Tax Court of Canada Judgments

Docket: 2001-3511(CPP)

BETWEEN:

OUT WEST ENTERPRISES LIMITED, (O/A AD/WISE CONSULTANTS),

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

TARA DALY,

Intervenor.

____________________________________________________________________

Appeal heard on common evidence with the appeal of Out West Enterprises Limited 2001-3510(EI) on January 30, 2003, at Victoria, British Columbia.

Before: The Honourable Judge Gerald J. Rip
Appearances:
Counsel for the Appellant:	R. Brian McDaniel
Counsel for the Respondent:	Jasmine Sidhu
For the Intervenor:	The intervenor herself

____________________________________________________________________

JUDGMENT

          The appeal pursuant to subsection 28(1) of the Canada Pension Plan is dismissed and the determination by the Minister of National Revenue on the application made to him under section 27 of that Plan, is affirmed.

Signed at Ottawa, Canada, this 1st day of April 2003.

"Gerald J. Rip"

J.T.C.C.

Docket: 2001-3510(EI)

BETWEEN:

OUT WEST ENTERPRISES LIMITED, (O/A AD/WISE CONSULTANTS),

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

TARA DALY,

Intervenor.

____________________________________________________________________

Appeal heard on common evidence with the appeal of Out West Enterprises Limited

2001-3511(CPP) on January 30, 2003 at Victoria, British Columbia.

Before: The Honourable Judge Gerald J. Rip
Appearances:
Counsel for the Appellant:	R. Brian McDaniel
Counsel for the Respondent:	Jasmine Sidhu
For the Intervenor:	The intervenor herself

____________________________________________________________________

JUDGMENT

          The appeal pursuant to subsection 103(1) of the Employment Insurance Act is dismissed and the decision of the Minister, on the appeal made to him under section 91 of the Act is confirmed.

Signed at Ottawa, Canada, this 1st day of April 2003.

"Gerald J. Rip"

J.T.C.C.

Citation: 2003TCC181

Date: 20030401

Dockets: 2001-3510(EI) 2001-3511(CPP)

BETWEEN:

OUT WEST ENTERPRISES LIMITED (O/A AD/WISE CONSULTANTS),

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

TARA DALY,

Intervenor.

REASONS FOR JUDGMENT

Rip, J.

[1]      The issue in these appeals under the Employment Insurance Act and Canada Pension Plan is whether, during the period June 24, 1999 to July 21, 2000, Tara Daly was an employee of Out West Enterprises Limited ("Out West"), as determined by the respondent, or an independent contractor carrying on business on her own account, as claimed by the appellant, Out West.

[2]      Out West provides consulting advice to persons advertising in the Yellow Pages of the telephone book. Out West carries on business under the name and style of Ad/Wise Consultants. The sole shareholder, director and president of Out West is Murray Wardrope who, before 1984, was sales manager of a publisher of directories. Mr. Wardrope explained that the Yellow Pages are a monopoly and advertising in them is expensive. There are "things advertisers don't know" and they "buy more than they need". Out West offers various options to a Yellow Page advertiser to improve the effectiveness of the advertisement and reduce costs.

[3]      Out West has been in business for 19 years and Mr. Wardrope has been its only employee, he testified. Out West engages people such as graphic designers, telemarketers and bookkeepers to provide services. Ms. Daly was one of these people, he said.

[4]      In May 1999 Mr. Wardrope placed an advertisement in the newspaper for a person who could perform word processing, bookkeeping and filing duties. Ms. Daly applied; she had, he recalled, previous telemarketing experience. After discussions with Ms. Daly, Mr. Wardrope hired her to work at Out West. Mr. Wardrope testified that Ms. Daly was engaged under a contract for services so that she could work for other persons.

[5]      During the interview with Ms. Daly, Mr. Wardrope said he explained that Out West would pay the same "number of dollars" if the person were an employee or an independent contractor. He explained to Ms. Daly that if she were an employee, Out West would have to withhold certain amounts and if she were self-employed, she would be able to write off her expenses.

[6]      Ms. Daly insisted she told Mr. Wardrope at the time she was originally hired by Out West that she was not comfortable with telemarketing but that she would give it a try. She also stated that Mr. Wardrope required that she work as an independent contractor.

[7]      Mr. Wardrope repeated on several occasions during the trial that Ms. Daly wanted to work for other people as well as Out West. He agreed that as long "as it didn't interfere with her contractual duties [with Out West], she could work elsewhere".

[8]      Mr. Wardrope stated that at the time of his interview with Ms. Daly, Out West had an opportunity to rent 1600 square feet of space for a very low rent, $400 per month. This space could contain approximately eight offices. There was a lot of room, more than was necessary for Out West. Also, he explained that many telephone calls are made each month on behalf of Out West. These calls cost hundreds of dollars and it would be awkward for someone to provide these services from one's home. Ms. Daly agreed to lease office space from Out West "for her work", he insisted, for $300 a month. The rent included a computer, telephone, desk and a chair, beside the space. Ms. Daly, Mr. Wardrope stated, supplied her own software programs. Ms. Daly began work for Out West in June.

