between 1:00 p.m. Thursday and 9:00 p.m. Friday, about 30 individuals identified as "collators" would collate the flyers into packets (about 12 to 18 flyers in each packet) and then bind the packets into bundles (about 25 packets in each bundle). On Saturday, the bundles are delivered to the homes of other individuals who actually deliver the packets door-to-door on Sunday or Monday morning.
[5] The central issue in these appeals is concerned with the status of the collators. Are they employees of Flyer or independent contractors? At trial, there were five witnesses: the general manager of Flyer and four collators. There was an abundance of evidence about the work done by the collators. Darren Oakes is the general manager of Flyer. He has worked for Flyer for about 20 years and at various time performed almost all of the functions connected with Flyer's business. In his early years, he delivered flyers; he was a collator; he checked the bundles and loaded them on trucks; and he supervised the receipt of flyers from the clients and organized their distribution among collators. He has a thorough knowledge of Flyer's business.
[6] I will refer to Flyer's warehouse at Kentville, NS as "the warehouse" because it is the only place of business with which we are concerned in these appeals. According to Mr. Oakes, the flyers from the various clients are usually on hand at the warehouse by 1:00 p.m. on Thursday afternoon. Before the flyers arrive at the warehouse, there is nothing for the collators to do. There are about 30 individuals who are regular collators for Flyer. Within that group, six or seven collators pick up the raw material (non-collated flyers) at the warehouse and take it home for collating. The remainder of that group (about 25 persons) go to the warehouse to do their collating.
[7] The collators are paid on a "piece-work" basis. They receive one-half cent for each flyer which they collate and, if a packet of 12 to 18 flyers has to be delivered in an "envelope" (usually a plastic bag), they are paid one cent for each packet which has to be inserted in an envelope. For example, if a packet of 16 flyers is to be delivered in an envelope to each home in a particular neighbourhood, the collator for that neighbourhood would receive 9 ¢ for collating each packet based on one-half cent for each of the 16 flyers (8 ¢ ) plus one cent for inserting the packet in the envelope. One can see at a glance that the amount earned by a particular collator on Thursday and Friday in any given week will depend upon the number of flyers which that person collates for delivery.
[8] Each collator indicates to the staff at Flyer the amount that he or she would like to earn each week. Some collators at the high end indicate that they would like to earn $200 or more; others at the low end indicate that they want to earn in the range of only $80 to $100; and the remainder indicate earning between $100 and $200. For the regular collators (approximately 30) who collate each week, the staff at Flyer know what each collator wants to earn and, upon receiving the raw material from the clients (or the people who print the flyers), the staff make up work orders (see Exhibit A-5) which allocate the different delivery areas among the collators in a manner which permits all collators to earn approximately what they want.
[9] From the work orders (Exhibit A-5), the staff at Flyer make up a collation slip (Exhibit A-8) for each delivery area (known in this business as a "combination number") listing the number of flyers (by retail name) to be collated in each packet; the number of packets (usually 25) to be bound in each bundle; and the number of bundles required for that combination number (delivery area). The work order tells the collator which combination numbers he or she will be collating for; and the value in dollars of the total collating for those combination numbers. The collation slips provide each collator with all the information he or she needs for the combination numbers which have been allocated to any particular collator. When a collator arrives at the warehouse on Thursday afternoon, he or she will receive three or four or five collation slips (depending upon how much collating he or she wants to do and how much money he or she wants to earn) like the ones in Exhibit A-8. The information on the collating slips is all the information each collator needs to commence and complete all of his or her collating for any particular week.
[10] There are both male and female collators but, for convenience in writing these reasons, I shall regard all collators as female because three of the four collators who testified were women. Each collator develops her own technique to complete the collating in the most efficient and time-saving manner. For some, it is the way in which the flyers are assembled or lined up for collating. For others, it is a matter of consolidating many unbound bundles before going to the strapping machine to bind many bundles at one time. One of the witnesses (Beverly Romans, I think) described a special three-sided box which her father-in-law made to keep collated packets in a neat pile before they were ready to be bound in a bundle.
