Date: 20011120
Docket: 2000-3982-EI,2000-3984-CPP
BETWEEN:
SARA CONSULTING & PROMOTIONS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
JOAN S. STRACHAN and JACQUELINE M. MORRISON,
Intervenors.
Reasonsfor Judgment
Bell, J.T.C.C.
ISSUE:
[1] Whether Jacqueline M. Morrison ("Morrison"), Joan S. Strachan ("Strachan") and Gail M. Urban ("Urban") were:
(a) in "insurable employment" within the meaning of subsection 5(1) of the Employment Insurance Act ("Act") within the meaning of paragraph 6(g) of the Employment Insurance Regulations ("Regulation 6(g)"); and
(b) whether they were in "pensionable employment" within the meaning of section paragraph (1)(a) of the Canada Pension Plan ("CPP") or under paragraph 6(1)(c) of the CPP and section 34 of the Canada Pension Plan Regulations ("Regulation 34").
during the period January 1, 1999 to December 23, 1999.
GENERAL:
[2] Documents presented to the Court show that Morrison and Strachan each filed a Notice of Intervention pursuant to the appeal of the Minister of National Revenue's decision of August 1, 2000 respecting the Act and CPP matters described above. The Court received no record of intervention by Urban.
FACTS:
[3] The Appellant filed an Agreed Statement of Facts. In addition, Gail Murphy ("Murphy), President of the Appellant and the two intervenors, Morrison and Strachan, testified.
Agreed Statement of Facts:
[4] The Appellant, an Alberta corporation, had its head office in Edmonton, Alberta. It was incorporated on April 5, 1984, and, after some shareholder changes, as at December 23, 1999, Gail Murphy, its President, owned 100 percent of the issued and outstanding shares.
[5] Its business was providing market research analysis and demonstration management services. As part of its business, it entered into contracts with retail outlets, manufacturers and distributors and food brokerage companies. Pursuant to these contracts, the Appellant managed and coordinated, on behalf of its clients across western Canada, the provision of "in-store demonstrations of food, beverage and related products".
[6] The Appellant managed such projects across western Canada and in Thunder Bay, Ontario. It retained Morrison, Strachan and Urban ("Demonstrators") to provide "in-store" demonstration services, their duties being to demonstrate, promote and sell food, beverage and other products of the Appellant's clients. They performed services in and around Edmonton and were paid by the Appellant, who had obtained those clients and contracts.
[7] The Appellant contacted the Demonstrators for demonstrations to be performed on the premises of its clients. The Appellant or its clients provided the Demonstrators with instructions and procedures on how to prepare for and carry out those demonstrations. The Appellant or its clients instructed the Demonstrators as to what products to promote and how to promote them. They could supply their own table and appliances if they had those items and chose to use them in which case the Appellant would pay for the use of same. If they did not have that equipment, the Appellant provided it.
[8] The Appellant or its clients provided the Demonstrators with a blank cheque or voucher, not exceeding a specified amount, with which the Demonstrators could purchase products used in a demonstration. Such purchases were supported by receipts and recorded on an expense report submitted to the Appellant. The Demonstrators, after a demonstration, submitted written reports to the Appellant. Those reports included such information as the product being promoted, the quantity of the product sold, coupons distributed, the number of customers served, customer comments, how the demonstration went, table location in the store and comments of the Appellant's client. Those reports were signed by the Demonstrators and the Appellant's clients.
[9] This appeal is the result of the Appellant's disagreement with a ruling determining that each of Morrison, Strachan and Urban was in insurable employment under the Act and in pensionable employment under the CPP.
Evidence of Gail Murphy, President of the Appellant:
[10] Murphy testified that the company started business from her home in 1984 and described how the business expanded, more and more clients coming to her. She also described how, as the business grew, Demonstrators came to her, the best advertising being word of mouth.
[11] She stated that in the mid-1980's, Revenue Canada decided that the Demonstrators were employees. She said that she lost the appeal to Revenue Canada, not proceeding to the Tax Court because there was not enough money involved. She said then that the Appellant made deductions at source. Murphy then testified that when someone else won an appeal on this subject matter, the Appellant went back to sub-contract relationships, stopping deductions at source. She said that she never had an employee relationship and that the deduction obligation was forced on the Appellant.
[12] She testified that the Appellant produced a brochure for marketing purposes for western Canada. She said that the Appellant produced a "look" for the Demonstrators, namely that they wore a black apron and a bow tie.
[13] Murphy then described the growth of the Appellant, culminating in a successful bid for the ability to conduct demonstrations in 214 Canada Safeway ("Safeway") stores in western Canada and Thunder Bay. She described how the Appellant's Revenue leaped from $611,627 for the year ended January 31, 1999 to $5,591,516 for the year ended January 31, 2000.[1] She also testified that the Demonstrators had signs with the Appellant's logo, et cetera. She described demonstration management and how the Appellant conducted demonstrations at trade shows using costumes and mascots.
[14] Although a large number of documents including brochures, information, proposal strategies, et cetera were introduced, I find it not necessary to refer to them, except in passing, if at all, for the purposes of determining the issues.
[15] Murphy testified that Demonstrators could accept or reject a suggested demonstration and could and did change the times of same, negotiating with, for example, the meat manager at Safeway. She said that the Demonstrators had flexible hours and were free, at their own option, to replace themselves with other Demonstrators, notifying the Appellant after a demonstration. She testified that when demonstration supplies ran out, the Demonstrators would present other products selected by, for example, the local Safeway meat manager. This information was given to the Safeway head office so that it could contact stores with future order information. She testified that:
The Appellant was not involved in other changes but that this was done by the Demonstrators and product managers.
[16] She stated that either of them could initiate a change.