[9]      Mr. Wardrope stated that originally all he was looking for was an office for himself and anyone engaged by Out West would work out of their home. However, plans changed when he was able to lease extra space.

[10]     The terms of the engagement between Ms. Daly and Out West, according to Mr. Wardrope, were as follows: she would bill Out West for the number of hours she worked at a figure close to minimum wage. She would have the opportunity to earn extra money by earning a commission equal to 3 per cent of what Out West earned from prospects contacted by Ms. Daly.

[11]     Expenses incurred by Ms. Daly on behalf of Out West were included in her monthly invoice to Out West and were reimbursed by Out West. Ms. Daly debited the rent she owed to Out West from the amount she charged Out West.

[12]     Mr. Wardrope also said he offered Ms. Daly a $300 monthly retainer in addition to anything else she earned. "I didn't want to get caught where she was busy with someone else. I wanted priority." It is not clear from the evidence whether he offered her the retainer when Ms. Daly was hired or later on. Mr. Wardrope stated that he would "drop the $300" if she worked elsewhere.

[13]     Out West's telemarketing functioned as follows: Mr. Wardrope predetermined potential clients for Ms. Daly to call. She would telephone these people throughout British Columbia and Alberta, introduce Out West to them and ask if they would be willing to meet Mr. Wardrope for a few minutes. Mr. Wardrope told Ms. Daly who to telephone. Mr. Wardrope would then attend at the prospective clients and attempt to sell Out West's services. Ms. Daly testified that when she had a very successful run of securing potential clients for Mr. Wardrope to interview, he would tell her to "back off"; when she had a period of difficulty in contacting potential clients, he told her "to push for more".

[14]     Mr. Wardrope said he was away from Out West's office 250 days a year. Therefore, he could not be present to supervise Ms. Daly. Before Ms. Daly started work at Out West he explained to her the work she had to do, cautioning her that the work had to be done without any supervision. However, Mr. Wardrope kept in daily contact by telephone with Ms. Daly.

[15]     During the period in issue Ms. Daly became a paid director of the Cowichan Valley Regional District ("CVRD"). Mr. Wardrope complained that once appointed to the CVRD, Ms. Daly began receiving phone calls at Out West offices with respect to CVRD matters.

[16]     Initially, Mr. Wardrope stated, Ms. Daly performed "quite well". But once she was elected to the CVRD Council, there was a "change in the quality of service". She said she no longer wanted to do telemarketing.

[17]     When Ms. Daly started work for Out West, Mr. Wardrope told her to obtain a business name and open a bank account for the business. He also showed her how to bill Out West. Ms. Daly billed Out West monthly under the name "TLD Services" but did not open a business bank account; the income from Out West was deposited into her personal bank account. Copies of several invoices sent by Ms. Daly to Out West were filed as exhibits by Mr. Wardrope. According to Mr. Wardrope, Ms. Daly had access to Out West's files and therefore she knew what commission she was entitled to and, therefore, had the information to prepare the monthly invoices.

[18]     Mr. Wardrope was aware of the work Ms. Daly performed for CVRD from the premises Out West rented to her. He also was knowledgeable about discussions Ms. Daly had with other people in the office. As a result of the "diminishing value of services" Ms. Daly was performing, Mr. Wardrope stated he had no other option but to terminate the relationship with Ms. Daly.

[19]     Mr. Wardrope completed a questionnaire sent to him by Canada Customs and Revenue Agency ("CCRA"). Mr. Wardrope stated that he provided training to Ms. Daly and added that the "contractor was expected not to deviate from the style and manner by which Ad/Wise Consultants conducts its business, particularly as it relates to telemarketing". Mr. Wardrope stated that the telemarketing work is assigned by him to Ms. Daly and that telemarketing takes place only between the hours of 9:00 a.m. and 5:00 p.m. Ms. Daly was under the impression that except for one hour for lunch, she could not leave the office between 9:00 a.m. and 5:00 p.m. on weekdays.

[20]     Mr. Wardrope indicated he could tell how well Ms. Daly performed telemarketing by the number of appointments she made for him with potential clients. He had concluded that the number of appointments was lower than he expected and dropped off. She realized that "telemarketing was not her cup of tea".

[21]     In questioning Ms. Daly, Mr. Wardrope stated that he trained her in marketing and how to "break the book", that is, what potential clients to look for. According to him, he showed her how to write letters, address envelopes and told her what to say to potential clients. Mr. Wardrope denied he suggested the $300 retainer was a means to "wash" the $300 rent. Mr. Wardrope tried to avoid giving a direct answer to many questions put to him by Ms. Daly.

