Date: 19980908
Docket: 96-1840-UI
BETWEEN:
CHARTROUT ENTERPRISES CO. LTD.
O/A V.I.P. BEAUTY SUPPLIES,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Cuddihy, D.J.T.C.C.
[1] This appeal was heard in Halifax, Nova Scotia, on July 30, 1998.
I- The appeal
[2] This is an appeal from a determination by the Minister of National Revenue (the "Minister") of June 19, 1996, where it was determined that Benjamin Watson (the "Worker") was employed under a contract of service with the Appellant (the "Payor"), from January 1, 1994 to February 5, 1995, within the meaning of paragraph 3(1)(a) of the Unemployment Insurance Act (the "Act") because there existed between the Payor and the Worker an employer/employee relationship.
II- The Facts
[3] In rendering his decision the Minister relied on the facts and reasons outlined in his Reply to the Notice of Appeal in paragraph 5 as follows:
"(a) the Appellant is a beauty supply distributor;
(b) the Appellant is operated by family members exclusively and the Worker was the first outside employee hired by the Appellant;
(c) the Worker was hired as a sales representative for the Valley and South Shore areas of Nova Scotia and his duties included some deliveries, collection of payments, returns and credit notes, as well as demonstration of products;
(d) the Worker was paid $500.00 per week on a bi-weekly basis with no source deductions taken;
(e) the Worker could not promote other product lines while engaged by the Appellant;
(f) the Worker had to report daily with detailed accounts of his sales, territory covered, orders and comments;
(g) the Worker reported to the Appellant's office approximately once a week;
(h) the Worker was reimbursed for long distance phone calls to the Appellant;
(i) the Worker was responsible for all other expenses;
(j) the Appellant had total control over the Worker's time and duties;
(k) the Worker was paid a set salary;
(l) the Worker was not a self-employed consultant;
(m) there was a contract of service between the Worker and the Appellant."
[4] The Appellant, admitted the allegations in subparagraphs (a) and (g) to (i). The allegations in subparagraphs (b) and (f) were admitted with further explanations to be given at the hearing. The allegations in subparagraphs (c) to (e) and (j) to (m) were denied.
III- The law and analysis
[5] Definitions from the Unemployment Insurance Act
"employment" means the act of employing or the state of being employed."
"Insurable employment"
[6] Subsection 3(1) of the Unemployment Insurance Act reads in part as follows:
"3(1) Insurable employment is employment that is not included in excepted employment and 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;
[...]"
Brief summary of the evidence
[7] John Moore, a business partner of the Payor, was heard in support of the appeal. Exhibits A-1, A-2 and R-1 were filed in the Court record. The Worker, Benjamin Watson, although duly notified, did not intervene in the proceedings and was not heard as a witness.
[8] Benjamin Watson was working for Livingston Beauty Supplies when he contacted the Payor. The Payor is a beauty supply distributor of hair cosmetic products.
[9] A meeting was held between the Worker and the partners of the Payor. At this meeting, the reasons, terms and conditions of the work were discussed.
[10] The Worker expressed his wish to be hired as a commissioned salesman. The Payor preferred that the Worker act as a consultant under his own name and business, since the Worker offered to develop for the Payor a new area of sales and to make up new business. The areas suggested by the Worker were the Valley and South Shore areas of Nova Scotia. The Worker had done business in these areas previously. The Payor had not. It was understood at this meeting that the Worker would be carrying on his own business, be responsible for his own travelling and lodging expenses, and satisfy his own obligations for income taxes and other contributions.
[11] The Worker owned his own cellular telephone and automobile. The Worker paid all expenses for his telephone and automobile. The Payor agreed to pay for long distance telephone calls only.
[12] The agreement between the parties was that the Worker would act as a consultant for a period of 12 months. That he would submit on a bi-monthly basis an invoice for his sale consulting services rendered at a rate of $1,000.00 (Exhibit A-1). The Worker was to receive no other moneys from sales that would take place.