[17] Her other evidence informs that the Appellant provided Demonstrators with guidelines, instructions and procedures on how to prepare for and carry out demonstrations but that they were free to alter these guidelines. She said that the Appellant's clients did not necessarily instruct the Demonstrators as to where in the store they were to set up their demonstrations and that the Demonstrators were not directly supervised by the store managers while they conducted same. She added that the Demonstrators were not supervised by the Appellant or its employees.
[18] Murphy testified that the Demonstrators were, at their own expense, required to take a food safety course. She said further that Demonstrators incurred some expenses which were not paid by the Appellant. Included in this were expenses relating to ownership of essential equipment and tools, and repairs or damages thereto, picking up instructions and support demonstration material from the Appellant's business premises, transporting them to the Demonstrators' place of business (typically the home), and, transporting them with all necessary equipment to the store.
[19] Clients, through the Appellant, reimbursed or advanced monies to cover the Demonstrators' expenses relating to expendable items used in the course of demonstrations, including product as well as plastic utensils, serving plates, toothpicks, paper towels, et cetera.
[20] She said that the Appellant made suggestions to the Demonstrator but that they did not have to be followed: for example, a Demonstrator's use of frying pans or toaster ovens. She also said that Demonstrators had to supply such items as reusable utensils, bags, spray bottles, thermometers, and anti-bacterial soap. She further stated that most supplied their own appliances. She stated that if Demonstrators supplied their own appliances as required by the Appellant, the Appellant sometimes agreed to rent those items from the Demonstrators. She said that in other cases, however, the Demonstrators chose to use their own tables or appliances at their own expense. She added that the Demonstrators were free to perform any service for another company, including direct competitors of the Appellant.
[21] Murphy said that there were 200 to 250 Demonstrators in Edmonton and about 200 in the Calgary pool. She said that on a given week-end in Edmonton 50 to 100 Demonstrators would be working. She said that there were ten employees in the Edmonton office and four in the Calgary office, these being full-time employees in respect of whom all appropriate source deductions were made and remitted to the government. She stated that the Demonstrators submitted invoices for services performed setting out the number of hours worked. They were paid twice a month, on the fifteenth and thirtieth. Some were being paid only once a month, or not paid at all in a month in which a Demonstrator performed no services.
[22] Murphy also testified that the Appellant had a number of associates which performed services similar to those of the Appellant in Regina, Winnipeg, Calgary, Saskatoon, Burnaby, Thunder Bay, Surrey and Edmonton. They performed demonstration services under contract with the Appellant as required.
[23] She stated that some Demonstrators had their own business cards for marketing purposes to promote their availability to demonstration companies, including the Appellant. She said that the industry knew that the Appellant was working with Safeway and that Demonstrators approached the Appellant, based upon that information.
[24] Murphy referred the Court to a fax request for publication in the Edmonton Examiner in early 2000 of an ad as follows:
Independent contractors wanted for immediate work for in-store demonstrating. Great supplementary earning potential for individuals with flexible schedules. Training provided, guaranteed min. 12 hrs./week (Sunday, Friday, Saturday). Applicants must be neat in appearance and self motivated. Vehicle a must. Motivated, enthusiastic individuals contact Kim @ 426-2900 ext. 230 for immediate interviews and training.
[25] Murphy said that they could have published that ad in 1999 but that:
They called us.
[26] Murphy further stated that a vehicle was a "must" because there were many tools and pieces of equipment to do the work, including cutting boards, sanitizers, and other matters which could not easily be transported by the Demonstrators by public transportation. She stated that the Appellant did not pay for vehicles or expenses. She said that the Appellant did not "cover any accident", et cetera. She said that the Appellant was looking for "business minded" Demonstrators to deal with store managers and suppliers and that they understood their position. She said that she made sure that they knew that they would be sub-contractors. She also stated that in her mind she was not offering employment. She referred to the fluctuation in workload, for example, 100 demonstrations on a given date and a few the next date, adding that she did not want the Appellant to be paying employees when there was no work to be done. She reiterated that the Demonstrators had to supply certain equipment. She said also that the Appellant did not want employees because of the fluctuation in the industry.
[27] Murphy referred to an agreement entitled "Freelance Food Promotions Services Contract". This was formalized in 2000. She said, however, that she had been explaining this to Demonstrators before, but simply didn't have a written contract before. She said that this "just puts the relationship on paper". That document provided:
The Contractor shall provide freelance food promotion services to SARA for a period of one year from the day and year written above, subject to renewal or earlier determination as provided elsewhere in this Agreement.
...
The Contractor will exercise a degree of skill and care as would be expected of someone providing freelance food promotion services and shall use its best efforts and such time, skills, energy and attention as are required to satisfactorily provide the services for which the Contractor is retained pursuant to this Agreement.
The Contractor shall be responsible for all costs and expenses (such as travel and office expenses) associated in performing its duties under this Agreement.
The Contractor shall provide all of the tools and equipment necessary (such as cooking utensils, cutlery and other requirements) to fulfil the Contractor's obligations under this Agreement, except as agreed on a case by case basis between the parties.
The Contractor shall ensure that he/she or the individuals providing services under this Agreement shall hold a Food Handler or equivalent Certification as required by law, at his or her expense. SARA may assist in providing necessary training or administration of this requirement, but is not obligated to do so.
The Contractor will provide food promotion services upon request of SARA during the term of this Agreement but is at all times free to decline any opportunity to provide such services offered to it by SARA. ...
Consequently, the actual hours and days assigned and accepted by the Contractor are in the discretion of the Contractor. The Contractor acknowledges that SARA's abilities to provide the Contractor with opportunities to provide food promotion services is contingent upon the demands of SARA's clients which may be subject to fluctuation. As a result, SARA makes no representations as to the number of assignments or amount of revenue that may be generated by the Contractor pursuant to this Agreement.
