Date: 20010523
Docket: 1999-3166-EI
BETWEEN:
YELLOW CAB COMPANY LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1] Yellow Cab Company Ltd. ("Yellow Cab") was assessed for employment insurance premiums for the 1996, 1997 and 1998 taxation years in respect of services that were performed by Mr. Rajinder Matharu ("owner-operator") for Yellow Cab. Yellow Cab was assessed because it failed to deduct and remit any amounts with respect to premiums under the Employment Insurance Act (the "Act") in respect of Mr. Matharu's remuneration.
[2] Yellow Cab was also assessed for employment insurance premiums for the 1997 and 1998 taxation years in respect of services that were performed by Baldev Atwal, Abdiqni Abdille, Davinder Brar, Manjinder Dhaliwal, Kiranjit Malhi, Hassan Osman, Amale Salah and Kewal Sond (collectively referred to as the "lease-operators") for Yellow Cab. Yellow Cab was assessed because it failed to deduct and remit any amounts with respect to premiums under the Act in respect of the drivers' remuneration.
THE APPELLANT'S SUBMISSIONS
[3] The Appellant submits that all of the assessments at issue in this appeal involve individuals who were not in insurable employment as defined by the Employment Insurance Act and Regulations.
[4] All of the assessments at issue in this appeal involve assessments on behalf of the individuals who must properly be considered to be "operators of a business" and therefore not in "insurable employment".
[5] The Appellant has also argued in the alternative if the owner-operator and lease-operators are found to be in insurable employment and if the assessments were based upon the owner's or lease-operator's gross revenue without appropriate deductions for expenses such as vehicle insurance, bookkeeping, dispatch, parking, training and marketing fees, the assessments should be referred to the Minister for rectification in that the assessments should be based on net revenue.
EVIDENCE
EXTRACTS FROM AGREED STATEMENT
OF FACTS FILED BY THE PARTIES AT TRIAL
. . .
2. On or about July 16, 1998, the Appellant Yellow Cab received four assessments for Employment Insurance withholdings and remittances. One assessment was for the 1996 taxation year, two assessments were for the 1997 taxation year and one assessment was for the 1998 taxation year. . . .
3. The Appellants filed objections to the Assessments. The Respondent confirmed all of the Assessments. The Appellants have brought this appeal.
. . .
5. Yellow Cab has been assessed to make Employment Insurance remittances regarding Mr. Matharu, solely in relation to the operation of driving Cab No. 102D from July 1996 to January 1997.
6. During the time frame for which Yellow Cab was assessed to make Employment Insurance remittances regarding Mr. Matharu, i.e. from July 1996 to January 1997, Mr. Matharu owned the 50% of the rights to operate Cab No. 102 (described in the Contract of Purchase and Sale as Cab No. 102D (day half) including the right to the licence issued by the City of Vancouver in respect of that cab.
. . .
9. Yellow Cab has been assessed to make Employment Insurance remittances regarding:
(a) Mr. Atwal solely in relation to the operation of Cab No. 158D from September 1997 to April 1998;
(b) Mr. Abdille solely in relation to the operation of Cab. No. 179N from March 1997 to April 1998;
(c) Mr. Brar solely in relation to the operation of Cab. No. 179D from December 1996 to April 1998;
(d) Mr. Dhaliwal solely in relation to the operation of Cab. No. 158N from September 1997 to April 1998;
(e) Mr. Malhi solely in relation to the operation of Cab No. 161D from December 1996 to April 1998;
(f) Mr. Osman solely in relation to the operation of Cab No. 158N from December 1996 to June 1997;
(g) Mr. Salah solely in relation to the operation of Cab No. 161N from December 1996 to April 1998; and
(h) Mr. Sond solely in relation to the operation of Cab. No. 158D from December 1996 to June 1997.
