Date: 20000426
Docket: 1999-910-EI
BETWEEN:
CONNIE NELSON,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
KIMBERLEY MCCLENAGHAN,
Intervener.
Reasons for Judgment
Porter, D.J.T.C.C
[1] This appeal was heard at Edmonton, Alberta, on August 30, 1999. The Intervener did not actively participate in the appeal.
[2] Connie Nelson (hereinafter called the "Appellant") has appealed two Notices of Assessment dated December 4, 1996, which were addressed to Rhett McClenaghan, Jason Laible, and Connie Nelson operating as Team JK (“Team JK”), for unemployment insurance premiums (employment insurance premiums after June 30, 1996) payable with respect to the 1995 and 1996 taxation years. The Appellant appealed the said assessments to the Minister of National Revenue (the “Minister”) who confirmed the same by letter dated November 5, 1998. The Appellant has now appealed to this Court from that decision.
[3] The decision of the Minister was in the following terms:
“This concerns your appeal against the assessments of December 4, 1996, in the amount of $15,341.16 for unemployment/employment insurance premiums, plus applicable penalty and interest, for the periods January 1, 1995 to December 31, 1995 and January 1, 1996 to October 31, 1996.
For the period January 1, 1995 to December 31, 1995
It has been decided to confirm the assessment in respect of, Rhonda Arnold. This is because Rhonda Arnold was employed under a contract of service, and therefore, she was your employee.
It has further been decided to otherwise confirm the assessment in respect of the workers listed in Appendix A attached. This is because these workers were employed in connection with a hairdressing establishment; and none of them was the owner or proprietor of that establishment. Therefore, even though each of them was a self-employed hairdresser, each of their employments was included in insurable employment pursuant to the Unemployment Insurance Regulations.
For the period January 1, 1996 to October 31, 1996
It has been decided to vary the assessment in respect of the workers listed in Appendix B attached; by deleting therefrom unemployment/employment insurance premiums in the amount of $392.78. This is because Rhett McClenaghan, Jason Laible & Connie Nelson (a partnership, operating as Team JK) was unable to determine the earnings of the hairdressers, and therefore the weekly premiums are to be based on 2/3 of the maximum weekly insurable earnings unless
(a) it is established to the satisfaction of the Minister that the employment of the person in that week is excepted from insurable employment; or
(b) the owner, proprietor or operator of the establishment maintains records that show the number of days in which the person worked in each week, in which case the amount of her earnings for that week shall be deemed to be an amount (taken to the nearest dollar) equal to the lesser of
(i) the number of days worked in that week multiplied by 2/15 of the maximum weekly insurable earnings, and
(ii) 2/3 of the maximum weekly insurable earnings.
It has further been decided to otherwise confirm the assessment in respect of the workers listed in Appendix C. This is because these workers were employed in connection with a hairdressing establishment; and none of them was the owner or proprietor of that establishment. Therefore, even though each of them was a self-employed hairdresser, each of their employments was included in insurable employment pursuant to the Employment/Unemployment Insurance Regulations.
Appendix A
Ann Eveleigh
Tara McCargar
Kimberley McClenaghan
Cara MacKenzie
Sherry Roe
Charlene Taylor
Jeanie Tyssen
Appendix B
Tara McCargar
Cara MacKenzie
Sherry Roe
Charlene Taylor
Appendix C
Ann Eveleigh
Tara McCargar
Kimberley McClenaghan
Cara MacKenzie
Sherry Roe
Charlene Taylor"
[4] The decision of the Minister was said to be issued pursuant to subsection 93(3) of the Employment Insurance Act and was based on paragraphs 3(1)(a), 4(1)(c) of the Unemployment Insurance Act, paragraph 5(1)(a) of the Employment Insurance Act, paragraph 12(d) of the Employment Insurance Regulations, section 60 of the Employment Insurance Regulations, and section 16 of the Unemployment Insurance Collection of Premiums Regulations. For convenience sake, all references hereafter will be to the Unemployment Insurance Act (hereinafter called the “UI Act”) and regulations made thereunder. The provisions of the Employment Insurance Act and Regulations made thereunder, re-enacted in 1996 are for all intents and purposes, identical to the prior legislation and regulations.
[5] The material facts reveal that at the relevant times, Connie Nelson was in partnership first with Kimberley McClenaghan and Jason Laible and thereafter, with Rhett McClenaghan and Jason Laible. They operated a hairdressing salon in Lethbridge, Alberta, under the style and name of “Team JK”. All the persons mentioned in the above Schedules worked in the physical premises operated by the partnership from time to time.
[6] This is an unfortunate case for the Appellant as she was not directly involved in the operation of the business. She was a silent partner. She and her husband loaned to the other partners some $5,000.00 initially to start the business and they invested an additional $5,000.00 themselves into the business for her 1/3 share in the partnership. She now appears to have been left high and dry by her former partners to deal with these assessments on her own. As a homemaker, this quite obviously is causing her considerable difficulty.
[7] The partnership agreement appears not to have been in writing. Although the Appellant attended some business meetings, she took no part in the day-to-day operations of the business. Rhett McClenaghan acted as the business manager, for which he was paid a modest salary. The business closed its doors in December 1996, shortly after the initial assessment. Apparently the salon was not a financial success.
The Issues
[8] The principal issue is whether valid assessments have been made under the UI Act in relation to the workers in question, who were ‘chair renters’ as opposed to regular employees with contracts of service. The Appellant has conceded through her counsel that the assessments are correct with respect to:
Rhonda Arnold
Jeanie Tyssen
Tara McCargar
Kimberley McClenaghan
for the periods during which they worked as employees of Team JK. The Appellant has argued that the assessments should be vacated to the extent that they applied to the chair renters.
[9] Although it is clear that the chair renters in this case were working neither under contracts of service, that is as regular employees of the business, nor under contracts for services, as independent contractors providing services for the partnership, their work has been considered by the Minister to have been included in insurable employment upon the basis of Regulation 12(d) of the Unemployment Insurance General Regulations (“Regulation 12(d)”) passed by the Unemployment Insurance Commission and approved by the Governor General pursuant to paragrapah 4(1)(c) of the UI Act.