[28] The contract also provides:
The Contractor is and shall for the life of this Agreement be an independent contractor. Nothing herein contained shall be construed so as to create an agency relationship, an employment relationship, a partnership or a joint venture between the parties.
The Contractor shall not represent itself to be the agent or employee of SARA or to be related to SARA other than as an independent or freelance contractor. ... The Contractor is not an employee of SARA and shall not, by virtue of this Agreement, be entitled to any vacation pay, benefits or other privileges provided by SARA to its employees.
[29] Murphy said that a document entitled "POLICIES AND PROCEDURES" was designed as suggestions of standard. It provides that rates and times will vary from project to project and that contractors/Demonstrators are free to accept or reject any assignments offered by the Appellant. It also provides that they are not restricted from accepting assignments from other companies/suppliers. It states further that the Appellant makes no government deductions or submissions on project payment cheques - i.e. income tax, CPP and EI. It then says:
As a freelance Demonstrator you are responsible for your own government submissions as required by law.
[30] It also provides that the Appellant will cover all Demonstrators with liability customer insurance when working on its assignments but that personal liability insurance is the Demonstrator's responsibility.
[31] Murphy also referred to a document entitled CONTRACTOR'S INVOICE. It provides spaces for details of the Demonstrator's monetary claim and includes the following, including underlining, in bold print:
I HEREBY ATTEST THAT I AM AN INDEPENDENT WORKER CONTRACTING MY SERVICES AND THAT NO DEDUCTIONS (RE: INCOME TAX, PENSION PLAN OR ANY OTHER BENEFITS) HAVE BEEN HELD AND ARE DUE TO ME.
Murphy described this as a generic invoice to be completed. Murphy then produced such a document in which a Demonstrator had committed to a demonstration and then found a replacement to fulfil her assignment. Murphy said that she did not know and did not need to know in order to approve such replacement in advance but wanted to know after the fact. She then testified that Morrison and Strachan were conducting in-store demonstrations in 1999. She said of the Demonstrators that they were a "dime a dozen". She said that replacement was not an issue and that if one did not perform, "we'll just build the pool". Finally, Murphy testified that she had never placed a person on a client project on the basis that that person would be employed.
[32] On cross-examination she responded to a question as to who changed demonstration hours by saying that it could be the Demonstrator or a manager or by agreement. When asked why the Demonstrators wore Sara aprons, Murphy replied that it was part of the meat program and that Safeway wanted a consistent look and so the Appellant provided this.
Evidence of Joan Strachan:
[33] Joan Strachan, an intervenor, testified for the Appellant. Strachan said that she went to different stores to promote products. She said that although she mostly performed services for Sara she was available for anyone that wanted her to work. She stated that she takes on contracts and has to look after her own benefits and expenses. She stated that she would receive calls from the Appellant's office asking if she was available and would like to work in a certain location. She replied that she did not want to go more than 16 kilometres because her insurance would not cover her vehicle more than 16 kilometres from home. She testified that if she was not willing she would simply say she did not want to do it and they obtained someone else. She said that if she did want to do certain jobs she would go to the Appellant's warehouse, pick up certain supplies and take her own appliances. She said that she uses most of her own appliances such as table, microwave, et cetera and that she bears the cost.[2] She said that she is not paid "to pick stuff up". She said that she goes to the store, sets up a demonstration, gives her talks, does her work, gets a paper signed by the store and returns that paper to the Appellant.
[34] She said that she discusses with the product manager where she would set up her table and said also "I hassled them sometimes". She described her manner of work and said she uses her discretion on how to prepare and treat a product. She stated, for example, that she improved the sale of brie cheese by warming it a bit in the microwave before presenting it. She said that her job is to sell, to expose people to a product and if a change makes a difference, "go for it". She stated that she submits an invoice and is paid bi-weekly. She said that she charges by the hour and charges rental on her equipment and if there are additional things that she must purchase (for example ice), she adds it to her invoice. She also described the limited amount on a cheque, payable to Safeway, that she may receive from a vendor for products she uses. She said, specifically, that she did not think she was an employee because no deductions were taken. She said that she received a cheque and a copy of her invoice, that she filed them and kept them for the person preparing her income tax return. She stated clearly that she saw herself as independent from the Appellant, that she could work elsewhere and that she never asked for benefits because she didn't feel entitled to them.
[35] On cross-examination she said that she does jobs for a number of clients, that she let them know that she was available and that they would call. She also said that if she knew in advance that she was going to be busy, she would tell them not to call her on a certain day or week-end. In response to a query as to whether she considered herself to be in business she replied in the affirmative saying that she didn't have to go to a job. She also said that she made arrangements with a store or with a department manager to change hours.
Evidence of Jacqueline Morrison:
[36] Morrison, an intervenor, also testified for the Appellant. Her evidence was much the same as that of Strachan respecting manner of work performance, submission of invoices, et cetera. With respect to the guidelines prepared by the Appellant she said that there was flexibility and that she could do what she wanted to do to perform the work. She said she had a Policies and Procedures Manual but hasn't read it yet. She said she also does merchandising at other stores and that she goes into stores tagging Alberta meat products including Safeway, Save-On, Great Canadian Superstore and IGA. She said she also has done women's shows for Sara.
[37] Morrison testified that she obtained work through availability. She said that she calls the Appellant when she's available and that she likes the work. She said that although she is booked a month in advance she can still cancel. She described the same duties as performed by Strachan in picking up equipment, supplies, et cetera. In response to a question as to whether she follows guidelines, she said:
I've been doing it a long time. I just do it.
