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Citation: 2010 TCC 26
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Date: 20100128
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Docket: 2007-3918(EI)
2007-3919(CPP)
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BETWEEN:
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1546617 ONTARIO LTD.
OP TOPERMS,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent,
and
NOOREEN BHANJI,
Intervenor.
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REASONS FOR JUDGMENT
(Edited from the transcript of Reasons for Judgment
delivered orally from the Bench on November 25, 2009 in Toronto, Ontario)
Weisman D.J.
[1] Before me today
were two appeals by the Appellant 1546617 Ontario Ltd. operating as Toperms
against determinations by the Respondent Minister of National Revenue that nine
hairdressers who worked in the Appellant's hairdressing establishment in 2006 were
in employment such that the Appellant was liable for Employment Insurance
premiums and Canada Pension Plan contributions. The Appellant has appealed on
the grounds that in its view the nine workers involved were independent
contractors and, more than that, were in partnership with the Appellant.
[2] I
have already on the record dismissed the appeal with reference to the Employment
Insurance Act and confirmed the decision of the Minister in that regard
because of Regulation 6(d) passed under the Employment Insurance Act. I
so ruled because the evidence satisfied me that these nine hairdressers were
employed in a hairdressing establishment where they, one, provided the services
that are normally provided in such an establishment and, two, were not the
owner or operator of the establishment.
[3] While
I gave brief reasons for my conclusion earlier on the record, in fairness to
the Appellant I should comment on his claim that these nine workers were in
partnership. Because there was no evidence of that other than his allegation,
I questioned him as to whether they were in partnership with each other or they
were in partnership with the Appellant. In his view, they were in partnership
with the Appellant, which was of interest because that might make them owners
or operators of the establishment pursuant to subparagraph (d)(ii).
[4] I rejected, and I
do reject, the argument that these people were in any way carrying on business
in common with a view to profit, either with each other or with the Appellant,
there being no partnership agreement, there being no sharing of losses or the
risks or the expenses inherent in running such a business. I think that is all
that need be said about that.
[5] What
is left to be determined is the appeal under the Canada Pension Plan
which has no regulation comparable to 6(d) of the Employment Insurance
Regulations and, therefore, falls to be decided as to the status of these
nine workers pursuant to the four-in-one guidelines established in Wiebe
Door Services v. The Minister of National Revenue, the citation for which
is (1986), 87 Dominion Tax Cases at page 5025 in the Federal Court of Appeal.
[6] In
order to resolve the issue before the Court, which has variously been
characterized as "fundamental" in Wiebe Door that I have
already cited, and characterized as "central" in Sagaz Industries
in the Supreme Court of Canada, [2001] Supreme Court Judgments No. 61, and
finally as "key" in Royal Winnipeg Ballet v. Minister of National
Revenue, [2006] Federal Court of Appeal No. 87, the total relationship
of the parties and the combined force of the whole scheme of operations must be
considered. To this end the evidence in this matter is to be subjected to the
four-in-one test laid down as guidelines by Lord Wright in Montreal City v.
Montreal Locomotive Works, (1947), 1 D.L.R. 161 and adopted by Justice
MacGuigan in Wiebe Door. The four guidelines are: the payor's control
over the workers; whether the workers or the payor owned the tools required to
perform the workers’ function; and the workers’ chance of profit and risk of
loss in their dealing with the payor.
[7] Adverting first to
the control criterion or guideline, the law is clear that it is not the actual de
facto control that is important, but it is the right to control that is to
be established. That is in numerous cases, and I have summarized those cases
that led to that conclusion in a decision called Logitech Technology Ltd. v.
The Minister of National Revenue, [2008] T.C.J. No. 309.
[8] The
evidence is quite clear in the matter before me that there was an extraordinary
degree of control exercised by the Appellant over the workers to the extent
that witness Rita Duvenny described the working atmosphere as a jail.
[9] In
Exhibit R-1, Tab 1, there are rules and regulations promulgated by the Appellant
that all workers were required to sign. They pretty well direct the workers on
what to do and how to do it. There are numerous controls and regulations.
Rather than reading them all, just by way of example, the preamble says:
All the following rules must be
respected and followed by any and all employees. Anyone who fails to abide by
these rules will be dealt with accordingly.
All subcontractors, stylists and assistants
must maintain a neat and professional appearance at any and all times when
working on the premises.
All subcontractors,
stylists and assistants are not permitted to read any documents in the service
area at any given time in any or all circumstances.
