Date:
20020718
Dockets: 2001-3601(EI)
2001-3602(CPP)
2001-4483(EI)
2001-4485(CPP)
BETWEEN:
AMERICAN
INCOME LIFE INSURANCE COMPANY,
Appellant,
and
THE
MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Rowe,
D.J.T.C.C.
[1] The
appellant appeals from a decision dated July 4, 2001 wherein the Minister of
National Revenue (the "Minister") decided that the employment of
Camille Burbank with American Income Life Insurance Company (American) during
the period from April 23 to August 23, 2000 constituted both insurable and
pensionable employment pursuant to the relevant provisions of the Employment
Insurance Act (the "Act") and the Canada Pension
Plan, (the "Plan")respectively, because he was employed
under a contract of service. A separate appeal ‑ 2001‑3602(CPP) -
was filed and parties agreed it would be heard together with the other appeals
as noted below.
[2] The appellant
also appeals – 2001-4483(EI) - from a decision dated September 19, 2001
wherein the Minister decided that the employment of Jerry Jahraus - with
American - during the period from October 16, 2000 to January 26, 2001 was
both insurable and pensionable employment pursuant to the Act and the Plan,
respectively, because he was employed under a contract of service. A separate
appeal – 2001-4485(CPP) - was filed and the parties agreed it would be heard
together with the other appeals earlier mentioned.
[3] Leave
to amend the Notice of Appeal filed in 2001-3601(EI) was granted with respect
to paragraph 1 thereof, to substitute "contract for services" in
place of "contract of services" in line 1; in addition, an amendment
to paragraph 35 replaced the date "August 23, 2001" with
"August 23, 2000."
[4] Debbie Gamble
testified she was a Senior Vice-President of the appellant and ‑ in
February 2000 - worked in the Agency Department which deals with coordinating
interaction between field agents and the Home Office. Prior to assuming that
responsibility, Gamble had worked for the appellant for 22 years as a vendor of
life and health insurance policies. The appellant has three offices, one in
Waco, Texas, another in Indiana and another in Washington, D.C. There are
250 employees in the Waco office who are not directly involved in selling
insurance policies. Gamble stated the appellant enters into contracts with
individuals or entities as agents within an assigned area and these persons or
entities are afforded the opportunity to build a larger agency. There are
various levels of agents, included a Managing General Agent (MGA), State
General Agent (SGA) and agents at three other levels who earn different
commissions based on placement within the organizational structure referred to
as "the hierarchy." The appellant began operating in Canada in July,
1998 and currently has contracts with 185 agents. Over the past 13 years,
American has probably contracted with between 240 and 300 agents per year
because the drop-out rate is high. Gamble stated there had been an earlier
decision issued by the Minister wherein 7‑10 persons had been ruled
to be employees but since the amounts assessed were small, the appellant
elected to pay it rather than appeal the resulting assessment. Gamble referred
to a contract – Exhibit A-1 – entered into between American and
Camille Burbank and another – Exhibit A-2 – between American and
Jerry Jahraus. On page 2, Gamble referred to a clause stating "The
Agent is not an employee of the Company." According to the SG designation,
Burbank was entitled to receive a commission of 40% on the sale of policies.
Jahraus was able to receive the same rate but was listed under two other
persons who would be entitled to earn commissions based on his sales. Contracts
with potential agents were sent to Tania Donaldson, Assistant Vice-President in
Agency, in Waco, Texas for signature on behalf of the appellant. Gamble
explained that agents are recruited as a result of placing advertisements in
newspapers but these are not paid by American. Instead, they are inserted by
existing senior agents seeking to add to their scope of operations. Each policy
sold produces a specific amount of premium but there are varying commission
rates because different types of insurance – such as accident and disability -
have lower profit margins and the remuneration to agents in respect of this
coverage is approximately 50% of that earned for selling a life insurance
policy. Gamble stated American provided no instructions concerning the manner
in which sales should be made nor were agents required to provide any reports.
American did not establish any routes or territories and there were no
deadlines or priorities established in order to motivate agents to make sales.