[38] She testified that she received a gas allowance for merchandising but not for demonstrating. She said that she reported her income as self-employed and believes that she has always reported it that way. She said further that she never believed that she was employed by Safeway. She said that she deals with the Appellant because it gives her consistent work.
[39] On cross-examination, she said that she was not being supervised. She said that she could cancel a session with the Appellant and that she could replace herself and that she would call the Appellant as a courtesy and advise them.
[40] When asked on cross-examination whether she wore a Sara uniform when merchandising she responded negatively. Then when she was asked whether she wore anything she responded, apparently factually and, certainly entertainingly:
clothes
[41] The Respondent presented no evidence.
APPELLANT'S SUBMISSIONS:
[42] Appellant's counsel stated that all three witnesses were credible and that their evidence was not challenged, there being no basis to challenge same. He said that the evidence of Strachan and Morrison was consistent, both being absent from the courtroom during the examination of Murphy. Counsel stated that there was no cross-examination on the statement of Morrison and Strachan as to what they believed their situation to be. He submitted that when Murphy obtained information of success on someone else's appeal, she made a conscious decision, "all at arm's length", not to have employees. He said that the Policies and Procedures Manual spells out the Appellant's intention. He stated that the Appellant deals with up to 450 contacts on an ad hoc basis from very busy to low busy. He said that they are "a dime a dozen" and not individually integral to the business. He stated that a businessman would not employ them all.
[43] Counsel referred to the January 31, 2000 financial statements pointing out that approximately two-thirds of the expenses had nothing to do with the Demonstrators. He stated that the Appellant's preferred business structure was to use larger organizations so that it could concentrate on its core business i.e. getting contracts on a western Canadian basis. He pointed out that the two witnesses were clear on wanting independence, giving freedom to accept or change demonstrations. They knew that they would not receive benefits and that no deductions were taken and that they were on their own in filing income tax returns. He referred to the ability of the Demonstrators to decide themselves how to carry out a demonstration and whether to substitute, et cetera. He stated that the Demonstrators understood what expenses would not be reimbursed such as driving to work. He pointed to the requirement to have a substantial capital asset, namely, a vehicle. He referred to their evidence being clear and unequivocal that they did not want to be employees.
[44] Appellant's counsel said that the disputed ruling was directly contrary to what was intended by the Appellant and its Demonstrators. He said that the Canada Customs and Revenue Agency ("Agency") was paternalistic in assuming in its ruling that lady Demonstrators are unbusinesslike, suggesting that the Agency knows better than those Demonstrators. He referred to exhibit A-3 which set forth the dates worked by Morrison, Strachan and Urban in 1989 and the amount of gross pay for each of those dates. This schedule also set forth the amounts of CPP and EI that, apparently, should have been deducted. This exhibit bears the stamp and heading:
DOCUMENT DISCLOSED PURSUANT TO
THE ACCESS TO INFORMATION ACT
[45] Counsel said that it is apparent on the face of such document that most ladies would not qualify for employment insurance. He also said that many are over 65 and are not obliged to pay CPP premiums any longer. He categorized the Agency decision as "a money grab" not qualifying for employment insurance and resulting in the removal of money from the hands of industry.
[46] He pointed out that Strachan and Morrison were not in the courtroom during Murphy's examination and that all evidence was consistent with what was contained in the documents.
[47] Counsel referred to Morrison's evidence that she was more aware of costs as she progressed. She said that she started 11 years ago, was brought into the meat program, and doesn't want to work full time. He referred to all of the documents that set out that the relationship was not employment but one of independent contract. One of these was the agreement referred to in evidence that was prepared in his office and had been "in place" for two or three months previous to the hearing. He stated further that this document generally reflected what had taken place before the relationships were so formalized. He referred to the Agency's questionnaire stating that it was created by the Agency out of bias and that he had prepared his own questionnaire in more neutral form. Both were entered as exhibits. He referred to the definition of "employee" in Black's Law Dictionary, 6th edition, as follows:
... One who works for an employer; a person working for salary or wages.
Generally, when person for whom services are performed has right to control and direct individual who performs services not only as to result to be accomplished by work but also as to details and means by which result is accomplished, individual subject to direction is an "employee".
[48] The definition of "independent contractor" in that edition reads as follows:
Generally, one who, in exercise of an independent employment, contracts to do a piece of work according to his own methods and is subject to his employer's control only as to end product or final result of his work. ... One who renders service in course of self employment or occupation, and who follows employer's desires only as to results of work, and not as to means whereby it is to be accomplished. ...
An independent contract is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking. He may or may not be an agent.
[49] Counsel submitted that the traditional test for determining who was an employee and what is "pensionable employment" is outlined in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025. He then said that the Wiebe Door test had its roots in earlier authority which should be reviewed prior to looking to that case. He stated that the case of Cormier v. Alberta (Human Rights Commission), (1985) 56 A.R. 351 analyzes whether a defendant was an "employer" for the purposes of the Human Rights Commission. The Court said at page 355:
... the main problem has lain in distinguishing the relationships of "employer and employee" and "master and servant", said to result from a "contract of service", from the relationship between a person and another who is his "independent contractor" under what is said to be a "contract for services". ...
[50] He then said that the review and analysis of the law therein provided by the Court appears to be the precursor to the Wiebe Door four part test:
.. in that a large number of cases and statutory authorities set out in a very detailed review of the law supported by later developments.
[51] He reviewed the four tests set out in Wiebe Door and said that if after the analysis is complete an individual can be described both as an independent contractor and an employee the deadlock should be broken with reference to the objective of the parties as evidenced both by the contract between them and their conduct towards each other.
[52] Counsel then referred to the Federal Court of Appeal decision in Vulcain Alarme Inc. v. Minister of National Revenue, [2000] 1 C.T.C. 48. He stated that the Court held at page 49 that in following the four part test now entrenched:
... it should be remembered that they cannot be allowed to compromise the ultimate purpose of the exercise, to establish in general the relationship between the parties.