[11] Many collators bring in immediate family or friends to help with the collating. Marie Davidson has been collating for about 15 years. She started working alone. Later, her husband helped her and, still later, her two teenage daughters helped. They would actually come to the warehouse with her in order to complete the collating in a minimum time. Rhonda Deveau started helping a friend who was a regular collator and later became a regular collator herself. Kelvin Ward has been a school bus driver for 23 years and has been collating for Flyer for about 20 years. He tries to earn about $200 per week as a collator. In recent years, he has paid more than 50% of his collating income to his adult daughter because she does more collating than he does.
[12] Each collator is free to choose between collating at home or collating at the warehouse. Six or seven collators have elected to collate at home while the remaining 20-25 collate at the warehouse. It appears from Mr. Oakes' evidence that all of the collators who work at home also act as delivery persons and actually deliver the flyers which they collate and bundle. Conversely, almost all of the collators who work at the warehouse are only collators and they do not perform any delivery services. The four collators who testified all worked at the warehouse. They were unanimous in their reasons for electing to work at the warehouse. First, they did not have the inconvenience of transporting a large number of flyers from the warehouse to their homes and then back to the warehouse if they did not deliver. Second, there were tables at the warehouse with generous space to assemble and line up flyers for collating. Third, there were two strapping machines at the warehouse which permitted the bundles to be bound more tightly and more quickly than could be done by hand-binding with twine. And fourth, there were always extra flyers if a collator ran short.
[13] The only equipment provided at the warehouse were tables and strapping machines. A flat surface is essential to assemble and organize the flyers for collating. A strapping machine makes the binding of each bundle more secure (than hand-tying with twine) and significantly reduces the time for binding. Other incidental equipment is provided by collators. Generally, each collator will bring scissors, a dark black marker and a "Sort Kwick" which is a simple sorting device that can be purchased in any office supply store for less than $10. Among the collators at the warehouse, there is an informal seniority system under which each collator can identify a particular table as "her own", being the place where she always collates. The pictures introduced as Exhibit A-6 show that some collators bring their own fans to circulate air around their tables while others bring their own décor like a fancy doll which occupies one end of a table.
[14] The collators at the warehouse are free to choose the time when they collate subject to the following constraints. The flyers are not available before 1:00 p.m. on Thursday afternoon. The collating must be completed by 9:00 p.m. Friday evening. The warehouse is closed from 1:00 a.m. until 6:00 a.m. Friday morning. Therefore, there are 27 hours when the warehouse is available for collating. Marie Davidson stated that she liked to work a 12-hour stretch from 1:00 p.m. Thursday to 1:00 a.m. Friday (with or without a helper part of the time) to see if she could complete her collating in that time. If not, she would go back to the warehouse for a couple of hours Friday morning to complete her collating. Kelvin Ward would not go into the warehouse until about 4:30 p.m. Thursday (after his last school bus run) and work with his daughter until midnight knowing that they could go back on Friday after his morning school bus runs.
[15] There is no supervision by Flyer of the actual collating. Each collator is free to develop her own process for collating the flyers but she is required to follow the instructions on the collating slips (Exhibit A-8) with respect to the number of retail flyers in each packet and the number of packets in each bundle. Before each collator commences, she will almost always call over a member of the Flyer staff to verify that she has the correct flyers from all of the retailers on a particular combination number. After the flyers are collated and bundled, some of the Flyer staff will do a random check of the bundles to determine if the correct flyers are going to a particular delivery area (combination number). If there has been a mistake in the collating or bundling, the collator is required to come back and repair the mistake without further compensation. If the collator cannot be located after the mistake has been found, and if the mistake is repaired by Flyer staff, the collator will be charged a monetary amount for repairing the mistake.