10. During the time frame for which Yellow Cab has been assessed to make Employment Insurance remittances regarding Mr. Atwal, Mr. Abdille, Mr. Brar, Mr. Dhaliwal, Mr. Malhi, Mr. Osman, Mr. Salah and Mr. Sond (the "Operators") regarding the operation of the cabs listed in paragraph 9 above, the Lease Operators obtained their rights to operate the cabs in question pursuant to a Lease Agreement with Mr. Amrik Dhillon. Yellow Cab is a party to the Lease Agreement. . . .
11. The form and content of all of the lease agreements is essentially the same, the main difference being the identity of the owner, the identity of the Operator, the cab number, the term of the lease and the operating fee.
12. Pursuant to the lease agreements, the Operators (e.g. Mr. Moalin, Mr. Abdille, Mr. Brar, Mr. Dhaliwal, Mr. Malhi, Mr. Osman, Mr. Salah and Mr. Sond) were entitled to all revenues from the operation of the cab.
13. Pursuant to the lease agreements, the Operators were responsible for the costs of:
(a) the monthly dispatch fee;
(b) fuel used in the operation of the cab;
(c) all repairs to the vehicle used by the operator as the cab;
(d) the licence for the motor vehicle issued by the Department of Motor
Vehicles;
(e) a valid road worthiness inspection certificate for the vehicle;
(f) an administration fee;
(g) bookkeeping fees; and
(h) an operating fee.
. . .
15. During the time frame for which Yellow Cab was assessed to make Employment Insurance remittances regarding Mr. Matharu regarding the operation of Cab No. 102D, Mr. Matharu paid drivers to drive Cab No. 102D and also remitted income tax, CPP and Employment Insurance amounts on behalf of the drivers. Each driver was issued a T4 identifying Mr. Matharu as the employer. The parties have assumed for the purposes of this appeal that assessments in issue relate only to the fares earned by Mr. Matharu.
SIGNIFICANT VIVA VOCE EVIDENCE AT TRIAL
[6] Yellow Cab holds motor carrier licences for 198 taxicabs. It also owns the 'rights' to operate 10 taxicabs. The balance of the rights to operate 188 taxicabs are owned by the shareholders of Yellow Cab.
[7] Rights are divided into three categories: whole cab, day half or night half.
[8] The owners who do not wish to operate their taxicab rights but still wish to maintain their right may lease their interests to lease-operators.
[9] The assessments against Yellow Cab for employment insurance remittances are for two categories of operators: owner-operator (Mr. Matharu) and lease-operators (Messrs. Atwal, Abdille, Brar, Dhaliwal, Malhi, Osman, Salah and Sond).
[10] The taxicab business in Vancouver, British Columbia is governed by federal, provincial and municipal regulatory controls.
[11] The British Columbia Motor Carrier Commission regulates and licences all taxicabs in the province. The Motor Carrier Commission issues licences, a motor carrier certificate and a plate. The day-to-day administrative, investigative and compliance responsibilities of the Motor Carrier Commission are now carried out through ICBC's Motor Carrier Department.
[12] The City of Vancouver also licences and regulates taxicabs pursuant to the Vehicles for Hire by-law, which provides strict guidelines for the operation of taxicabs.
[13] The Vancouver Airport also controls and regulates a taxicab program. The Vancouver Airport Authority issues licences and requires regular inspections as well as special training standards for drivers.
[14] Drivers are also regulated by the Department of Motor Vehicles, which requires a class 4 licence to operate a taxicab.
[15] The Vancouver City Police Taxi Unit issues and regulates chauffeur's permits which are required to drive a taxicab.
[16] The express contractual relationship between Yellow Cab and the owner-operator is found in a 'purchase agreement' and the express contractual relationship between Yellow Cab and the lease-operators is found in a 'lease agreement'. From the evidence it would also appear several contractual terms are by implication without direct reference to the agreements.
[17] The evidence of the Appellant's general manager was that Yellow Cab was little more than a service provider and the restraints or controls found in the lease agreement or the purchase agreement was merely a reflection of the several levels of government regulatory controls affecting the taxicab industry.
