Date: 20010412
Dockets: 2000-3591-EI, 2000-3592-CPP
BETWEEN:
RANDY FATT,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Rowe, D.J.T.C.C.
[1] The appellant appeals from a decision of the Minister of National Revenue (the "Minister") issued on May 16, 2000 wherein the Minister decided the appellant was not employed in pensionable and insurable employment with Sea to Sky Payphones Ltd., the Payor, because he was not employed under a contract of service during the period from April 1 to August 15, 1999, within the meaning of paragraph 5(1)(a) of the Employment Insurance Act and paragraph 6(1)(a) of the Canada Pension Plan. The appellant also filed an appeal - 2000-3592(CPP) - and it was agreed the result would follow the within appeal.
[2] The appellant testified that he resides in Edmonton and during the relevant period he was providing services to Sea to Sky Payphones Ltd. (SSP), a company operating out of Vancouver. He stated he had been contacted by Ted Kelly - Sales Manager for SSP - with whom he had worked earlier in another business. After some initial reluctance, the appellant decided to participate in the SSP venture and was assigned a territory between the south part of Edmonton to Red Deer - both in Alberta - but later on the territory boundaries were not respected by other sales agents. The nature of the business required the appellant to call on service stations or other places of business that would be likely places in which to install pay phones. The telephone company, AT & T, was the service provider and in the event the owner or manager of a business agreed to participate in the location of a pay phone on the premises, then a contract would be entered into between that entity and Canada Payphone Corporation (CPC). SSP was the sales agent for CPC but the on-going contractual obligations were between the customer and CPC in terms of dividing revenue produced by the pay phones. The appellant stated he entered into a written contract - Exhibit A-1 - with SSP in which the intent was for him to be paid the sum of $90.00 for each site secured and a further sum of $90.00 when the pay phone had been installed. Fatt had nothing to do with the installation as the crews were hired by SSP or CPC to carry out that function. Although the copy of the agreement filed as an exhibit is not signed, nearly all of the pages carry the appellant's initials and he stated he considered himself to have been bound by the terms of that contract. In his opinion, the confidentiality clauses practically eliminated the ability to work for other similar companies or to hire workers to assist in carrying out the sales function. All prices and arrangements, including the actual location of a pay phone on the premises of a participating business, were handled by SSP or CPC. An example of the type of contract entered into between a customer and CPC was filed as Exhibit A-2.
[3] The appellant received payment for his services by means of direct deposit to his bank account and it was intended he would receive payment every two weeks based on his reports which were submitted weekly in addition to a monthly report. The appellant was required to provide his own vehicle and cell telephone and he was not compensated for those expenses or others incurred in the course of attempting to make sales. His remuneration was totally dependent on sales. He had no set working hours but the appellant commented that is normal within the sales industry. Prior to commencing his sales calls, he received three or four hours training in Edmonton and later met with a SSP representative together with other sales agents four or five times during the course of his working relationship. He attended a meeting with Don Perks, the principal of SSP at which the Sales Manager was in attendance as well as four other salespeople. During his career as a salesperson, the appellant stated he had worked both as an employee and as an independent contractor. One of the difficulties he encountered in terms of his pay cheques was that he never received any hard copy of the details relevant to his payment for a particular period since the money was deposited into his bank account by electronic means. He would send SSP the contracts signed by each of the site providers and he expected to receive payment based thereon after two weeks. A further payment was due to him once the pay phone had been installed at a particular site but he had no means of knowing whether that had been accomplished and relied on SSP and/or CPC to make payment to him at their discretion. There were never any discussions held between himself and any managers or administrators of either corporation with regard to the applicability of employment insurance premiums or Canada Pension Plan contributions. The formation of the working relationship was based on past friendship with Ted Kelly, Sales Manager of SSP. By the time he left the SSP business on August 15, 1999, Fatt believed he had been fully compensated for his services. He had not been required to report details of his sales activities but when he attended a convention there was a CPC booth situated there and he worked out of the location which was obviously designed to promote the business of CPC. Although he signed the agreement - Exhibit A-1 - the appellant stated he had not intended to work on the basis of being an independent contractor. He agreed he was entitled to receive an additional sum of $25.00 per pay phone if he secured at least 50 pay phones - every three months - with a minimum of 50 pay phones generating at least $9.51 per day. Although he should have been remunerated at the rate of $90.00 per site for locating a pay phone on a premise, he would often receive deposits to his account in odd-numbered amounts. He expected payment of sales commissions to be based on his main reporting document - Exhibit A-3. He considered his personal services were necessary but agreed he could have hired assistants. While he paid for all of his direct selling expenses, there were other occasions during which his expenses were paid for by CPC and/or SSP such as when he attended meetings called by the Sales Manager. The appellant agreed the payor was interested in the end result but also provided him with reports, sketches, promotional materials and CPC had to approve the location of each pay phone solicited by him so that he had no real risk of loss in paying for sales accessories including his business cards - Exhibit A-4 - which described him as an Authorized Agent of CPC.