There is no requirement by American that an agent has to undertake any certain
number of presentations within a specified time. The appellant did not require
agents to attend any meetings and they were able to hire their own workers to
assist in various ways with the proviso that only a licensed agent could submit
an application for insurance coverage to the appellant. Both Burbank and
Jahraus were licensed by the Province of Alberta and could sell insurance
policies anywhere in the province. Gamble referred to a T4A – Exhibit A-3 –
issued to Burbank – which stated he had earned the sum of $5,391.56 by way of
self-employed commissions during the 2000 taxation year. A T4A – Exhibit
A-4 – issued to Jahraus - indicated his self‑employed commissions – in
2000 – were in the sum of $1,227.54. A letter – Exhibit A-5 – dated
September 25, 2000 - sent by the Agency Department of American to Burbank -
informed him that he owed the sum of $1,218.00 and that this amount – if not
re-paid – would be included in the T4A. A similar letter – Exhibit A-6 – was
sent to Jahraus indicating he owed American the sum of $1,952.00. Gamble
explained that agents could receive advances against anticipated commissions
arising from first-year renewals of policies and the system utilized a formula
for determining the amount of an advance even though the premium had not been
received by the appellant. Usually, commissions were paid to agents on a
monthly – or other regular - basis only after the appellant had received
payment from a policyholder. The ledger sheets respecting commission earnings
and payments to both Burbank and Jahraus were filed as Exhibits A-7 and A-8,
respectively. Gamble stated the purpose of the ledger statements is to record
the monetary position of an agent in relation to the appellant. The record
keeping is important because the contracts between American and the agents with
the SGA or MGA designations required these individuals to assume any debts
arising from advances - by American – to agents under them in the hierarchy.
When an agent submitted a completed application to American, a blank cheque
accompanied the form and if the policy was issued by the appellant then the
said cheque was used to establish a mechanism with the designated financial
institution for automatic withdrawal each month. The decision whether or not to
issue the policy - based on acceptable levels of risk - rested solely with the
appellant. Since Burbank and Jahraus held only a Level-1 license in Alberta,
they were not permitted to sell policies for companies other than American but
other levels of license did permit an agent to undertake sales of product
offered by other insurers. American had no offices within Canada and the
services provided by agents usually took place within the homes of prospective
policyholders. In order to function, an agent required a vehicle, cell phone
and an in-home office. Gamble stated American provided standardized sales forms
that had been earlier approved by a regulatory agency in some jurisdiction or
other as appropriate for solicitation of business. Agents had to bear their own
expenses and were not reimbursed by the appellant nor were any source
deductions made since it was always the intention of the appellant that agents
would be operating their own business as independent contractors. The office in
Waco received notice – Exhibit A-9 – from Ms. Lyse in Calgary that Burbank's
relationship - as an agent – with American was terminated, effective
September 15, 2000. A termination notice – Exhibit A-10 – with respect to
Jahraus was effective January 26, 2001.
[5] In
cross-examination, Debbie Gamble stated the Head Office of American was in
Waco, Texas. She was referred to a document – Exhibit R-1 – indicating a
Calgary, Alberta address and Gamble stated there was an entity – known as Altig
– that functioned as a State General Agent pursuant to a contract with
American. Altig advertised in Calgary newspapers seeking persons interesting in
selling life insurance and was able to pay commissions at varying levels to
agents working under it. Each level of agent is paid a different commission
rate and both Burbank and Jahraus were at a 40% commission for the first 60
days of their contract. American handled the tracking of commission amounts due
to agents and these were paid monthly but advances could be made on a weekly
basis. Altig – an agency business owned by Richard Altig and operated as a
proprietorship – carried on business in 17 States in the United States and in
the Western Provinces. Any agents holding Level 1 licenses issued by the
Province of Alberta had American named as the company for which policies could
be solicited from the public. Gamble stated American provided certain forms to
agents such as those required to change beneficiaries or methods of payment but
it did not provide any referrals directly.
[6] In
re-examination, Gamble stated she had not seen the document ‑ Exhibit A‑1
– until it was handed to her in Court and added that American had not
authorized Altig to use that particular letterhead. As for contracting with
Altig as an individual operating an agency as a proprietorship, Gamble stated
it was a standard business practice of American to avoid dealing with
corporations since it wished to reserve the right to pursue any indebtedness
against a person rather than a corporate entity.
[7] Melinda-Rae Lyse
testified she resides in Calgary, Alberta and is a Regional General Agent
selling insurance policies pursuant to a contractual arrangement with American.
She began as an agent in 1994 and stated that Altig has several offices in
Canada and in the United States. Lyse operates an office from her home and also
sells policies in Edmonton, Alberta and London, Ontario and uses the premises
of Altig in those cities. In Calgary, she also works out of the Altig office
but does not pay any rent as it is not a private space and is available for
other agents to use. Lyse explained she has two employees both of whom are
subject to source deductions. They work out of the Altig office in Calgary or
from her own home office. She is responsible for payment of their salaries and
is not reimbursed by either Altig or American. Lyse described the hierarchy as
commencing – at the top – with the State General Agent or SGA, a
designation held by Altig. Next, is the Regional General Agent – RGA – and then
Master General Agent – MGA – followed by General Agent – GA – and a
Supervising Agent or SA. Lyse stated that – as an RGA – she would receive a
portion of any commissions earned by persons below her in the hierarchy. As the
direct selling agent, her commission rate was set at 75% of the premium
collected in respect of any policy sold through her own efforts. The agent's
contract – Exhibit A-1 – was also signed by Lyse in her capacity as the MGA.
