Slumber Management Ltd. v. M.N.R., docket 97-1291-UI

Date: 19980210

Dockets: 97-1291-UI; 97-144-CPP

BETWEEN:

SLUMBER MANAGEMENT LTD.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

O'Connor, J.T.C.C.

[1] This appeal was heard at Vancouver, British Columbia on January 22, 1998 pursuant to the Informal Procedure of this Court.

[2] The issue is whether certain persons retained by the Appellant were employees under contracts of service or were they independent contractors under contracts for service. The applicable statutory provisions are paragraph 3(1)(a) of the Unemployment Insurance Act and paragraph 5(1)(a) of the Employment Insurance Act.

[3] By Notice of Assessment dated February 10, 1997 the Respondent assessed the Appellant with respect to, inter alia, certain amounts of unemployment insurance premiums, interest and penalties alleged to be payable by the Appellant pursuant to the Acts mentioned above in connection with the services performed for the Appellant in 1996 by certain persons listed in Schedule "A" to the Reply to the Notice of Appeal. In response to an appeal brought by the Appellant for reconsideration of the assessment, the Respondent confirmed the assessment on April 30, 1997.

[4] The principal facts follow:

1. On June 13, 1996 the Appellant's parent, Slumber Holdings Ltd., purchased 13 motels, called Slumber Lodges, from Western Dominion Investment Company Ltd.

2. At or about the time of the purchase, the Appellant made offers to the various persons who, with one exception, were the existing managers at the various motels at the time of the purchase. The one exception is David Bennett. The evidence disclosed that he was an independent vehicle contractor. There was no evidence led to contradict this and consequently there is no doubt that David Bennett was not employed under a contract of service.

3. Under the typical management contract entered into between the Appellant and the motel managers, a manager was to be paid a gross amount on a periodic basis. This gross amount was higher than what the manager was being paid prior to purchase. Because each of the motels operated by the Appellant was being actively marketed for resale, the contract provided that the Appellant could terminate the engagement of the particular manager on 14 days notice. The contract provided further that should the Appellant's parent continue to own the property after six months "a review will be conducted at that time". Although only two copies of this contract were submitted, it appears that all of the managers and the Appellant signed substantially similar contracts. In fact, 11 of the 13 motels purchased sold within the six-month period, some within a matter of days after purchase. Prior to the purchase the managers had been treated as employees by the previous owner with the normal deductions for unemployment insurance and Canada Pension Plan being made. However, the new management contract made it clear that the managers were to be paid a "gross amount which accounts for the cost of replacing your former employer-paid benefits". Two of the mangers testified and stated they felt they were forced to sign the contracts or otherwise lose their jobs. I was not convinced that that was the case. Obviously the most logical persons to manage were those familiar with the oeprations of the particular motel concerned. In any event, the existing managers did in fact sign and agreed to the higher "pay" with no benefits.

4. The working conditions of the managers did not change after the purchase, the one exception being that after the purchase the managers were required to report on a daily rather than weekly basis to the Appellant as to the revenues and expenses of their respective motel operations.

5. The rates charged for motel rooms remained the same as those in effect prior to the purchase. However, the managers could vary the rates within certain limits depending upon competitive rates of motels in the area concerned.

6. The main tools were those normally found in a motel operation, namely, the physical facilities, furniture, beds, linens, office equipment and supplies. In some cases, the managers used their own vehicles to a certain extent in the motel operation and some also owned computers used in the operation. Precise details on which managers fell within these categories were not provided. The managers in the operation of the motels hired maids and part-time office workers whose salaries were paid by the Appellant.

7. The evidence also discloses that the managers from time to time showed their motels to prospective purchasers.

8. The managers had no fixed hours and generally, were on call 24 hours a day.

9. The managers were not supervised in the carrying out of their operations. Their only obligation was to report revenues and expenses on a daily basis.

10. The managers did not have an opportunity to profit nor did they stand to lose from the motel operations.

11. The managers could have worked for other persons but, given their lengthy duties, there was no time for this.

Analysis and Decision

[5] There are numerous decisions dealing with the issue addressed in this appeal. The jurisprudence has developed a four-fold test, namely, a) extent of control and supervision, b) ownership of tools, c) opportunity to profit or risk of loss and d) the integration test. It is also clear from the jurisprudence that it is not sufficient to examine the four traditional tests separately. A court must also consider the over-all evidence, taking into account those of the tests which might be applicable and giving to all the evidence the weight which the circumstances might dictate.

[6] One of the tests clearly points to an employee relationship because the workers had no opportunity to profit or chance of loss.

[7] As to ownership of tools the evidence is incomplete as reference was only made to certain of the managers owning some tools such as computers and vehicles used in the motel operation. However, in my opinion, ownership of tools in a motel operation is not a significant factor.

[8] The test of control and supervision, in my opinion, points to an independent contractor relationship. There were no fixed hours, the managers could hire maids and other required staff, they ran the day to day operation of the motels independently. The only requirement was to report revenues and expenses to the Appellant on a daily basis.

[9] The integration test is difficult but, in my opinion, on balance it points to the relationship of an independent contractor principally because the motels were acquired for quick resale and not for the continued operation of a motel business. Had the managers been retained as on-going managers and had this element of a quick sale not been there, the integration test probably would have pointed to an employee relationship.

[10] The management contract, one sample of which was filed as Exhibit A-1 and another sample of which was filed as Tab 5 of Exhibit R-1, clearly points to a relationship of an independent contractor. In this respect, it is my opinion that if the management contract in substance coincides with the true relationship between the parties, it cannot be ignored. In Chauvco Resources Ltd. v. Minister of National Revenue, Bowie, T.C.J., in a jugment rendered February 27, 1997, held that the written contract was "no more than window dressing" and did not reflect the true relationship between the parties. Consequently, the written contract in Chauvco was not determinative of the issue and, in fact, was ignored. I do not believe that is the case here as the management contract, in my opinion, substantially reflects the relationship between the Appellant and the managers.

[11] Consequently, in my opinion, although the test of profit/loss indicates an employee relationship, the other tests do not. In particular, the control test does not nor, in my view, does the integration test. Therefore, I find that the Appellant has established, on a balance of probabilities, that its relationships with the managers consisted not of contracts of service but rather contracts for services. Consequently, the appeal is allowed and the decision of the Minister is reversed.

Signed at Ottawa, Canada, this 10th day of February 1998.

"T.P. O'Connor"

J.T.C.C.