LEGISLATION AND JURISPRUDENCE
[18] Paragraph 6(e) of the Employment Insurance Regulations ("E.I. Regulations") explicitly includes employment of a driver of any taxicab as insurable employment:
6. Employment in any of the following employments, unless it is excluded from insurable employment by any provision of these Regulations, is included in insurable employment:
...
(e) employment of a person as a driver of a taxi, commercial bus, school bus or any other vehicle that is used by a business or public authority for carrying passengers, where the person is not the owner of more than 50 per cent of the vehicle or the owner or operator of the business or operator of the public authority. [emphasis added]
[19] Paragraph 12(e)[1] of the former Unemployment Insurance Regulations ("U.I. Regulations") has been dealt with by the Federal Court of Appeal in three cases, namely Canada (A.G.) v. Skyline Cabs (1982) Ltd., [1986] 5 W.W.R. 16, 715341 Ontario Ltd. v. M.N.R., [1993] F.C.J. No. 1064 (QL) and Mangat v. R., [2000] 4 C.T.C. 227. In these decisions, the lessees of taxicabs were determined to be employees under to paragraph 12(e) of the U.I. Regulations.
[20] The Supreme Court of Canada in Martin Service Station v. M.N.R., [1977] 2 S.C.R. 996, interpreted the word "employment" in paragraph 12(e) of the U.I. Regulations in the broader sense of "activity" or "occupation" and not in the narrower sense of a contract of service.
[21] MacGuigan J.A. in Skyline Cabs, supra, quoted this interpretation with approval. In that case, Skyline Cabs was assessed for employer's unemployment insurance premiums under the authority of paragraph 12(e) of the U.I. Regulations in relation to the employment of persons as taxicab drivers. Skyline Cabs appealed against the assessment on the ground that it did not employ any taxicab drivers. Skyline Cabs was the holder of a taxicab broker's licence, its rental fee to the drivers included access to a dispatch service, it enforced dress and grooming codes upon its drivers, it set a clean car policy, it made provision for payment of credit card slips, it provided for a non-scoop rule, and prohibited the use of drugs and alcohol by the drivers. The Federal Court of Appeal held that, even though the taxicab drivers in question leased vehicles from the Respondent without a contract of service, they were in insurable employment. MacGuigan J.A. pointed out that the sum of these facts was insufficient to establish a contract of service between the taxicab drivers and Skyline Cabs, however, in his view, it irrefutably established "a sufficient degree of participation by the Skyline Cabs in the carrying of passengers by the taxis".
[22] In 715341 Ontario Ltd., supra, 715341 Ontario Ltd. owned taxicabs and had an arrangement with a licenced broker under which it received the necessary services from the broker to enable it to lease taxicabs to drivers. On the facts, it was clear that 715341 Ontario Ltd. was in the business of leasing equipped taxicabs to drivers who carry passengers and not in the business of carrying passengers. The Federal Court of Appeal found that the following interpretation given to paragraph 12(e) of the U.I. Regulations by the Tax Court of Canada Judge was correct. In paragraph 3 Heald J. stated:
For the purposes of this case in determining the issue herein, this paragraph should be read as set out hereafter deleting the wording that does not apply to the facts herein.
...
(d) employment of a person as a driver of any taxi, ... where that person is not the owner of the vehicle ...
Thus, the Federal Court of Canada accepted that, contrary to MacGuigan J.A.'s interpretation in Skyline Cabs, paragraph 12(e) of the U.I. Regulations does not require that the taxicabs be used by the employer for carrying passengers. Consequently, the Tax Court Judge's conclusion that the drivers who leased taxicabs from 715341 Ontario Ltd. should be deemed to be in insurable employment pursuant to the provisions of paragraph 12(e) of the U.I. Regulations.
[23] In Mangat, supra, the Federal Court of Appeal had to deal with paragraph 12(e) of the U.I. Regulations and with subsection 17(1) of the former Unemployment Insurance (Collection of Premiums) Regulations, pursuant to which the owner, proprietor or operator of a business that employs a person as a driver of a taxicab is deemed to be an employer for the purposes of the former Unemployment Insurance Act.