All subcontractors,
stylists and assistants are not permitted under any circumstances to partake in
any business affairs. They are not permitted to take any calls regarding
business affairs using a business line or their own line under any
circumstances.
All subcontractors,
stylists and assistants must not discuss personal problems or hand out personal
information to the clientele.
Religious matters,
political matters and racial issues are not to be discussed at any time while
on premises or within immediate location of the business.
[10] Then there are
provisions for the workers to clean not only their own work station but the
premises in general including cleaning and mopping of the floor.
[11] More than the rules and
regulations, there was a good deal of evidence of further control. One was by
division of labour in that in this establishment the workers were not allowed
to do the entire job required by any customer. In what I would call a division
of labour, one was assigned to cut; another was assigned to colour. The
evidence indicates that the intention, consistent with the obvious intention in
the rules and regulations, was to ensure that there was no personal relationship
built up between any customer and any given hairdresser such that a loyalty and
a following would be engendered, with the obvious goal of arrogating all the
clientele to the Appellant and making sure that the employees did not have
loyal clientele that they might take away from the premises with them.
[12] Moreover, the prices
were set by the Appellant who controlled the cash, to the extent that Mr.
Khader on behalf of the Appellant would overrule prices that were historically
charged to customers that were previously loyal to a hairdresser. Not only did
the hairdresser and the customer not know what would be charged, but the
evidence is that the customers would not accept if there was a price increase,
and there is evidence that that is exactly what happened, to the extent that
they would go elsewhere and cease to deal with the hairdresser that they were
accustomed to dealing with.
[13] The rules and
regulations and the actual operation of the premises with regard to the
price-setting and overruling of the hairdressers and restricting any sort of
conversation and the building up of a relationship between any hairdresser and
any given customer is clearly the establishment of a relationship of
subordination between the nine workers and the Appellant and an extraordinary
degree of control inconsistent with the workers being independent. The control
factor tends to indicate that the nine workers during the period under review
were employees.
[14] The sole witness for the
Appellant, Mr. Khader, testified that it was his workers who requested the
rules and regulations by way of a common vote. In my view, that was absolutely
incredible, given the onerous, restrictive nature of the rules and regulations.
[15] Equally incredible was
the evidence of Mr. Khader that there was a Christmas bonus/partnership share
scheme available to the workers which was adduced to buttress his allegation
that these were partners. The very clear evidence is that the shares in the Appellant
are 100 per cent owned by the son of Mr. and Mrs. Khader. Therefore, there is
no right to promise shares that are in the control of someone who is not a
party to this transaction.
[16] In any event, it turned
out to be an empty promise because none of these documents which are found in
Exhibit 1, Tab 5, ever resulted in any shares being given to any employee or
any money given in lieu of shares.
[17] It was these two
examples plus numerous other instances where I was left in doubt as to Mr.
Khader's reliability as a witness, and I concluded that the evidence of the
witnesses for the Appellant was preferable.
[18] Again, the control criterion
indicates that the workers were employees.
[19] So far as tools are
concerned, the well-known case of Precision Gutters v. The Minister of
National Revenue, which has been mentioned by counsel for the Respondent
Minister, says that, if the worker owns the tools of the trade which it is
reasonable for him to own, that suggests that he is an independent contractor
even though the alleged employer provides special tools for the particular
business. Precision Gutters is cited at [2002] Federal Court Judgments,
No. 771 in the Federal Court of Appeal.
[20] The evidence is that the
hairdressers all had the normal tools required of a hairdresser, that they were
purchased back in hairdressing school, and that they were brought with them to
the Appellant. They were cutters and hairdryers and scissors, among other
tools.
[21] While the payor provided
the premises and the chairs and the sinks and all colouring materials and other
hair products, the evidence indicates that these workers fit right within Precision
Gutters.
[22] In fairness to the Appellant,
I have noted from the evidence that the Appellant deducted from all payees
either 10 per cent of the revenue generated by the hairdresser or in one case
$85 and in another case $75 for a supposed rent-to-own proposition which would
have these workers working towards being what is known as chair renters.
[23] If it had been
established in the evidence that that was the agreed upon scheme, then that
payment for the chair and the business overhead, including rent, power and
light, could be an expense inherent in these nine hairdressers' working
relationship with the Appellant and might constitute a risk of loss. However,
the evidence did not really support that. Marilu Dymond testified and was
very clear and very convincing and very credible that at no time did she
approve of this scheme. As a matter of fact, when she failed to obtain
approval for the requisite financing, Mr. Khader promised either to take
the $75 a week that she was paying and pay it towards her income taxes or to
refund it, but he never did either, keeping the four to five months of $75 per
week.
