Citation: 2011 TCC 110
Date: 20110222
Docket: 2010-2030(EI)
2010-3726(EI)APP
BETWEEN:
TAMPOPO GARDEN LTD,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
HEVA NG
Intervenor.
REASONS FOR JUDGMENT
McArthur J.
[1]
This appeal is from a
determination of the Minister of National Revenue (the "Minister")
that Heva Ng (the "worker") had $11,040 of insurable earnings from
"employer controlled" trips during "the period" from May 6,
2008 to November 12, 2009. A letter of June 3, 2010 from the Canada
Revenue Agency (CRA) to the Appellant, stated:
After conducting a complete and impartial review of all of the
information relation to the appeal, it has been determined that Heva Ng
received employer controlled tips in the amount of $11,461.00; therefore, these
tips are considered insurable employment.
This decision is issued under subsection 93(3) of the Employment
Insurance Act, and is based on paragraph 2(1)(a) of the Insurable
Earnings and Collection Premiums Regulations.
[2]
Heva Ng was a server in
the Appellant’s Japanese restaurant in Vancouver. She received approximately $17,600 in debit card and credit card tips
during the period. She was required to pay tips of five percent to six percent
to the Appellant automatically based on sales, and another 25% to the bus
person from the balance of the tips. The tips sharing formula used in the
Appellant’s business was determined by the Appellant. She had to turn over
$9,686 to the Payor for distribution to the kitchen staff and bus person during
the Period. The Appellant’s only records of tips covered the period from
January 1, 2009 to November 12, 2009. Based on averages taken from the Payor’s
records, the Worker received approximately $566 per month, on average, in
employer controlled gratuities. The Period under review covers approximately
20.25 months.
[3]
The Appellant and the
Respondent not objecting, I permitted Ms. Ng to participate as an intervenor
although her application appeared to be beyond permitted time limits.
The facts as I find them include the following:
[4]
The Appellant operated
a busy Japanese restaurant in Vancouver. Ms. Ng was employed as a waitress in May
2008. The terms of her employment included that she was required to pay tips of
six percent to the Appellant based on sales and another 25% of her tips to the
bus person. This was a term of employment determined by the Appellant, her
employer. Obviously, she was not pleased with this arrangement but it was a
term of her employment, the Appellant had control.
[5]
As an aside, I infer
from the lack of evidence, that she did not report her tips as income yet it is
now to her advantage to declare all tips for her purposes of obtaining maximum
Employment Insurance benefits. Had tips been reported in her taxable income,
the CRA auditor probably would have used those amounts in her calculations.
[6]
The issue boils down to
whether Ms. Ng was required to turn over her tips to the Appellant for
distribution amongst the employees. The narrower question is whether she
received tips paid to her under her employer’s control.
[7]
The Appellant, in its
Notice of Appeal, states the following:
The issue is whether or not a former employee, Heva Ng, has
insurable earnings based on her gratuities.
We disagree with the ruling because we firmly believe the tips she
received are direct tips and not controlled tips. The amount of monies she received
as income from our restaurant’s clients are not controlled by the company,
Tampopo Garden Ltd, nor are the tips of any employee in the restaurant who
receives these tips.
…
…one very important fact is that the tips sharing formula is not
determined by the employer. The employees have implemented these calculations
themselves from managers, shift supervisors and kitchen manager from before.
They have determined what was fair in distribution of tips. Not the company or
employer.
The company has no direct control of the amount any employee
receives during their shifts or work period. The amount is solely based on
client’s control and the distribution is determined by the employees.
[8]
The Intervenor’s (Heva
Ng) major concern appears to revolve around whether the tip sharing arrangement
was fair which has no bearing on the issue. Ms. Ng’s comments are
predominantly self-serving. She appears to be trying to have the Minister
increase the amount of her tips to achieve higher EI benefits. This is surprising
given that apparently she did not include all, if any, of her tip revenue in
her taxable income for the relative years. Nevertheless, my decision is not
affected by this. Some of her comments in her eight pages of submissions
entitled "Application for Extension of Time Within Which an Appeal may be
Instituted" include:
The tips sharing formula is obviously determined by the employer.
