Citation: 2012 TCC 60
Date: 20120223
Dockets: 2009-3950(EI)
2009-3951(CPP)
BETWEEN:
PRO-PHARMA CONTRACT SELLING SERVICES INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
DHEKRA CHABBOUTH,
Intervenor.
Dockets: 2009-3475(EI)
2009-3476(CPP)
AND BETWEEN:
PATRICK GONSALVES,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
DHEKRA CHABBOUTH,
Intervenor.
REASONS FOR JUDGMENT
Weisman D.J.
[1]
Pro-Pharma Contract
Selling Services Inc. (“the Company”), and one of its sales representatives,
Patrick Gonsalves (“Gonsalves”) appeal against determinations by the Minister
of National Revenue (“the Minister”) that the 287 sales representatives that
were in a working relationship with the Company during 2006 and 2007, were then
in insurable and pensionable employment within the meaning of the Employment
Insurance Act
(“the Act”) and the Canada Pension Plan (“the Plan”).
On consent of the parties, these four appeals were heard together on common
evidence.
[2]
The Minister has
assessed the Company approximately one million dollars for unpaid premiums and
contributions, in addition to penalties and interest for the two year period
under review. The Appellants contend that all 287 sales representatives were independent
contractors whose terms or conditions of employment or service do not
constitute a contract of service, nor were they analogous thereto; that the
Company was not a placement agency within the meaning of Regulation 6.(g) under
the Act, and Regulations 34.(1) and (2) under the Plan; and that
the subject representatives were not placed by the Company under the direction
and control of its clients.
[3]
The three Regulations
provide as follows:
6. 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.
34. (1) Where
any individual is placed by a placement or employment agency in employment with
or for performance of services for a client of the agency and the terms or
conditions on which the employment or services are performed and the
remuneration thereof is paid constitute a contract of service or are analogous to
a contract of service, the employment or performance of services is included in
pensionable employment and the agency or the client, whichever pays the
remuneration to the individual, shall, for the purposes of maintaining records
and filing returns and paying, deducting and remitting contributions payable by
and in respect of the individual under the Act and these Regulations, be deemed
to be the employer of the individual.
(2) For the
purposes of subsection (1), “placement or employment agency” includes any
person or organization that is engaged in the business of placing individuals
in employment or for performance of services or of securing employment for
individuals for a fee, reward or other remuneration.
[4]
These reasons will
examine the nature of the working relationship between the Company and its
sales representatives, the legal issues raised by this fact situation, and the
analysis involved in the conclusions that I have reached.
The Working Relationship Between the Company and its
Sales Representatives:
[5]
The main witness in
these proceedings was Ian Fraser (“Fraser”) who founded the Company in 1984,
and was its President and Chief Operating Officer during the period under
review. He was knowledgeable about the industry itself, and the Company and its
working relationships with its sales representatives and clients.
[6]
The Company provides
medical sales representatives to its clients, which are all multinational
pharmaceutical companies. These representatives visit doctors to introduce and
explain, or “detail” the clients’ pharmaceutical and other products, using
research data, brochures, and samples provided by the client, in order to
encourage or convince the physicians to prescribe those products appropriate to
their patients. They also call upon pharmacies to ascertain and compare the
prescriptions physicians are writing for the products they are promoting, as
opposed to those of their clients’ competitors. While the representatives
agreed with the Company to conform to the call frequencies directed by the
client or clients, they were free to schedule those calls and their working
days as they saw fit.
[7]
The Company’s clients
are able to obtain lists of high-prescribing doctors which they use to define
what they call their “target audience”. The clients then assign the sales
representatives to geographical territories which are configured by the Company
in conjunction with the clients, to contain a high concentration of such
physicians.
[8]
What is unusual about
the workers involved in these appeals is that in the vast majority of
instances, they were previously employed as sales representatives for the same
pharmaceutical companies that entered into Client Services Agreements with the
Company. These companies were downsizing or acquiring others, and were anxious
to have their representatives enter into working relationships with the
Company, so that continuity could be maintained. The target audience in any
territory would continue to be canvassed on the clients’ behalf by the same
sales representatives the doctors had come to know, and who were experienced
and expert in the various pharmaceutical products the physician’s particular
speciality required. From the workers’ point of view, it was business as usual,
except that whereas they were formerly employees of the pharmaceutical
companies, they would now be independent contractors engaged by the Company.