[24] I mentioned that there
was also an $85 figure, and that was being paid by Ms. Magyari.
[25] While it is true that
all workers signed the styling chair short-term lease agreements, which are to
be found at tab 4 in Exhibit R-1, they all testified to the effect that there
was no meeting of the minds with reference to that. There was no intent to
lease, and it was a condition of employment that they signed these agreements
if they wanted to work at the premises. Therefore, I did not place any great
weight upon the documents found in Tab 4, particularly in view of the good deal
of evidence I heard of the workers' intentions being quite to the contrary.
[26] I pass on now to the
chance of profit.
[27] Mr. Khader insisted on
more than one occasion that Rita Duvenny had a GST number and that he was told
so by Revenue Canada. Of course, as I indicated to Mr. Khader, that is hearsay and I cannot
accept that for its truth. However, there is no doubt that other of the
workers not only had a number, but on their invoices charged the Appellant with
GST. I am invited, of course, to find that anyone who charges GST must be in
business on their own account and with a chance of profit.
[28] However, I don't find
that the mere fact that someone had a GST number is of any probative value.
Just like the Federal Court of Appeal has said in Wolf v. The Minister of
National Revenue, the printing of business cards is not probative of the
issue. Wolf is cited at [2002] Federal Court 396.
[29] Similarly, I often hear
that someone has registered a business name and, therefore, they must be
carrying on business on their own account. It is patently clear that one
cannot avoid the four-in-one guidelines promulgated in Wiebe Door by the
simple expedient of having your business name registered.
[30] With reference to these
workers working on commission as opposed to working in a mall on a wage, I have
to agree with counsel for the Minister when he cited Justice Bowie's decision
saying that not all commission salespeople are ipso facto independent
contractors. There is a series of decisions by Justice Bowman, as he then was,
where he finds that some commission salespeople were independent contractors
and others were not, all depending on the facts of the case.
[31] The evidence of Marilu
Dunn was very clear and also that of Mrs. Duvenny. Any suggestion that
they were working on commission was fanciful because it only came into
operation if the worker cleared a minimum financial threshold which was so high
that it was unreasonable and no one ever met it.
[32] A simple exception to
that was Agnes Magyari who was clearly paid a commission of 50 per cent of her
revenues. However, as I have said, this is not necessarily conclusive on the
issue of whether or not she was an independent contractor. She could be an
employee who was working on commission.
[33] That varies with a
number of things, mainly whether she was truly independent or whether she was
in fact subordinate to the Appellant and whether she could profit by sound
management.
[34] The phrase "profit
by sound management" was not of my own invention. It crops up in the
jurisprudence in a number of cases and is, in my view, a good and concise
element to examine when one tries to understand if there is a chance of profit
in the Wiebe Door sense. So far as I can find, it was first articulated
by Justice Cooke in Market Investigations v. Minister of Social Security
in [1968], All E.R. at page 732 where the judge says:
…whether and how far he
has an opportunity of profiting from sound management in the performance of his
tasks.
That phraseology was picked up by
Justice Major in Sagaz at paragraph 44 which I have already quoted. It
is quoted in Precision Gutters which I have earlier cited, and it was
quoted by Justice MacGuigan in Wiebe Door itself for which I have
earlier given you the citation.
[35] I have said that there
are two important elements that I have been examining on the status so far as
the one person, Agnes Magyari, who was clearly on commission. The two elements
are whether she was truly independent, which means an independent contractor,
and the second is whether she could profit by sound management. I don't
propose to say anything more about her independence in that I have already
found that all workers were subject to extraordinary degrees of control such that
they were in a relationship of subordination with the Appellant, inconsistent
with their being any kind of contractors.
[36] As far as any of their
abilities to profit by sound management, it is quite clear on the evidence that
there was none because of the campaign by the Appellant to break down the
possibility of there being any personal relationship and any loyalty between
any customer and any given hairdresser. That was done in a number of ways and
I have probably already alluded to all of them. There was the division of
labour. No one worked on any person's hair from beginning to end, but the
tasks were divided up. It was mainly Mrs. Khader who told the workers what to
do and how to do it and what part of any particular job was to be done. There
was strong evidence that, when it came to colouring, that had to be done by
Mrs. Shirley Khader; that the colour chart that pertained to any particular
customer was kept on computer by the Appellant for its use and future colouring
of that particular person's hair.
[37] They were not allowed to
talk to customers. They could not use telephones.
[38] It seems to me that
there were a number of steps taken to appropriate anyone who walked in the door
to the Appellant whether or not they were previously loyal to one of the
hairdressers.
