Date: 20000414
Docket: 1999-4124-EI
BETWEEN:
GEORGE YURIY IVANOV,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
BARTEL PROMOTIONS INC.,
Intervenor.
Reasons for Judgment
Rowe, D.J.T.C.C.
[1] The appellant appealed from a decision of the Minister of National Revenue (the "Minister") dated September 3, 1999 in which the Minister decided the appellant had not been employed under a contract of service with Bartel Promotions Inc. (Bartel) during the period March 9, 1998 to May 25, 1998.
[2] The appellant, George Ivanov, testified he resides in Coquitlam, British Columbia and is currently working as a salesman. He stated he understands the concept of an independent contractor engaged in selling a product on the basis of generating a profit through a mark-up. However, the appellant's view of his short working relationship with Bartel is that he was merely an employee who worked selling long distance services provided by AT & T Canada (AT & T). Prior to selling for Bartel, he had been employed - in Russia - with other companies and he felt his relationship with Bartel was certainly not that of business-to-business. The appellant stated he reported each morning to a particular premise occupied by Bartel and received instructions and motivational support from a group of salespersons led by team leaders. The work was basically door-to-door selling, making "cold" calls on people in houses and apartments with a view to convincing them to use AT & T as their long distance telephone service. Ivanov stated Bartel also had a group of people who also canvassed houses selling tickets to various events, whereas the group to which he belonged was involved only in the sale of the long distance service to residential customers. He was compensated on a commission basis and was paid weekly - by cheque - with a two-week holdback pertaining to previous sales. In the appellant's opinion, there was very little opportunity for profit or loss. He considered himself to have been hired as a salesman. He had answered an advertisement in a newspaper, attended at a Bartel office and had spoken to Frank Reindl. Later, he was introduced to David - a team leader - who took him around on sales calls so that he could see the type of work being carried out. He was not paid for that day and the next day he decided he wanted to sell the product offered through Bartel. He signed an agreement – Exhibit A-1 - entitled Independent Distributor Agreement. The basis of payment was purely on commission and he was paid $10.00 for each application for long distance service signed by a potential customer and an additional $5.00 as soon as that person actually made a long distance call using the services of AT & T. For the first few days, David taught him how to make sales while canvassing together and David offered him advice. The appellant stated he regarded that advice as being a form of instruction. There were 7 people in the appellant's group and he did not think it would have been feasible to hire someone else to assist him or to do his work for him because it required sales experience and without it he would have to train someone to carry out the task. As for the tools needed to do the work, the appellant stated he used his own pen to write orders and drove his own car to the assigned territories in accordance with the maps which were handed out by Bartel to the canvassers in order to avoid overlapping calls by various sales people working in adjoining neighbourhoods. The commission was $10.00 per completed application. These forms were placed in a box at the Bartel office after the information thereon had been checked over and he was satisfied it had been completed correctly. He was responsible for the expenses of operating his vehicle during the course of selling and was not reimbursed for any expenses whatever. In the course of the sales pitch to a potential residential long distance user, AT & T was mentioned and the appellant understood Bartel to have been its agent. Upon signing an application to use the services of AT & T, people did not have to pay any fee or otherwise assume any obligation. During the time he worked selling the long distance services, the appellant stated Bartel had two offices at different locations. In each premise, there was a room which was used as a workshop. The salespeople had access to telephones and a photocopy machine. On occasion, he had to telephone an applicant in order to verify some details forming part of the application. Bartel supplied postal code and telephone directories. In terms of organizing the salesforce, the appellant explained the process whereby the sales leaders met at 9:30 a.m. and the salespeople arrived at 9:45 a.m. to participate in a workshop which lasted until 11:00 to 11:30 a.m. during which the leaders provided information and motivation prior to the salesforce hitting the assigned areas to make sales calls. The appellant worked until approximately 9:00 p.m. and discovered the evening hours were the best time to reach people. He observed that most of the sales were between 4:30 and 7:00 p.m. after which he would return to a Bartel office, arriving at 8:00 p.m. and begin the process of verifying the applications prior to submitting them to Bartel for delivery to AT & T. He stated he could recall two occasions when someone from AT & T came to the morning workshops to observe the process whereby the salespeople were being prepared to make their daily sales. He also worked out of the Bartel office at Coquitlam and sometimes was able to make sales in the morning if he could find people at home. In his estimation, there were four groups of people - working out of that office - who were selling only AT & T long distance services. He had chosen to sell that product rather than any other one distributed by Bartel because he wanted to work with David - his team leader - a man from Georgia, in the former USSR - and to whom the appellant could converse in Russian. He signed the agreement - Exhibit A-1 - on March 16, 1998 and began working that day and not on March 9, 1998, the date used by the Minister in issuing the decision. The appellant had arrived in Canada in January, 1998 and while he could both speak and write in the English language he had no concept of the distinction between employees and other workers having the status of independent contractors. Further, at that time he had no knowledge of matters involving Workers' Compensation, Employment Insurance or minimum wage requirements. As a result, he had no reason to make any enquiries of David about such matters. The appellant stated he merely regarded himself as an employee of Bartel. He decided to quit and told David he was leaving. His last day of work was May 28, 1998.