[24] Mr. and Mrs. Mangat were owners of motor vehicles, which they leased to individual taxicab drivers. Instead of holding the required licence to operate a taxicab, Mr. and Mrs. Mangat owned shares in and entered into agreements with two companies, which owned taxicab licences and ran dispatching services. The issue to be determined was whether Mr. and Mrs. Mangat, as owners of the taxicabs, employed persons as taxicab drivers, or whether the taxicab dispatch companies fulfilled that role.
[25] At the Tax Court level, Teskey J., relying on 715341 Ontario Ltd., supra, found that Mr. and Mrs. Mangat were deemed employers within the terms of the U.I. Regulations and that they were in the business of owning and maintaining taxicabs which they leased to taxicab drivers. This conclusion was based in large part on the finding that the lease rate negotiated between Mr. and Mrs. Mangat and the drivers included the cost of the services provided by the taxicab dispatch companies. The Federal Court of Appeal first found that the Tax Court Judge correctly looked at all the circumstances of the relationship between the drivers and Mr. and Mrs. Mangat in concluding that they employed the drivers.
[26] McDonald J. made the following comment with respect to paragraph 12(e) of the U.I. Regulations in paragraph 25:
First, the wording of paragraph 12(e) of the Unemployment Insurance Regulations explicitly includes employment as a driver of any taxi in insurable employment. By definition, employees are paid remuneration. This is a significant difference between one who is self-employed and one which is an employee. The[re] was surely an awareness of the practices of the taxi industry when paragraph 12(e) was drafted. Indeed, the fact that taxi drivers were explicitly included as insurable employees seems to speak to the fact that some confusion might otherwise result from these practices. The Unemployment Insurance Regulations appear intended to avoid such confusion by explicitly including taxi drivers as insurable employees and not as self-employed individuals.
[27] The Federal Court of Appeal concluded that the Tax Court Judge made no errors with respect to his findings of fact and conclusion that Mr. and Mrs. Mangat were deemed employers for the purposes of the U.I. Act.
ANALYSIS
[28] Subsection 6(e) of the E.I. Regulations extends the concept of insurable employment beyond the determination of a contract of service within an employer-employee relationship. The written terms of the contracts between Yellow Cab and the owner and Mr. Matharu are governed by a purchase agreement and the written terms of the contracts between Yellow Cab, the owners and the lease-operators are governed by a lease agreement. The significant elements of these agreements are hereinafter set forth.
(a) The Purchase Agreement (Exhibit A-1, Tab 23):
The parties to the agreement of purchase and sale are Mr. Ross M. Mills (the "vendor"), Mr. Matharu (the "purchaser") and Yellow Cab. Under the agreement, the vendor agreed to sell to Mr. Matharu, shares in the capital of Yellow Cab, his rights to a license issued by the City of Vancouver to Yellow Cab, his rights to the permit issued by the province of British Columbia to Yellow Cab and his interests in motor vehicle #102 - day half and the equipment therein (the "Assets").
The sale of the Assets to Mr. Matharu is subject to Yellow Cab approving the transfer. In consideration of Yellow Cab approving the transfer of the Assets, Mr. Matharu grants to Yellow Cab for one year the option to purchase the Assets. This option is exercised upon Yellow Cab determining that the taxicab is not being used and operated in accordance with Yellow Cab's rules and regulations regarding the operation of the taxicab.
In addition to the purchase price, Mr. Matharu is required to bear the costs and expenses of operating and maintaining the motor vehicle.
(b) The Lease Agreements (Exhibit A-1, Tab 28):
Under the lease agreements, Mr. Amrik Dhillon (the "owner") is a shareholder of Yellow Cab and has rights to operate the taxicabs in question. These rights are leased to lease-operators who have taxicab permits by Yellow Cab who is the holder of taxicab licenses issued by the City of Vancouver. Included in the monthly operating fee charged to the lease operators by Yellow Cab is the use of the taxicab license. The operating fee is determined by a set schedule. Yellow Cab provides more than the use of a taxicab license to the lease-operators. The lease-operators are required to pay a monthly fee set and charged by Yellow Cab for insurance, bookkeeping completed by Yellow Cab and dispatch services that are provided, maintained and managed by Yellow Cab.
