Tax Court of Canada Judgments

Date: 19991012

Docket: 98-764-UI; 98-784-UI

BETWEEN:

CLIENTEL CANADA CORPORATION,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Porter, D.J.T.C.C.

The Law

[4] The manner in which the Court should go about deciding whether any particular working arrangement is a contract of service and thus an employer/employee relationship or a contract for services and thus an independent contractor relationship, has been clearly laid out by the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025. The test to be applied has been further explained by that Court in Moose Jaw Kinsmen Flying Fins Inc. v. M.N.R., 88 DTC 6099. There are, following these cases, numerous decisions of this Court, some of which have been cited by counsel, which demonstrate how these appellate guidelines have been applied. In the Moose Jaw Kinsmen Flying Fins Inc. case, above, the Federal Court of Appeal said this:

"[Analysis]

The definitive authority on this issue in the context of the Act, is the decision of this Court in Wiebe Door Services Ltd. v. The Minister of National Revenue, 87 DTC 5025. MacGuigan J. speaking on behalf of the Court, analyzed Canadian, English and American authorities, and, in particular, referred to the four tests for making such a determination enunciated by Lord Wright in City of Montreal v. Montreal Locomotive Works Ltd., [1974] 1 D.L.R. 161 at 169-70. He concluded at page 5028 that:

Taken thus in context, Lord Wright's fourfold test [control, ownership of tools, chance of profit, risk of loss] is a general, indeed an overarching test, which involves "examining the whole of the various elements which constitute the relationship between the parties". In his own use of the test to determine the character of the relationship in the Montreal Locomotive Works case itself, Lord Wright combines and integrates the four tests in order to seek out the meaning of the whole transaction."

At page 5029 he said:

"...I interpret Lord Wright's test not as the fourfold one it is often described as being but rather as a four-in-one test with emphasis always retained on what Lord Wright, supra, calls "the combined force of the whole scheme of operations," even while the usefulness of the the four subordinate criteria is acknowledged."

At page 5030 he had this to say:

" What must always remain of the essence is the search for the total relationship of the parties.

He also observed "there is no escape for the trial judge, when confronted with such a problem, from carefully weighing all the facts.

...like MacGuigan J. we view the tests as being useful subordinates in weighing all of the facts relating to the operations of the Applicant. That is now the preferable and proper approach for the very good reason that in a given case, and this may well be one of them, one or more of the tests can have little or no applicability. To formulate a decision then, the overall evidence must be considered taking into account those of the tests which may be applicable and giving to all the evidence the weight which the circumstances may dictate."

[5] The nature of the tests referred to by the Court can be summarized as follows:

a) The degree or absence of control exercised by the alleged employer;

b) Ownership of tools;

c) Chance of profit and risk of loss;

d) Integration of the alleged employee's work into the alleged employer's business.

I also take note of the further words of MacGuigan J., in the Wiebe case, above, where he approved the approach taken in the English courts:

"Perhaps the best synthesis found in the authorities is that of Cooke J. in Market Investigations, Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732, 738-9:

The observations of Lord Wright, of Denning L.J., and of the judges of the Supreme Court in the U.S.A. suggest that the fundamental test to be applied is this: "Is the person who has engaged himself to perform these services performing them as a person in business on his own account?" If the answer to that question is "yes", then the contract is a contract for services. If the answer is "no" then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk be taken, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task. The application of the general test may be easier in a case where the person who engages himself to perform the services does so in the course of an already established business of his own; but this factor is not decisive, and a person who engages himself to perform services for another may well be an independent contractor even though he has not entered into the contract in the course of an existing business carried on by him."

[6] To this I would add the words of Décary J. in Charbonneau v. Canada (MNR) [1996] F.C.J. No. 1337 where speaking for the Federal Court of Appeal he said this:

“The tests laid down by this Court ... are not the ingredients of a magic formula. They are guidelines which it will generally be useful to consider, but not to the point of jeopardising the ultimate objective of the exercise, which is to determine the overall relationship between the parties. The issue is always, once it has been determined that there is a genuine contract, whether there is a relationship of subordination between the parties such that there is a contract of employment, or whether there is ... such a degree of autonomy that there is a contract of enterprise or for services. In other words we must not pay so much attention to the trees that we lose sight of the forest. ... The parts must give way to the whole.”