[10] The Appellant, through her counsel, has virtually conceded that the chair renters are covered by the terms of the Regulation to the extent that the Regulation itself is valid. To the extent that she has not conceded that the Regulation, if validly promulgated, covers the situation of the chair renters in this case, I am of the view that it clearly does so, for reasons to which I will refer later.
[11] In the same manner that the Minister has considered the chair renters to be employees in insurable employment by virtue of Regulation 12(d), he has also pursuant to subsection 16(1) of the Unemployment Collections of Premiums Regulations (hereinafter called the “Collection Regulations”), considered the partnership to be their employer for the purpose of calculating earnings and paying premiums under the Act. Similarly, he has considered pursuant to subsection 16(2) of the Collection Regulations that such an employer must pay and remit premiums in accordance with the Act and the Regulations. In the preparation of the assessments, he has relied upon the provisions of subsection 16(3) of the Collection Regulations in order to calculate the amounts due.
[12] The Appellant, through her counsel, has indicated that she does not take issue with the manner of calculation of the premiums under these regulations, but again contests the validity of the Regulations themselves. She maintains they cannot lawfully apply in the circumstances at hand.
[13] Thus, the first issue raised by the Appellant is that there is no liability on an employer to pay the employee’s share of premiums under the UI Act where there is no remuneration paid to that employee from which the employer can deduct that premium, in order to remit it to Revenue Canada. In simple terms, the Appellant argues that in order for there to be a liability to pay the employee’s share of the premium, there is a condition precedent that there be remuneration paid or payable to the employee from which to deduct the amount of the premium. For this proposition, she relies on subsections 51(1) and 53(1) of the former UI Act.
[14] The second issue relates to the validity of the regulations purported to be made under the same UI Act upon which the Minister has relied to support the assessments. In particular, these are Regulation 12(d) of the General Regulations and Regulations 16(1), (2) and (3) of the Collection Regulations.
[15] The Appellant contends that the Commission in the first case, with respect to Regulation 12(d), and the Minister in the second case with respect to section 16, of the Collection Premium Regulations have each exceeded the authority granted to them by Parliament to pass regulations and thus, she says that the Regulations are, to that extent, ultra vires and invalid. The Appellant has not challenged the validity of the Regulations outright, but simply argues that in each case they extend too far and to the extent that they do so, they should be read down so as to stay within the authority granted by Parliament. In such circumstances, the Appellant argues that the factual situation existent in the Team JK business relating to the chair renters would not be covered by the Regulations.
Legislative and Regulatory Provisions
[16] Subsections 51(1) and 51(2) of the Unemployment Insurance Act read as follows:
"(1) Every person shall, for every week during which he is employed in insurable employment, pay, by deduction as provided in Part III, an amount equal to such percentage of his insurable earnings as is fixed by the Commission as the employee's premium for the year in which that week occurs.
(2) Every employer shall, for every week during which a person is employed by him in insurable employment, pay, in respect of that person and in the manner provided in Part III, an amount equal to such percentage of that persons's insurable earnings as is fixed by the Commission as the employer's premium payable by employers or a class of employers of which the employer is a member, as the case may be, for the year in which that week occurs.
... "
[17] Subsection 53(1) of the UI Act reads as follows:
"(1) Every employer paying remuneration to a person employed by the employer in insurable employment shall deduct from that remuneration an amount equal to the employee's premium payable by that insured person under section 51 for any week or weeks in respect of which that remuneration is paid and remit it, together with the employer's premium payable by the employer under that section for such week or weeks, to the Receiver General at such time and in such manner as is prescribed and, where at that prescribed time the employer is a prescribed person, the remittance shall be made to the account of the Receiver General at a financial institution (within the meaning that would be assigned by the definition "financial institution" in subsection 190(1) of the Income Tax Act if that definition were read without reference to paragraphs (d) and (e) thereof) ...
... "
[18] Paragraph 4(1)(c) of the Unemployment Insurance Act reads as follows:
"any employment that is not employment under a contract of service if it appears to the Commission that the terms and conditions of service of and the nature of the work performed by persons employed in that employment are similar to the terms and conditions of service of and the nature of the work performed by persons employed under a contract of service;"
[19] Paragraph 12(d) of the UI Regulations reads as follows:
"(d) employment of a person in connection with a barbering or hairdressing establishment, where that person
(i) provides any of the services that are normally provided therein, and
(ii) is not the owner or proprietor thereof;"
[20] Subsection 75(1) of the UI Act reads in part as follows:
"The Minister may, with the approval of the Governor in Council make regulations ...
(d) respecting the manner in which any provision of this Act that applies or extends to an employer of an insured person shall apply or extend to any person by whom the remuneration of an insured person for services performed in insurable employment is paid either wholly or in part, and to the employer of any such person;
(e) for permitting an employer to deduct premiums paid on behalf of insured persons otherwise than from the remuneration for the period in respect of which the premiums were payable;
(f) providing that in any case or class of cases where insured persons
(i) work under the general control or direct supervision of or are paid by a person other than their actual employer, or
(ii) work with the concurrence of a person other than their actual employer on premises or property with respect to which that person has any rights or privileges under a licence, permit or agreement,
...
that other person shall for the purposes of paying premiums under this Act be deemed to be the employer of the insured persons in addition to the actual employer, and providing for the payment and recovery of premiums paid in respect of the insured persons;
...
(i) for calculating and determining the hours a person is employed with an employer, the amount of insurable earnings of insured persons and the amount of premiums payable;
...
(k) for prescribing and regulating the manner, conditions and times for paying and recording premiums;
...
(m) for regulating the possession, custody or control of documents or things used in the administration of the Act;
... "
[21] Section 16 of the Unemployment Insurance Collection of Premiums Regulations reads as follows:
"(1) Every owner, proprietor or operator of a barbering or hairdressing establishment shall, for the purpose of maintaining records, calculating earnings and paying premiums payable thereon under the Act and these Regulations, be deemed to be the employer of every person whose employment in connection with the establishment is included in insurable employment by virtue of paragraph 12(d) of the Unemployment Insurance Regulations.