[13] In developing this new area for the Payor, the Worker would travel to different communities, visit with prospective hairdresser salons, carry on demonstrations and in essence promote the sale of the Payor's product, which was almost exclusively called ABBA at the time. He also agreed, while working, to assist the Payor with deliveries and collect payments. The Worker was also permitted to promote tanning products of his own but not permitted to promote other hair products. The Worker prepared a daily report sheet (Exhibit R-1). This report form was prepared by the Worker for the purpose of reporting to the Payor. The Worker gave the Payor verbal reports over the telephone once or twice a week and met at the office of the Payor once a week in person, either on Friday or Monday at his leisure.
[14] The Worker set his own schedule. He was free to determine his hours of work and his days off. He could work at night or on week-ends. The Worker was on the road travelling four or five days a week.
[15] He could have hired someone else to do his work but the Payor did not believe that he would have enough income to do so.
[16] At the end of the twelve-month period it was decided that his services as a consultant were too expensive for the profits being generated. The Worker was then hired as a salesman with commissions in January of 1995.
[17] At a given time in January 1995, the Payor realized that the Worker was selling products of competitors and ended the relationship in February of 1995. When the Worker left he did not request nor was he given a record of employment. There were never any discussions as to vacation pay and none were paid.
Concluding analysis summary
[18] This Court must adopt the reasoning used by Desjardins, J.A. of the Federal Court of Appeal in Hennick,[1] and I quote:
"While this test is well known, it might be useful at the outset to emphasize that in his analysis of both Lord Wright's fourfold test (control, ownership of the tools, chance of profit, risk of loss) and of Lord Denning's organization or integration test, MacGuigan J.A. in Wiebe Door Services Ltd., stressed all along that what remains of the essence is the search for the total relationship of the parties. He first quoted at length Lord Wright in Montreal v. Montreal Locomotive Works Ltd.[2]
In earlier cases a single test, such as the presence or absence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortious liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated tests have often to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive. Thus the master of a chartered vessel is generally the employee of the shipowner though the charterer can direct the employment of the vessel. Again the law often limits the employer's right to interfere with the employee's conduct, as also do trade union regulations. In many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties. In this way it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior."
[Emphasis in text]
[19] Then, she added:[3]
"... I interpret Lord Wright's test not as the fourfold one it is often described as being but rather as a four-in-one test, with emphasis always retained on what Lord Wright, supra, calls "the combined force of the whole scheme of operations," even while the usefulness of the four subordinate criteria is acknowledged.
. . .
What must always remain of the essence is the search for the total relationship of the parties . . .
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?"
[my emphasis]
[20] It is not the name you give a contract that makes it what it is. It is the total relationship of the parties that determines what the contract is.
[21] Décary, J. of the Federal Court of Appeal in Normand Charbonneau,[4] stated:
"...
Two preliminary observations must be made.
The tests laid down by this Court in Wiebe Door Services Ltd. v. M.N.R. [5] - 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)...
Moreover, while the determination of the legal nature of the contractual relationship will turn on the facts of each case, nonetheless in cases that are substantially the same on the facts the corresponding judgments should be substantially the same in law. As well, when this court has already ruled as to the nature of a certain type of contract, there is no need thereafter to repeat the exercise in its entirety: unless there are genuinely significant differences in the facts, the Minister and the Tax Court of Canada should not disregard the solution adopted by this court.
In our view, when the judge of the Tax Court of Canada allowed the respondent's appeals in this case and found that the contract was a contract of employment, he fell into the trap of doing a too mathematical analysis of the tests in Wiebe Door, and as a result he wrongly disregarded the solution adopted by this court in Attorney General of Canada v. Rousselle et al.[6] and upheld in Attorney General of Canada v. Vaillancourt."[7]
[22] What was the total relationship between the parties? What was the combined force of the whole scheme of operations?
[23] The terms of the contract, the way it was entered into and the conduct of the parties before, during and after the work period, must be analyzed in order to decide whether the relationship was one of employer/employee or whether the degree of autonomy was such that the evidence demonstrated a contract for services.