Review of the Evidence

[7] In the Reply to the Notice of Appeal relating to the Worker, Nicholas Birks, the Minister was said to have relied on the following facts:

"(a) the Appellant is a corporation duly incorporated under the laws of the Province of Ontario which carried on business in Ontario and then, beginning on or about February of 1996, in both Ontario and British Columbia;

(b) the Appellant engaged Michael Jarmana as regional sales manager to direct and control the British Columbia business operations from the Appellant's office located at 916-1030 West Georgia Street, Vancouver;

(c) the Appellant was in the business of acquiring applications from customers to use AT & T Canada services;

(d) the Appellant required both salespeople or customer relations representatives to work out of designated areas going door to door soliciting applications from customers to use AT & T Canada services and area managers to obtain their own applications and to train and supervise area teams of customer relations representatives;

(e) the Appellant established the fees charged its customers and neither the customer relations representatives nor the area managers had the authority to either change the fee schedule or negotiate different fees with the Appellant's customers;

(f) the Appellant maintained a record of and determined the validity of applications obtained by each worker;

(g) customer relations representatives were to be remunerated at the rate of $13.20 per hour (based on a minimum production of 1.2 valid applications per hour) plus production bonus after training of $11.00 per valid application over the prescribed minimum, plus an additional $2.00 bonus per each valid application if the customer relations representative completes over 42 in any given week (first twelve applications are training applications for which no remuneration applies);

(h) area managers were to be remunerated at the rate of $11.00 per valid application personally obtained and for valid applications completed by each customer relations representative trained and supervised by them they were to be paid a manager's override bonus of $2.00 per valid application for the first 41, plus an additional $1.00 bonus per each valid application if the customer relations representative completes over 42 in any given week;

(i) during the period in question, the Worker was engaged by the Appellant as a customer relations representative;

(j) the Worker does not set his own rate per valid application personally obtained;

(k) the Worker was initially trained by the Appellant free of charge to him;

(l) the Worker reported to and received direction from his area manager on an on-going basis;

(m) the Worker had no decision making in either the choice or cost of services being offered to the Appellant's customers or the method used to sell these services;

(n) the Appellant retained the right to control and supervise his work throughout the period in question;

(o) the Appellant provided the Worker with the materials and stationary required to do the work;

(p) the work performed by the Worker constitutes an integral part of the Appellant's business;

(q) the Worker is required to do his work personally;

(r) any profits or losses from the operation of the business accrued to the Appellant and not to the Worker;

(s) during the period in question, the Worker assumed no risks;

(t) the Worker was employed by the Appellant pursuant to a contract of service during the period in question;

(u) the Worker is not related to the Appellant within the meaning of the Income Tax Act;

(v) the Appellant deals with the Worker at arm's length."

[8] The Minister also admitted that the Workers were remunerated by the Appellant based on the number of pieces of work that they completed but denied all the other allegations contained in the Notices of Appeal.

[9] Unless they are refuted on the balance of probabilities by the evidence, the Court is bound to accept the facts set out in the Reply to the Notice of Appeal including the facts admitted by the Minister contained in the Amended Notice of Appeal with the exceptions noted by the Minister.

[10] The Appellant for its part admitted the following facts upon which the Minister was said to rely, in the Reply to the Notice of Appeal, namely paragraphs (a), (b), (c), (g) with a great deal of explanation, (h) subject to some explanation, (i) except that he called them agents, (j) and (o). The rest, the Appellant in effect denied.

[11] David Silverberg gave evidence on behalf of the Appellant. No witnesses were called on behalf of the Minister. Mr. Silverberg said that he was the vice-president of the Appellant, which was incorporated in 1996. The Company received the rights to market AT & T telephone services to homeowners in Canada. It began a marketing programme in the Vancouver area in 1997. In order to conduct the necessary solicitation of homeowners in the area it engaged a large number of agents, of which Lance King and Nicolas Birks were but two. He said there were several hundreds of them engaged. They operated in the Vancouver area for some five to six months when the intermediary company through which they were dealing with AT & T lost its contract and that operation came to an end. The head office of the Company was in Toronto and Mr. Silverberg himself never met the agents. However, he had set up the procedures by which they were to be engaged.