"From before" means when? This is a very vague statement. Tampopo did
not give an exact date, or even the month or year of the made. Who were the
managers, shift supervisors and kitchen managers? Again, no names were being
given. I did not even notice the restaurant has shift supervisors although I
have been working in the restaurant for 20 months. I suggest the court may ask
my former colleagues to see if anyone know who the shift supervisors are.
…
-
What makes the employees think the company
deserves 6% tips according to SALES? According to my past experience, the tips
that servers were required to pay in house I s much less than 6%, usually in
about 2-3%, and servers paid according to the total amount of tips earned, not
based on SALES. This is the normal practice in the F&B industry to pay in
house tips, but is it necessary to pay up to a high rate of 6%?
-
… There were times when customers spend over
$400 and paid less than 10% tips or even did not pay any tips. Is it fair for
the servers & bussers to be under tipped or even not getting any tips after
they have strived for excellent service? The story does not come to an end at
this point, please keep in mind that the servers still have to pay 6% mandatory
in house according to SALES.
…
-
It happened to me on the 4th day (the
1st three days I was on training and was not eligible to get any
tips according to the company policy) when I finished my shift, the cashier
handed to me a piece of paper showing how much tips I had to pay in house. I
did not hear anyone saying that employees can determine their tips sharing
formula through my course of employment. I was being instructed to pay what the
company wanted me to pay at all times and I had to obey.
-
The problem has been raised during my course of
employment in strategic way. E.g. on a Sat lunch shift I had to pay around $40
in house and I got only around $10 left in my pocket after paying the bussers.
I asked the manager if I could pay a lower percentage in house tips but the
manager declined my petition. Is this a signal of control?
-
All of the cashiers are hire by the company and
there were times the cashiers made mistakes by putting server A’s tips into
server B’s tips box and being caught by server A on the spot. Why do the
company not allowing servers to do all of the debit/credit/cash transactions on
their own so as to avoid/reduce the mistakes like some other companies do?
-
Has the manager show any kind of improvement in
communications with the employees after the interviews with CRA? E.g. call up a
meeting with the existing servers to explain clearly that they can keep the
whole amount of tips and have full power to determine tips pooled among
employees every shift?
…
The Reasons which Ms. Ng Intends to Submit are:
I do not agree with what Tampopo Garden Ltd. had alleged in their
Notice of Appal. It affects not only my EI benefits but also my normal life. I
beseech the Tax Court of Canada to investigate deeply into this issue and
interview with the former and current employees of Tampopo in order to make an
impartial judgment. Please do not hesitate to contact me if more information is
needed. Looking forward to find justice in court.
[9]
The Respondent’s
position taken from the Reply to the Notice of Appeal includes:
…
i) the Appellant determined the tip sharing
formulas; and
ii)
the Worker had to turn tips over to the
Appellant for distribution.
12. … that the amount of the Worker’s insurable
earnings from the Appellant based on tips during the Period was $11,461.00
pursuant to paragraph 2(1)(a) of the Insurable Earnings and Collection of
Premiums Regulations.
…
[10]
The relevant
legislation as stated by the Respondent includes subsection 82(1) tab 1(c),
sections 67 and 68 tab 1(b), and the primary one is Insurable Earnings and
Collection of Premiums Regulations,
as amended, paragraph 2(1)(a). It states as follows:
2.(1) For the purposes of the definition
"insurable earnings" in subsection 2(1) of the Act and for the
purposes of these Regulations, the total amount of earnings that an insured
person has from insurable employment is
(a) the total of all amounts, whether wholly
or partly pecuniary, received or enjoyed by the insured person that are paid to
the person by the person’s employer in respect of that employment, and
…
[11]
To be successful, the
Minister must establish that the amounts (tips) Ms. Ng received were paid to
her by her employee (the Appellant) in respect of her employment.