The contract – Exhibit A-2 – with Jahraus was signed by Steve Lee as MGA
and Lyse as RGA. Lyse stated Altig placed advertisements seeking persons - who
would be suitable to work as agents - by inviting responses from individuals
searching for a career but there was no specific mention of the product to be
sold. Once persons were accepted as agents – and properly licensed – there was
no requirement for them to report to the Altig office and applications for
insurance were delivered to the MGA and/or RGA for forwarding to the American
office in Waco. There were no working hours set but a model was provided that
an agent could follow in order to be successful in the insurance business. As
an RGA, it was in her best interest to have agents under her that could produce
sales since she would receive a share of all commissions generated. A
presentation of printed material – approved by the Alberta Insurance Council –
was available for use by agents. Each Friday, agents usually reported to the
persons above them in the hierarchy and provided details of the number of
appointments made, presentations completed and sales achieved. However,
attendance was not mandatory and Burbank and/or Jahraus did not always attend.
The highest rate of attendance by agents – about 75% - was at sales meetings
when matters relevant to increasing production were discussed but failure to
attend did not carry any consequences if an agent elected not to participate.
Agents were encouraged to report on which leads had been followed up so as to
avoid a duplicate visit by another agent. There was no ability to issue any disciplinary
action to any agent who did not follow up on leads but – as RGA – Lyse would
not issue further cards with names of potential purchasers. While a licensed
agent is the only one authorized to sell the insurance policy, other persons
may be hired to set up appointments and to carry out administrative aspects
pertaining to the business. Even if agents had been engaged previously in
selling for another insurance company, they still had to be trained – for
between one and three days – because the American product was different. Study
materials and a sample examination were provided for potential agents to use in
preparing to write the licensing tests. Lyse stated that American wanted agents
to generate the sum of $12,000 in annualized life insurance premiums in each
quarter but if that goal was not attained then a three-month extension was
granted. Agents could obtain an advance from American calculated on the basis
of 65% of probable commission earnings. Statistics concerning the number of
sales calls required to be made in order to generate a certain level of income
were provided by American and were well known with the overall insurance
industry. Sales calls were made at homes of the prospects and common space
- within the Altig premises - was available on Fridays so the
necessary paperwork could be completed. The agents could use the copier and fax
machines but there were no special phone lines available for their specific
use. Potential agents had to be sponsored by an insurance company and had to purchase
books – at a cost of $75 – and pay a fee of $50 to write the two examinations
as well as a licensing fee of $85, if they obtained passing grades. The overall
cost of cell phones, office supplies, vehicles expenses or entertainment and
promotion incurred by an agent was not reimbursed by anyone. Lyse stated that
Burbank had signed a contract with American on the basis he would be operating
as an independent contractor. In her experience, individuals were given an
ample amount of time to read, reflect and consider implications of the contract
prior to signing and submitting it to American for signature by a designated
representative in Waco.
[8] In
cross-examination, Melinda-Rae Lyse stated American does not have an office in
Calgary even though the letterhead – Exhibit R-1 – would indicate otherwise.
All materials and documents pertaining to the sale of an insurance policy refer
to American. Agents were provided with a 12-page script which they were
expected to memorize and the presentations based thereon were practiced in a
classroom setting. Later, new agents "shadowed" an experienced agent
in order to learn sales techniques and to become familiar with details of the
product being offered. An agent occupying the role of MGA would contact an
agent below him or her from time to time to discover how matters were
progressing in terms of selling policies. The MGA's and RGA's were concerned
about any breaches of ethics or provision of incorrect information during sales
presentations by agents below them in the hierarchy. Agents at various levels
checked over the paperwork of other agents prior to submission to Head Office.
The senior agents would provide contacts and advice in order to assist newer
agents in generating a reasonable level of income. Between 50 and 75 leads – in
the form of cards – were provided to agents each week by Altig and were
supposed to be returned together with a report whether contact had been made
and the result, if any. American wanted a report on any action taken with
respect to each lead provided and leads were made available only at the Friday
morning meetings. Some agents operated on the basis that 20 visits to
prospects would result in six sales and certain of them would see
four people a day for five days while others might use another working
model chosen from among three or four available for implementation. The
commission range was established by American and started at 40% for the first
$10,000 in premiums or 60 days – whichever came first – and was then increased
to 50%. American paid commissions directly into the accounts of agents and
Exhibit R-1 – a sample report – set forth therein sums paid to various agents.