[12] The agents were first attracted by newspaper advertisements which touted the idea that they could earn $13.00 per hour on a guaranteed basis. He said that after the initial contact they were invited into a one day training session with the Company, unless they had prior sales experience. Those with prior sales experience could sign up right away and those without could sign up the day after the training session if they were still interested. Prospective agents were told that the $13.00 represented 1.2 applications for AT & T services being completed per hour, but they were actually to be paid on a per signed and approved application basis. All the agents including the two in question initially signed the “Independent Agent Agreements”. Those agreements specifically spelled out that the workers were to be independent agents and not employees. That clearly was the intention of the Appellant and the workers at the time.

[13] The simple fact that the contract refers to the relationship being one of independent contractors, does not necessarily mean that is so. As a matter of law, the Court is clearly not bound by the mere name given to the situation by the parties. The substance of the contract has to be examined and it is the substance not the form which will be the deciding factor. However, in the absence of there being clear evidence to the contrary, the Court should give due consideration to the expressed intention of the parties.

[14] Bonuses, minimum objectives and other terms of remuneration were set out in these agreements. There was also a policy manual which was provided to each agent at the time of the training, not all of which according to Mr. Silverberg was followed in practice. In addition agents were required to sign and abide by a code of ethics which, Mr. Silverberg maintained, was nothing more than common sense. They were asked to sign these work ethics in order to comply with the expectations set up by AT & T. It also afforded the Company a degree of comfort, that when operating in the field the agents would abide by these standards and there would be a certain check on what they might do.

[15] As agents advanced in their work they had the opportunity to become Sales Managers for which there was a separate contract. Lance King signed one of these on April 1, 1997. Basically the terms of this latter agreement seem to be the same as the Independent Agent Agreement but it incorporated a pay structure which enabled the manager to receive an extra $2.00 for each application signed and accepted through an agent working through him. There was as well some evidence that the manager would go out with new agents and give them some help starting up, although Mr Silverberg said that agents did not have to work through managers unless they chose to do so. He made it clear that agents could work with managers if they wanted to do so and these people had more experience and could help them do better but it was their choice and they certainly were not supervised by the managers. The managers themselves were, he stressed, not employees of the Company but also independent agents who could make more money by helping the less experienced agents go about their work. They had no supervisory authority over the agents.

[16] Returning to the facts upon which the Minister was said to rely, it is clear that the Minister has accepted that the Workers were paid by the piece as set out in paragraph 6(h).

[17] It is not at all clear where the Minister obtained the word “customer relations representative” as set out in paragraph 6(i). The contract specified an independent agent and that was the term used throughout by Mr. Silverberg in his evidence.

[18] The Appellant agreed that the Workers did not set their own rates as set out in paragraph 6(j). The fees charged were set by AT & T directly.

[19] The Appellant disagreed with paragraph 6(k). Mr. Silverberg said that there were fees charged to the new agents for the training and the materials. However, what they tended to do was make a deal with the agents whereby the latter did not pay for these directly but in turn were not paid for their first so many signed and approved applications, and thus there was a set off.

[20] With respect to the question of reporting to an area manager referred to in paragraph 6(l) the evidence of Mr. Silverberg was quite clear that this was not a requirement.

[21] With respect to item 6(m) the Appellant accepted that the worker had no decision making in the cost of services being offered as these were set by AT & T directly. Mr. Silverberg however maintained that they had lots of scope in how they went about their sales, where they went and when, subject to outside limits on hours and the adherence to certain ethics. They were equipped in their training with a presentation that they could use if they wished and which the Appellant considered to be a successful approach, but the individual agents were free to use it, adapt it or discard it as they saw fit.