[53] The Court found, at page 53 that:
... controlling the quality of work is not the same thing as controlling its performance by the worker hired to do it.
[54] He said that the Court also found, at the same page, that although the contractors had become dependent by imposing economic subordination on themselves:
... they were not legally bound by an exclusive contract and had not ceased to be contractors.
and thus did not integrate themselves. He stated that the Court found that the inspector bore the risk of loss because he was not guaranteed constant income and had to pay for his own losses following a motor vehicle accident.
[55] He then referred to Saskatchewan Deaf and Hard of Hearing Services Inc. v. Canada, [2001] T.C.J. No. 38 in which he said that the Appellant, a non-profit organization coordinated the workers providing interpretive services to hearing impaired clients. He stated that, following Vulcain Alarme Inc. and using the Wiebe Door test, the Court noted that the parties clearly expressed their intention that the relationship was one of a contract for services and there was nothing in the evidence to suggest otherwise. He said that the Appellant set the pay scale, guaranteed the workers a minimum payment of 1.5 hours of pay per session, paid the workers monthly after the workers submitted their hours on invoice, covered the workers with WCB and their liability insurance policy, required them to follow a code of ethics set by professional organizations and helped them arrange for replacement workers. He said that there was no chance of making a profit and no risk of losing money and that no equipment was necessary to perform the job. He continued that the workers were entitled to one hour cancellation fees, that they could personally make arrangements with the customer once they accepted the assignment and could notify the Appellant of time periods when they could not work. He said that the nature of the workers' relationship to the Appellant was, therefore, "explicitly changed to reflect the needs of the clients", the Court properly recognized the legal form of the arrangement, and noted at paragraph 29 of the decision:
... I am of the view that the Court should give due deference to the initial intention of the parties. It is not for the Court or for the Minister to rewrite the contract entered into by the parties, absent clear evidence of the substance differs from the stated intention.
[56] Counsel referred to Ghostpine Farms Ltd. v. Minister of National Revenue, [2001] T.C.J. No. 37. He then referred to cases involving the "demonstration industry". The first was Instore Focus Inc. v. Minister of National Revenue, [1986] T.C.J. No. 107. He said that in that case there was a supervisor that was very involved with the workers. The Demonstrators had to work at the time and place set by Instore and remit a report reporting instructions that were followed and approved by the store. He said further, that unlike the present case, they could not get someone else to "work" for them without permission. All expenses were reimbursed and the Demonstrators returned their materials to the supervisors if they were not used. In these circumstances he said that there was held to be no risk of loss to the Demonstrators and that the store managers could "fire" them even though they did not work for the managers. While, technically, the individuals were allowed to work for competitors, counsel said that the supervisor told one Demonstrator that if she did "she would not be called again". He also said that that case was resolved in favour of the Appellant. Counsel said that the Judge found the decision "very hard to render", being a borderline case, and said that no such chain of events exists in the case at bar, implying that facts in this case were more favourable to the Appellant.
[57] Counsel then devoted some time to the "modern approach" to taxation statutes, quoting from Canada v. Antosko, 94 DTC 6314 at 6320:
... In the absence of evidence that the transaction was a sham or an abuse of the provisions of the Act, it is not the role of the court to determine whether the transaction in question is one which renders the taxpayer deserving of a deduction. If the terms of the section are met, the taxpayer may rely on it, and it is the option of Parliament specifically to preclude further reliance in such situations.
[58] He then quoted from the Supreme Court of Canada's decision in Continental Bank Leasing Corporation v. Canada, 98 DTC 6505 with respect to whether an otherwise validly constituted partnership ought to be denied a tax advantage given that the partnership was expressly created to gain that advantage. The majority of the Court held at page 6518 that:
... The underlying premise of this reasoning is also that a transaction that is motivated by the securing of tax benefits is not a valid transaction. This reasoning cannot be supported.
A taxpayer who fully complies with the provisions of the Income Tax Act ought not to be denied the benefit of such provisions simply because the transaction was motivated for tax planning purposes. In Stubart Investments, supra, this Court unanimously rejected the "business purpose test" and affirmed the proposition that it is permissible for a taxpayer to take advantage of the terms of the Income Tax Act by structuring a transaction that is solely motivated by the desire to minimize taxation.
[59] Counsel then said that this modern approach was reinforced in Duha Printers (Western) Ltd. v. Canada, 1998 DTC 6334 and in Neuman v. Canada, 1998 DTC 6296.
[60] He then submitted that the issue was dealt with most recently and forcefully in Shell Canada Ltd. v. The Queen, 99 DTC 5669 in which McLachlin, J. (as she then was) said at page 5676:
... First this Court has never held that the economic realities of a situation can be used to recharacterize a taxpayer's bona fide legal relationships. To the contrary, we have held that, absent a specific provision of the Act to the contrary or a finding that they are a sham, the taxpayer's legal relationships must be respected in tax cases. Recharacterization is only permissible if the label attached by the taxpayer to the particular transaction does not property reflect its actual legal effect: ...
Inquiring into the "economic realities" of a particular situation, instead of simply applying clear and unambiguous provisions of the Act to the taxpayer's legal transactions, has an unfortunate practical effect. This approach wrongly invites a rule that where there are two ways to structure a transaction with the same economic effect, the court must have regard only to the one without tax advantages. With respect, this approach fails to give appropriate weight to the jurisprudence of this Court providing that, in the absence of a specific statutory bar to the contrary, taxpayers are entitled to structure their affairs in a manner that reduces the tax payable.