(2) Every owner, proprietor or operator of a barbering or hairdressing establishment who is deemed by subsection (1) to be an employer shall, for every week in which the person is engaged in insurable employment in the establishment, pay and remit the employee's premiums and the employer's premiums to the Receiver General in accordance with the Act and these Regulations.
(3) Where the owner, proprietor or operator of a barbering or hairdressing establishment is unable to determine the earnings of a person whose employment in connection with the establishment is included in insurable employment by virtue of paragraph 12(d) of the Unemployment Insurance Regulations, the amount of insurable earnings of the person for a week during that employment shall be deemed, for the purposes of the Act, to be an amount (taken to the nearest dollar) equal to 2/3 of the maximum weekly insurable earnings unless
(a) it is established to the satisfaction of the Minister that the employment of the person in that week is excepted from insurable employment; or
(b) the owner, proprietor or operator of the establishment maintains records that show the number of days in which the person worked in each week, in which case the amount of his earnings for that week shall be deemed to be an amount (taken to the nearest dollar) equal to the lesser of
(i) the number of days worked in that week multiplied by 2/15 of the maximum weekly insurable earnings, and
(ii) 2/3 of the maximum weekly insurable earnings."
[22] There is no doubt that, where the word “employment” is used in these various sections of the Act and the Regulations, a broader interpretation is to be applied than that of a simple contract of service. It is clear from the various cases in the Supreme Court of Canada and the Federal Court of Appeal that the word “employment” in the context of this legislation and the regulations means or includes a business trade or occupation and not solely to designate a master and servant relationship see The Queen v. Scheer Ltd., (1972) 27 D.L.R. (3rd) 73 (S.C.C.), Spence J.
Issue of Non-deductibility of Premiums
[23] The Appellant contends that there is no obligation, to deduct and remit unemployment insurance premiums, under subsection 53(1) of the UI Act unless there is a payment of periodic remuneration by the employer to the employee. This ignores the deeming provisions of Regulation 16 of the Collection of Premium Regulations, with which I will deal later. She argues, through her counsel, that if there is no payment of periodic remuneration to the chair renters, no assessment can in law be made against her despite the fact that paragraph 12(d) of the Regulations deems the chair renters to have been employed in insurable employment and subsection 16(3) of the Collection Regulations deems the amount of insurable earnings of the person for a week during that employment period to be the amount set out therein.
[24] The issue thus raised by the Appellant is whether in the absence of any actual payment of remuneration from the deemed employer to the deemed employee and in particular, the deemed insurable earnings established under subsection 16(3) of the Collection Regulations, there can be liability for assessment for the premiums. She argues that absent any actual payment, there is nothing from which to deduct the employee’s share of the premium and that the liability of the employer under the unemployment insurance scheme is based upon deduction and thereafter remittance by the employer.
[25] This argument, at the very least, overlooks the fact that, the employer is obliged to remit his share of the premiums on the “deemed” insurable earnings of the employee as set out under subsection 51(2) of the UI Act. However, with the greatest respect to the ingenious argument advanced by counsel for the Appellant, it also overlooks the provisions of subsection 16(2) of the Collection Regulations requiring the employee to pay and remit “the employee’s premiums and the employer’s premiums”. There would be no purpose to this legislation coupled with paragraph 12(d) of the General Regulations if it was a prerequisite to remittance, that there be a deduction. In any event, it seems to me that “deemed earnings” means that they are deemed for these purposes to be due to the employee.
[26] Furthermore, it seems to the Court that it is section 51 and not 53, which imposes the obligation on both employer and employee to pay their respective shares of the calculable premium. Section 51 is the charging section. Section 53 simply establishes a mechanism for the payment of the amount due from the employee to be deducted from his remuneration and paid by the employer or if not so deducted, to be paid directly by the employer. This latter section, which falls under Part III “Collection of Premiums” and not Part II, “Contributory Premiums”, simply provides for a collection system from remuneration paid by an employer to an employee. I accept, for these purposes, the argument advanced by the Appellant, that there is a difference between the word “remuneration” which is “payment for services performed” (see the Oxford English Dictionary) as opposed to “earnings” which are simply “the action of becoming entitled to payment in return for work carried out”.
[27] Thus, subsection 53(1) imposes an obligation on an employer to deduct the employee’s share of the premium from the remuneration being actually paid to an employee with the corresponding obligation under subsection 53(2) to pay it himself, if he fails so to deduct it.
[28] Subsection 51(1) in my view, creates the liability upon an employee to pay and as advanced by the Appellant, that is to be done by deduction (in accordance with subsection 53(1)). I accept the proposition that if there is no remuneration, there is no deduction and thus, there is no manner in which to collect the premium from the employee (save by deduction from subsequent remuneration). That, however, also presupposes remuneration (a payment) at a later date. Thus, I agree with the Appellant’s submission that in the normal course of events, absent any of the legislative or regulatory provisions, there is no manner in which to collect the employee’s premium when there is no remuneration passing from the employer to the employee. In such a situation, the employer would be liable simply to pay his share under subsection 53(2) and no liability would attach to the employer under subsection 53(2) to pay the employee’s share as that liability is restricted to amounts he has failed to deduct and remit pursuant to subsection 53(1). If there is no remuneration from which to deduct, the employee’s share, absent some other provision, there is no liability on the employer to pay it.
[29] That hole, such as it is, seems to the Court to have been filled by the provision in Regulation 16(2) of the Collection Regulations requiring the deemed employer in these “paragraph 12(d) circumstances” to pay and remit the employee’s premium as well as the employer’s premium to the Receiver General in accordance with the provisions of the Act.
[30] In summary and subject to the validity of the regulations themselves, with which I shall deal in a moment, as I see the established scheme of things an employee is liable to pay a percentage of his insurable earnings as an employee premium. He or she is only required to do this by way of deduction from remuneration, actually paid to that person. Absent remuneration, that person does not pay but the liability is still there. The deduction is simply a procedural mechanism. If the employer fails to deduct when it is supposed to, the employer is personally liable. In a paragraph 12(d) situation, the employer is, pursuant to subsection 16(2) of the Collection Regulations, responsible to pay the employee’s share of the premium and no direct liability attaches to the employee. The employer is liable to pay his or her share of the premium calculated as a percentage of the employee’s insurable earnings or deemed insurable earnings both under subsection 51(2) of the UI Act and Regulation 16(2) of the Collection Regulations. The liability to do so would appear to exist, independently of any deduction or remittance of the employee’s premium under subsection 51(1).