American undertook the necessary calculations and also sent a cheque to Altig –
or to Lyse – for their appropriate share of a specific agent's commissions
generated during a certain period. During the period relevant to the within
appeals, the law governing insurance agents in Alberta required the selling of
policies to be a full-time occupation. Approved presentation materials -
contained in a binder – were provided by American to agents. Agents had to pay
for their own business cards but the American logo was displayed on the card.
American was the underwriter for the policies and established the premiums to
be paid by a policyholder. Once American accepted the application for
insurance, all collections of ongoing premiums were handled by the Head Office.
If an application was rejected, the cheque submitted with the form was
returned. All promotions to a higher level within the hierarchy had to be
approved by the American Head Office. In Lyse's opinion, voluntary withdrawal
by agents - due to unsatisfactory sales levels - usually resolved the
matter of poor productivity by certain individuals within the sales force.
[9] In
re-examination, Lyse stated that – as an RGA- she believed in leading by
example. She was able to earn more revenue if agents below her in the hierarchy
were effective sales people because she received an override on their
commissions. The leads provided to agents came from a public relations agency
contracted to American rather than directly from the appellant's own office.
[10] Camille Burbank
testified he worked as a salesperson during the relevant period and had
responded to an advertisement by taking his resumé to the address stated
therein. Later, he received a call to attend a meeting. The advertisement had
not mentioned life insurance and it was only at the meeting that he discovered
the nature of the product and the identity of American. However, it was not
until approximately 10 months later that he decided to pursue the matter and
took another resumé to the Altig office and was interviewed by someone. At that
time, he was offered the chance to sell insurance products made available by American.
He discovered he had to study for – and pass – examinations in order to obtain
a license to sell insurance. He was provided with study material and sample
tests. He participated in training sessions in a classroom setting over a
period of four or five days and memorized a lengthy script to be used
during sales presentations. Before Melinda-Rae Lyse would permit him to go out
on a sales call, he had to demonstrate his proficiency in delivering the
presentation and she worked with him in role-playing scenarios. Burbank stated
that advice was provided to him and other new agents to the effect that it was
unwise to depart from the prepared script but there was no method by which
adherence to the recommended presentation could be monitored. He was informed of
the amount of sales calls that would probably have to be made in order to
produce the revenue required to maintain a particular life style. He signed a
contract – Exhibit A-1 – but never received a copy with the signature of Tania
Richardson, the American representative. Burbank stated he understood the
hierarchy permitted an agent to progress through the different levels. At the
beginning of his sales career, Burbank stated he reported back to Steve Lee – a
Supervising Agent – concerning progress in terms of sales activity and went on
calls with Lee and other agents as that course of action had been strongly
recommended as a learning tool. He reported daily - or every other day to Lee -
but did so mainly because he sought answers to questions that had arisen in the
interim. At the Friday meetings, discussions were held and paperwork was
completed. After two weeks, Burbank stated he was out on his own but other
individuals at the Altig office continued to assist in completing the necessary
paperwork prior to submission to the American Head Office. He was aware that
other agents had been contacted by Lee and/or Lyse if their sales volume was
inadequate. He also knew some agents had hired secretarial assistants but - at
his own commission level - the income produced was insufficient to bear that
cost. Leads were provided to agents as a result of letters having been sent to
unions and other groups inviting members to participate in supplementary health
coverage. Burbank stated he received between 40 and 50 leads each week and more
could be obtained provided action had been taken – and reports made – with
respect to the earlier batch he had been given. Some leads were handed out - in
accordance with Calgary Postal Codes - but agents were free to develop their own
leads and were not restricted to that – or any other – area within the
province. As time went by, Burbank stated he did not have any questions to ask
of Lee and – instead – began instructing and providing advice to new agents.