[12]
The Minister’s counsel
relied heavily on Canadian Pacific Ltd. v. Canada
and in particular paragraph 20 which states in part"… one must give a
broad meaning to the word "paid"" and from paragraph 25 "…
a law dealing with social security should be interpreted in a manner consistent
with its purpose. We are not concerned with a taxation statute. …".
[13]
The Federal Court of
Appeal in Yellow Cab Co. v. Canada
stated, in speaking of the Employment Insurance Act, that it "must
be interpreted liberally".
[14]
In S & F Philip
Holdings Ltd. v. Canada:
… The dining room workers had established a system that all tips
were placed into a pool for distribution in accordance with certain percentages
to all persons who were part of the foodservice team. The employer retained 10
per cent of the total amount of the tip pool to cover the costs of credit card
transaction fees. Cheques for the workers’ proportionate share of the total
tips were issued to the workers every two weeks in addition to their regular
wages. The Minister determined that employment insurance premiums and Canada
Pension Plan contributions were owing in connection with services performed for
Sooke Harbour by certain
workers.
Judge Rowe of the Tax Court of Canada found the tips payments were
pecuniary in nature and arose totally within the context of employment. This
was an important part of the workers’ overall earnings upon which employment
insurance premiums were based and upon which entitlement to employment benefits
would be calculated should a worker become unemployed. There was a clear
intention to include tips into the calculations of insurable earnings. The
amounts of the tips distributed by Harbour Sooke to its workers were known and
formed part of the information contained on the T4 slip issued to each worker
for income tax purposes. Those amounts should have formed part of the
contributory salary and wages of each employee under the Canada Pension Plan.
[15]
In Union of Saskatchewan Gaming Employees Local 40005 v. Canada:
The union appealed from the decision of the minister
that it was the deemed employer with respect to the payment of the tips and
thus responsible for the deduction of the employment insurance premiums payable
on those tips. The employer argued that the tips were not insurable earnings.
The employees worked at the employer's casino. For security reasons, the
employer collected the employees' tips and then issued a cheque for them to the
union. Pursuant to the parties' collective agreement, the union then
distributed the tips to the employees. It was the union's position that it was
acting as an agent for the employer in distributing tips and was not therefore
an employer for the purposes of remitting the premiums payable on the tips.
HELD: Under subsection 2(1) of the
Insurable Earnings and Collection of Premiums Regulations, the total of all
amounts received, including tips, by an insured person that were paid to that
person by the person's employer constituted insurable earnings. Insurable
earnings was to be interpreted broadly to include tips paid to employees by
their employers. Pursuant to subsections 1(2) and 10(1) of the Regulations, the
term employer included a deemed employer. The employer collected the tips and
passed them on to the union, the union being the other person and thus the
deemed employer because it was distributing and therefore paying the tips to
the casino employees. As a result, the union had been correctly deemed as the
employer with respect to tips and was responsible for paying, deducting and
remitting the premiums payable on those insurable earnings.
[16]
The narrow question is
whether the Appellant controlled the allocation of the tips. I find as a fact
that it did so following the Canadian Pacific Ltd. v. Canada decision as
quoted earlier (para 20). Tips included table cash, credit card and debit
card designation.
[17]
I accept the evidence
of Ms. Ng with respect to the procedure followed which placed the gratuities
under the Appellant’s control. While, as the auditor stated, she arbitrarily
arrived at the amounts contained in the assumptions, I accept her conclusions
as being the most reasonable with the evidence and amounts she had to work
with. In conclusion, the Appellant had virtual, if not actual control of the
cash and credit card tips. The Appellant instituted and imposed on Ms. Ng a
form of tip distribution.
[18]
For these reasons, the
appeals are dismissed.
Signed at Ottawa, Canada, this 22nd
day of February 2011.
“C.H. McArthur”
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