[3] In cross-examination by counsel for the respondent, the appellant stated that, although he owned the car used in the course of selling the long distance service, Bartel had provided maps and tracking sheets to record calls made at certain addresses and to enter comments, if appropriate. As for the application form itself, the appellant thought the name of AT & T Canada was at the top. Sales occurred in the homes of subscribers and he did not have any office at a Bartel office. He stated he had not appreciated the style of the morning sales meetings and did not want to attend. He inquired of David whether he had to attend and was advised that he should do so, otherwise he would not be able to generate enough sales. He was never threatened with dismissal for non-attendance at the meetings. After the first week, David no longer accompanied him on his sales calls and he was on his own. He regarded the comments at the morning workshops as being equivalent to a performance review as a result of sharing information with other salespeople and attempting to learn from those who were very successful. There was no mandatory number of sales to be met per day and his daily average was about 10. He agreed with a suggestion of counsel that if he had only made one sale per day he would have quit. He also acknowledged he had no authority to incur any debt or obligation on behalf of Bartel but, in his view, that was purely hypothetical as no opportunity to do so had ever arisen in the course of carrying out his function as a residential canvasser. On some days he had no sales and he did not calculate the cost of operating the car or consider that expense as an amount to be deducted from income.
[4] In cross-examination by counsel for the intervenor, the appellant stated he did not recall if David had reviewed the agreement - Exhibit A-1 - or had mentioned the issue of deductions. He had spoken in Russian with David when discussing the work situation. Counsel put to the appellant a list of dates upon which he had failed to attend the morning workshops and the appellant responded by stating it surprised him to learn he had missed that many sessions. He agreed he had attended sometimes only once a week and other weeks not at all. He thought attendance was mandatory but he also believed he had - most of the time - complied with the requirement to be present at the sessions. He also conceded that if he arrived early at the morning sales meeting, he might be able to choose a canvassing area for the day that was closer to his residence. He was paid only by commission on sales and when he received a cheque it was accompanied by a slip indicating the number of sales during the preceding period. There were no deductions taken off the cheque. As for whether or not he claimed car expenses as a deduction against income when filing his income tax return, he was reasonably certain he had not done so. In Canada, the job at Bartel was his first, although he had previous sales experience in Moscow where he had worked as a project manager for a company selling products. While selling the AT & T service, he worked some Saturdays as it was easier to reach people at home. He had been aware of a Code of Ethics - Exhibit I-1 - that had been presented to him and he signed an acknowledgement of receipt.
[5] David Siradze testified he lives in North Vancouver, British Columbia and in March, 1998 was working for Bartel under circumstances in which he considered himself to be an independent contractor. He stated he was the man called David to whom the appellant had been referring during his testimony and that he first met George Yuriy Ivanov on March 15, 1998. He took Ivanov along with him on sales calls to show him how to sell the AT & T product. The next day, Ivanov indicated he wanted to work selling the long distance service and signed Exhibit A-1. Siradze reviewed the document with Ivanov in a general sense and explained the method of payment. He did not recall any discussion about matters such as income tax, premiums for Employment Insurance or Workers' Compensation. However, he did recall telling the appellant that each salesperson was operating his or her own business. Their discussions were held in both English and Russian. Siradze stated he acted as a team leader - without any extra pay - and the appellant was in his group. He went along with Ivanov while making sales calls during his first three or four days. In the beginning, the appellant attended at the relevant Bartel office every day but later indicated he wanted to come in only for the purpose of submitting the applications he had obtained during the day.
[6] In cross-examination by the appellant, Siradze stated he had always thought attendance at the morning meetings by salespeople was required by Bartel. He was also aware a record was kept of attendance but thought AT & T required that information because it permitted the company to be aware of the number of people in the field on any particular day. It was also possible to track which salesperson was working within a particular area. He stated that salespersons could telephone the Bartel office in the morning and request a particular area be assigned to them for the day. Siradze - himself - made calls at between 100 and 120 residences each day in the course of his work. The maps with territories marked out on them were made up by someone in the office staff at Bartel and were drawn up on the basis of postal codes.