[22] With regard to the mater of control set out in paragraph 6(n) Mr. Silverberg was adamant that apart from the minimum work ethic standards there was no right of control exercised by the Appellant. He said that each agent was free to work whenever they chose, and could go for days at a time without working if they so chose. They did not have to report to the Company or check in with it in any way when they went to work. The sole connection with the Company was when they turned in their signed applications. Obviously if they did not turn these in they did not get paid. However, he maintained there was no control by the Company, and the agents worked as they saw fit. One exception to this was the requirement to wear an identity badge which showed they were officially representing both AT & T and the Appellant, as well as a jacket and cap provided by AT & T. Whilst there was some latitude with respect to the clothing worn the purpose of the badge was to provide some security to potential customers that they were legitimately selling the AT & T product.

[23] The matter of complaints was broached in the course of the evidence. Mr. Silverberg said that the Company had a verification system in place whereby the Company called back the customer named in each signed application, in order to verify that the information was correct. He said this was not a question of checking on agents but simply ensuring that the factual information was correct before it was sent onto AT & T. If there were complaints about any particular agent they usually went directly to AT & T and it was very difficult for the Appellant to even track down which agent might have been involved.

[24] The matter of benefits was also discussed during the course of the evidence and in simple terms there were none. Benefits in the context of these agents related simply to the opportunity to advance to a Sales Manager and make extra commissions. There was no vacation pay nor deductions for anything. There were no extended health benefits or anything like that.

[25] There was some discussion about areas or territories but it was far from clear that these were ever set up on any formal basis. He said that agents were advised to keep track of where they had been to avoid duplication of the same areas, which would not be productive. However, the Company itself was not involved with this. Similarly he said that agents were free to solicit customers on street corners, shopping malls, through church organizations or through friends and family as they saw fit. There was no requirement to go street to street or house to house.

[26] The Appellant agreed that they provided the materials and stationary required to do the work, which in turn came from AT & T.

[27] The Appellant disputed that the Workers were required to do the work personally, maintaining that they were free to get others to go out and do the work for them. However, I did not find this evidence particularly credible and it did seem to me from a logistical point of view that it was necessary for each agent to do his own work.

[28] With respect to paragraph 6(q) regarding profits and losses, the evidence of Mr. Silverberg was clear that any expenses that were incurred by an agent had to come out of his sales commission. If they used cell phones, as a number of them did, they did so at their own cost. They were not reimbursed for any car expenses, travel of any kind, hotel accommodations if they went out of town or meals. They could go further afield than Vancouver but if they did so, they went at their own expense. There was no evidence that either of the Workers in question in this case ever did so, but that was the situation if they had chosen to so do. Thus, there was the potential to incur losses if they incurred expenses but were unsuccessful in obtaining new signed applications. However, they could not earn more money except by working harder and bringing in more signed applications.

[29] It was noteworthy in my mind whilst on this subject that Lance King signed his contract in the name of “Lance King doing business as Central Telecom”, which is certainly an indication that he was operating his own business as a sole proprietorship.

[30] Items 6(t), (u) and (v) are all conclusions arrived at by the Minister. Item (t) is the issue in this case and the Appellant did not disagree that the Workers were not related to the Appellant, nor that the Appellant dealt with them at arm’s length.

[31] After listening carefully to Mr. Silverberg, I found his evidence on the whole to be quite credible. He was obviously quite frustrated at the whole process, but I nonetheless found him to be a reliable and honest witness, with the one exception that I noted above. I accept his evidence where it differs from the facts said to have been relied upon by the Minister. He was the person who set up the original scheme of affairs although he had no day-to-day involvement in the operation. He knew however what was going on and indeed had the overall responsibility for it. It is clear that the Company engaged a large number of agents to go work in the field and it really had very little to do with them other than the initial training. This from my perspective had more to do with how the product worked than anything else and also required the agents to go about the business of selling the products in a professional manner. That was clearly the expectation of AT & T. The sole interest of the Appellant was to receive signed applications for the AT & T services. It was clear from his evidence that subject to those circumscriptions, how the agents went about their business and when and where was entirely up to themselves. They were exhorted or encouraged to work many hours or days but whether or not they did so was their own affair. That in essence was the message that I gleaned from his evidence, and I have no difficulty in accepting that as fact.

[32] Those then are the significant facts that I took from the evidence. I turn now to consider how the law applies to these facts.