[61] Counsel submitted that in the particular context of this appeal the Agency cannot, in the absence of a sham or express statutory language, deem a bona fide contractor relationship to be otherwise, even if this form was purposely entered into to obtain a tax benefit. He then said that if the parties intended to create a contractor relationship and entered into their relationship believing it to be so and conducted themselves according to that belief, it is not the job of the Agency to deem it to be other than a contractor relationship.
[62] Counsel then submitted that the relevance of this line of authority is that it appears that the Wiebe Door test looks beyond the legal relationship and intention of the parties applying what was in fact an "economic substance" approach. He said that, for example, in looking to "integration" the Court is expressly looking at the economics of the arrangement to determine if the "businesses" appear to be integrated. He stated that, similarly, the provision of tools or equipment would appear to have little, if anything, to do with the legal relations created between the parties. He said that, on the other hand, contractual assignment or acceptance of risk appears a legitimate tool of analysis in looking at the legal relations created, as is the contractual imposition, or lack thereof, of control. He then submitted that key, however, is the intention of the parties as objectively expressed prior to, at the time of, and subsequent to the entry into the contract. He then said:
What was being offered, what was negotiated, and does the subsequent conduct of the parties evidence the agreement. It is submitted that this is a more appropriate form of analysis.
[63] Counsel then stated that the evidence establishes that the Appellant clearly communicated the basis upon which it was prepared to proceed at every stage of the process, from attracting individual Demonstrators, "to discussions on the terms on which a retainer could be put in place", to the orientation sessions held at the commencement of business relations and to the methods in which contracts were completed. Counsel then stated:
That basis was that the Appellant was not prepared to offer or engage in employment, for a large number of business, legal and administrative reasons. At no time did the Appellant offer employment, and at no time did the individuals understand that they were being employed. On this basis, it is submitted that the contract cannot in law be said to be employment.
RESPONDENT'S SUBMISSIONS:
[64] Counsel commenced by saying that this Court is limited to considering the three Demonstrators even if the Appellant fears that the loss of this appeal would be detrimental to all Demonstrators and individuals. She then stated that this was not a test case and that "the Minister says no" to any such suggestion for purposes of the Appellant and the Demonstrators and the industry.
[65] Counsel said that the Appellant's focus was to set up an independent contractor relationship from the beginning and that this was borne out by the evidence. She suggested that the Demonstrators perceived themselves to be individual contractors because they received no benefits, et cetera and that this was the result of information from the Appellant, having been told "over and over". She stated that the Demonstrators' work added nothing to their gain or loss but only added value to the clients.
[66] Counsel asked why, if the Demonstrators were independent contractors, it took one of them up to 1999 to deduct expenses. When asked by the Court if counsel had asked that witness, she said: "No".
[67] Counsel suggested that the Policies and Procedures Manual indicated control on the part of the Appellant. She submitted that control in the manual was beyond guidelines or suggestions.
[68] She referred to the fact that the Appellant supplied certain items and reimbursed Demonstrators for the cost of product and that the Appellant required reports of hours and sales for her clients' purposes. She said that there were no guidelines but, rather, directions, suggesting that they were told by way of pamphlet how to display. She referred to the supplies given to Demonstrators at minimum expense, that they wore code dress, that they had specific procedures, were called by Appellant for work and could choose to work or not, characterizing all of that as "casual employment". Counsel did not expand on that characterization. She reiterated that the Demonstrators believed that they were sub-contractors because they were told they were. She referred to Strachan's response that she did not ask for benefits because she never thought she was entitled to them. Counsel then stated that she knew that because she had been told that.
[69] Counsel then mentioned the "broader picture", speaking of persons and a social structure that Parliament regulated for workers' insurable employment.
[70] Counsel then commented on Appellant's submission respecting Shell Canada and said that that involved a taxing provision but that there was a statutory bar in the Act. She then, without explanation, said that the whole Act was a statutory bar. She submitted that Parliament could not have intended a relationship to deny benefits.
[71] She then quoted from the decision of the Supreme Court of Canada in Bronfman Trust v. Her Majesty, 87 DTC 5059 which, dealing with the interpretation of a taxation statute, said at 5066:
I acknowledge, however, that just as there has been a recent trend away from strict construction of taxation statutes ... so too has the recent trend in tax cases been towards attempting to ascertain the true commercial and practical nature of the taxpayer's transactions. There has been, in this country and elsewhere, a movement away from tests based on the form of transactions and towards tests based on what Lord Pearce has referred to as a "common sense appreciation of all the guiding features" of the events in question: ...
This is, I believe, a laudable trend provided it is consistent with the text and purposes of the taxation statute. Assessment of taxpayers' transactions with an eye to commercial and economic realties, rather than juristic classification of form, may help to avoid the inequity of tax liability being dependent upon the taxpayer's sophistication at manipulating a sequence of events to achieve a patina of compliance with the apparent prerequisites for a tax deduction.
[72] Counsel then referred to Puri v. Minister of National Revenue, [1998] T.C.J. No. 175 where Rowe, T.C.J. in finding that Puri and Hesketh were employees, said in paragraphs 14 and 15:
There is no doubt the appellants and the Club wanted their relationship to be on the basis they were coaches providing services as independent contractors. ...
What the parties thought their relationship was will not change the facts. In the case of The Minister of National Revenue v. Emily Standing, 147 N.R. 238, Stone J.A. at p. 239 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."
[73] Counsel then turned to Wiebe Door, where at page 5030 she referred to the comments of Cooke, J. in Market Investigations, Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732:
... 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 hired his own helpers, what degree of financial risk he takes, 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.
[74] Counsel stated that the Appellant had certainly grown but asked whether that was so for the Demonstrators.