[16] The decision of the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025 (cited frequently in cases like this) describes the four basic tests used to distinguish an employee from an independent contractor. MacGuigan J.A. delivering judgment for the Court adopted the following quotation from a particular author as having great value:
... The plain fact is that in a large number of cases the court can only perform a balancing operation, weighing up the factors which point in one direction and balancing them against those pointing in the opposite direction. In the nature of things it is not to be expected that this operation can be performed with scientific accuracy. (See page 5030)
After adopting the passage quoted above, MacGuigan J.A. stated:
Of course, the organization test of Lord Denning and others produces entirely acceptable results when properly applied, that is, when the question of organization or integration is approached from the persona of the "employee" and not from that of the "employer," because it is always too easy from the superior perspective of the larger enterprise to assume that every contributing cause is so arranged purely for the convenience of the larger entity. We must keep in mind that it was with respect to the business of the employee that Lord Wright addressed the question "Whose business is it?" (See page 5030)
[17] Having regard to the decision in Wiebe Door and the four tests always applied in cases like this, I have concluded that the collators in question were independent contractors. I propose to consider the four tests in order.
[18] Control: Flyer had very little control over the collators. They could choose to collate at the warehouse or at home. They could choose their own time to work between 1:00 p.m. Thursday and 9:00 p.m. Friday (subject to the warehouse being closed from 1:00 a.m. to 6:00 a.m. Friday). They could bring in family and friends to help with the collating. The method of collating was totally unsupervised. Flyer was concerned only with the end product as to whether the right flyers were in the right packets, and whether the right bundles were marked for the right delivery areas. The verification of flyers before the collating began and the spot check of bundles after the collating was completed did not by itself constitute supervision of collating. The collators were truly on their own when it came to the actual collating.
[19] The witnesses gave some specific examples of their freedom to operate and lack of supervision. One collator sent in family members to do her collating on a particular Thursday/Friday when she was not able to attend at the warehouse but she was paid the same amount as if she had attended herself. Another husband and wife team of collators incorporated their operation and the Appellant paid the corporation for their collating services. Although there were two strapping machines available at the warehouse for those who did collating there, the collators were not required to use the strapping machines. As a matter of common sense, all of the collators wanted to use the strapping machines because the alternative was binding by hand with twine; and the strapping machines were much faster and made tighter bundles. The control test points strongly toward the status of independent contractor.
[20] Tools: Collating is a fairly simply exercise and there is not much equipment required. The collator uses a table and strapping machine provided by the Appellant but brings her own scissors, dark marker and sorting device (Sort Kwick). The Appellant provided a pallet jack to help bring the flyers to the collator's table and move the bound bundles to the truck loading area. The collators who testified stated that they chose to collate at the warehouse mainly because of the convenience of the tables, strapping machines and extra flyers. They were not, of course, required to collate at the warehouse. The tool test is fairly evenly balanced but tilts toward the status of employee.
[21] Chance of profit or risk of loss: Each collator indicates to the Appellant the amount she would like to earn each week and the Appellant allocates to each collator a work order (Exhibit A-5) having an aggregate value approximately equal to the amount she would like to earn. The collator sets the approximate level of earning. The collators are paid at the same rate (one-half cent per flyer plus one cent for each envelope) but they can bid to do more or less collating depending upon how much money they want to earn. In other words, about 25 collators go to the warehouse on Thursday and Friday of each week and they all may earn different amounts depending upon how much work they want to do; not how much work the Appellant may want any particular collator to do.
[22] The collators are directly responsible for what they do; and each bundle can be traced to a particular collator by its combination number. If a mistake is found, the collator who made the mistake is required to go back to the warehouse and repair the mistake without any further compensation. If the collator who made the mistake does not return to the warehouse, and if the Appellant's staff repair the mistake, the collator will be charged for the repair, probably the amount that would have been earned by collating the "mistaken" bundle or bundles. The profit/loss test points strongly toward the status of independent contractor.