This gave them the promise of greater net income because of the ability to
deduct allowable business expenses from gross income. In addition, they were
freed of various time‑consuming administrative responsibilities that went
along with employment by a large, multinational pharmaceutical company.
[9]
The Company paid its
sales representatives either monthly, or per call. It then invoiced its clients
for the amounts it paid out plus a 40% mark-up, which was the Company’s only
source of revenue. During the period under review this amounted to some twelve
million dollars per annum.
[10]
Sales representatives
could be “dedicated”, “syndicated” or “dedicated/ syndicated”. Dedicated
representatives acted for just one client, and detailed no more that two of
that client’s products per call upon a physician. Syndicated representatives
could represent more than one client at each call upon a doctor. During the
period under review, most of the Company’s sales representatives were dedicated
to one client.
[11]
It was fundamental to
the financial viability of the Company from its inception that the medical
sales representatives be independent contractors so that the Company would not
have to bear the expense of employment insurance premiums and Canada Pension
Plan contributions; and the representatives could achieve greater net
remuneration than comparable employees, as aforesaid. Accordingly, the Company
entered into Representative Agreements with the workers which all express a
clear mutual intent that the sales representatives be independent contractors
responsible for their own source deductions, for income taxes, employment
insurance premiums, and Canada Pension Plan contributions.
[12]
Most dedicated
representatives were paid $30.00 per meeting with a physician to detail one
product for a client, and $33.00 if they detailed two. Others were paid a flat
monthly fee for their services. The monthly fee was subject to negotiation
between the Company and the sales representative involved. All syndicated
representatives were paid a fee per call, regardless of how many clients’
products they detailed during a meeting, which fee was not negotiable.
Representatives that were remunerated per call were paid only if they succeeded
in having a face-to-face interview with the targeted physician. This was
problematic since frequently, despite having secured a pre-arranged
appointment, the sales representatives had to make several abortive visits to
busy doctors’ offices before the physician could be interviewed. The
representatives were not paid for this wasted time and expense.
[13]
Both dedicated and
syndicated representatives had the right to refuse assignments if they disliked
a particular client or product. Upon such refusal, the Company would put that
representative’s name back on its data base of those available for assignment.
[14]
None of the
Representative Agreements were exclusive, requiring the representative to
perform his or her services solely for the Company or any of its clients. In
this regard, the only contractual restriction was as follows: “During the term
of the Agreement, the Representative shall not carry out any work for any
competitor of the Client and shall at all times devote that proportion of their
entire working time and attention necessary to complete such duties as shall be
required of them”.
[15]
The Representative Agreements
were all for a limited term of 12 months or less, with no provision for
renewal. The sales representatives accordingly had no job security in their
working relationship with the Company.
[16]
Some sales
representatives hired others to perform some aspects of their responsibilities.
While the actual presentation and detailing of products to their target doctors
had to be done by the representatives personally in face-to-face meetings,
time-consuming administrative portions of their duties were sometimes delegated
to others. It took time and effort to schedule and reschedule regular
appointments with busy physicians as aforesaid, and to arrange working lunches
and seminars with individual, or groups of doctors; prepare the required work
sheets, reports and invoices and do the related bookkeeping. Those sales
representatives who were paid per call and were freed of these administrative
duties could increase the number of their daily calls, and their revenues,
accordingly.
[17]
Gonsalves, who was a
syndicated paid-per-call sales representative, expert in pharmaceutical
cardiology, retained his wife to perform the above functions out of their home
office. Being enterprising by nature, and confronted by the aforementioned absence
of job security with the Company, he also formed plans to accumulate a roster
of physicians to which he could present products made by companies that did not
compete with those of his assigned client, Sinofi-Aventis Pharma Inc.