Application of the Law to the Facts

[33] When I consider the control portion of the tests enunciated above, I do not find any great measure of control exercised by the Appellant over the Workers. In fact it seems to me that the Workers had a significant amount of independence, to decide whether and when they would work and how they carried out their work. Obviously there had to be some standards, as otherwise the name of the product itself could become tarnished. That seems to me to be no more than an independent subcontractor coming onto a building site where he would have to liase and cooperate with the other players on the site. That in itself would not make him any less an independent contractor. In the case at hand the agents could work whatever days they wanted; they could take vacations when they wanted to for which they were not paid; they could go about their tasks as they saw fit, picking their own routes and their own choice of transport. I see a great deal of independence here and very little supervision. The sole requirement seemed to be that if an agent wanted to work he had to have some identity with him and he was not to make contact with householders too early or too late in the day, which might be perceived as a nuisance and jeopardize the product. Similarly if they wanted to go off either in the day or for a day or more they had no need to notify the Company and they did not need permission. This part of the test tends to establish an independent contractor status.

[34] With respect to the question of tools or equipment, counsel for the Minister submitted that these involved clothing, identity badges, forms, training and policy binders, brochures and a sales script. I am not sure that one could necessarily categorize these items as tools, but they were indeed provided by the Appellant and in fact some of them came directly from AT & T and related more to the product itself. In addition some of them were purchased or paid for by the agents. Clearly though, there were tools provided by the agents themselves such as vehicles and cell phones. They had to provide their own vehicles, if they needed them or otherwise bear their own costs of transportation. They bore all the costs of operating them, without reimbursement from the Appellant. This seems to me to be quite significant. On balance I find that this aspect of the test leans towards the independent contractor status.

[35] It seems to me, when it comes to considering the opportunity for making a profit or suffering a loss, the agents were exposed to some risk of loss. They could well incur expenses and be unable to sign up new applications. There was no evidence that this ever happened but the risk was certainly present. They had little opportunity to make additional profits out of this operation, in the entrepreneurial sense, but there was nothing to stop them selling other products on the same days they were selling AT & T services and apparently some of them did so. The fact that Lance King signed his contract in the name of a business lends some support to the Appellant's position in this respect.

[36] How they managed their days and went about their business would very much govern how much they netted out from their work, and this in my view is far more consistent with the situation of an entrepreneur than with an employee.

[37] The fourth aspect of the tests, enunciated by the Federal Court of Appeal, relates to the integration of the work into the business of the Appellant. One has to look at this from the point of view of the agent rather than the Company. The question frequently put in these situations is ‘whose business is it’? Clearly the Appellant had its own business. The question is whether the agents were part of that business, as urged upon me by counsel for the Minister or whether each agent was in business for himself as the Appellant maintains. It is true that the Appellant's business could not operate without agents in the field, but neither could a large construction company operate without sub-trades, and so that proposition does not really fly. The Appellant on the other hand could operate without any particular agent so it is difficult to find that they were integral to its business. This test is always a difficult one, but I am mindful that Lance King signed up in a business name. I am also mindful that each agent was free if he chose to go out and sell other products, although not in competition with or at the same time as the AT & T services. This is all more consistent with being in business for himself than being an employee of the Appellant.

[38] When I consider the method by which the agents were paid, how they bore all their own expenses, provided their own vehicles and phones to go about their work, their lack of benefits enjoyed by the full-time employees, their ability to decide when and how they would work, their opportunity to work for other companies, their own marketing efforts with customers at their own expense, I can only come to the conclusion that this all leads to the inalienable conclusion that these agents were engaged by way of a contract for services not a contract of service. There is virtually nothing in my view, which displaces the clearly expressed intention of the parties in the contract that it be considered a contract for services and not a contract of service.

Conclusion

[39] For the reasons expressed above I hold that Lance King and Nicholas Birks were engaged by the Appellant by way of a contract for services during the periods in question and accordingly were not employees. They were not employed in insurable employment. Thus, the decisions of the Minister are vacated and the appeals allowed.

Signed at Calgary, Alberta, this 12th day of October 1999.

"Michael H. Porter"

D.J.T.C.C.