[4] In cross-examination, the appellant agreed he made the changes - in his own handwriting - to the contract - Exhibit A-1. He stated he became concerned when other salespeople began to ignore territorial boundaries. He was required to submit a weekly report and when he failed to do so, he would receive a call from the Sales Manager. CPC was in a start-up phase and there were certain expectations passed down to the sales force. On the income side, the appellant stated he always had trouble clarifying the basis of his payments while on the expense side he could only have sustained a loss if he had been very foolish with his outlay during sales calls. His own telephone number was listed on the business card - Exhibit A-4 - with the telephone number of CPC together with other information concerning CPC's fax, e-mail and website and office address in Burnaby, British Columbia. When he took a business trip to Grande Prairie, Alberta, the appellant agreed he had paid for his own expenses. Earlier, he had worked for an entity - Paytel Canada Inc. - engaged in the same type of business and he had sought a determination of his status on that occasion which had resulted in a decision being issued by the Minister - Exhibit R-1 - holding that he had not been employed in insurable employment. The appellant stated he chose not to pursue the matter because Paytel had gone out of business.
[5] The position of the appellant was that he was an employee of SSP and/or CPC employed pursuant to a contract of service. He had earlier received a ruling - dated October 21, 1999 - to that effect which he considered to have been correct and should not have been overturned by the decision of the Minister dated May 16, 2000.
[6] Counsel for the respondent submitted the decision of the Minister was correct and in accordance with the established jurisprudence.
[7] 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
Control:
[8] There was very little control exercised over the appellant and he was free to work his own hours and in the manner best suited to achieving a satisfactory result. The reporting requirements were as much based on his own need to provide details of his successful placements of pay phones - upon which his remuneration was based - as any other reason. He was literally out in the territory attempting to make sales which would generate revenue for him upon having the customer sign the contract, followed by another sum after the installation was done and he was also entitled to participate in downstream revenue provided certain conditions had been met. He was free to set his own hours and to sell to whomever he considered a likely prospect, initially within a defined territory and later wherever he chose.
Ownership of tools:
[9] The main selling tools were his vehicle and cellular telephone. The promotion material provided by SSP and/or CPC would probably have been provided in any event to any persons or entities selling that product as a means of informing potential customers of the nature of the business and the service to be performed.
Chance of profit or risk of loss:
[10] The remuneration was based on commissions for sales together with a form of additional payment if certain volumes of placements were made in sites which produced a certain amount of revenue. In that sense, he was able to use his own extensive sales experience to gauge which venues might be more productive so that he might eventually participate in the revenue stream. His risk of loss was negligible because as an experienced salesman he would never allow expenses to exceed revenue except for a very brief period of time. Again, with his experience in selling he would organize his calls in an efficient and cost-effective manner.
Integration:
[11] 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."