[22]     In filing her 1999 income tax return, Ms. Daly claimed business expenses for rent and gasoline. She reported income from sales commissions and a retainer. She also claimed business expenses in her 2000 income tax return.

[23]     Mr. Wardrope produced a copy of a decision of this Court in an appeal by Out West from a determination of the Minister that a person had been employed in insurable employment during 1992-1993.[1] Rowe D.J. found that the person was engaged by Out West as an independent contractor. Deputy Judge Rowe found that Out West had "very little control over the activities" of the individual and the individual provided his own office and tools, was paid only a commission and incurred "substantial travel expenses" for which he was not reimbursed. In short, the individual had a substantial risk of loss.

[24]     This is not the case in the appeal at bar. First of all, Ms. Daly was trained to do her job by Mr. Wardrope and she was expected "not to deviate from the style and manner" in which Out West conducted its business. She had to perform her telemarketing services during specific hours as determined by Out West and was told who to communicate with in telemarketing for Out West.

[25]     Mr. Wardrope repeated several times in his testimony that under a contract for services Ms. Daly would be able to seek other work. But he discouraged her from doing so, paying her a "retainer" of $300 per month only to work for Out West.

[26]     Had Ms. Daly the freedom to work as an independent contractor, Mr. Wardrope would not have complained that her work with the CVRD was taking time away from the work with Out West.

[27]     I also agree with Ms. Daly's suggestion that the $300 retainer paid to her by Out West was a "wash", a means to compensate her for the "rent" of the office and equipment. Ms. Daly's net billings, as produced, were as follows:

Month	Amount
June 30, 1999	$262.50
July 31, 1999	$601.58
August 31, 1999	$601.58
September 30, 1999	$702.49
October 31, 1999	$898.45
November 30, 1999	$943.25
December 31, 1999	$651.18
January 31, 2000	$850.07
February 29, 2000	$519.06
March 31, 2000	$880.62
April 30, 2000	$450.19
May 31, 2000	$871.19
June 30, 2000	$1,030.46
July 31, 2000	$770.54 (plus amount of $1,030.46 unpaid for June 30)

[28]     If Ms. Daly had to pay rent without receiving a retainer, her monthly income would be approximately one-third to more than one-half her income. This would not be the result of an independent contractor's risk in carrying on a business but a result of low pay. In the questionnaire the CCRA sent to Out West, Mr. Wardrope informed the CCRA that expenses incurred on behalf of Out West were reimbursed. Ms. Daly's degree of risk of loss was minimal and is not a significant factor in arriving at my decision.

[29]     I rely on the reasons for judgment of the Supreme Court of Canada in Sagaz Industries Canada Inc. et al. v. 671122 Ontario Limited,[2] and Wiebe Door Services Ltd. v. M.N.R., a decision of the Federal Court of Appeal.[3] Major J. stated that in considering whether a person was an employee or an independent contractor, the central question is whether the person was performing services as a person in business on her own account. Factors to be considered include the level of control the employer had over the worker's activities, whether the worker provided her own equipment, whether the worker hired her own helpers, the degree of financial risk undertaken by the worker, the degree of responsibility for investment and management held by the worker and the worker's opportunity for profit.[4] It is on the totality of the evidence that a judge made a decision.[5]

[30]     Ms. Daly was carrying on no business on her own account. Mr. Wardrope was always controlling her activities, whether he was at the office or on the road. Ms. Daly had to work within the instructions given to her. I do not believe that Mr. Wardrope ever really considered Ms. Daly as other than an employee. He knew - and made sure he knew - what she was doing and when she was doing it. She did not have any discretion to act on her own even to a limited degree as an independent contractor would have.

[31]     The appeals are dismissed.

Signed at Ottawa, Canada this 1st day of April 2003.

"Gerald J. Rip"

J.T.C.C.

CITATION:

2003TCC181

COURT FILES NUMBERED:

2001-3511(CPP) and 2001-3510(EI)

STYLE OF CAUSE:

Out West Enterprises Limited (O/A Ad/Wise Consultants and The Minister of National Revenue and Tary Daly

PLACE OF HEARING:

Victoria, British Columbia

DATE OF HEARING:

January 30, 2003

REASONS FOR JUDGMENT BY:

the Honourable Gerald J. Rip

DATE OF JUDGMENT:

April 1, 2003

APPEARANCES:

Counsel for the Appellant:

R. Brian McDaniel

Counsel for the Respondent:

Jasmine Sidhu

COUNSEL OF RECORD:

For the Appellant:

Name:

McDaniel & Tillie

Firm:

Barristers & Solicitors No. 201 - 64 Station Street Duncan, British Columbia V9L 1M4

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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