[23] Integration: According to Wiebe Door, the integration (or organization) test must be approached from the persona of the payee and not from that of the payor. It was with respect to the possible business of the payee that Lord Wright (Montréal v. Montréal Locomotive Works Ltd. et al, [1947] 1 D.L.R. 161 at 169) asked the question "Whose business is it?". Having regard to the circumstances of these appeals, if I ask "whose business is it" with respect to each collator, I am persuaded that it is the business of the collator. First, this was only casual or part-time work for each collator. The services could be provided only on Thursday and Friday. For example, Kelvin Ward has been a school bus driver for 23 years and performs his collating services in and around his school business hours. Beverly Romans has a regular house cleaning business which she works apart from her collating services.
[24] Second, the collators establish their own earnings targets and work to achieve those targets. Their levels of earnings are not dictated by Flyer. Third, the collators among themselves have established a rough "seniority system" by which they allocate space (i.e. tables) at the warehouse. They can provide this service at home or in their own space (i.e. table) at the warehouse. And fourth, for income tax purposes, they report their collating earnings as business income. Kelvin Ward explained that he paid more than 50% of his collating income to his adult daughter because she did more collating than he did; and he deducted the payments to his daughter in determining his net income from collating.
[25] Having listened to the evidence of the four collators (Marie Davidson, Rhonda Deveau, Kelvin Ward and Beverly Romans), I am satisfied that they think of themselves as independent contractors and not as employees of Flyer. Generally, they referred to the Flyer employees at the warehouse as "the staff". The attitude of the collators toward themselves is not conclusive but it is relevant and persuasive. The integration test points toward the status of independent contractor.
[26] In paragraph 17 above, I stated my conclusion that the collators were independent contractors. I am led to that conclusion by considering the four tests as a basic guide. There is, however, one other factor which deserves comment. The Respondent conceded that the persons who performed collating services at home were not employees. With respect to consistency, I regard this as a damaging concession because those persons were paid on the same basis as the persons who collated at the warehouse; they worked with the same raw material (non-collated flyers); and they were required to produce the same end product. To the extent that all of the home collators also delivered the flyers which they collated, they were not under the same time constraint as the warehouse collators because they could complete their collating and bundling on Saturday whereas the warehouse collating had to be completed by 9:00 p.m. Friday. In my view, this relaxed time constraint is a minor distinction. The appeals are allowed.
Signed at Ottawa, Canada, this 3rd day of October, 2001.
"M.A. Mogan"
J.T.C.C.
COURT FILE NO.: 2000-3223(EI) and 2000-3224(CPP)
STYLE OF CAUSE: Advocate Printing & Publishing Co. Ltd. and The Minister of National Revenue
PLACE OF HEARING: New Glasgow, Nova Scotia
DATE OF HEARING: September 12 and 13, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge M.A. Mogan
DATE OF JUDGMENT: October 3, 2001
APPEARANCES:
Counsel for the Appellant: Eric Atkinson
Counsel for the Respondent: Cecil Woon
COUNSEL OF RECORD:
For the Appellant:
Name: Eric Atkinson
Firm: MacIntosh, MacDonnell & MacDonald
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-3223(EI)
2000-3224(CPP)
BETWEEN:
ADVOCATE PRINTING & PUBLISHINIG CO. LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeals heard on September 12 and 13, 2001, at New Glasgow, Nova Scotia, by
the Honourable Judge M.A. Mogan
Appearances
Counsel for the Appellant: Eric Atkinson
Counsel for the Respondent: Cecil Woon
JUDGMENT
The appeal pursuant to subsection 103(1) of the Employment Insurance Act is allowed and the decision of the Minister of National Revenue on the appeal made to him under section 92 of that Act is vacated.
The appeal pursuant to section 28 of the Canada Pension Plan is allowed, and the determination of the Minister of National Revenue on the application made to him under section 27.1 of that Plan is vacated.
Signed at Ottawa, Canada, this 3rd day of October, 2001.
|
"M.A. Mogan" |
J.T.C.C.