The agreement provides that Yellow Cab can issue orders or directions to the lease-operators with respect to dispatch services and the general operation of the taxicabs.
The agreement also provides for the lease-operators entitlement to revenues received from the customers and provides for the lease-operators' obligations to Yellow Cab to cover the operating, insurance, dispatch and bookkeeping expenses.
[29] Significant other elements in the overall contractual relationship between Yellow Cab and the owner-operator/lease-operators that have emerged from the evidence are hereinafter indicated.
[30] Yellow Cab holds the motor carrier licenses for the taxicabs.
[31] Yellow Cab is the registered owner of the taxicabs for certain purposes including fleet insurance.
[32] Yellow Cab enforces internally the rules and regulations of the various regulatory bodies and incorporates the rules and regulations part of the contractual relationship between Yellow Cab and the owner-operator/lease-operators.
[33] To the taxicab market in Vancouver, Yellow Cab is held out publicly to be a taxicab company.
[34] Yellow Cab in its dispatch service takes the taxicab orders and dispatches the taxicab to the customers in the name of Yellow Cab.
[35] In the lease agreements with the taxicab operators the operators are subject to the general rules and regulations of Yellow Cab and the operators must comply with orders or directions of the company with respect to the dispatch system and the operation of the taxicab. Yellow Cab can order the suspension or discharge of drivers in breach of any rule or regulation of the company.
[36] Yellow Cab can penalize an owner-operator for a breach of company procedures. For example, the provision to Yellow Cab of incomplete trip sheet by fines and/or suspension of access to the Dispatch system. Yellow Cab determines the rules associated with the operation of the taxicab by way of an Operating Agreement entered into by Mr. Matharu with Yellow Cab.[2]
[37] Yellow Cab regulates and enforces drivers' comportment and behaviour, motor vehicle cleanliness, driver/operator appearance and dress codes.
THE INTERPRETATION OF PARAGRAPH 6(e)
[38] The Respondent and the Appellant disputed the proper interpretation of paragraph 6(e). The Respondent submits that at issue is whether the earnings were made by the lease-operators and owner-operators as drivers of a taxicab. The Appellant argues that the Federal Court of Appeal's interpretation of paragraph 6(e) of the E.I. Regulations in 715341 Ontario Ltd. should not be read such that a person employed as a driver of a taxicab can be excluded from the provision only if the person is the owner of more than 50 per cent of the vehicle.
[39] I am of the view that paragraph 6(e) of the E.I. Regulations should be read as interpreted by the Federal Court of Appeal in 715341 Ontario Ltd., "employment of a person as a driver of a taxi, ... where that person is not the owner of more than 50 per cent of the vehicle". Thus, the words "that is used by a business or public authority for carrying passengers" only modify the phrase "any other vehicle".
[40] I add to my view of the interpretation that the repeated use of the word "or" in paragraph 6(e) of the E.I. Regulations cannot be ignored. Thus, a person employed as a driver of a taxicab is excluded from paragraph 6(e) of the E.I. Regulations if the person meets one of the following exceptions:
(1) the person is the owner of more than 50 per cent of the vehicle;
(2) the person is the owner or operator of the business; or
(3) the person is the operator of the public authority.
[41] In determining whether the lease-operators and owner-operator are in insurable employment, their occupation must be that of drivers of a taxicab and they must not be owners of more than 50 per cent of the vehicle and must not own or operate the business of delivering taxicab services.
CONCLUSION
[42] The owner-operator and the lease-operators have purchased or leased the rights to operate taxicabs. The operation of the taxicabs is governed by a privity of contract between Yellow Cab and the owner-operator and lease-operators as stated by a combination of express, implied and written contractual terms. A substantial degree of control is exercised by Yellow Cab over the owner-operator and the lease-operators in the provision of taxicab services, including the carrying of passengers, under the name of Yellow Cab. Yellow Cab in this relationship is not merely a taxicab business support service provider. It is in the business of delivering taxicab services, including the carrying of passengers. The overall analysis of the whole scheme of the organization leads to the conclusion that the delivery of taxicab services business in which the owner-operators and lease-operators are an integral part is that of Yellow Cab and as such Yellow Cab is the employer.
[43] The owner-operators and the lease-operators are employed as drivers of taxis for Yellow Cab. In their employment as drivers of taxicabs the owner-operator and the lease-operators are not the owners of more than 50 per cent of the vehicles. The owner-operators and the lease-operators are not the owners or operators of the business of the delivery of taxicab services, i.e. carrying passengers. That is the business of Yellow Cab.
[44] I find the owner-operators and the lease-operators, when driving the taxicabs, are in insurable employment pursuant to paragraph 6(e) of the Employment Insurance Regulations.
[45] Pursuant to section 9 of the Insurable Earnings and Collection of Premiums Regulations the owner or operator of a business that employs a person as a driver of a taxicab is deemed to be the employer for the purposes of the Act.
9. (1) Every owner or operator of a business or public authority that employs a person or persons in employment described in paragraph 6(e) of the Employment Insurance Regulations shall, for the purposes of maintaining records, calculating insurable earnings and paying the premiums payable on those insurable earnings under the Act and these Regulations, be deemed to be the employer of every such person whose employment is included in insurable employment under that paragraph
[46] I conclude the Appellant owned and operated a delivery taxicab services business during the 1996, 1997 and 1998 taxation years that employed the owner-operator and lease-operators as drivers.
[48] I further find the assessments were based upon the owner or lease-operators' gross revenue without deductions for expenses incurred. On the basis of Jack M. Chow v. M.N.R., 98-42(UI), a decision of His Honour Judge Bonner, I conclude the assessments should be based on the owner-operator or lease-operators' net revenues and as such the assessments are referred back to the Minister of National Revenue for rectification.
DECISION
[49] The appeals are allowed and are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant was properly assessed for employment insurance premiums for the herein-stated owner-operator and lease operators for the 1996, 1997 and 1998 taxation years, but that the assessments require rectification as the assessments should be based on the owner-operator or lease-operator's net revenues.
Signed at Ottawa, Canada, this 23rd day of May 2001.
|
"D. Hamlyn" |
J.T.C.C.
COURT FILE NO.: 1999-3166(EI)
STYLE OF CAUSE: Yellow Cab Company Ltd. and
The Minister of National Revenue
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: March 22, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge D. Hamlyn
DATE OF JUDGMENT: May 23, 2001
APPEARANCES:
Counsel for the Appellant: Kathyrn Arnold
Counsel for the Respondent: Ron D.F. Wilhelm
COUNSEL OF RECORD:
For the Appellant:
Name: Kathryn Arnold
Firm: Harris & Company
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-3166(EI)
BETWEEN:
YELLOW CAB COMPANY LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on March 22, 2001 at Vancouver, British Columbia
by the Honourable Judge D. Hamlyn
Appearances
Counsel for the Appellant: Kathryn Arnold
Counsel for the Respondent: Ron D.F. Wilhelm
JUDGMENT
The appeals made pursuant subsection 103(1) to the Employment Insurance Act are allowed and are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant was properly assessed for employment insurance premiums for the herein-stated owner-operator and lease operators for the 1996, 1997 and 1998 taxation years, but that the assessments require rectification as the assessments should be based on the owner-operator or lease-operator's net revenues.
Signed at Ottawa, Canada, this 23rd day of May 2001.
|
"D. Hamlyn" |
J.T.C.C.
[1] Paragraph 12(e) of the U.I. Regulations is the predecessor of paragraph 6(e) of the E.I. Regulations.
[2] The owner rental statements (Exhibit A-1, Tab 26) evidence the operating arrangements between Yellow Cab and the operator owners including fuel purchase, credit card use, insurance purchase, bookkeeping, dispatch and marketing expenses services.