[75] Appellant's counsel then turned to a submission based upon Regulation 6(g). Paragraph 18 of the Reply to the Notice of Appeal reads as follows:
18. The Respondent further states that, if the Workers were not employed under contracts of service with the Appellant, which is not admitted but is denied, then the Workers were engaged in insurable employment with the Appellant pursuant to paragraph 6(g) of the Employment Insurance Regulations during the period from January 1, 1999 to December 23, 1999, in that they were placed in their employment by the Appellant to perform services for and under the direction and control of clients of the Appellant and as the Workers were paid by the Appellant for the performance of those services.
Regulation 6(g) reads:
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: ...
(g) employment of a person who is placed in that employment by a placement or employment agency to perform services for and under the direction and control of a client of the agency, where that person is remunerated by the agency for the performance of those services.
The essence of this submission is that a Demonstrator was placed in employment by the Appellant, in its capacity as a placement agency, to perform services for and under the direction and control of a client of the Appellant where that Demonstrator is remunerated by the Appellant.
[76] Counsel concluded by submitting that the Demonstrators were controlled by the Appellant in the sense that they were under the Appellant's direction, received supplies, and were given a dress code. She submitted that the company failed the integration test in that the Appellant had the clients and the business. She submitted that the control test was not as strong with respect to tools but that the Demonstrators were reimbursed for some supplies and that the other tools were so minimal that they were of no consequence. With respect to profit and risk of loss, counsel stated that there was growth in the Appellant's business but no evidence that the businesses of the Demonstrators had grown. She said if there were more jobs for Demonstrators it was because of the Appellant's growth.
ANALYSIS AND CONCLUSION:
[77] This case departs somewhat from the ritualistic and unadorned recitation of the four tests in Wiebe Door having become an inalterable juristical formula for the determination of insurable employment[3]. Such tests alone may not contemplate a number of factors weighing upon such determination. Control exists not only in contracts of service but in contracts for service. Ownership of tools is an inappropriately revered primary test, looking to objects, equipment and space. The risk of profit or loss test, as applied, often takes a "shoe horn" approach only, considering simply whether a service provider receives a fixed formula amount and occasionally paying little attention to potential elements of risk. With respect, there seems to be little usefulness in what is described as the integration test. MacGuigan, J. in Wiebe Door, at page 5029, quoted Denning L. J. (as he then was) in Stevenson, Jordan and Harrison Ltd. v. MacDonald and Evans [1952] 1 T.L.R. 101 at 111:
One feature which seems to run through all the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.
The learned Justice continued, however, as follows:
Perhaps the best synthesis found in the authorities is that of Cooke J. in Market Investigations, Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732, 738-9:3
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.
MacGuigan J. then, without elaboration, said:
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.
[78] The evidence given by three credible witnesses was uncontradicted. It was supported by an abundance of documentation making it clear that the intention of both the Appellant and Demonstrators was not to have an employment relationship. Although only two Demonstrators, being Intervenors, testified, they clearly described and clearly accepted their position as not being employees of the Appellant. Respondent's counsel attempted to characterize them as having, in effect, being brainwashed by being told "over and over" that they were independent contractors. This appears to be a convenient construction of the facts summarized earlier in this paragraph.
[79] These Demonstrators were free to turn down invitations to work at given places and at given times when they felt like so doing. It is irrelevant to speculate what would have happened had they declined such invitations on an ongoing basis. They had the ability to change hours. They had the ability, unfettered by the Appellant, to negotiate the arrangements under which they worked with a client of the Appellant.
[80] They were required by the Appellant to meet a dress code. This cannot be construed as any substantial element of control. It is simply the common sense reality of the business world that the Demonstrators should be presented in well-attired, well-groomed, consistent and polite manner. Obviously, the work of the Demonstrators was to impress the buying public and the client. A suggestion that they were subject to the control of the Appellant simply because, with some assistance from the Appellant, they presented themselves in the best fashion to do the best job possible misrepresents the circumstances under which these Demonstrators worked with an independent sense of pride and achievement. They also had to have a vehicle, for which they were not reimbursed, in order to move equipment.
[81] They had to, if they so desired, obtain their own disability insurance.
[82] Both Strachan and Morrison testified that they had not read the Policies and Procedures Manual because they knew what they were doing. It is obvious from their evidence and their demeanour that they were proud of and enjoyed their work. It is equally obvious that the manual was not a direction.
[83] The Demonstrators had to have food safety training at their own expense.
[84] They had to be well-groomed at their own expense.
[85] The fact that the Appellant wanted the Demonstrators to be well equipped is not indicative of control so much as it is indicative of how both the Appellant and the Demonstrators could be successful. Murphy's evidence was quite clear that the Appellant did not want to have employees other than the fourteen or so employees described above, there being periods when there would be no work for the Demonstrators.
[86] So far as tools are concerned, the Demonstrators used equipment owned by both the Appellant and themselves and they transported their own equipment to the place of work and transported the Appellant's equipment from the Appellant's store house for same. I cannot conclude on the base of ownership and use of tools, that the Appellant was an employer. A gardener, using the owner's lawnmower and implements, may well be an independent contractor.
[87] As to profit and risk of loss, we know that a Demonstrator could increase income by working longer hours, not by having an increased amount of reward per hours worked unless so negotiated with the Appellant. The Demonstrator did have risk of loss by virtue of potential car expense including both repair and ordinary operating expense. This component of the test does not favour an employment conclusion.
[88] As to integration, the importance of which test is questionable, the Demonstrator was, of course, assisting the Appellant in the conduct of its business. However, the evidence of Strachan and Morrison was clear that each was conducting her own business, admittedly not on a grand scale. It should not be assumed, a priori that the larger, paying entity be viewed as dominant and, therefore, more important in determining whether the service provider could also be in business. The question of "whose business it is" may tend to minimize the appropriate characterization of that service provider.