Validity of Section 12(d) of the General Regulations
[31] The argument raised by counsel for the Appellant is somewhat different to that generally raised in these types of cases. Many of the cases referred to deal with whether or not the particular factual situation falls within the ambit of the Regulations. Counsel concedes that arguably on a factual basis, the scenario in this case does so fit within the terms of Regulation 12(d). In any event, I have no difficulty in saying that I am satisfied that the factual situation at hand does indeed fall within the conditions set out in the Regulation. The employment (work) was carried out in connection with a hair dressing establishment, the chair renters provided services that were normally provided therein and they were not the owners or proprietors of that establishment.
[32] Counsel for the Appellant places his argument in this case upon a different plane. He argues that the Regulation itself is invalid and ultra vires power of the Commission to make, to the extent that it reaches out and includes in insurable employment, those persons who find themselves in the factual situation at hand. That the Regulation is open to such a challenge, in law, is quite clear. Any regulation, in order to be valid, must contain terms that are within the mandate given to the regulating authority, in this case the Commission, by Parliament. To the extent that those terms exceed or go beyond that authority, the Regulation may be held to be ultra vires, either in whole or part, depending upon the circumstances. This proposition with regard to paragraph 12(d) of the General Regulations is clearly accepted in the following cases:
(a) Midwest Hotel Co. Ltd. v. M.N.R., 72 DTC 6440:
“It is obvious that a regulation is invalid if not within the scope of the enabling enactment: Booth v. The King (51 S.C.R. 20), Bélanger v. The King (54 S.C.R. 265), Re Gray (57 S.C.R. 150). In the application of this principle, it is necessary to look at the true nature and effect of the regulation in question. I can see no reason why the same rules should not apply as in adjudicating on the constitutional validity of legislation.
Dissenting Judgment of Pigeon, J. (not dissented to on this principle.)"
(b) Canada v. Skyline Cabs (1982) Ltd. (MacGuigan J.) [1986] 5 W.W.R. 16:
“ In my view the relationship between s. 12(e) and s. 4(1)(c) is somewhat more complex than this analysis would suggest. By s. 4(1)(c) the Unemployment Insurance Commission is made the sole judge of the similarity in employment in question (“if it appears to the Commission”). No doubt, in the absence of evidence to the contrary, a court will be prepared to assume that the Commission has, in making s. 12(e) of the regulations, properly implemented its mandate under s. 4(1)(c) of the Act, but this could be relevant to the interpretation of s. 12(e) only if the court were confronted with a choice between a construction which conformed to the commission’s powers under s. 4(1)(c) and one which did not. I do not find that kind of ambiguity in the application of s. 12(e) in the present case.”
I note that is clearly the choice presented to this Court in the case at bar.
(c) Canada (P.g.) v. Agence de Mannequins Folio Inc., 164 N.R. 74 (Huggessen, J.A.) of Federal Court of Appeal:
“... Section 4 sets out the parameters within which the Commission may exercise its regulation-making power. The validity of s. 12 of the Regulations was not challenged in this case. The provisions that allow for the power to be exercised are not conditions for the application of the regulation made under that power...”
(d) Sheridan v. M.N.R. (1985), 57 N.R. 69 (F.C.A.) Heald, J. quotes Mr. Justice Beetz of the Supreme Court of Canada in the case of Martin Service Station Ltd. v. M.N.R., [1977] 2 S.C.R. 996:
"In Scheer Ltd., ..., Spence, J., had already noted that
...the power to extend granted by s. 26(1)(d), is a very limited power. It only extends to any employment if it appears to the Commission that the nature of the work performed by persons in that employment is similar to the nature of the work performed by persons engaged in insurable employment.
The limits of s. 4(1)(c) of the Act of 1971 would appear to be even more strict as similarity in the terms and conditions of service are also required. In this respect, s. 4(1)(c) resembles s. 14A added to the old act in 1946 by 10 Geo. VI, c. 68. It has not been argued that, for the purpose of this case, anything turns on the difference in wording between s. 26(l)(d) of the Act of 1955 and s. 3(1)(c) of the Act of 1971. But the limited extent of both enactments expresses the will of Parliament to continue the scheme of the Acts which remains generally directed at persons under a contract of service. In order to avoid paying contributions under the Acts, some persons might however elect to give to their contractual relationships a form other than that of a contract of service; the impugned enactments, in so far as they enable the Unemployment Insurance Commission to reach such persons, pertain to the category of enforcement provisions and are clearly intra vires. But, even leaving out of account any possible intention to evade the Acts, if conditions become such that those who have a contract of employment to perform a given type of work find themselves unemployed, it is most likely that those who perform the same type of work, although they be self-employed, will also find themselves out of work because of the same conditions. It is mainly to protect the latter against this risk of unavailability of work and involuntary idleness that the Acts are extended. Whether they be self-employed or employed under a contract of service, taxi drivers and bus drivers for instance are exposed to the risk of being deprived of work. This risk is, in my opinion, an insurable one, at least under a scheme of compulsory public insurance which was never expected to function on a strict actuarial basis provided it generally conformed to the nature of an insurance scheme, including protection against risk and a system of contributions.”
Mr. Justice Heald continued:
“In my view, that passage applies with equal force to the circumstances of the case at bar. I think that the rationale expressed by Mr. Justice Beetz for extending the operation of the Act to self-employed taxi drivers and bus drivers applies equally to self-employed nurses and to nurses who are not employed under a contract of service. Accordingly, I must disagree with the view expressed by the Pensions Appeal Board in the TEG case supra that s. 4(1)(c) of the Act cannot apply so as to provide the necessary statutory basis for the promulgation of Regulations 12(g)."
Heald J. continued a little later:
"... as observed in both the Scheer case and the Martin Service Station case, the power to extend granted both in subsection 26(1)(d) and in subsection 4(1)(c) is a very limited power. In subsection 26(1)(d), it extended only to employment where the nature of the work performed is similar to the nature of the work performed by persons engaged in insurable employment. As observed by Mr. Justice Beetz in Martin Service Station, supra, subsection 4(l)(c) of the 1971 Act is even more restrictive as similarity in the terms and conditions of service are also required. Accordingly, it is clear, in my view, that subsections 4(1)(c) and 4(2) of the Act do not cover the same area. Subsection 4(1)(c) applies only to those persons employed in employment not under a contract of service (including self-employed persons) in circumstances where they perform a similar type of work and under similar terms and conditions to those persons who are employed under a contract of service. In contrast, subsection 4(2) covers the wider category of persons who, while being employed, not under a contract of service (including self-employed persons) are employed where the nature of the work and the terms and conditions of that work need not be similar to the terms and conditions and nature of work of employment under a contract of service.” (emphasis mine)
He went on to say:
“I agree with counsel for the respondent that subsection 4(1)(c) “carves out" of the general authority given pursuant to subsection 4(2) a particular class or category of individuals. When interpreted in this fashion, there is no redundancy or conflict as between the subsections. Furthermore, I think this approach accurately reflects the expressed will of Parliament.”
[33] The power to make the Regulation in question is contained within the parameters of paragraph 4(1)(c) which enables the Commission to make the regulation where it appears to it that:
- Both the terms and conditions of service of and the nature of the work performed
- by persons “employed in that employment” (read working in that occupation)
- are similar to the terms and conditions of service and the nature of work performed by persons employed under a contract of service.
[34] It is clear from this that both the terms and conditions of service and the nature of the work must appear to the Commission to be similar before they can include persons within the fold of this regulation who would not otherwise be covered or included. A certain deference has to be given to the Commission here, but their decision must withstand objective scrutiny.
[35] Clearly the nature of the work is not an issue in this case. The work carried out by the chair renters was indeed the same as that carried out by those who were employees under contracts of service.
[36] The issue is whether the Commission has exceeded its authority to include “employment in a hairdressing establishment” where it ignores any reference, or fails to include any reference in the Regulations to the terms and conditions of service being the same. It is only if both the “terms and conditions of the service” as well as “the nature of the work” are similar that the Commission may make a regulation including the employment (work) as insurable employment. This regulation refers to the similarity of the work, but ignores the question of whether “the terms and conditions of service were similar”.
[37] If one turns again to the decision of Spence, J. in Scheer Ltd., where he traces the history of this legislation, one can see that the words “terms and condition of service” were included in subsection 14(1) of the 1940 Unemployment Insurance Act. The comments of Spence, J. in the Scheer case on that aspect of the legislation were as follows:
“It would appear therefore that up till 1946 the statute was concerned only with those who were bound as employers or employees under a contract of service. However, in the year 1946, by 1946 (Can.), c. 68, s. 3, Parliament added s. 14A which I quote hereafter:
14A. The Commission may, by special order, declare that the terms and conditions of service of, and the nature of the work performed by a person or group or class of persons who are not employed under a contract of service are so similar to the terms and conditions of service of, and the nature of the work performed by, a person or/group or class of persons who are employed under a contract of service as to result in anomalies or injustices in the operation of the Act, and thereupon the person or group or class of persons in respect of whom the declaration is made shall be deemed to be employed under a contract of service for the purposes of this Act.
It will be seen that by this amendment for the first time Parliament enlarged the scope of the statute so that the Commission could, under the circumstances set out in s. 14A, include in the coverage of the statute some persons who were not employed under a contract of service.”
[38] The Act was amended again in 1955 when the old Act was repealed and replaced by a new statute. Subsection 26(1) of that statute reads in part as follows:
“The Commission may, with the approval of the Governor in Council, make regulations for including in insurable employment,
...
(d) Any employment if it appears to the Commission that the nature of the work performed by persons employed in that employment is similar to the nature of the work performed by persons employed in insurable employment.” (emphasis mine)
[39] It is to be noted that the words “terms and conditions of service of” were excluded from this new section and thus, the Commission had only to consider whether the “nature of the work” performed by the persons employed was similar. They did not have to consider whether or not the “terms and conditions” of service were similar. Spence J., dealing with a 1965 regulation enacted by the Commission under paragraph 26(1)(d), noted that it had the effect of bringing self-employed barbers and hair dressers within the class of insurable employment. He then went on to deal with taxi drivers and school bus drivers and the thrust of the judgment thenceforth was dealing with the question of whether “employment” had the wider meaning of an occupation, business or trade as opposed to employment under a contract of service only. In the course of that reasoning, he said this:
“In each of the sections, the emphasis seems to me to be upon the occupation and not upon a contract of service and I therefore see no necessity of including in s. 26(1)(d) reference to cases where a contract of service does not exist.”
[40] He also went on to say:
“It must be remembered that the power to extend granted by s. 26(1)(d) is a very limited power. It only extends to an employment if it appears to the Commission that the nature of the work performed by persons engaged in that employment is similar to the nature of the work performed by persons engaged in insurable employment.” (emphasis mine)
[41] He also went on to say:
“In passing, I note that although s. 26(1)(d) of the statute is, as I have pointed out,limited in its application, its limits are not as strict as those which existed in the old s. 14A. That section required a similarity in the terms of work, the conditions of service and the nature of the work. The present s. 26(1)(d) requires similarity only in the nature of the work. It may well be that Parliament was of the opinion that s. 14A was contradictory within its terms in that it required a similarity of terms of work and at the same time permitted the inclusion in insurable employment of those who were not employed under a contract of service and that that contradiction within the section has been removed in the present s. 26(1)(d).” (emphasis mine)
[42] The point that is made in this judgment is that the power of the Commission to make regulations under paragraph 26(1)(d) of the 1955 Act was not as strictly limited as it had previously been when the words “terms and conditions of service of” were included. The situation today is that those words have now been reintroduced by Parliament to the section, thus more strictly limiting the powers of the Commission to make a regulation or extend a regulation to certain persons. The addition of these words by Parliament clearly indicates that they must have a meaning. That meaning must be over and above the meaning attributed to the words “nature of the work”. Thus, it is only if “the nature of the work” and “the terms and conditions of the service” are similar, in the view of the Commission, that they can pass a regulation to include the work as insurable employment. As MacGuigan, J. said in the Skyline case (above) to paraphrase him, the Court would no doubt, in the absence of evidence to the contrary, be prepared to assume that the Commission has in passing the Regulation, properly implemented its mandate under paragraph 4(1)(c). However, if on the face of the Regulation, it clearly extends beyond the power afforded to the Commission by Parliament in the legislation, then I take it that would be evidence that it has exceeded its mandate.
[43] Thus, there arises the question of the meaning to be attributed to the words “terms and conditions of service of” in the legislation. I am not of the view that this relates to the “work done” by the persons involved because that is covered by the expression “nature of the work performed”. It seems that the “nature of the work” relates to the “services” in the plural provided by the person involved whether they be under a contract of service or a contract for services, whether those services or work be provided to the employer directly or to the customers or clients of the employer. On the other hand, what is intended by the words “terms and conditions of service of .... persons employed in that employment” seems to me to relate more to the manner in which the persons are engaged to perform some service (the word is in the singular) for the employer. That, in turn, may be done by a contract of service, a contract for services, or perhaps in some other manner, but it does require “a service” to be provided to the employer.
[44] Perhaps a hypothetical example may assist in the understanding of the requirements of this section. The Commission, for instance, would not have the authority under this section to make a regulation covering persons working and doing the same work who held a lease of physically separate premises with a separate name and no overlap of services. I am not suggesting that the Commission has purported to do this. For the regulation to be valid, the work must be done in connection with the hair dressing establishment and the services normally carried on there. However, in the hypothetical example, work carried out in physically separate premises would not be covered even if the Commission had not included those words requiring the work to be done in connection with the establishment as the terms and conditions of service would not be similar. Similarly, the Commission could not include certain work in the regulation, if it was entirely different such as the sale of lawn mowers on the premises. If the work is different, the regulation cannot extend to it. If the terms and conditions of service of the persons are different, the regulation cannot extend to it. The Commission when making regulations and exercising the discretion afforded to it by Parliament, cannot pass a regulation unless the situation referred to in the legislation appears to exist to the Commission. The Commission may not go outside the terms of the statute. In order for the regulation to be valid, it must, on its face, comply with the terms of the statute, from a reasonable and objective point of view or at least not exceed those terms.
[45] Whilst there seems to be little case law dealing with the words “terms and conditions of service”, a review of the New Shorter Oxford Dictionary contains these definitions:
A server – an artisan’s assistant
A thing which serves or supplies something
Service – condition of being a servant or employee
Performance of duties of a servant
Done according to instructions of an individual or organization
An act or instance of serving
A duty undertaken for a superior
Reward for work or duties undertaken, wages payment
Assistance or benefit provided to someone
An act of helping or benefiting another
The action of serving, helping or benefiting another
Behavior conducive to the welfare or advantage of another
Friendly or professional assistance
The action of serving a customer in a shop
Serve – be subordinate or subsidiary to
Be useful or advantageous to
To meet the requirements of
Contribute to the functioning of
Bring about or contribute to a desired result
[46] The thrust of all of these definitions is the assistance or contribution that one person makes to another. The words, if they are to have any meaning at all, presumably were added in by Parliament for a purpose and to require something more than simply the nature of the work to be similar. There must, in order for the Commission to include persons within the ambit of any regulation they make under this section, be something being done by the person doing the work which contributes, by the way of assistance, to the functioning of the business of the other, the proprietor. If this assistance is not present, then there is no service, whether that be by way of a contract of service (redundant in the situation at hand), a contract for services, or otherwise.
[47] The Regulation would not, for example, cover the situation where there was a straight lease of a separate part of the premises and nothing flows from that lease by way of an action back to the owner or proprietor of the establishment. To the extent that it purported to do so, it would be ultra vires the power of the Commission because there would be no “service” and thus it follows that there would be no “terms and conditions of service of”.
[48] It might be argued that “the terms and conditions of service of” relate to the services provided to the customers or the public at large. This is particularly so in view of the word “of” which appears in the legislation. However, the word “of” it seems to me, relates directly to the words “persons employed in that employment” and not to the words “work performed” which precedes those words in that sentence. It thus reads “if it appears to the Commission that the terms and conditions of service of ... persons employed in that employment are similar to the terms and conditions ...”. Otherwise it would be grammatically incorrect.
[49] In addition, service to the proprietor, employer or owner would imply service in the singular. Tasks undertaken for the public or customers would imply services plural. I note the word “services” is used in this different context in the Regulation itself.
[50] I am thus of the view that the words “terms and conditions of service of” must relate to the service to be provided to the proprietor in the operation of the his/her business and requires some contribution by way of an action towards the enhancement or the carrying out of the objects of that business.
[51] Thus the Regulation is intra vires the Commission to the extent that it relates to any kind of service being rendered by the person (deemed worker) to or on behalf of the proprietor (deemed employer). However, to the extent that the Regulation purports to include others from whom no such service flows, it is ultra vires the Commission. Parliament has clearly limited its former authority to make broader regulations by the addition of the words “terms and conditions of service of” in paragraph 4(1)(c). There must be some service to the proprietor, the terms and conditions of which are similar to those employed under contracts of service. As submitted by counsel for the Appellant, if the Commission wished to include other people, it could make regulations under subsection 4(2) of the Act, but these are subject to the affirmative resolution of Parliament, something that is not forthcoming in the case of Regulation 12(d).