[12] While the evidence is not very clear on this point, it appears as though SSP was the corporate sales arm of CPC. In view of that, the Minister obviously considered the appellant to have been another part of that structure which was based on contractual relationships between independent entities and/or persons. Certainly, CPC required SSP to enter into working arrangements with sales agents who could place the pay phones into locations so CPC could earn revenue from their use. The appellant was instrumental in providing that necessary service within his territory or area of operations but he was also able to participate in future revenue as a result of his placements. The venture was relatively new and the CPC office was located in British Columbia. For the most part, the appellant was left to his own devices, skills and contacts in order to make the sales which would produce revenue. Once the contract was signed, he was entitled to receive a particular sum followed by another equal amount subsequent to installation of the pay phone. In the event the phone did not produce any revenue, then that would only impact upon his future revenue as part of the overall formula which determined additional remuneration based on volume and revenue from all the phones he had located on the various sites. If one regards the entire operation as being vertical in design, then the appellant would be more likely to fit into the category of employee. However, if the structure is reasonably capable of being seen as one where parties entered into a mutually satisfactory business arrangement to jointly promote a product from which both could derive revenue, then the working relationship takes on the aspect of a contractual relationship between independent entities. Had the payor been CPC, there would have been a stronger case for finding the appellant to have been an integral part of its overall operation but CPC had chosen to farm out - to SSP - the sales function of placing pay phones in certain locations and SSP - in turn - had its Sales Manager - an old friend and former co-worker of the appellant - contact Fatt and convince him to join the new venture. In the modern marketplace, there is less reliance on hierarchical structures as vehicles for delivering goods and/or services from the producer/originator to the ultimate consumer and a variety of methods and mechanisms may be utilized to achieve that end without the producer of those goods or services being required to own and/or control each component or sequence within the overall system.
[13] In the case of Clientel Canada Corp. v. Canada (Minister of National Revenue - M.N.R.), [1999] T.C.J. No. 678, Porter D.J.T.C.C. heard the appeal of a corporation that had employed sales agents in order to market AT & T Canada telephone services. At pages 7-8 of his judgment, Judge Porter stated:
"When I consider the control portion of the tests enunciated above, I do not find any great measure of control exercised by the Appellant over the Workers. In fact it seems to me that the workers had a significant amount of independence, to decide whether and when they would work and how they carried out their work. Obviously there had to be some standards, as otherwise the name of the product itself could become tarnished. That seems to me to be no more than an independent subcontractor coming onto a building site where he would have to liase and cooperate with the other players on the site. That in itself would not make him any less an independent contractor. In the case at hand the agents could work whatever days they wanted; they could take vacations when they wanted to for which they were not paid; they could go about their tasks as they saw fit, picking their own routes and their own choice of transport. I see a great deal of independence here and very little supervision. The sole requirement seemed to be that if an agent wanted to work he had to have some identity with him and he was not to make contact with householders too early or too late in the day, which might be perceived as a nuisance and jeopardize the product. Similarly if they wanted to go off either in the day or for a day or more they had no need to notify the Company and they did not need permission. This part of the test tends to establish an independent contractor status.
With respect to the question of tools or equipment, counsel for the Minister submitted that these involved clothing, identity badges, forms, training and policy binders, brochures and a sales script. I am not sure that one could necessarily categorize these items as tools, but they were indeed provided by the Appellant and in fact some of them came directly from AT & T and related more to the product itself. In addition some of them were purchased or paid for by the agents. Clearly though, there were tools provided by the agents themselves such as vehicles and cell phones. They had to provide their own vehicles, if they needed them or otherwise bear their own costs of transportation. They bore all the costs of operating them, without reimbursement from the Appellant. This seems to me to be quite significant. On balance I find that this aspect of the test leans towards the independent contractor status.
It seems to me, when it comes to considering the opportunity for making a profit or suffering a loss, the agents were exposed to some risk of loss. They could well incur expenses and be unable to sign up new applications. There was no evidence that this ever happened but the risk was certainly present. They had little opportunity to make additional profits out of this operation, in the entrepreneurial sense, but there was nothing to stop them selling other products on the same days they were selling AT & T services and apparently some of them did so. The fact that Lance King signed his contract in the name of a business lends some support to the Appellant's position in this respect.