[89] Respondent's counsel referred to Puri and Standing. They simply state that if the facts do not support the evidence of a relationship described by the parties, that relationship does not necessarily exist. That is a common sense conclusion. It is the facts that are important.
[90] Respondent's counsel's characterization of the Appellant having issued "directions", not "guidelines" is not supported by the evidence.
[91] Respondent's counsel's reference to the Act being social legislation has absolutely nothing to do with the issues and their resolution.
[92] I have concluded that neither of the two Demonstrators who gave evidence was an employee. I accept the direction as expressed in Shell, that the recharacterization of legal relationships is only permissible if the label attached by the taxpayer to the transaction does not properly reflect its actual legal effect. Admittedly, this statement by the Supreme Court of Canada was in respect of tax cases. However, in the absence of clear and credible evidence that the description of a relationship is other than as agreed between arm's length parties, the description agreed upon by those parties must stand. There is no such clear and credible evidence in this case.
[93] It is noted that Respondent's counsel's rejection of the validity of the cases, including Shell, referred to by Appellant's counsel, as being tax cases, when the Act was a "complete code", was followed by her reference to a tax case in an attempt to persuade the Court to her view.
[94] I shall deal quickly with Respondent's submission that the Appellant, within the meaning of Regulation 6(g) was a placement agency. It is recalled that the Respondent's Reply states that if the workers "were not employed under contracts of service with the Appellant", then the workers were engaged in insurable employment pursuant to Regulation 6(g). Using counsel's premise that the workers "were not employed" how could they possibly be "placed in ... employment" by anyone? The Appellant was, and is, not a placement or employment agency. That submission is rejected.
[95] I turn now to Respondent counsel's statement that this case is not a test case for the purpose of the Appellant and the Demonstrators and the industry. That, of course, is a position that the Respondent is entitled to adopt. However, the Respondent must be very careful in determining whether a Demonstrator providing services to this Appellant or any other taxpayer conducting a similar business, is in insurable employment. I cannot, obviously, pre-judge, nor do I wish to, any situation whose facts are not known to me. However, the urge to continue to gnaw at the same bone is not unknown to the Respondent. The Appellant has access to and engages up to 450 Demonstrators. There are, obviously, a number of other entities in Canada conducting businesses similar to that of the Appellant. The result of an inappropriate determination or decision could be very costly to the Appellant and to other business enterprises in terms both of financial resources and time lost in the preparation for, and conduct of, litigation.
[96] The Court was not advised as to how the Respondent decided to challenge the characterization of the Appellant's relationship with the three Demonstrators, Morrison, Strachan and Urban. It is unlikely that the Respondent would, respecting this Appellant, select Demonstrators whose fact situations would be unfavourable to the Respondent's position. This renders curious its adamant assertion that this appeal would not be regarded as a test case.
[97] Section 7 of the Act provides that Employment Insurance benefits are payable to an insured person who qualifies to receive them. It describes a person as qualified if that person has had, during a qualifying period, a specified number of hours of insurable employment. Paragraph 5(1)(a) of the Act reads as follows:
Subject to subsection (2), insurable employment is
(a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece or partly by time and partly by the piece, or otherwise;
[98] I have determined, for the reasons outlined above, that, based upon the evidence of Murphy, Strachan and Morrison, neither Strachan nor Morrison was, during the period in question, in insurable employment. Although Urban did not testify, I have no reason to believe that the evidence of the Appellant alone, which was supported by the evidence of the two Demonstrators, would not apply to Urban.
[99] As agreed with counsel, my conclusion will also apply to pensionable employment so far as CPP is concerned.
[100] Accordingly, I conclude that the appeals will be allowed.
Signed at Ottawa, Canada this 29th day of November, 2001.
"R.D. Bell"
J.T.C.C.
COURT FILE NO.: 2000-3982(EI) and 2000-3984(CPP)
STYLE OF CAUSE: Sara Consulting & Promotions Inc. v.
The Minister of National Revenue
PLACE OF HEARING: Edmonton, Alberta
DATE OF HEARING: June 27, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge R.D. Bell
DATE OF JUDGMENT: November 20, 2001
APPEARANCES:
Counsel for the Appellant: Carman P. McNary
Counsel for the Respondent: Margaret McCabe
COUNSEL OF RECORD:
For the Appellant:
Name: Carman P. McNary
Firm: Fraser Milner Casgrain
Edmonton, Alberta
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-3982(EI)
BETWEEN:
SARA CONSULTING & PROMOTIONS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
JOAN S. STRACHAN and JACQUELINE M. MORRISON,
Intervenors.
Appeal heard on common evidence with the appeal of
Sara Consulting & Promotions Inc. (2000-3984(CPP))on June 27, 2001 at Edmonton, Alberta by
the Honourable Judge R.D. Bell
Appearances
Counsel for the Appellant: Carman P. McNary
Counsel for the Respondent: Margaret McCabe
For the Intervenors: The Intervenors themselves
JUDGMENT
The appeal is allowed and the decision of the Minister is vacated in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 20th day of November, 2001.
|
"R.D. Bell" |
J.T.C.C.
2000-3984(CPP)
BETWEEN:
SARA CONSULTING & PROMOTIONS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
JOAN S. STRACHAN and JACQUELINE M. MORRISON,
Intervenors.
Appeal heard on common evidence with the appeal of
Sara Consulting & Promotions Inc. (2000-3982(EI))on June 27, 2001
at Edmonton, Alberta by
the Honourable Judge R.D. Bell
Appearances
Counsel for the Appellant: Carman P. McNary
Counsel for the Respondent: Margaret McCabe
JUDGMENT
The appeal is allowed and the decision of the Minister is vacated in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 20th day of November, 2001.
|
"R.D. Bell" |
J.T.C.C.