Since leads were handed out following the Friday meeting, Burbank considered
attendance to be mandatory. He made appointments to see prospects during
evenings and on weekends and – rarely – visited people during the day. The
payment of 40% commission was fixed by American - without negotiation - but it
was increased to 50% once an agent had produced $10,000 in premium revenue and
there was a three-month period in which that goal could be reached but
extensions were usually granted. In Burbank's view, there was no probationary
period in effect as during the training process individuals – of their own
volition – simply dropped out. Once agents began making their own sales calls,
there was no form of supervision in effect. He was paid in accordance with a
commission report regularly provided to him. Burbank stated he was aware he
could operate his own expanded agency - as a business - in the same manner as
Melinda-Rae Lyse. Burbank used his own car, cell phone and met with prospects
in their homes. He prepared his own presentation binder using materials made
available at the Altig office and kits were provided to him to collect
– on occasion - saliva samples depending on the type of policy sought
by an applicant. Burbank stated he always considered policyholders to be the
clients of American and - once an application had been approved - all
subsequent administration relating to the policy was undertaken by the
appellant. Some applications were rejected and if he had received an advance in
anticipation of a policy being approved, then that amount would be charged back
to him and deducted from a future payment which would be deposited –
electronically – into his account. Burbank stated he regarded himself as a
self-employed individual selling products owned by American.
[11] In cross-examination,
Camille Burbank stated that when he applied for employment insurance benefits
he advised the official that he had been a self-employed salesman and had been
free to choose the hours of work and the manner in which it was done. He never
represented to said official that he was an employee or officer of American. He
was aware of Altig but did not understand the nature of the relationship
between that business and American and when he used the 12‑page script he
did not recall the name – if any – to identify authorship or ownership of that
training material. As for supervision, Burbank stated it was a two-way street
and he usually initiated calls to Lee or Lyse for assistance with regard to
some aspect of the business. Sometimes, it was merely a question that had
arisen in connection with the paperwork. Burbank stated he probably missed one
or two Friday meetings and thinks he would have communicated a reason for his
absence. The sales meetings were attended by 7 to 18 people depending on the
particular Friday within the relevant period and there was a steady turnover of
agents. He described the meetings as a "team atmosphere in which people
would help each other." Burbank stated he would accept most suggestions
from senior agents in an effort to improve sales and friendships developed as a
result of that interaction. The cards containing information on prospects – or
leads - had a return address of Waco, Texas. Burbank stated there was no
requirement to attend at the Altig office and the training had occurred within
a classroom setting. He had to pass the examinations in order to obtain his
certificate which specified American as the company providing the product he
was permitted to sell. At the Altig premises, he had no designated telephone or
office space but had access to the fax machine and the photocopier. Burbank
stated he decided to terminate his relationship with American because he found
he no longer believed in the product. Prior to becoming an insurance agent, he
had worked as a salesman at a flooring company and currently sells business
uniforms. Towards the end of his career as an insurance salesman, he had
difficulty motivating himself to make calls but no disciplinary action was ever
taken as a result of his diminished sales activity. During the relevant period,
he was never asked to perform any other duties for American and understood he
was expected to fulfill the requirement of making sales in accordance with his
written contract.
[12] Counsel for the
appellant submitted the worker – Burbank - had a reasonable basis to believe
that he was a self-employed person, carrying on business for himself using
sales skills he had previously acquired. In counsel's view of the evidence,
there was a clear demonstration of the lack of control or supervision over the
activities of the agents and any restrictions imposed were often the result of
having to conform with licensing rules and regulatory policy administered by
the appropriate department of the provincial government. Taking all the
evidence into account, counsel submitted the best approach is to regard the
agents – Burbank and Jahraus – as individuals who were carrying on the business
of soliciting sales of insurance policies and – in that capacity – being
subject to the chance of profit and risk of loss arising from the performance
of the contracted task.
[13] Counsel for the
respondent conceded the life insurance industry is somewhat unusual and
accepted that some agents may develop their sales volume to the point where
they become entrepreneurs carrying on business on their own account. However,
with regard to Burbank and Jahraus and other agents who were novices in that
particular branch of sales, the evidence points toward them being employees of
American and the degree of control and supervision exercised was more
substantial that it might seem at first glance. Counsel submitted that the
business in question was clearly that of American and Burbank and Jahraus had
not gained sufficient independence during the short periods of employment - in
each case - in order to break free from that mold.
[14] The Supreme Court of Canada - in a recent
decision - 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001]
S.C.C. 59; 274 N.R. 366 – (Sagaz) dealt with a case of vicarious
liability and in the course of examining a variety of relevant issues, the
Court was also required to consider what constitutes an independent contractor.