[7] Frank Reindl testified he is self-employed in the sense he is the President and sole shareholder of Bartel Promotions Inc. Bartel represented AT & T in the process of selling long distance services to residential customers. The methods of selling were door-to-door and also at special events at shopping malls or stadiums. He indicated he signed Exhibit A-1 - the agreement - on behalf of Bartel. Ivanov had responded to a Bartel advertisement and he had interviewed Ivanov on March 14, 1998. He explained the nature of the business to him and knew that he also spoke Russian. He informed the appellant that a decision would be made after he had spent one day - without pay - accompanying David Siradze and finding out about the business. On March 15, 1998, Siradze took Ivanov along on sales calls. Reindl stated he interviewed the appellant again on the evening of March 15, 1998 and discussed the events of the day he had just spent with David. He spoke to the appellant about the method of pay and informed him that he needed to accompany an experienced salesperson for the first few days. He did not review the contents of Exhibit A-1 with the appellant and knew David Siradze had spoken to him about it and would also be showing him proper sales techniques. However, he thinks he informed Ivanov there would be no minimum wage paid. Ivanov signed the Code of Ethics at the same time as the agreement. Bartel held morning sessions and, early on in their experience, salespeople were expected to attend in order to learn the selling process, to obtain maps and to review any complaints that may have been received from homeowners who had been called upon by a member of the salesforce. In addition, new information flowing from AT & T about various matters, including rate changes, had to be brought to the attention of the salespeople as well as any modification in the nature of the overall campaign. Each morning at 11:00 a.m., there was tribute paid to the most successful salespeople for the previous day and any new salesperson was also introduced to the group at this time. Attendance at the morning meetings were recorded but mainly for the information of AT & T. After April 15, 1998 the appellant's attendance at morning meetings was infrequent and he would attend at a Bartel office only to drop off completed applications or to pick up his cheque. A territory is placed on a grid covering most of the Lower Mainland and is divided according to postal codes. Some salespersons, who had no car, used public transit in order to arrive at their territory and, as a result, chose areas more accessible by that mode of transport. There were no set hours and no reimbursement of expenses. Each sales group would - by itself - choose a team leader.
[8] The appellant and counsel for the respondent both declined cross-examination.
[9] The position of the appellant is that by applying the tests called for in the jurisprudence it is clear he was an employee of Bartel. In his view, he was merely a salesperson being remunerated by commission.
[10] Counsel for the respondent submitted the decision of the Minister was correct and should be confirmed on the basis the usual tests indicated there was little control over the working activities of the appellant. Further, he used his own vehicle in the course of making sales, was not reimbursed for any expenses incurred and was not integrated into the business of Bartel.
[11] Counsel for the intervenor submitted the appellant's situation had been dealt with in earlier decisions of the Tax Court of Canada and that the evidence disclosed he was not an individual who had been providing services to Bartel pursuant to a contract of service.
[12] In Wiebe Door Services Ltd. v. M.N.R. [1986] 2 C.T.C. 200, the Federal Court of Appeal approved subjecting the evidence to the following tests, with the admonition that the tests be regarded as a four-in-one test with emphasis on the combined force of the whole scheme of operations. The tests are:
1. The Control Test
2. Ownership of Tools
3. Chance of Profit or Risk of Loss
4. The integration test
[13] In the case of 740944 Alberta Ltd. v. M.N.R., unreported, 1999-1868(EI) – 1999-1869(CPP), Porter D.J.T.C.C. dealt with the case of an individual who had been selling long distance services for a marketing entity owned by the numbered company. In that instance, the Minister had issued a decision that the worker had been an employee engaged in insurable and pensionable service. In the 740944 case, Judge Porter held the worker had not been providing services pursuant to a contract of service but had been functioning as an independent contractor. Some of the matters considered by Judge Porter in the course of his analysis are as follows:
- there was an agreement entered into by the worker and the company whereby both parties intended the worker would be an independent contractor and, there being no clear evidence they functioned differently in the course of the working relationship, that deference should be given to the intentions of the parties at the time of signing;
- if salespersons wanted to do well, it was beneficial for them to attend the sales meetings where they could be updated on programs and services for sale;
- people had a choice of territory and whether they worked or not on a given day was up to them;
- there was no requirement the salespeople had to be in the office at any appointed time;
- the sales personnel paid for their own transportation to make the calls door-to-door;
- there was the opportunity for profit if they organized themselves in an efficient manner and there was the risk of loss if they incurred expenses but did not generate any commission revenue from sales;
- the salespeople were not integral to the business of the appellant corporation in that they could choose to work for other organizations so long as when they were standing at the door of a potential customer they did not offer long distance services of any provider except AT & T;
- each salesperson was operating their own mini-business in whatever manner they saw fit;
Control:
[14] Turning to the Wiebe, supra, case and the tests referred to earlier, it is clear the appellant was aware he was entering into a contract with Bartel which would permit him to sell certain products, including long distance services provided by AT & T. The appellant chose to sell that specific product rather than other lines available to him through Bartel and went along with David Siradze for a day in order to observe the method by which sales were made. He was well aware he would only be paid on the basis of a set amount for each application turned in to Bartel with the chance of a bonus of $5.00 should that applicant begin to use the long distance services. Initially, he attended the morning sales meetings but decided they did not suit him and his attendance became infrequent until April 15, 1998, following which he came into the Bartel office only to drop off completed application forms or to pick up his cheque. There was no disciplinary action taken against him by Bartel for his non-attendance but he was urged to draw upon the resources of the combined group at their sales meetings in order to help him become a better salesperson. There was no performance review by Bartel through any of its management personnel. The team leaders in each sales group were chosen by members of the group and were not paid by Bartel for acting in that capacity. The appellant could choose a sales territory to better accommodate his needs and to reduce expenses of travel from his residence. He was permitted to select his own days and hours during which to conduct sales calls and he developed his preference for working on Saturdays or at particular times when the odds of people being at home were increased. He did not need permission to take hours or days off from sales activities and could have used the time away from Bartel to sell another product in another area including one he had been in some days earlier while attempting to have people sign up for AT & T. long distance service. The only restriction was that he was not to sell any competing long distance service and even that does not appear in the agreement - Exhibit A-1 - or the Code of Ethics – Exhibit I-1. However, it is fair to say it was something which was clearly understood by both parties. He was free to develop his own sales presentations and techniques provided they were in accordance with the said Code. While it may not have been practical, he was not precluded from hiring an assistant or substitute or joining forces with another salesperson in a joint venture.
Tools:
[15] The appellant had his own pen and pad. Bartel supplied telephone and postal code directories for use by salespeople when verifying information in the application forms. Bartel also handed out maps on which certain sales territories had been marked out on the basis of a certain postal code. The main tool utilized by the appellant was his own motor vehicle which he used in the course of selling and for which he received no reimbursement from Bartel.
Opportunity for Profit and Risk of Loss:
[16] The opportunity for profit came from organizing oneself in an efficient manner and making enough calls to generate revenue. However, the commission was fixed, as was the bonus, in accordance with the schedule set by Bartel. The risk of loss was present during those days when the appellant stated he had no sales at all yet incurred the costs of operating his vehicle together with any other expenses associated with being in the sales territory.
Integration:
[17] This test is one of the most difficult to apply. At page 206 of his judgment in Wiebe, supra, 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?"
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 at 738-39:
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.
There is no escape for the trial judge, when confronted with such a problem, from carefully weighing all of the relevant factors, as outlined by Cooke, J."
[18] In the case of Charbonneau v. M.N.R. [1996] F.C.J. No. 1337, the Federal Court of Appeal dealt with the issue whether or not a log skidder was an employee or independent contractor. The judgment of the Court was delivered by Décary, J.A. who stated at page 1:
"Contract of employment or contract of enterprise? This, once again, is the question that arises in this case, the issue in which is whether the respondent, the owner and operator of a skidder, was engaged in insurable employment for the purposes of the application of paragraph 3(1)(a) of the Unemployment Insurance Act.
Two preliminary observations must be made.
The tests laid down by this Court in Wiebe Door Services Ltd. v. M.N.R. - on the one hand, the degree of control, the ownership of the tools of work, the chance of profit and risk of loss, and on the other, integration – 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 jeopardizing 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 (art. 2085 of the Civil Code of Québec) or, whether there is not, rather, such a degree of autonomy that there is a contract of enterprise or for services (art. 2098 of the Code). In other words, we must not pay so much attention to the trees that we lose sight of the forest – a particularly apt image in this case. The parts must give way to the whole.
Moreover, while the determination of the legal nature of the contractual relationship will turn on the facts of each case, nonetheless in cases that are substantially the same on the facts the corresponding judgments should be substantially the same in law. As well, when this Court has already ruled as to the nature of a certain type of contract, there is no need thereafter to repeat the exercise in its entirety: unless there are genuinely significant differences in the facts, the Minister and the Tax Court of Canada should not disregard the solution adopted by this Court.