[52] I see no conflict between this situation and that which arose in the Skyline case (above) where MacGuigan J. dealt with a taxi cab situation arising under Regulation 12(c) of the General Regulations. He dealt very much with that situation as a question of fact, finding that he was not confronted with the choice or ambiguity between a construction which conformed to the Commission’s powers under paragraph 4(1)(c) and one which did not. In the case at hand, I am confronted squarely with such a choice. I have absolutely no difficulty in deferring to the Commission, its authority to decide whether or not it appears that “terms and conditions of service and the nature of the work performed ...” are similar to those working under a contract of service. However, before they can move to that stage, it must be clear that there is in fact a form of service being carried out by the ostensible employee. If there is, then it is up to the Commission to decide whether or not it is similar and provided they stay within the ambit of what can reasonably said to be so, from an objective and legal point of view, the decision is not subject to review by this Court and due deference must be given to it. However, the Regulation cannot be made to apply to a situation where there is no “service” and thus, there are no “terms and conditions of service of” to which the Commission can apply its collective mind to make a regulation. Such a situation simply cannot be covered by the Regulation and to the extent the regulation purports to do so, it is ultra vires the Commission and should be read down and confined to only those situations where there is a form of service being provided. I wish to be particularly careful not to be inserting an additional condition into the Regulation. That is not the intent of this reasoning. The Regulation to the extent that it purports to reach out and include those whom Parliament did not intend to include, should of course be amended. Until that occurs, the Court is obliged to exclude from consideration under the terms of the Regulations, those to whom the Regulation cannot in law apply. In the case at hand, that means any person who is not providing any service to the owner, proprietor or would-be employer because a fortiori the terms and conditions of service could not be similar if there is no service.
[53] I have then now to turn to whether as a matter of fact, the situation at bar of the chair renters, amounts to the provision of a service to the ostensible employer Team JK. As I have indicated, in the Skyline Cab case (above) MacGuigan J. did not need to deal with the question of the validity of the Regulation because he found on the facts, that the situation in that case fell clearly within the terms of the Regulation and that there was nothing of any ambiguous nature which would take it beyond the authority granted to the Commission under paragraph 4(1)(c). In particular, he said at paragraph 12:
“ I believe the same facts would also service to satisfy the respondent’s argument utilizing s. 4(1)(c), although as I have indicated I do not consider that a necessary approach, given the lack of ambiguity in s. 12(e).”
[54] In particular, MacGuigan J. found that there was a huge overlap between the work being done by the drivers and the business of the cab company. He said:
“... in my opinion irrefutably establishes a sufficient degree of participation by the respondent in the carrying of the passengers by the taxis. If such a full degree of participation by the respondent in the carriage of passengers were not enough to establish that the taxis may be said to be used by it as part of its business, it seems to me that the policy of the statute to protect taxi drivers against the "risk of unavailability of work and involuntarily idleness", ... would not be implemented.”
[55] Thus, there was in that case a virtual integration of the work carried out by the taxi drivers and the business of the cab company. Clearly there was a service being provided to the cab company.
[56] In the case at bar on the other hand, it is argued that the Regulation cannot apply as there is no integration of the two businesses. In fact, the evidence put forth by the Appellant was that the chair renters were in competition with the business. I note in particular from the evidence that the chair renters on the whole had brought their own customers from other places; that they charged their own fees which were less than that of Team JK’s fees; they had a rental agreement with respect to the chairs which they paid a rental every month to Team JK, and thereafter, if they did no work at all, that was of no concern to Team JK. They paid something in the order of $500 or $550 each per month for the chair. Included in that rental was the use of hair dryers, towels, the washer and the dryer, the sinks, the perming station, perming rods and papers; at one stage they started to use additional services in the salon, but were asked not to do so unless they paid for them; they did not provide or participate in the house cleaning, cleaning of floors, laundry, dusting walls, etc. They would just simply sweep the floor around their own chairs; they used more than their rental was covering in the premises. They were in competition to the salon and were undercutting its prices; the salon charged $22 whereas they were charging $13-$16; if they did not turn up to work at their chair, the chair would remain empty throughout the day and would not be used by any employees of the salon; they did not provide any services to Team JK. They made their own appointments; any walk-ins always went to Team JK employees; they provided their own equipment, such as combs, brushes, blow dryers and curling irons and other small equipment; they ordered all of their own supplies and the stuff came directly to them; they also used their own produce lines which were not the same as those used in the salon, although periodically they helped themselves to supplies in the salon when their own had run out without paying for them, something they were not supposed to do; they sold their own retail products to their own customers and periodically some salon products, which in effect they purchased from the salon and then sold to their own customers; there were no set hours or days when they needed to be there and the salon had no knowledge of when they would or would not be there; they booked their own appointments; they came and went as they pleased; they were often in conflict with the salon and in competition with it; they kept their own money and never touched the till; they used the credit card services at the salon where people wished to pay by credit card and they would be paid out by the salon directly for any such charges each day; Team JK did not get any share of the price charged by the renters to the customers.
[57] The whole tenor of the evidence was that they operated their businesses completely independently of the Team JK, providing no services to that organization and simply paid a rental for the use of the chair and the premises. It was argued that this was a lease arrangement, but there being no defined part of the premises rented, other than the chairs in question, I find it difficult to conclude that it was in fact a lease. However, it certainly was a rental arrangement. There was a benefit to Team JK in the sense that they received money for the rental. However, there appears to have been nothing done or carried out by the chair renters, generally speaking, which one could say was of service to Team JK or the establishment itself.
[58] Clearly item 4(f) in the Assumptions of Fact, upon which the Minister was said to have relied in coming to his decision, was incorrect. There was no contract for services with these persons. They provided no services to Team JK. They were not obliged to do anything whatsoever. A contract for services would connote that Team JK would pay them for their services albeit they were acting as independent contractors. There was no payment from Team JK to the chair renters. In fact, it was the converse. Thus, it is perfectly clear that there was no contract for services and the Minister was in error in relying on that assumption of fact. Generally speaking, the Appellant agreed with the remaining Assumptions of Fact set out in the Reply to the Notice of Appeal.
[59] I find as a matter of fact and law that there was no service provided by the chair renters, subject to the exceptions that I mention below, to Team JK. There was simply a payment of rental for the use of a chair and shared use of certain part of the premises and the establishment where a totally separate business was carried on by the chair renters. Their business as a business did not enhance the business of Team JK or contribute to it in any way. It simply provided some additional revenue from the rental of the chairs and the shared use of the space. There was no overlap of the businesses to the extent that one could say they were integrated. Indeed I accept the evidence of Mrs. Nelson that they were very much in competition with each other in the same premises. This seems to me to be a totally different factual situation from that which MacGuigan J. had to deal with in the Skyline case (above).
[60] I am of the opinion that there being no service provided by the chair renters, subject to the exceptions as below, it follows that there were no terms and conditions of service. There being no service and thus no terms and conditions of service, the Regulation cannot apply to such a situation. To the extent that the Regulation purported to do so, it was ultra vires. The Regulation could not in its read-down form apply to the situation of the chair renters, subject to the exceptions I set out below.
Validity of Subsections 16(1), 16(2) and 16(3) of the
UI Collection Regulations
[61] I turn now to the question of the validity of these regulations. Counsel for the Appellant submitted that authority for the promulgation of these Regulations can be found in paragraph 75(1)(d) of the UI Act. Counsel for the Minister says that it is equally found in subsection 75(1)(f), 75(1)(i), 75(1)(k), and 75(1)(m).
[62] There is no doubt that the Regulations which Parliament has authorized the Minister (as opposed to the Commission) to make under section 75 of the UI Act are far sweeping. Nevertheless, if liability is to be attached by regulation to persons other than those to whom responsibility for payment of premiums is attributed in the Act, then the power enabling the Minister to do this must be very clear. As in any taxing statute, I cannot think that the law is other than that any ambiguity should be resolved in favor of the taxpayer, or in this case the employer.
[63] In this context, I am unable to see that paragraph 75(1)(d) of the UI Act could apply to the owner of a hair dressing establishment in the circumstances at hand. Paragraph 75(1)(d) relates only to the manner in which a provision of the UI Act that applies or extends to an employer of an insured person, shall apply or to any person who pays remuneration to an insured person for services performed in insurable employment. In other words, the Regulation can be only about the manner in which a provision relating to an employer, is applied. It cannot be about creating an employer when none exists as subsection 16(1) purports to do.
[64] I agree with counsel for the Minister that if any authority for these Regulations is to be found in the Act, then it must be found in subsection 75(1).
[65] Paragraph 75(1)(i) may well be sufficient authority, in my view, for the promulgation of Regulation 16(3) once the question of an employer has been established. It cannot, of course, exist in a vacuum and is dependent upon subsection 16(1) being a valid regulation.
[66] Likewise, paragraph 75(1)(k) is good and sufficient authority for the Minister to make Regulation 16(2). This again, however, presupposes the existence of an employer and is dependent upon the validity of Regulation 16(1).
[67] The Minister further relies upon paragraph 75(1)(m) which relates only to regulating the possession, custody or control of documents and things used in the administration of the UI Act. I see no relevance in this subsection to the situation under review.
[68] If authority for the Minister to pass Regulation 16(1) is to be found, it must as I see it, be found in paragraph 75(1)(f) of the UI Act. That subsection reads as follows (paraphrased by me):
75(1) The Minister may make such regulations ...
(f) providing that in any case ... where insured persons ...
(i) work with the concurrence of a person other than their actual employer on premises ... with respect to which that person has rights or privileges under a license permit or agreement
(ii) The other person shall, for the purpose of paying premiums under the Act, be deemed to be the employer of the insured persons, in addition to their actual employer, and providing for their payment and recovery of premiums paid in respect of insured persons.
[69] I am not at all satisfied that it was the intention of Parliament to have this Regulation applied to the circumstances at bar as its clear purpose is to cover a different situation where people working for one employer are hired out to work on the premises of a different employer. It also presupposes that there is in existence an actual employer because the second person is deemed to be an employer “in addition to the actual employer”. I can see this happening in placement agency situations. Nonetheless, by way of a stretch, if authority for Regulation 16(1) is to be found in section 75 of the UI Act, this is the only place that I see any possibility for it. In the end result, it is not really necessary for me to decide that issue because the Regulation itself is premised on Regulation 12(d) of the General Regulations, which I have already decided is ultra vires power of the Commission to the extent that it relates to a situation similar to the one at hand, where there is no service provided to the owner of the establishment, and thus no terms or conditions of service to be considered by the Commission. It does not and cannot apply where there is no service provided. Subsection 16(1) of course, is more broad and could equally well relate to contracts for services and thus I leave for another day, the question whether the appropriate authority for that Regulation can be found indeed in paragraph 75(1)(f) of the UI Act.
Conclusion
[70] Rhonda Arnold and Jeanie Tyssen were clearly employees of Team JK throughout the relevant period. Kimberley McClenaghan was originally one of the partners and appears to have changed that status when she left for a while and then came back, her husband having taken over her share. I cannot accept that she brought no service to Team JK in those circumstances and I am not prepared to hold that Regulation 12(d) does not apply to her.
[71] Similarly, Tara McCargar had been an employee and changed to a chair renter and that seems to me, to some extent, to be something of a fabrication as she was not part and parcel of those who came in from the outside, a stranger and somewhat in competition to Team JK. I cannot accept that she brought no service to Team JK in those circumstances and again, I am not prepared to hold that Regulation 12(d) does not apply to her.
[72] The situation relating to Ann Eveleigh, Cara MacKenzie, Sherry Roe and Charlene Taylor is that they were not in insurable employment. The authority provided to the Commission to make Regulation 12(d) did not go so far as to enable the Regulation to be broad enough to cover these persons whom I am satisfied were bona fide chair renters in the circumstances outlined above, bringing no form of service to the owner of the establishment Team JK.
[73] The appeal is accordingly allowed on the basis that the decision of the Minister as it relates to Ann Eveleigh, Cara MacKenzie, Sherry Roe and Charlene Taylor is varied and I hold that these persons were not in insurable employment during the years in question. The appeal with respect to the remaining workers, that is, Kimberley McClenaghan, Jeanie Tyssen and Cara McCargar is dismissed and the decision of the Minister with respect to these latter workers is confirmed. I find that they are covered by Regulation 12(d) of the UI General Regulations. Secondly, I find that their situation at the establishment of Team JK falls within the ambit of Regulation 16(e) of the UI Collection Regulations and I am satisfied that in this context, the Minister had sufficient authority to make that Regulation pursuant to subparagraph 75(1)(f)(ii) of the UI Act. The matter is accordingly referred back to the Minister for reassessment on the above basis.
Signed at Calgary, Alberta, this 26th day of April 2000.
"Michael H. Porter"
D.J.T.C.C.