The judgment of the Court was delivered by Major, J. who reviewed the
development of the jurisprudence in the context of the significance of the
difference between an employee and an independent contractor as it affected the
issue of vicarious liability. After referring to the reasons of MacGuigan, J.A.
in Wiebe Door Services Ltd. v. M.N.R. [1986] 2 C.T.C. 200 and the
reference therein to the organization test of Lord Denning - and to the
synthesis of Cooke, J. in Market Investigations, Ltd. v. Minister of Social
Security, [1968] 3 All E.R. 732 - Major, J. at paragraphs 45 to 48,
inclusive, of his judgment stated:
Finally, there is a test that has emerged
that relates to the enterprise itself. Flannigan, ... ("Enterprise
control: The servant‑independent contractor distinction" (1987), 37
U.T.L.J. 25, at p. 29) sets out the "enterprise test" at p. 30 which
provides that the employer should be vicariously liable because (1) he controls
the activities of the worker; (2) he is in a position to reduce the risk of
loss; (3) he benefits from the activities of the worker; (4) the true cost of a
product or service ought to be borne by the enterprise offering it. According
to Flannigan, each justification deals with regulating the risk-taking of the
employer and, as such, control is always the critical element because the
ability to control the enterprise is what enables the employer to take risks.
An "enterprise risk test" also emerged in La Forest J.'s dissent on
cross-appeal in London Drugs where he stated at p. 339 that
"[v]icarious liability has the broader function of transferring to the
enterprise itself the risks created by the activity performed by its
agents".
In my opinion, there is no one conclusive
test which can be universally applied to determine whether a person is an
employee or an independent contractor. Lord Denning stated in
Stevenson Jordan, ... ([1952] 1 The Times L.R. 101) that it may be
impossible to give a precise definition of the distinction (p. 111) and,
similarly, Fleming observed that "no single test seems to yield an
invariably clear and acceptable answer to the many variables of ever changing
employment relations..." (p. 416) Further, I agree with
MacGuigan J.A. in Wiebe Door, at p. 563, citing Atiyah, ...(Vicarious
Liability in the Law of Torts. London: Butterworths, 1967) at p. 38, that what
must always occur is a search for the total relationship of the parties:
[I]t is exceedingly doubtful whether the
search for a formula in the nature of a single test for identifying a contract
of service any longer serves a useful purpose... The most that can profitably
be done is to examine all the possible factors which have been referred to in
these cases as bearing on the nature of the relationship between the parties
concerned. Clearly not all of these factors will be relevant in all cases, or
have the same weight in all cases. Equally clearly no magic formula can be propounded
for determining which factors should, in any given case, be treated as the
determining ones.
Although there is no universal test to
determine whether a person is an employee or an independent contractor, I agree
with MacGuigan J.A. that a persuasive approach to the issue is that taken
by Cooke J. in Market Investigations, supra. The central question is whether
the person who has been engaged to perform the services is performing them as a
person in business on his own account. In making this determination, the level
of control the employer has over the worker's activities will always be a
factor. However, other factors to consider include whether the worker provides
his or her own equipment, whether the worker hires his or her own helpers, the
degree of financial risk taken by the worker, the degree of responsibility for
investment and management held by the worker, and the worker's opportunity for
profit in the performance of his or her tasks.
It bears repeating that the above factors constitute a
non-exhaustive list, and there is no set formula as to their application. The
relative weight of each will depend on the particular facts and circumstances
of the case.
[15] An analysis of the decision of the Supreme
Court of Canada was undertaken by Joel Nitikman, a partner with Fraser Milner
Casgrain LLP, Vancouver, British Columbia. In an article entitled 671122
Ontario Ltd. v. Sagaz Industries Canada Inc.: Employee vs. Independent
Contractor published in Canadian Current Tax December 2001, Volume
12, No. 3 at p. 30 Nitikman discussed the development of the jurisprudence in
this field including Wiebe, supra, which followed the decision of the
Privy Council in Montreal v. Montreal Locomotive Works Ltd. et al.,
[1947] 1. D.L.R. 161 (PC) at 169-70; aff'g [1945] 4 D.L.R. 225
(S.C.C.). Following a review of the reasons of Major, J., Nitikman – at p.
32 - concluded as follows:
Thus, it is now clear that in determining the
employee vs. contractor issue, the usual factors cited are not tests in and of
themselves, but merely pieces of evidence that may be given more or less weight
in a particular situation to determine whether the worker is simply part of the
payor's business or really in business on his or her own account.
[16] I will examine the facts in relation to the indicia set forth
in the judgment of Major J. in Sagaz.
Level of control:
[17] The evidence discloses the worker Burbank and the other agents
to have had the opportunity to conduct their sales calls and presentations in
accordance with their own schedule once they had obtained the appropriate
licensing and had proceeded to master the script provided to them - as a
template - to follow during visits to prospects. Burbank's testimony indicated
his contact with the supervising agent – Steven Lee – was a two-way street and
that he sought advice from Lee and other more experienced agents for the first
couple of weeks. After that, he sought advice - from time to time – but usually
in relation to completing paperwork prior to submission to the appellant's Head
Office. Burbank did not feel as though he were subject to any control or
discipline and, when he started to become disillusioned, he merely began to
reduce his sales activity until it reached the point where he quit. The leads
provided were utilized by him as a marketing tool but he was always aware of
the right to sell insurance policies to any person located within the province
of Alberta. He considered attendance at the Friday sales meetings to have been
mandatory but was not present for at least two of them although he provided an
excuse on each occasion for his absence. He established his own schedule for
making sales calls and discovered he had to work at nights and on weekends when
the prospective policyholders would be at home. The atmosphere at the Altig
office appeared to be one characterized by experienced agents assisting others
who were new to that highly specialized sales field. Certainly, some of the
senior agents were receiving a commission override on the sales of agents
beneath them in the hierarchy and would be motivated to act as mentors in order
that production be improved within the sales force. The control exercised by
American was practically nil as it related to the carrying out of the sales
activities by the agents. The actions taken – by senior agents - to modify
behaviour of other agents was not done within the realm of agency on behalf of
American; instead, it was to further their own interests because they were
receiving a slice of the commission on sales by agents below them on the
ladder. There were certain requirements that had to be met in order to comply
with the licensing and regulatory standards set by the provincial government or
the industry council and some of those were set forth in the Agent Contract –
Exhibits A-1 and A-2 – under the heading, Obligations of Agent. Burbank did not
regard himself as ever being subject to any sort of probation and noted that it
was the training process – itself – that had the effect of weeding out those
who were not suited to selling life insurance.
Provision of
Equipment and/or helpers:
[18] The
evidence revealed that Melinda-Rae Lyse – a senior agent – hired
two assistants to help her with the administration associated with the
conduct of her business which was devoted to selling insurance policies.
Although only the licensed agent could make the sale, other work was done by
the helpers who were paid for by Lyse without any reimbursement from Altig or
American. During the relevant period, Burbank was aware that his current commission
structure and level of sales would not generate sufficient premium income to
permit him to hire assistants but he also understood that – with time – he
might become like Lyse in that overall sales volumes from his own efforts - and
of agents below him in the hierarchy - might grow to the point where he could
obtain the services of workers to handle administrative aspects of the
business. He used his own vehicle and bore all the costs. He provided his own
cell phone and paid the expenses associated with it. He was responsible for
disbursements associated with obtaining his sales license and paid all other
expenses arising from his sales activity. He prepared his own binder - for use
during sales presentations - by gathering material from a variety of sources,
including Altig. At the Altig office, he was able to use the fax and
photocopier – without cost – but there was no designated office space or
telephone lines dedicated for use solely by the agents.
Degree of financial risk and responsibility for investment
and management
[19] Burbank's
understanding of his relationship with American was that he was a self-employed
individual selling products owned by American. He was aware that his current
level of licensing issued by the provincial government permitted him to sell
only products offered by American. He appreciated that his role in the overall
scheme was to solicit applications for insurance coverage which were then
submitted to American for approval or rejection. It was American - holding
authority as an insurer pursuant to federal and provincial legislation - that
could offer insurance policies to the public. Once a policy was approved, the
mechanics of collecting premiums was taken over by the appellant utilizing its
own infrastructure. The evidence presented by the appellant established that
agents had to make a certain number of efficient sales calls in order to close
a corresponding amount of sales which generated an ascertainable amount of
income as a result of being entitled to receive a certain commission rate
depending on the position of the agent within the overall vertically-structured
business organization. There were no guarantees of income and any advances
against projected sales were deducted from actual, earned, future commission income.
Burbank, Jahraus and other agents were required to assume the financial risk of
obtaining the license and the tools of the trade, including an in-home office –
in order to undertake the work required to produce income. A responsible
approach to the sales activity would be expected to lead to sales of increased
- or supplemental - insurance coverage and there was the ability to continue to
earn commissions for renewal of coverage on an ongoing basis for some period
following the initial sale. Sound management, such as by maintaining contact
with the policyholders, could limit the extent of policy lapses, that dreaded
scourge within the insurance industry. The prompt submission – to the
appellant's office in Waco - of properly completed application forms and other
related documents would ensure that commission income could be calculated and
remitted to the account of the particular agent on a timely basis.
Opportunity for profit in the performance of tasks
[20] The chance for
profit rested entirely in the hands of Burbank and Jahraus. There was no
training wage or probationary stipend or minimum-wage guarantee. These
individuals were totally on their own and if sales revenue did not match
expenses, there would be no profit despite significant efforts to that end.
There was a high turnover rate among agents and one can understand the reasons
for many persons deciding not to stay in that field of endeavour. The life
insurance business is typified by the solitary activity of the lone-wolf sales
agent whose dedication to the task either yields happy, profitable results or
cruel disappointment depending on individual effort, talent, aptitude and a
variety of intangibles including the aura of good fortune. In the event Burbank
or Jahraus could become senior agents within the hierarchy and could recruit
others to work beneath them, then the opportunity for profit would increase
since they would – like Melinda-Rae Lyse – be able to earn money from the
efforts of others.
[21] In the case of Combined
Insurance Co. of America v. Canada (Minister of National Revenue - M.N.R.) [1999]
T.C.J. No. 113, MacLatchy D.J.T.C. held that an insurance sales representative
was an independent contractor in that she was responsible for managing her own
activities and had to bear expenses associated with sales calls. Judge
MacLatchy found the workers operated their own business and – at paragraph 16
of his judgment - stated:
... They ran their own businesses including the
creating of their own client base, the hiring of any support staff, the
maintaining of required licenses, filings, liability and fidelity insurance
without any interference or approval from the Appellant.
[22] In the
above-noted case, there was an eight-week guarantee in the sum of $3,200 but
that arrangement had been made between the worker and the Sales and District
Sales Manager and not by the appellant insurance company.
[23] In Mutual Life
Assurance Co. of Canada v. Canada (Minister of National Revenue – M.N.R.) [1996]
T.C.J. No. 668, Hamlyn T.C.J. decided that the worker – a life insurance
sales representative - was an independent contractor. Judge Hamlyn
found the sales agent was free to choose his office location and method of
marketing and that he supplied nearly all of the basic tools required,
including vehicle, office and supplies. The remuneration was based totally on
commissions from sales but if expenses exceeded revenue, the losses were borne
by the worker.
[24] In the within
appeals, it is apparent there are two different businesses operating at the same
time. One of them – from the perspective of Burbank – arises from his
activity as a self-employed person carrying on the business of soliciting
insurance coverage from members of the public. He undertook the necessary steps
to become licensed and trained in order to put himself in a position where he
could earn commission revenue from policy sales. Once he had completed the
application form and provided the necessary information – including a method
for premium payment – his task was concluded. Whether or not a policy was
issued depended on American, the insurer having the authority to underwrite the
policy. Up to that point, he had to depend on his ability to use the leads
wisely, and to utilize his administrative and organizational skills to set up
appointments in an efficient and cost-effective manner and to maximize his
presentation skills in order to close a higher proportion of sales in relation
to sales calls. Again, it must be emphasized that the jurisprudence demands
that the Court approach the analysis from the standpoint of the persons alleged
to have been employees.
[25] In the case of The Minister of National
Revenue v. Emily Standing, 147 N.R. 238, F.C.A., Stone, J.A. at pp.239-240
stated:
... There is no foundation in the case law
for the proposition that such a relationship may exist merely because the
parties chose to describe it to be so regardless of the surrounding
circumstances when weighed in light of the Wiebe Door test...
[26] In the within appeals, the workers acted in
a manner consistent with the written agreement which – arguably – is a bit
peculiar in the sense that senior agents – Lee and/or Lyse – were also
signatories but are not really parties to the contract between American and
Burbank or American and Jahraus. On the sheet - attached to both Exhibits A-1
and A-2 - Burbank and Jahraus, respectively, are referred to – by marking an
"X" in the appropriate box as SG, apparently another form of
designation to be applied to an agent. No explanation was ever provided for the
significance of those initials except that it obviously applies to rookies just
coming into the sales force.
[27] Having regard to all the evidence, I am
satisfied the appellant has demonstrated that the decisions issued by the
Minister are incorrect because the answer to the central question is that
Burbank and Jahraus were each performing the services as persons in business on
their own account. The appeals are allowed and the relevant decisions of the
Minister are hereby varied to find, as follows:
that Camille Burbank was not employed in
either insurable or pensionable employment with American Income Life Assurance
Company during the period from April 23 to August 23, 2000 because he was an
independent contractor.
that Jerry Jahraus was not employed in either
insurable or pensionable employment with American Income Life Assurance Company
during the period from October 16, 2000 to January 26, 2001 because he was an
independent contractor.
Signed at Sidney, British Columbia, this 18th day of July 2002.
D.J.T.C.C.
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