[39] In these circumstances I
see no possibility of any of the workers, including Agnes Magyari, profiting by
sound management. There is no way that they could do anything to increase
their profits.
[40] Having said that, the
statement that I just made is a little broad considering that there was
evidence early on in this trial that James Mansur did have his own brochures
and, as a matter of fact, quoted a very low price, as I understand it, for some
service -- and I don't know exactly which one -- related to hair styling.
Which service in particular is not relevant for our purposes. Aside from that
very minor evidence of any way that someone could have brought in a customer,
there was such overwhelming evidence by everyone else of the impossibility of
profiting that I find that there was no chance of profit in the hairdressers'
working relationship with the Appellant.
[41] Then there is the risk
of loss. It is clear that the workers had no expenses with reference to the
working relationship with the Appellant. The small tools that they owned, as I
understand it, were purchased earlier on, and the only expense was very minor
involving sharpening those that needed to be sharpened.
[42] On this rent-to-own,
which in some cases was 10 per cent in one case and was $85 in another case and
in another case was $75, as I previously said, the evidence indicated in the
case of Ms. Dymond that the $75 was not deducted on a lease-to-own basis when
she was not approved for the necessary financing. It was promised to be
returned to her. So far as Agnes is concerned, her evidence was that she had
deducted from her remuneration for nine weeks $85, and then it was 10 per cent
for the rest of her time there.
[43] I was not satisfied on the
evidence that there was a genuine rent‑to‑own arrangement agreed
upon by the parties and that in effect governed the working relationship
between the parties. That is because there was not any witness who approved of
the deduction. Ms. Dymond was promised that it would be applied to her income
taxes or returned. The witness Agnes Magyari, with 40 years of experience in
the field, was adamant that $3,000 for a chair was exorbitant, and she only
executed the styling chair short-term lease agreement because she needed the
work. In the rest of the cases I find that, even if there was 10 per cent of
the sales deducted from their remuneration, this is what is known as a variable
as opposed to a fixed expense. In other words, 10 per cent was only payable if
they earned the remaining 90 per cent. In these circumstances it is not
possible for the 10 per cent to constitute a risk of loss.
[44] At the risk of
repetition, the two exceptions to that are Ms. Dymond at $75 per 45 hours and
Ms. Magyari at $85 which dropped to 10 per cent after nine weeks. In the first
case, as I have already said, that was promised to be reimbursed or applied to
income taxes and therefore did not constitute a risk of loss. In my view, the
shift with reference to Ms. Magyari from $85 to 10 per cent means that
that expenditure also wound up being a variable expenditure and could not
constitute a risk of loss.
[45] It is trite law that
this canvassing of the four-in-one guideline set out in Wiebe Door is
only in service of understanding the total relationship between the parties.
In my view, this element of control outweighs the other factors and is so
consistent with subordination and so inconsistent with independence that it is
quite clear that these people were not independent contractors but were
employees during the period under review. All four Wiebe Door factors
point in the same direction, that the total relationship between the parties
was that of employer/employee.
[46] In these matters the
burden is on the Appellant to rebut the assumptions set out in the Minister's
Notice of Reply. I have, during the course of the evidence gone over each and
every one of the many assumptions set out, and I could not find one that the Appellant
succeeded in demolishing. There were two that were subject to clarification by
the Appellant, the first being (i), that the workers were paid an hourly rate
by cheque made to their personal names. The evidence indicated that that was
not true so far as Agnes Magyari was concerned. The other one was (w), that
the workers did not advertise their services. I have already said that James
Mansur did.
[47] The law is that, even if
the Appellant succeeds in demolishing some of the Minister's assumptions -- and
I am referring to the case of Jencan Limited, [1997] Federal Court
No. 876 in the Federal Court of Appeal -- if the remaining assumptions are
sufficient to support the Minister's determination, the determination must
stand, which I find to be the case in the matter before me.
[48] I have heard the
evidence called on behalf of the Appellant and on behalf of the Respondent
Minister who testified under oath for the first time, and I found no new
evidence or any indication that the evidence considered by the Minister was
misunderstood or misconstrued. I find that these nine workers were not
carrying on any business on their own account and that the Minister's
conclusion and decision was objectively reasonable.
[49] In the result, the Appellant's
appeal under the Canada Pension Plan, like its appeal under the Employment
Insurance Act, will be dismissed, and the decision of the Minister will be
confirmed.
Signed at Toronto, Ontario, this 28th day of January 2010.
“N. Weisman”
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