Were the Sales Representatives Independent Contractors
in Their Working Relationship with the Company:
[18]
To determine this
issue, one must subject the established facts to the four‑in‑one
guidelines formulated in Wiebe Door Services Ltd. v. M.N.R. The four
criteria are the payer’s right to control the worker; who owns the tools
required to perform the worker’s function; the worker’s chance of profit by
sound management; and his or her risk of loss in the working relationship.
As to the Right to Control:
[19]
This factor requires
one to distinguish a payer’s right to control the worker, from simply
monitoring the quality of the worker’s performance. The former indicates a
contract of service, the latter a contract for services. In this regard,
virtually all the Representative Agreements provide as follows:
5. The obligations of the company with respect to the provision of
continuing quality of services to be provided by the Representative hereunder
are that (a) a Company Sales Manager and/or a Client Sales Manager may work
with the Representative (provided the client agrees) and (b) the Company\Client
may provide a selling skills seminar at some time.
[20]
Notwithstanding the
above provision, the evidence adduced at trial establishes that with few
exceptions the sales representatives were left on their own in their designated
territories, and were free to set their own hours, so long as the frequency of
calls upon their target audience as required by the client, was maintained.
Since the sales representatives already possessed extensive knowledge of the
client’s needs and products, the assigned territory, and the high-prescribing
doctors therein, through their previous employment with the same client, there
was no need for the Company to direct them as to what to do or the manner in
which it had to be done. The sales managers would accompany the representatives
on their calls on a monthly basis, on what was known in the industry as a “work
with”. According to Fraser, the purpose of this procedure was not to supervise
the representative, but to “coach” him or her. Accordingly, the manager would
quietly observe the interaction between the representative and the targeted
physician, and suggest improvements in the presentation over lunch thereafter.
[21]
Questions have been
raised at trial as to the consequences if a sales representative failed to
appear for scheduled appointments with doctors, arrived in an inebriated
condition, or otherwise misbehaved. The evidence indicates that the doctor’s
office would complain to the sales manager, or the client, or the company, and
the representative in question would be given a 30-day period in which to
rectify the impugned behaviour, as required by the Representative Agreements,
in default of which he or she would be terminated by the Company. It is clear
law that independent contractors are subject to reasonable controls. As the Court
says in Livreur Plus:
“A subcontractor is not a person who is free from all restraint, working as he
likes, doing as he pleases, without the slightest concern for his fellow
contractors and third parties”.
[22]
While the Company had
the de jure right to terminate the sales representatives for cause, it
did not in fact supervise, direct or control them. It merely monitored the
quality of their performance on behalf of their clients. There is no evidence
that the sales representatives were in a subordinate relationship with the
Company, whether they were dedicated, syndicated, or a combination of both. The
control factor accordingly indicates that the sales representatives were
independent contractors in their working relationship with the Company.
As to the Ownership of Tools:
[23]
The workers provided
their own vehicles, which were the main tool required to cover their
territories, and transport the various samples, brochures, and clinical data,
all of which were supplied by the client. Storage space, in the workers’ homes
or elsewhere, was also required to accommodate the aforementioned supplies and
samples. There is no evidence that the Company provided the sales
representatives with any equipment whatsoever. The ownership of tools factor
also points to the representatives being independent contractors.
As to the Chance of Profit by Sound Management:
[24]
The evidence
established that the monthly dedicated sales representatives had the ability to
negotiate their remuneration depending on their experience and number of years
in the industry. This is significant because Sexton J.A. says in Precision
Gutters Ltd. v. M.N.R.
(“Precision Gutters”): “In my view, the ability to negotiate the terms of a
contract entails a chance of profit and a risk of loss in the same way that
allowing an individual the right to accept or decline to take a job, entails a
chance of profit and risk of loss”.
[25]
In this regard, all
sales representative had the right to refuse assignments, if they didn’t want
to represent a particular client or product. As Fraser says: “And they had the
right. And that was their decision”. If so, they would not get that arrangement
or contract. The Appellants would then keep the representative’s name on its
database for a subsequent opportunity.
[26]
As aforesaid, the only
contractual provision restricting the representatives from accessing sources of
income, other than that from the Company, was the aforementioned standard
proviso in the Representative Agreements prohibiting the representatives from
working for any of their client’s competitors. Accordingly, if sales
representatives who were paid per call were expeditious and efficient in their
meetings with their assigned physicians, they were able to accomplish more
calls per day, and enhance their profits accordingly. All sales
representatives were free to engage in other opportunities in the
pharmaceutical, or indeed in any other field. They could detail products,
pharmaceutical or otherwise, to their assigned doctors, or to any doctors
whether or not they were within their given territory, so long as those
products were not sold by their client’s competitors. Gonsalves was planning
just such a business venture.
[27]
Christian Knabel
testified on behalf of the Company. He is the President and Managing Director
of Pharmexx Canada which bought the Company in 2006. He took
over from Fraser in 2010, when the Company was in a difficult position. It had
lost significant market share to competitors whose sales representatives were
employees. He therefore discontinued the independent contractor, fee-per-call
model, because the quality of the presentations to doctors had deteriorated in
the hands of enterprising sales representatives who were anxious to maximize
the number of their daily calls, and therefore their profits. Some would simply
leave a sample of the client’s product with the physician, and depart.
[28]
Gonsalves hired his
wife to work in their home office to accomplish the required administrative
functions associated with his responsibilities as aforesaid. She made the
appointments with the physicians, arranged the working lunches, paid all
invoices, and completed all necessary expense and other reports. Justice
McKenna, in Ready Mixed Concrete v. Minister of Pensions says: “A servant must be obliged to provide
his own work and skill. Freedom to do a job by one’s own hands or by another’s
is inconsistent with a contract of service, though a limited or occasional
power of delegation may not be”. This raises the question whether Gonsalves’
ability to hire his wife to take over his administrative duties, solidifies his
status as an independent contractor. While I have been referred to no authority
that deals with this point, I would think that the phrase “a job” in the
quotation from Justice McKenna refers to the worker’s principal task. An
electrician or plumber can do his job by his own hands or by another’s.
Gonsalves was obliged to personally call upon his assigned physicians. To put
it another way, I doubt whether one in Gonsalves’ position can fortify their
claim to independent contractor status by the simple expedient of paying a
family member to perform office functions. This does not detract from the
conclusion that the sales representatives had a chance to profit by sound
management which indicates that they were independent contractors during the
period under review.
As to the Risk of Loss:
[29]
Precision Gutters, quoted above, established that the
representatives’ ability to decline job offers, and the ability of the
dedicated monthly sales representatives to negotiate their rate of remuneration
inherently constitute a risk of loss. In addition, those representatives who
were remunerated on a fee-per-call basis, lost income and incurred travelling
expenses every time a visit to a physician’s office failed to produce a
face-to-face meeting, due to the doctor’s unavailability or otherwise. The
representatives all bore the cost of storage space, as well as motor vehicle
expenses although the latter were defrayed somewhat by a mileage allowance paid
by the clients.
[30]
In addition, the
Representative Agreements all contain the following unusual clause: “the
Representative undertakes to indemnify and hold harmless the Company against
all losses, claims, injuries, including loss of life, which may be occasioned
as the result of the provision of services hereunder”. This provision resonates
with the oft-quoted
dictum of Cooke J. in Market Investigations Ltd. v. Minister of Social
Security
in attempting to list some indicia that might characterize an independent
contractor:
… whether the man performing the services provides his own
equipment, whether he hire 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.
This indemnity clause clearly subjects the
representatives to financial risk.
[31]
Further, all the
Representative Agreements were for terms of 12 months or less with no assurance
of renewal. The absence of job security has also been recognized as a risk
factor in the jurisprudence.
The risk of loss guideline therefore indicates that the sales representatives
were independent contractors.
As to the Parties Mutual Intention:
[32]
The Company and all of
its sales representatives have contractually expressed a clear mutual intention
that the workers be independent contractors in their working relationship with
the Company. Application of the four Wiebe Door guidelines to the
evidence adduced at trial indicates that their intention was fulfilled.
Was the Company a Placement or Employment Agency:
[33]
The Company’s Notice of
Appeal contains the following assertion:
15. The Appellant operates as a Contract Sales Organization and not
as a placement agency. As a result, the Appellant provides many services to its
clients. These services can include performing promotion and marketing
services, national and regional field sales management, payroll and expense
management and administration, product and sales training, the creation of
customized sales reports, the management of promotional materials and sample
allotments and the provision of infrastructure support. The Appellant does not
match requests for work with requests for workers.
[34]
This pleading reflects
the Company’s reliance on the case of Supreme Tractor Services v. M.N.R. (“Supreme
Tractor”) a decision of Porter D.J. There, the Appellant contracted with a
client that sought grading services, to supply a grader of certain specifications
together with fuel oil, repairs, maintenance, and ground engaging tools, and a
skilled and experienced grader operator. For these, the Appellant was paid
$68.00 per hour. The Court holds:
“The simple question to ask is whether entity A is under any obligation to
provide a service to entity B other than simply provide personnel. If the
answer is yes, it clearly has business of its own as does any general
contractor on a building site and the worker is not covered by the Regulations
under either statute”. In the result, since the contractor was providing a
grading service requiring both a grader and an experienced operator, and not
just placing personnel, it was found not to be liable pursuant to the
Regulations under either the Act or the Plan.
[35]
The Federal Court of
Appeal considered this decision in OLTCPI Inc. v. M.N.R.
(“OLTCPI”). The Court rephrases Porter D.J.’s test as follows: “The question in
this regard is whether the person concerned is merely supplying workers or is
doing so in the course of providing a distinct service”.
[36]
The Court found that
the Appellant provided dieticians to its client Leisureworld which operated
long-term care facilities for senior citizens. The client, however, in the
course of its direction and control of the workers, required the dieticians to
perform services above and beyond the requirements of the Ministry of Health.
The Court holds:
The picture which emerges from the evidence is that beyond ensuring
compliance with the requirements of the Ministry of Health, the dieticians were
assigned by the appellant to Leisureworld in order to answer Leisureworld’s
specific needs and provide the specific services which they were called upon to
provide by the Leisureworld staff. As such it was open to the Tax Court Judge
to hold that the appellant’s situation was not analogous to that of a
contractor providing personnel in the performance of a distinct service.
[37]
In the result, the
Court found that the appellant was a placement or employment agency that placed
workers under the direction and control of its clients, and dismissed the
appeals.
[38]
There are several
problems with resorting to Supreme Tractor as a guide to resolving the
placement or employment agency issue before me. In Supreme Tractor, the
appellant-contractor provided both a grader and an operator to perform a
distinct grading service. It charged its client $17.00 per hour for the
operator, and $51.00 per hour for the supply and maintenance of the grader. On
these facts it was found that a distinct service was being provided over and
above the provision of personnel.
[39]
In contrast, when Mr.
Fraser was asked how the Company’s revenues were derived, he testified that all
of its revenues came from the 40% mark-up it charged its clients on the
remuneration the Company paid to the sales representatives. When specifically
queried if the Company charged its clients for any of the other services
enumerated in paragraph 15 of its Notice of Appeal, he candidly replied “No”. In
OLTCPI the Appellant also claimed that it was providing a range of
services for its client, but the evidence revealed that these were in fact
provided on a complementary basis as in the matter before me.
[40]
Further, none of the
Client Services Agreements which have been put into evidence require the Company
to provide its clients with any paid services other than the provision of
qualified and approved sales representatives. For example, the Company’s
agreement with Johnson and Johnson Medical Products, which is exhibit A-9 in
these proceedings, typically provides only that: “5. A Company sales manager
may work with the Representatives and the Company may provide a sales refresher
seminar to such Representatives”.
[41]
The only statutory
definition of a placement or employment agency is to be found in Regulation 34.(2)
under the Plan, set out above. The Company was engaged in the business
of placing individuals in employment or for performance of services for a fee.
I accordingly find that it was an employment or placement agency during the
period under review.
Did the Company Place the Sales Representatives Under the Direction and
Control of Its Clients:
[42]
Regulation 6.(g) under
the Act, expressly requires that a placement or employment agency place
workers under the direction and control of its clients. It does not require
that there be a contractual relationship between the worker and the client. This
differs from Regulation 34.(1) under the Plan, which does require that there
be a contract of service between the worker and the client, or something
analogous thereto.
[43]
As far as Regulation 6.(g)
under the Act is concerned, the Sales Representative Agreements all
contain the following clauses which are relevant to the issue of direction and
control:
3. The reporting and accountability by the Representative to the
Client for the services to be provided by him [or her] pursuant hereto shall be
as reasonably required by the Client.
6. The obligations of the Client are to provide product training
and/or direction as to reporting requirements, including the Client’s
guidelines/policy for field representatives as well as to provide all
promotional literature, product samples and the like, and generally to provide
such other information and/or direction as may be reasonably necessary to give
effect to the purposes of this agreement.
7. The services of the Representative to the Client shall be
provided in a manner, and the Representative shall report and be accountable to
the Client, as reasonably required by the Client.
[44]
On the other end of the
spectrum, the following are typical examples of provisions, culled from the
diverse Client Services Agreements, regarding the clients’ ostensible right to
direct and control the representatives:
Roche has a
Business Practices Manual (the “Manual”), which has been provided to Pro-Pharma,
that provides various policies, procedures and statements as to how business
should be conducted on behalf of Roche. Pro-Pharma agrees that it and all its
personnel, including the representatives shall comply with all the provisions
of the manual when providing the Services.
The
obligations of the Client with respect to each Representative are to provide
product training and/or direction as to the reporting requirements, including
the Client’s guidelines/policies for sales representatives, as well as to
provide all promotional literature, product samples and the like, and generally
such other information and/or direction as may be reasonably necessary to give
effect to the purpose of this Agreement”.
As for the
Representatives, PRO-PHARMA shall have sole responsibility for their direction
and control and PRO-PHARMA shall be fully accountable for the acts and omissions
of the Representatives. PRO-PHARMA agrees that the Representatives and other
PRO-PHARMA personnel will cooperate fully with the Client and its district
managers and their monitoring of the program and will accept sales and
marketing direction from Client.
The
Representatives shall be responsible for the detailing of AXERT and TOPOMAX to
GP/FMs as identified by the Client. A third product detail as assigned by the
Company is strictly prohibited. All communication of product information by the
Representatives to customers shall be consistent with the direction provided by
the Client. The Representatives shall strictly adhere to all procedures and
processes for communication as requested by the Client. This includes all
communication from the Client’s sales, marketing, medical information and
regulatory departments and consistent with requirements as outlined in Rx &
D standards”.
The Client may
at any time advise the Company in writing if the Services conducted by a
Representative are not satisfactory to the client. The Company shall upon
receipt of such notice, if for just cause, immediately replace such
Representative with a suitable Representative (subject to a 30 day notice
period for the Representative to rehabilitate him or herself).
[45]
The sales
representatives were not parties to these Client Services Agreements. De jure
control over the representatives therefore remained with the Company. The
question is whether any of these contractual provisions ceded to the clients de
facto control over the sales representatives.
[46]
The evidence adduced at
trial establishes that they did not. Fraser testified that the sales managers,
whether in the employ of the Company or the clients, simply coached the sales
representatives, and did not supervise them, as aforesaid. Melissa
Bryan-Pulham, a witness for the M.N.R., was a dedicated monthly representative
who worked with a sales manager in the employ of Janssen-Ortho. While she
referred to her manager as her “boss” because he was the one she “reported” to,
she described her relationship with him as “one of give and take”, and added
that if his suggestions did not fit her selling style, “he would understand”.
She also said that she was “out on her own” for the most part and set a lot of
her own hours of work. This witness was unusual in that while she had prior
sales experience, she was new to the field of pharmaceutical sales, and
required an intensive week of in-class training by the client. Nonetheless, her
performance was subject to the same degree of monitoring as was that of her
more experienced counterparts.
[47]
Kathryn Clarke, a
second witness for the Respondent, also a dedicated monthly representative,
promoted products for diabetics on behalf of Lifescan Canada Ltd. Ms. Clarke
testified that her hours of work were flexible; that while her sales manager,
who was employed by Lifescan, held conference calls every Friday, he simply
came up with ideas about how to do the job better. While it was strongly
recommended that she follow through with his suggestions, her job was not in
jeopardy if she did not.
[48]
Gonsalves’ evidence was
that his sales manager was employed by Pro‑Pharma. This manager “worked-with”
him once per month, and at the end of the day would evaluate his performance,
and write up a work-with report for the Company. They would discuss what kind
of points could have been made more forcefully, or how a certain objection
could have been handled differently. Since the manager worked with, and
observed ten or more sales representatives at a time, he was able to see and
suggest ways of doing things that were different and effective. In Gonsalves’
view, it was in this area of information-sharing that his manager played an
important role. When asked what would happen if he declined to follow his
manager’s suggestions, he said: “I had a choice. I was on contract”. Gonsalves
also advised that his required sample, expense, and weekly activity reports
were all on Pro-Pharma letterhead, and were given to the Company, not the
client.
[49]
In my view, all four
witnesses establish that the sales managers’ role, whether they were in the
employ of the Company or the client, was more commensurate with coaching as
Fraser described it above, than supervision, direction, or control.
[50]
Further, any reporting
requirements that did involve the clients, were either required by the Ministry
of Health, or were necessary to track the number of calls made, both for purposes
of remuneration, and to monitor call frequency. The disciplinary procedures in
effect were no more than would apply to any independent contractor, and are an
example of the Company and client monitoring the quality of the sales
representatives’ work, rather than controlling them. The King Pharma Agreement
is of interest because it seems to contemplate that the client’s role is indeed
restricted to monitoring.
[51]
Finally, there is
strong evidence from Christian Knabel that the contractual fee-per-call structure
and its monitoring provisions did not afford the Company or its clients
sufficient control over the sales representatives to prevent the quality of the
calls upon physicians to deteriorate as aforesaid, costing the Company
significant loss of market share. The Company found that the quality of
presentation to doctors improved once it hired sales representatives as
salaried employees that could be controlled. I accordingly find that the 287
sales representatives were not under the de facto direction and control
of the Company’s clients, or their sales representatives, nor were they in a
subordinate position to either of them. On this point, the facts before me are
distinguishable from those in OLTCPI where the Court reached the
opposite conclusion.
The Minister’s Assumptions:
[52]
The burden lies upon
the Appellants to refute or demolish the assumptions contained in the
Minister’s Replies to their Notices of Appeal.
Those not so demolished are to be taken as true. The pivotal
finding in these proceedings is that the sales representatives were not placed
by the Company under the direction and control of its clients. The relevant
assumptions in regard to this issue, and the evidence related thereto, are as
follows:
[53]
13(f) “the workers were
required to complete and submit a “Weekly Activity Report” prior to being
compensated”. Mr. Fraser explained that these reports recorded what doctors
were called upon and which products were detailed. They were like invoices, and
were necessary only for those sales representatives who were remunerated on a
fee-per-call basis. They were submitted to the company and not to the client in
any event.
[54]
13(q) “the Clients
dictated the Sales Workers’ territory, the customer list and call frequency”.
Mr. Fraser clarified that it was the Company that recommended the geographical
territories. The clients’ input was needed as to their location and number so
that they could budget accordingly. The evidence is that the Sales
Representatives were sufficiently familiar with the target physicians in their
territory that they knew which were recently retired, no longer in practice, or
new to the area. They were therefore permitted to adjust the customer list as
much as 20% to bring it up to date if need be. The balance of the assumption
was admitted.
[55]
13(t) “the clients had
full right of approval of the Sales Workers”. While this provision appears in
some Clients Services Agreements, this is the exception rather than the rule. Mr. Fraser
clarified that the client would provide the Company with the ideal profile of
the representative they were looking for. The Company then worked to find the
right worker in that piece of geography, who had the required therapeutic
category experience.
[56]
13(u) “the Sales
Workers had to provide their services to the Clients in a manner, and the
Workers were required to report and be accountable to the clients, as
reasonably required by the Clients”. This is a standard provision in the Client
Services Agreements. The assumption was admitted by Mr. Fraser.
[57]
13(w) “the Sales
Workers’ pay was determined by the Appellant and its Client Agreements”. Fraser
denied that the clients had any input into the representatives’ remuneration.
[58]
13(y) “the Sales
Workers’ performances were measured by territory objectives or contract objectives
on a quarterly basis by the Appellant’s Sales Managers or the Clients’
managers”. Mr. Fraser explained that this was occasionally done, but was not
part of the service the Company provided unless it was specifically asked for.
[59]
13(ff) “the Sales Workers
were not permitted to work for any of the Client’s competitors”. This
assumption was admitted.
[60]
13(gg) “the Sales
Workers had to provide their services exclusively for the Clients”. This
assumption was clearly demolished, not only by the express provisions of the
Clients’ Services Agreements but by the contrary evidence of Fraser and
Gonsalves.
[61]
13(mm) the clients’
managers generally supervised the Dedicated Workers by:
(i)
setting out the
Dedicated Workers objectives and targets;
(ii)
coaching the Dedicated
Workers;
(iii)
monitoring the
Dedicated Workers progress;
(iv)
periodically
accompanying the Dedicated Workers on calls;
(v)
completing reports on
the Dedicated Workers’ performance, to be forwarded to higher management.
Fraser agreed with this assumption even though it
contained the contentious word
“supervised”. Notwithstanding this, all five
constituent elements of this assumption are more consistent with monitoring the
quality of the work than controlling the worker, which is in accord with the
evidence adduced at trial as aforesaid.
[62]
13(nn) “the Dedicated
Workers submitted qualitative reports to the Clients”. Fraser’s evidence was
that this only occurred “sometimes”.
[63]
13(oo) “the Clients
required the Dedicated Workers to submit ‘Client Reports’ which detailed the customer
feedback with respect to the product, such as product side effects or adverse
reactions and/or physician questions regarding the product and disease states”.
Fraser denied that this was true in all cases.
[64]
13(pp) “the Clients
directed and controlled the Dedicated Workers”. This is one of the legal issues
before the court. It was denied by Fraser in any event.
[65]
13(uu) This assumption
is identical to assumption 13(mm) save that it refers to the Syndicated
Workers. Again its five constituent elements are more consistent with
monitoring the quality of the work than controlling the worker.
[66]
Of the eleven
Ministerial assumptions of fact relating to the direction and control issue, nine
were demolished or refuted in whole or in part on the evidence. Only assumptions
13(u) and 13(ff) remain intact to support the Minister’s determination. This is
clearly insufficient in law.
[67]
I now turn to the
assumptions pertaining to direction and control set out in the Minister’s Reply
to Gonsalves’ Notice of Appeal. This can be briefly accomplished. The only
relevant assumption is 8.(n): “the Appellant was required to report to, and
was accountable to, the clients”. In his evidence, Gonsalves made it clear that
any reporting was done to the Company and not to the client. This lonely
assumption was accordingly duly demolished.
Conclusions:
[68]
I conclude from the
foregoing that the sales representatives who are the subject of these
proceedings were independent contractors in their working relationship with the
Company, whether they were dedicated, syndicated or a combination of both; that
the Company was a placement or employment agency that remunerated the workers
involved; but that the Company did not place these workers under the de
facto direction and control of its clients, as required by Regulation 6.(g)
under the Act, nor was there a contract of service between the
representatives and the clients or anything analogous thereto as required by
Regulation 34.(1) under the Plan.
[69]
In the result, having
investigated all the facts with the parties and witnesses called on the parties
behalf to testify under oath for the first time, I have found new facts, and
indications that the facts inferred or relied upon by the Minister were unreal
or incorrectly assessed or understood. The Minister’s conclusions are
objectively unreasonable. All four appeals will therefore be allowed and the
Minister’s determinations vacated.
Signed at Toronto,
Ontario, this 23rd day of February 2012.
“N. Weisman”