In our view, when the judge of the Tax Court of Canada allowed the respondent's appeals in this case and found that the contract was a contract of employment, he felt (sic) into the trap of doing a too mathematical analysis of the tests in Wiebe Door, and as a result he wrongly disregarded the solution adopted by this Court in Attorney General of Canada v. Rousselle et al. and upheld in Attorney General of Canada v. Vaillancourt.
Here, the payer was a forestry business. It assigned the work of felling and hauling the wood to crews of two persons – a feller, who cut the trees, and a skidder operator, who picked them up and transported them to the edge of a forest road. The respondent was the owner of the skidder, a piece of heavy machinery valued at about $15,000, and he was responsible for the cost of maintaining and repairing it. He had himself recruited the feller, with whom he made up a crew. He and the feller were paid by volume, based on the number of cubic metres of wood cut down, and the contract did not specify any volume; the volume was measured every two weeks by a "measurer" employed by the payer.
At the time the contract was signed, the respondent was given [translation] "a list and terms of holidays" which, according to the evidence, was based on provincial employment standards. He was also given a document containing [translation] "internal regulations for workers in forests" which, according to the testimony of a representative of the payer, reflected the requirements of the Quebec ministère des Ressources naturelles. Appended to that document were [translation] "general rules", that is, a list of technical details relating to cutting down trees, as well as the [translation] "minimum standards for protecting forests against fire" laid down by the Société de conservation de l'Outaouais.
The respondent worked about thirty-two hours per week and his daily work period was generally, but not necessarily, within the period proposed in the internal regulations, that is, between 7:30 a.m. and 4:00 p.m. A foreman employed by the payer checked every second day to ensure that the respondent's crew was in fact cutting the trees that had previously been identified by the payer. The method of payment was as follows: one quarter of the amount owing to the crew was paid to the respondent, one quarter was paid to the feller, and half was paid to the respondent for the use of the skidder. Thus three cheques were issued by the payer every two weeks. The cost of transporting the skidder at the beginning and end of the season was borne by the respondent; in the event that there was a change of location during the season, it was borne by the payer.
When we look at the overall picture, it is quite apparent that this was, prima facie, a contract of enterprise. The ownership of the skidder, the choice of the other crew member, payment based on an undefined volume and the autonomy of the crew are determining factors which, in the context, can only be associated with a contract of enterprise."
[19] Taking to heart the advice to look at the entire forest, I turn again to the issue of integration as part of the four-in-one test used in the context of the overall scheme of operations. Looking at it from the perspective of the appellant, he was - like salesmen for the last hundred years - out in the territory on a "smile and a shoeshine" earning what he could on a commission basis and bearing his own expenses. He could leave the sales area when he chose and could arrive when he wanted to begin another day of selling. Meanwhile, Bartel was a promotions business handling a variety of products which it sold at different locations using different sales strategies, including consignment to salespersons. In the event the appellant did not produce sales over an extended period of time, there would not be much point in him using up a sales territory that could be more productive in the hands of another salesperson. Under the circumstances of the appellant's working relationship with Bartel, he was merely an accessory to it and had not been integrated into the Bartel organization. The appellant obviously felt the same way as when he decided to leave he merely notified David Siradze of his intent and then quit, never to return. One would not expect someone fulfilling a function integral to an employer to behave in that manner.
[20] As for the effect to be given to the agreement - Exhibit A-1 - it is clear what the parties thought their relationship was will not change the facts. In the case of Minister of National Revenue v. Emily Standing, 147 N.R. 238, Stone, J.A. at pages 239-240 stated:
"...There is no foundation in the case law for the proposition that such a relationship may exist merely because the parties choose to describe it to be so regardless of the surrounding circumstances when weighed in the light of the Wiebe Door test ..."
[21] It is, however, important to examine whether the parties, during the course of their relationship, acted in a manner consistent with their agreement or whether the document purporting to set out certain mutual contractual obligations was - on an objective analysis - at odds with the observed conduct of the parties and/or merely an instrument to apply a patina of entrepreneurship to an obvious employment situation. In the within appeal, the appellant's retroactive interpretation of how he must have acted - and the reasons for such conduct - during the short time he was there is not borne out by other evidence. His behaviour was not that of someone who - at the time - believed he was an employee subject to review, discipline or control in any meaningful sense.
[22] Taking into account all of the evidence, I find the appellant was not engaged in insurable employment with Bartel pursuant to a contract of service during the period disclosed by the evidence to have been March 16 to May 25, 1998. Taking into account this variation, the decision of the Minister is otherwise correct.
[23] The appeal is dismissed.
Signed at Sidney, British Columbia, this 14th day of April 2000.
"D.W. Rowe"
D.J.T.C.C.