[24] From the evidence, it appeared conclusive that the Worker had a great deal of experience in consulting and selling beauty supplies before he approached the Payor. It was in fact the Worker who offered his services to the Payor. The Worker met with all the partners of the Payor who were all family members. As a result of the meeting the subsequent agreement was that the Worker be paid for the services he had offered. The Worker offered to open up for the Payor a new area of sales which had never been covered by the Payor. The Worker had previously worked in that area and could possibly provide input into increasing the Payor's business with his expertise. This prompted the Payor to accept to pay the Worker for his services for a twelve-month period. After the twelve-month period the Payor concluded that the consulting services provided by the Worker were too expensive for what profits were being generated and then decided to hire the Worker as a salesman with commissions, in January of 1995. It is during this month of January, that the Payor discovered that the Worker was selling competitors products and that the Workers second employment as a salesman was terminated.
[25] The Worker was not heard, however, from this evidence which was not contradicted, the Worker offered his services, for which he billed the Payor, for a period of twelve months, paid his own taxes and other contributions if any and did not receive or require any vacation pay. There was no understanding between the Payor or any of its representatives that the Payor would deduct any moneys from the Workers earnings.
[26] In the carrying out of his duties the Worker was free to organize his own schedule and needed or required no direct supervision in this respect. In fact, the area to be developed by the Worker was unknown to the Payor. It was the Worker who offered and took charge of the plan to cover the area. The Payor accepted this offer as an investment for the twelve-month period and took a risk that was not profitable.
[27] As to the important test of subordination, the Worker made up his own schedule. He was free to decide how he would execute the work and carried out his work at the hours and days he chose. The Worker was free to choose the means of performing his work and no relationship of subordination existed between him and the Payor in respect of such performance. The Worker decided on his own, the way or manner he would execute his services. He did in fact prepare of his own making a document called "daily call report" (Exhibit R-1). This report was not provided to the Payor on a daily basis but was used by the Worker when he called in, by telephone, to the office of the Payor during the week and when he informed the Payor in person once a week what services were being performed.
[28] The Worker was not paid any commission or other benefits and was however allowed to sell tanning products of his own while providing services to the Payor. This would tend to indicate that the Worker was not employed exclusively for the Payor. No evidence was shown by the Worker, since he chose not to intervene, what profits he did make with the sale of his tanning products.
[29] As to the tools used while working, it is accepted that samples were provided by the Payor and were returned by the Worker after February 1995. However, the car, travelling and living expenses and any other disbursements such as a cellular phone were paid by the Worker. The only expenses paid by the Payor were long distance calls as agreed at the initial stage of the contract.
[30] As to the integration test, it is accepted that the work provided was integrated into the business of the Payor, but the Worker executed his services in the manner described above.
[31] It is also accepted that a provider of services like the Worker is bound to act in the best interest of the client and in accordance with usual practice and the rules of art and where applicable to ensure that the service provided is in conformity with the contract. These express or implicit obligations arising out of the contract do not make it a contract of service. Those obligations, show the mutual dependencies of the parties as a consequence of the contract.
[32] Why did the Worker not request a record of employment when he left work? What did he say in his application for unemployment insurance benefits, that prompted the Minister to request from the Payor a record of employment? What did the Worker report in his income tax return for 1994 and 1995? Did he indicate as an employer, the Payor? Did he file a copy of the invoice that he sent to the Payor? Did the Worker report earnings from the Payor as an employee in his taxation year for 1994 or 1995? Did he report earnings from his tanning products or sales of other Payors?
[33] No evidence was heard from the Worker, he did not intervene in the proceedings and could have, and the only accepted evidence is what was heard before me. I heard nothing from the Respondent, except what was alleged and admitted and the Exhibit that was filed.
[34] After seeing and hearing the witness for the Appellant, I have no reason to disbelieve him. He has demonstrated on a balance of probabilities that the Worker was paid for the services offered and provided which must be qualified as a contract for services. The initial agreement would thus indicate that the Payor was far more interested in the end result of the services of the Worker and in fact concluded after the initial twelve-month period that the services offered by the Worker were not profitable for the business. The Worker was then providing services on his own account, from January 1, 1994 to January 1, 1995. He was then hired as a commissions salesman and was dismissed at the end of January beginning of February 1995. This is the only logical conclusion which may be derived from the evidence in this case when analyzing the total conduct and contractual relationship of the parties.
IV- Decision
[35] The appeal is allowed and the determination of the question in issue is reversed.
Signed at Dorval, Quebec, this 8th day of September 1998.
"S. Cuddihy"
D.J.T.C.C.