How they managed their days and went about their business would very much govern how much they netted out from their work, and this in my view is far more consistent with the situation of an entrepreneur than with an employee.
The fourth aspect of the tests, enunciated by the Federal Court of Appeal, relates to the integration of the work into the business of the Appellant. One had to look at this from the point of view of the agent rather than the Company. The question frequently put in these situations is "whose business is it"? Clearly the Appellant had its own business. The question is whether the agents were part of that business, as urged upon me by counsel for the Minister or whether each agent was in business for himself as the Appellant maintains. It is true that the Appellant's business could not operate without agents in the field, but neither could a large construction company operate without sub-trades, and so that proposition does not really fly. The Appellant on the other hand could operate without any particular agent so it is difficult to find that they were integral to its business. This test is always a difficult one, but I am mindful that Lance King signed up in a business name. I am also mindful that each agent was free if he chose to go out and sell other products, although not in competition with or at the same time as the AT & T services. This is all more consistent with being in business for himself than being an employee of the Appellant.
When I consider the method by which the agents were paid, how they bore all their own expenses, provided their own vehicles and phones to go about their work, their lack of benefits enjoyed by the full-time employees, their ability to decide when and how they would work, their opportunity to work for other companies, their own marketing efforts with customers at their own expense, I can only come to the conclusion that this all leads to the inalienable conclusion that these agents were engaged by way of a contract for services not a contract of service. There is virtually nothing in my view, which displaces the clearly expressed intention of the parties in the contract that it be considered a contract for services and not a contract of service."
[14] In the case of Ivanov v. M.N.R., T.C.J. No. 8646 (1999-4124(EI)), I found a sales agent selling long distance services - to be provided by AT & T Canada - to have been an independent contractor. In Ivanov, above, I referred to the case of 740944 Alberta Ltd. v. M.N.R., T.C.J. No. 8428 (1999-1868(EI) and 1999-1869(CPP)), wherein 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.
[15] In the case of Charbonneau v. Canada (Minister of National Revenue - 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."
[16] It is apparent the parties intended the appellant would be functioning as an independent sales contractor and they basically carried out the terms of said agreement. 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 ..."
[17] However, there is no evidence the parties subsequently conducted themselves at odds with the terms of their agreement. The appellant is an experienced salesman and his subsequent desire to revise the status of his engagement must be based on more than a mere wish the Court now classify him as an employee who had been engaged pursuant to a contract of service. Like any appellant, he was required to carry the day in terms of discharging the burden of proof and upon considering all of the evidence and the relevant jurisprudence, I find he has failed to do so.
[18] The appeal is dismissed. As agreed by the parties at the outset, appeal 2000-3592(CPP) is also dismissed.
Signed at Sidney, British Columbia, this 12th day of April 2001.
"D.W. Rowe"
D.J.T.C.C.
COURT FILE NO.: 2000-3591(EI)
STYLE OF CAUSE: Randy Fatt and M.N.R.
PLACE OF HEARING: Edmonton, Alberta
DATE OF HEARING: February 13, 2001
REASONS FOR JUDGMENT BY: the Honourable Deputy Judge D.W. Rowe
DATE OF JUDGMENT: April 12, 2001
APPEARANCES:
For the Appellant: The Appellant himself
Agent for the Respondent: Denise Espent (Student-at-law)
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE NO.: 2000-3592(CPP)
STYLE OF CAUSE: Randy Fatt and M.N.R.
PLACE OF HEARING: Edmonton, Alberta
DATE OF HEARING: February 13, 2001
REASONS FOR JUDGMENT BY: the Honourable Deputy Judge D.W. Rowe
DATE OF JUDGMENT: April 12, 2001
APPEARANCES:
For the Appellant: The Appellant himself
Agent for the Respondent: Denise Espent (Student-at-law)
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada