Citation: 2008 TCC 624
Date: 20090116
Docket: 2008-224(EI)
BETWEEN:
FINANCIÈRE BANQUE NATIONALE INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
CARLO MASSICOLLI,
Intervener.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1]
On
December 1, 2006, a Canada Revenue Agency eligibility officer
determined that Carlo Massicolli was employed in insurable employment
by the Appellant, National Bank Financial (NBF), within the
meaning of section 5 of the Employment Insurance Act (the Act),
from January 1, 2003, to December 31, 2004 (the relevant period). The appeals
officer set aside that determination and determined that Mr. Massicolli did
not hold insurable employment during that period. NBF filed an appeal from the
appeals officer's determination in this Court, and Mr. Massicolli filed a
Notice of Intervention on March 10, 2008. On June 26, 2008,
counsel for the Respondent notified the other parties to the dispute that he
now supported NBF's position, that he would not be adducing any evidence, and
that he would make no oral submissions at the hearing scheduled for
July 17, 2008. By reason of this change of position by the
Respondent, I decided not to take the Respondent's assumptions of fact into
account; consequently, each of the other two parties had the burden of proving
the facts in support of the findings that they sought from this Court.
Agreed facts
[2]
The three parties filed
a Partial Agreed Statement of Facts, which frames the issue in the instant case
as follows: Was Mr. Massicolli an independent contractor or an employee of
NBF during the relevant period? Contrary to the position usually taken by
payors and workers before this Court, NBF submits that Mr. Massicolli was
an employee, and Mr. Massicolli submits that he was an independent
contractor. I shall reproduce paragraphs 1-29 of the Partial Agreed
Statement of Facts:
[TRANSLATION]
1. The Appellant, a company incorporated in
Canada, provides securities brokerage and other services.
2. The Appellant's securities brokerage
services consist, among other things, in offering counselling and
brokerage services to individuals through investment advisors, and in offering institutional
brokerage and corporate finance services.
3. The counselling and brokerage services
that the Appellant offers to individuals are rendered by investment advisors
who are assigned to various branches throughout Canada, including the branch
located in Pointe‑Claire, Quebec ("the Branch").
4. On August 27, 1993, the Intervener joined
the Appellant's team of investment advisors. His job consisted, among
other things, in providing investment advice to clients based on their investor
profiles and investment objectives ("Clients"). From
January 1, 2003, to October 1, 2004
("the Period"), the Intervener was an investment advisor and
broker at the Branch.
Regulation
5. During the Period, the Appellant and the
Intervener were subject to legislative rules, including the Securities Act
(Quebec), and rules established by self‑regulatory bodies governing
securities trading, including the Investment Dealers Association of Canada
(IDA).
6. The IDA is a
self-regulatory body which is responsible for, among other things, the
supervision, administration and registration of brokers, and which supervises
the conduct of business by brokers and their representatives and ensures that
brokers are sufficiently capitalized to carry out their functions appropriately
with a view to protecting Clients. During the Period, the Appellant was a
member of the IDA as a securities dealer.
7. Since 1982, the Commission des valeurs
mobilières du Québec (now the Autorité des marchés financiers) entrusted the
IDA with the administration and regulation of the activities of securities
brokers like the Appellant and representatives like the Intervener.
8. In 2008, the IDA and Market Regulation
Services Inc. (MRS) merged to become the Investment Industry Regulatory
Association of Canada (IIROC). IIROC now fulfils the IDA's role in the
province of Quebec.
9. In order to comply with IDA requirements
during the Period, the Appellant implemented mechanisms for the supervision and
control of transactions and operations involving Clients' affairs.
10. The Intervener was one of the
representatives registered by the Appellant with the Commissions des valeurs
mobilières du Québec in accordance with section 149 of the Securities
Act (Quebec).
11. During the years in issue, the Intervener
held licences to practice his profession in British Columbia, Quebec and
Ontario.
Remuneration and benefits
12. During the Period, the Intervener was
remunerated solely by commission, and the Appellant had no obligation to pay
the Intervener any minimum income.
13. During the Period, the commissions paid
to the Intervener represented roughly 50% of the commission fees charged to
Clients.
14. The Appellant was responsible for, among
other things, billing and Client account receivables, and gave the Intervener
the share of the commissions to which he was entitled.
15. During the Period, the Intervener was
entitled to fringe benefits, including various group insurance policies such as
life insurance and health insurance.
Office and
equipment
16. The Intervener had
an office at the Branch.
17. The Intervener sometimes had to work away
from the Branch premises in order to meet with Clients.
18. Client files had to be stored at the
Branch, and operations and transactions on Client accounts had to be effected
or initiated from the office located at the Branch.
19. During the Period, the Intervener had to
incur work-related expenses, including travel expenses and motor vehicle
expenses. The Appellant did not reimburse these expenses.
20. The Appellant made the following
available to the Intervener at the Branch:
a. meeting rooms;
b. financial analysis, reception, marketing,
accounting and payroll services, and
c. Intranet resources.
Administration and marketing
21. During the Period, the Intervener offered
investment advice and brokerage services to Clients under the Appellant's banner.
In his dealings with the Clients during the period, the Intervener used
business cards and letterhead bearing the Appellant's logo and business name.
23. As of April 2003, the Intervener formed
an undeclared partnership with Mark W. Auger, an investment advisor
who worked at the Branch.
The business name of the partnership was "Auger‑Massicolli." Around June 2003,
the Auger‑Massicolli business name also appeared on the Intervener's
business cards and letterhead.
22. Beginning around June 2003, the business
cards and letterhead used by the Intervener in his dealings with Clients also
bore one of the following trademarks:
a. "Bâtir
de la résistance aux conséquences du hazard" (TMA622252);
b. "Building
resistance to randomness" (TMA621930); and
c. Dolmen Design (TMA642799).
24. The trademarks referred to in paragraph
22 were the property of Les Placements Sydwood Inc., an entity unrelated to the
Appellant or to any of the Appellant's subsidiaries.
Staff and assistants
25. The Intervener had the help of assistants
in carrying out his work.
26. Part of the cost of these assistants was
borne by the Intervener through deductions from his remuneration, and part of
the cost was borne by the Appellant. The Appellant made source deductions at
all times from the assistants' salaries in accordance with Quebec and federal
tax legislation.
27. The Appellant covered the cost of office furniture
and supplies associated with the assistants' activities.
Contributions to government bodies
28. The Intervener was responsible for the
fees and contributions payable for his licences from the government bodies in
the provinces in which he was registered.
Administration
29. The Appellant could charge the Intervener
for transaction losses.
Factual background
[3]
The testimony of the
witnesses, and the numerous documents adduced at the hearing, proved numerous
additional facts. Some of those facts shall be set out directly below, while
others will be addressed under the heading "Analysis".
[4]
After obtaining a
Bachelor's of Business Administration (Finance) degree from the Université
du Québec à Montréal in 1986, Mr. Massicolli worked for The Co‑operators
Financial as a financial advisor. After that company was acquired by the
Laurentian Bank of Canada, he held managerial positions at that bank, including
the position of branch audit and security manager and the position of credit
manager.
• Agreement
with NBF
[5]
Before being hired by
the brokerage firm of Lévesque Beaubien Geoffrion Inc. (LBG), now NBF, Mr. Massicolli
filled out an employment application form on which the [TRANSLATION]
"position applied for" was advisor (see Exhibit A‑2,
tab 1). On the form, signed on August 26, 1993,
Mr. Massicolli stated: [TRANSLATION] "I wish to work for your
Company and . . . agree to comply with the
regulations and practices in force at the Company." (Emphasis added.) In
a letter dated August 27, 1993, Maurice Dupont, vice‑president and
Laval branch manager, confirmed the offer to hire Mr. Massicolli. The letter
was amended by a letter dated September 1, 1993, which states:
[TRANSLATION] "This is to confirm the main points of the agreement that
finalize [sic] your employment with our
firm . . ." (Emphasis added.)
[6]
The letter states that he
was hired effective September 1, 1993, at which time his [TRANSLATION]
"training" would begin. According to the conditions of his hiring, he
was to receive a hiring bonus: a total of $15,000 in [TRANSLATION]
"salary" that would be paid for the first nine months, plus
commissions [TRANSLATION] "in accordance with the commission and
bonus system established by LBG." The letter adds: [TRANSLATION]
"The above bonus is not reimbursable, but your progress will be monitored
and reviewed regularly . . ." (Emphasis added)
It specifies that if Mr. Massicolli engaged in conduct detrimental to
LBG's reputation, LBG would have the option to [TRANSLATION] "terminate
your association with our firm." Mr. Dupont concludes the letter by
stating that it is his pleasure to welcome Mr. Massicolli to [TRANSLATION]
"our team" (see Exhibit A‑2, tab 4).
[7]
On the employment
application form, under the heading [TRANSLATION] "Terms and Conditions of
Hiring", it is stated that Mr. Massicolli's employment was to begin
at the Laval branch, and that his [TRANSLATION] "employee number"
would be 11368. In addition to his annual salary in the form of
commissions, he was to receive basic life insurance coverage as a benefit.
[8]
NBF's Investment
Advisor's Guide provides more details about the calculation of investment
advisors' remuneration.
The document sets forth the following basic principle:
[TRANSLATION]
I. Basic
principle
§
The remuneration of an investment advisor is
established in three stages:
1st stage: Establish
the gross commission that NBF receives for all operations and transactions carried
out by the investment advisor.
2nd stage: Establish
the commission of the NBF advisor. This commission is a percentage of the
gross commission, and can range from 0% to 55% of the gross commission,
depending on the type of activity or the value of the transaction.
3rd stage: Adjust
the investment advisor's commission by increasing or decreasing the commission
amount through adjustments related to his production and by subtracting certain
amounts representing additional costs incurred by NBF with respect to the
services provided which are over and above certain established parameters.
[9]
To illustrate all the
components of the establishment of investment advisors' commissions, it is
helpful to reproduce the "Monthly Summary of Income — Example" from the guide.
Monthly Summary of
Income – Example
|
+
|
Net commissions on transactions
|
|
+
|
Portfolio management fees
|
|
+
|
Finder's Fees
|
|
+
|
Net commissions on Trailer Fees, PAC with
mutual fund and group RSP with mutual fund
|
|
+
|
Net commissions on life insurance contracts
|
|
+
|
Net commissions on term contracts
|
|
+
|
Adjustments on transaction commissions
|
|
A
|
Total income subject to adjustment
|
|
B
|
Adjustment: 33⅓% of A
|
|
C
|
Income after adjustment
(A – B)
|
|
+
|
Net commissions on administration fees
(SSP, RSP Portfolio, RIF Portfolio, Full
Access Plan)
|
|
-
|
Losses on transactions
|
|
-
|
Amount exceeding budgeted Entrepreneur
Account
|
|
D
|
Income after adjustments and commissions
on administrative fees
|
|
-
|
Portion (%) of net income paid to the
assistant
|
|
-
|
Monthly fixed payment to the assistant
|
|
-
|
Contribution towards guaranteed income of
investment advisor
|
|
-
|
Contribution towards computer services
|
|
-
|
Regulatory and [self-regulatory
association] registration fees
|
|
-
|
Contribution towards assistant's salary
|
|
-
|
Legal fees
|
|
-
|
Relay Program reimbursement
|
|
-
|
Other reimbursements of fees assumed by the
advisor
|
|
E
|
Net income after fees assumed by the
advisor
(line D less total fees)
|
|
+
|
Quarterly performance bonus
|
|
-
|
Portion (%) of performance bonus paid to
the assistant
|
|
F
|
Monthly net income (i.e. gross income
for tax purposes) (line E plus quarterly net performance bonus)
|
[10]
Although there are no
precise quotas for investment advisors, NBF's remuneration policy in force on
April 1, 2003 discloses that the remuneration of advisors who have
generated gross commissions lower than $55,000 per three-month period is
reduced by 33% for the subsequent month.
According to Mr. Massicolli, NBF did not set any targets for him, because
his production exceeded its expectations.
[11]
Part IV of the Employee
Guide (English version of Exhibit A-2, tab 23) prepared by NBF's Human
Resources Department deals specifically with various terms and conditions of
employees' work. Two provisions deserve special attention:
4.3
Bonuses
• Permanent
employees who are eligible for discretionary bonuses based on the profitability
of the firm and/or the division, and also on the employee's individual performance,
must have worked during the reference period and be employed by the
firm at the time the bonus is paid in order to be eligible. In addition,
any applicable vacation pay that is payable in accordance with provincial
labour law provisions is included in the bonuses paid.
. . .
4.4 Commission
• Employees
eligible to receive commissions must have worked during the reference period in
order to be eligible. In addition, any applicable vacation pay
that is payable in accordance with provincial labour law provisions is
included in the commissions paid.
[Emphasis
added.]
[12]
The Employee Guide
also describes the various forms of group insurance coverage offered to
permanent full-time or permanent part-time employees (administrative or
producer) who work a minimum of 20 hours per week. Coverage includes basic life
insurance, basic accidental death and dismemberment insurance, medical
insurance, dental insurance and short-term disability insurance. According to
the Employee Guide, an employee is eligible for the group insurance
program from his or her hiring date. (Exhibit A‑2, tab 23,
page 16). Paragraph 6.4 specifies that basic life insurance premiums are
paid 100% by the employer. This applies as well to basic life insurance for
dependants and to basic accidental death or dismemberment insurance. As for
medical insurance, the employer pays the premiums for personal coverage, but
the employee pays a premium for family dental and medical coverage.
[13]
The short-term
disability insurance policy covers the first 90 calendar days of absence due to
illness. An employee with at least two years of service receives 100% of his or
her remuneration for the first 20 consecutive working days of absence. The benefit
payment for the remaining 70 days is 85%. If the employee has no base salary, compensation
is based on the commissions and bonuses earned during the 12 full months worked
prior to becoming disabled, to a maximum of $240,000 (gross) per year
(section 6.1.4 of the English version of the Employee Guide). However, investment
advisors like Mr. Massicolli were not entitled to join the defined-benefit
pension plan, because they were considered "producer" employees with
no base salary (see page 22 of the French version of the Employee Guide).
[14]
The Employee Guide
describes several other benefits, including reduced costs for financial
programs offered by the National Bank of Canada (NBC) and NBF (see Part
VIII of the document). The Investment Advisor's Guide also contains a section
concerning the "employee account", an account, in Canadian or U.S. funds,
opened in the name of a permanent or retired NBF employee (policy P140‑10
in the Employee Guide). The account features attractive interest
rates on any credit balances in current accounts, as well as reduced brokerage
fees, and a waiver of administrative fees for registered plan accounts.
Although Mr. Massicolli says that he did not avail himself of this
benefit, he was entitled to do so.
[15]
The part of the
Investment Advisor's Guide that deals with travel expenses states: "Except
the events listed below, commission employees (retail sector) must assume meal,
travel and accommodation expenses themselves: the President's Club; the
President's Convention; the President's Council; training for recruits,
investment and administrative assistants . . . ."
[16]
The Employee Guide
deals with NBF's training and development policy. All permanent
full-time workers who have completed their probationary period are eligible to be
reimbursed for the costs they incur for training courses, or the fees that they
pay to attend a development seminar (Exhibit A‑2, volume 5, tab 23,
page 9). Mr. Massicolli was reimbursed for the cost of certain
training courses that he enrolled in, including courses given by CSI Global
Education, but he covered his registration fee for a conference on estate
freezes held by the Association de planification fiscale et financière (see
Exhibit INT‑2, tab 44).
[17]
At the time he was
hired, Mr. Massicolli lived in St‑Constant, on the South Shore across
from Montréal, but had to work at the Laval branch. Since Mr. Massicolli noticed
that LBG had no branch on the West Island, he decided to build his clientele in
that geographical area of Montréal.
[18]
Mr. Leclerc acknowledged
that NBF did not provide actual client lists to its investment advisors, but
that the advisors could get some of their clientele from among the customers of
NBC, which owned 20-30% of LBG at that time. There was thus a synergy between
NBC's clientele and NBF's clientele. Mr. Massicolli acknowledged contacting
the managers of NBC's various branches. He spoke to potential clients about
investments. Mr. Leclerc estimated that 20-25% of the clients served by
Mr. Massicolli were NBC customers.
[19]
Tired of having to
cross two bridges to get to work, Mr. Massicolli moved to Baie d'Urfé
on the West Island. By 1996, Mr. Massicolli had built up enough of a client
base on the West Island for LBG to open a point of sale, which was a sub‑branch
of the Laval branch. The location opened on May 10, 1996. Since there
were other investment advisors who lived on the West Island, two new advisors
joined the West Island team, which justified the opening of an actual branch
in the fall of 1996. Mr. Massicolli and a colleague, Christian Lamarre,
became co-managers. This situation did not please Mr. Massicolli. In a
sense, he was competing with the branch's other investment advisors. He found
it difficult to motivate them. Since he was a co‑manager, he also had to
act as compliance officer with regard to the activities of the West Island
branch. In any event, a new manager, Martin Leclerc, was appointed
in 2000. This appointment enabled Mr. Massicolli and Mr. Lamarre to
concentrate on the activities that were apparently of more interest to them:
developing and serving a brokerage clientele.
[20]
Mr. Massicolli focused
more on providing investment advice than on selling products developed by NBF. In
adopting this approach, Mr. Massicolli was prioritizing fees for counselling
services over commissions on the purchase and sale of securities. In
furtherance of this approach, Mr. Massicolli formed a team with Mark W. Auger
in May 2003 so that they could concentrate their efforts on entrepreneurs
and wealthy families. One of the reasons for this association was the
principle of complementarity: each investment advisor would be able to develop
expertise in different aspects of securities brokerage. Mark Auger was
responsible for managing the portfolios of the Auger‑Massicolli team's
clients, while Mr. Massicolli was responsible for business development.
[21]
In many respects, Mr.
Auger and Mr. Massicolli behaved as entrepreneurs. For example, in order
to develop its new niche, the Auger‑Massicolli team decided to pursue a
high-end marketing strategy. It called on the services of a graphic designer to
create the stationery. The prototype prepared by the graphic designer described
Auger‑Massicolli as a limited liability partnership, designated by the
French abbreviation "SENC" (société en nom collectif). The
proposed letterhead and business cards contain the business name ending in SENC,
NBF's name, and each entity's logo. However, as stated in the Investment
Advisor's Guide, any advertising by an NBF representative requires NBF's
approval.
The "Goals Worksheets" show that the question of a proposed limited
liability partnership was discussed in July 2003. The Auger‑Massicolli
team never obtained NBF's approval for the use of the French designation SENC.
That is probably why Mr. Massicolli and Mr. Auger say that they formed an
undeclared partnership, which is not required to "make declarations in the
manner prescribed by the legislation concerning the legal publication of
partnerships" (article 2189 of the Civil Code of Québec
(the Civil Code)).
[22]
In order better to
focus on their target clientele consisting of entrepreneurs and wealthy
families, Mr. Auger and Mr. Massicolli decided to reduce the number of
clients that they served from 760 to 460.
A part of this "purging" was done by transferring clients to another
NBF investment advisor. Transferring at least $10 million in investments
entitled the Auger‑Massicolli team to a consideration of $25,000, which
was used to help pay an assistant's salary for two years. It appears that some
portion of the $25,000 also helped defray the team's marketing expenses.
[23]
Mr. Auger and Mr.
Massicolli used a "Goals Worksheet" to define their objectives: the
commission target, the income to be earned during the month, and the amount of
assets to have under management. The team tried to persuade Luc Paiement, the president
and person responsible for individual investor services at NBF, to form a group
that they called "Private Client Wealth Management". Negotiations between
the Auger‑Massicolli team and NBF's management lasted several months. In
the end, NBF allowed the team to personalize NBF's concept of "Advisor Baskets"
and to use the designation "MWA Basket" instead (Mr. Auger's initials
are MWA). A letter signed by Mr. Paiement on December 15, 2003, informs NBF's
clients about this "MWA Basket".
[24]
On the other hand, the proposals
made by the Auger‑Massicolli team in relation to (a) a limited liability
partnership; (b) a separate incorporated division; (c) merger/integration
into FBN Gestion Privée; (d) separate branding / joint branding, appear not to
have been approved by Mr. Paiement. In fact, in a letter to
Mr. Paiement dated January 24, 2004,Mr. Auger
expressed his frustration in the following terms:
Auger‑Massicolli is genuinely concerned
that our experiences and know how [sic] are being undermined by NBF's
inaction. We are behind schedule. Our most direct competitors, National Bank of
Canada and Desjardins, are not wasting anytime [sic] in aggressively
recruiting, training, and coordinating the required people and technological
resources. Auger‑Massicolli will not stand still.
[25]
The Auger-Massicolli team
moved from talk to action. It left NBF on October 1, 2004, some eight months
later, to join Desjardins Securities. Upon the team's departure in
October 2004, NBF filled out a Record of Employment (ROE) in compliance with
the provisions of the Act.
[26]
In addition to that
Record of Employment, NBF prepared T4 information slips for 2004 as it had done
for the preceding years. On these slips, the commissions paid by NBF to Mr. Massicolli
are entered in box 14 as "employment income". NBF also prepared
copies of Form T2200, Declaration of Conditions of Employment, for Mr. Massicolli
for the years 2003 and 2004 (see Exhibit A‑2, volume 5, tabs 27
and 29). These forms describe Mr. Massicolli as an "employee"
holding the position of investment advisor. For the year 2003, the form states
that he is authorized to work from home
and that he is paying an assistant's salary at his discretion. Mr. Leclerc,
Mr. Massicolli's branch manager, said that the latter did not object to
being issued T4 slips and T2200 forms for the years 2003 and 2004.
In fact, Mr. Massicolli included his commissions from NBF in his
employment income as entered on line 101 of his income tax return (see Exhibit INT‑1,
tabs 39 and 40). He also deducted "employment expenses" on
line 229..
It should be noted that he reported $400 in business income on his 2004 income
tax return. This amount is related to financial planning advice and is the only
business income reported on the return.
The
regulatory context
[27]
Before setting out each
party's position, it is important to describe the regulatory context in which a
securities brokerage business operates in Quebec. As with certain other
professions and occupations, there are rules governing the conduct of such
business.
In order better to protect the public and the brokerage industry, there are
stringent standards. These standards apply to the businesses themselves, but
they also apply to their employees and agents. As I understand it, brokerage
firms that came together under the IDA umbrella imposed standards on themselves
in order to better protect their industry and their clients. The Commission
des valeurs mobilières du Québec, created by Quebec legislation, entrusted the
IDA with the responsibility to regulate brokerage activities from 1982 onward.
[28]
The By-laws,
Regulations and Policies of the IDA are set out in its Rule Book (July
1997). The IDA's Constitution articulates the aims of the Association, and
section 2(b) in particular refers to "encourag[ing] through self‑discipline
and self‑regulation a high standard of business conduct among Members and their
partners, directors, officers and employees and to adopt, and enforce
compliance with, such practices and requirements as may be necessary and
desirable to guard against conduct contrary to the interests of Members,
their clients or the public". (Emphasis added.) (English version
of the IDA Constitution, the French version being Exhibit A‑2,
volume 2, tab 12.)
• General
obligations
[29]
By-law No. 29 pertains
to "Business Conduct" and section 1 (cited by the IDA as
By-law 29.1) states, inter alia, as follows:
Business
Conduct
1. Members
and each partner, director, officer, sales manager, branch manager,
assistant or co-branch manager, registered representative, investment
representative and employee of a Member (i) shall observe high standards of
ethics and conduct in the transaction of their business, (ii) shall not engage
in any business conduct or practice which is unbecoming or detrimental to the
public interest, and (iii) shall be of such character and business repute and
have such experience and training as is consistent with the standards described
in clauses (i) and (ii) or as may be prescribed by the Board of Directors.
For the purposes of disciplinary proceedings
pursuant to the By-laws, each Member shall be responsible for all acts and
omissions of each partner, director, officer, sales manager, branch
manager, assistant or co-branch manager, registered representative, investment
representative and employee of a Member; and each of the foregoing
individuals shall comply with all By-laws, Regulations and Policies required to
be complied with by the Member.
[Emphasis added.]
Duty of
supervision
[30]
Among the rules of
conduct governing IDA members are the rules related to the duty of supervision,
particularly By-law 29.27(a):
27.(a) Each Member shall establish and
maintain a system to supervise the activities of each partner, director,
officer, registered representative, employee and agent of the Dealer Member
that is reasonably designed to achieve compliance with the Rules of the Association
and all other laws, regulations and policies applicable to the Member's
securities and commodity futures business. Such a supervisory system shall
provide, at a minimum, the following:
(i) The
establishment, maintenance and enforcement of written policies and
procedures acceptable to the Association regarding the conduct of the
types of business in which it engages and the supervision of each
partner, director, officer, registered representative, employee and
agent of the Member that are reasonably designed to achieve compliance with
the applicable laws, rules, regulations and policies;
(ii) Procedures
reasonably designed to ensure that each partner, director, officer, registered
representative, employee and agent of the Member understands his or her
responsibilities under the written policies and procedures in (i);
(iii) Procedures
to ensure that the written policies and procedures of the Member are amended
as appropriate within a reasonable time after changes in applicable laws,
regulations, rules and policies and that such changes are communicated to all
relevant personnel;
(iv) Sufficient
personnel and other resources to fully and properly enforce the
written policies and procedures in (i);
(v) The designation
of supervisory personnel with the qualifications and authority to carry out
the supervisory responsibilities assigned to them. Each Member shall
maintain an internal record of the names of all persons who are designated as
having supervisory responsibility and the dates for which such designation is
or was in effect. Such record shall be preserved by the Member for seven
years, and on-site for the first year;
(vi) Procedures
for follow-up and review to ensure that supervisory personnel are properly
executing their supervisory functions. Where the supervision is
conducted and supervisory records are maintained at a branch office, the
follow-up and review procedures shall include periodic on-site reviews of branch
office supervision and record-keeping as necessary depending on the types of
business and supervision conducted at the branch office;
(vii)
The maintenance of adequate records of
supervisory activity, including on-site reviews of branch offices as described
in (vi), compliance issues identified and the resolution of those issues.
[Emphasis added.]
[31]
IDA By-law No. 39
deals with agents. The most relevant portions are as follows:
Principal
and Agent
39.1
All By-laws, Regulations, Policies and Forms of
the Association that refer to the term employee shall be deemed to refer as
well to the term agent and all references to the term employment shall be
deemed to refer as well to the term agency relationship, where applicable.
39.2
For the purposes of this By-law "securities
related business" means any business or activity (whether or
not carried on for gain) engaged in, directly or indirectly, which constitutes
trading or advising in securities or exchange contracts (including
commodity futures contracts and commodity futures options) for the purposes of
applicable securities legislation and exchange contracts legislation in any
jurisdiction in Canada, including for greater certainty, sales pursuant to
exemptions under that legislation.
39.3
The relationship between the Member and any
person conducting securities related business on behalf of the Member
may be that of
(a) an employee, or
(b) an agent who is not an employee,
but may not be that of an incorporated
salesperson.
39.4
Where a Member structures its business relationship
with a person conducting securities related business on behalf of the Member
using the principal / agent relationship contemplated in paragraph
39.3(b), the Member shall ensure that:
. . .
(c) the Member
shall be responsible for, and shall supervise the conduct of the agent in
respect of the business including compliance with applicable legislation and
the By-laws, Regulations, Policies and Forms of the Association, including the
by-laws, rulings, policies, rules, regulations, orders and directions of any
self-regulatory organization or similar authority to which the Member is
subject;
(d) the
Member shall be liable to clients (and other third parties) for the acts
and omissions of the agent relating to the Member's business as if
the agent were an employee of the Member;
. . .
(n) the Member
and the agent shall enter into an agreement in writing which shall be
provided to the Association prior to engaging in the principal/agent
relationship and shall contain terms which include the provisions of
paragraph (a) to (m), inclusive, and which do not include provisions which are
inconsistent with paragraph (a) to (m), and shall provide the Association with
a certificate by an officer or director of such Member and upon request by the
Association shall provide an opinion of counsel confirming the agreement is in
compliance with such provisions.
[Emphasis added.]
[32]
IDA Regulation 1300,
which pertains to "Supervision of Accounts" (English version of
Exhibit A‑2, volume 3, tab 12), defines a "managed
account" as "any account solicited by a Member
or . . . registered representative of a Member, in which
the investment decisions are made on a continuing basis by the Member or by a
third party hired by the Member," A "discretionary account"
is defined as an "account of a customer other than a managed account
in respect of which a Member or any person acting on behalf of the Member
exercises any discretionary authority in trading by or for such account
. . ." (Regulation 1300.3). Regulation 1300.7 states:
No Member or any person acting on its
behalf, shall exercise any discretionary authority with respect to a
managed account unless: (a) the individual who is responsible for
the management of such account is: (i) a partner, director, officer, employee
or agent of the Member who has been approved by the Association as a portfolio
manager or associate portfolio manager; or (ii) a sub-adviser with which the
Member has entered into a written sub-adviser agreement . . ." [Emphasis added.]
[33]
In addition to Regulation 1300,
there is Policy No. 2, which establishes "Minimal Standards for Retail
Account Supervision",particularly
for managed accounts. Part VII, which pertains to the supervision of such
accounts, states that the member must be approved by the IDA to open such
accounts, and must comply with all the requirements specifically detailed in
the By-laws, Regulations and Policies of the IDA. Only qualified portfolio
managers may handle managed accounts. (Division E: Managed Accounts).
[34]
As Mr. Massicolli acknowledged
in his testimony, since neither he nor Mr. Auger was a partner, director,
officer or agent of NBF, neither of them could be a portfolio manager unless he
was an employee of NBF. It has been established that Mr. Auger was an
assistant portfolio manager, and the evidence does not disclose the existence
of a "written sub-advisor agreement". Neither Mr. Auger nor
Mr. Massicolli was an IDA member. They were merely registered
representatives. They had to be NBF employees in order to open portfolio
management accounts and exercise discretionary authority over such accounts.
They could open such accounts only on behalf of NBF, which had to exercise
tight control over the activities of employees acting as portfolio managers or
assistant portfolio managers.
[35]
More generally, it is
important to note that the rules contained in the By-laws, Regulations and
Policies apply only to managers and their personnel. A member's personnel includes
its directors (if it is a corporation), partners (if it is a partnership),
officers, sales directors, branch managers or co-managers, investment
representatives and any other employees of the member. It also includes agents
acting on behalf of a member, provided there is a written agreement approved by the IDA.
Thus, the duty of supervision applies only to those persons. The rules impose
no obligations, including supervisory obligations, regarding any other person
operating a brokerage business or carrying on brokerage activities. NBF therefore
has no obligation to supervise a sub-contractor who is not one of the persons
included in this long list.
The parties' positions
• NBF's position
[36]
Counsel for NBF went
over the relevant rules that should assist the Court in determining whether
Mr. Massicolli was an employee or whether he was self‑employed. First of
all, the question should be decided in accordance with the Civil Code,
since the Act does not define "employment . . . under [a] . . . contract of service" for the purposes of the
definition of "insurable employment" in subsection 5(1) of the
Act. In support of his position, he cited Tambeau, sub nom.
9041‑6868 Québec Inc. v. Minister of National Revenue,
2005 FCA 334. In particular, he cited the remarks of Décary J.A.:
[3] When the Civil Code of Québec came into
force in 1994, followed by the enactment of the Federal Law - Civil Law
Harmonization Act, No. 1, S.C. 2001, c. 4 by the Parliament of Canada and
the addition of section 8.1 to the Interpretation Act, R.S.C., c. I-21
by that Act, it restored the civil law of Quebec to its rightful place in
federal law, a place that the courts had sometimes had a tendency to ignore. On
this point, we need only read the decision of this Court in St-Hilaire v.
Canada, [2004] 4 FC 289 (FCA) and the article by Mr. Justice Pierre
Archambault of the Tax Court of Canada entitled "Why Wiebe Door
Services Ltd. Does Not Apply in Quebec and What Should Replace It",
recently published in the Second Collection of Studies in Tax Law (2005) in the
collection entitled The Harmonization of Federal Legislation with
Quebec Civil Law and Canadian Bijuralism, to see that the concept of
"contract of service" in paragraph 5(1)(a) of the Employment Insurance
Act must be analyzed from the perspective of the civil law of Quebec when
the applicable provincial law is the law of Quebec.
. . .
[7] In other words, it is the Civil Code of Québec that
determines what rules apply to a contract entered into in Quebec. Those rules
are found in, inter alia, the provisions of the Code dealing with
contracts in general (arts. 1377 C.C.Q. et seq.) and the provisions
dealing with the "contract of employment" (arts. 2085 to 2097 C.C.Q.)
and the "contract of enterprise or for services" (arts. 2098 to 2129
C.C.Q.). Articles 1378, 1425, 1426, 2085, 2098 and 2099 C.C.Q. are of most relevance
for the purposes of this case:
|
1378. A contract is an agreement of
wills by which one or several persons obligate themselves to one or several
other persons to perform a prestation.
. . .
|
1378. Le contrat est un accord de
volonté par lequel une ou plusieurs personnes s'obligent envers une ou
plusieurs autres à exécuter une prestation.
…
|
|
1425. The common intention of the
parties rather than adherence to the literal meaning of the words shall be
sought in interpreting a contract.
|
1425. Dans l'interprétation du contrat,
on doit rechercher quelle a été la commune intention des parties plutôt que
de s'arrêter au sens littéral des termes utilisés.
|
|
1426. In interpreting a contract, the
nature of the contract, the circumstances in which it was formed, the
interpretation which has already been given to it by the parties or which it
may have received, and usage, are all taken into account.
. . .
|
1426. On tient compte, dans
l'interprétation du contrat, de sa nature, des circonstances dans lesquelles
il a été conclu, de l'interprétation que les parties lui ont déjà donnée ou
qu'il peut avoir reçue, ainsi que des usages.
…
|
|
1440. A contract has effect only between
the contracting parties; it does not affect third persons, except where
provided by law.
. . .
|
1440. Le contrat n'a d'effet qu'entre les
parties contractantes; il n'en a point quant aux tiers, excepté dans les cas
prévus par la loi.
…
|
|
2085. A contract of employment is a
contract by which a person, the employee, undertakes for a limited period to
do work for remuneration, according to the instructions and under the
direction or control of another person, the employer.
. . .
|
2085. Le contrat de travail est celui
par lequel une personne, le salarié, s'oblige, pour un temps limité et
moyennant rémunération, à effectuer un travail sous la direction ou le
contrôle d'une autre personne, l'employeur.
…
|
|
2098. A contract of enterprise or for services
is a contract by which a person, the contractor or the provider of services,
as the case may be, undertakes to carry out physical or intellectual work for
another person, the client or to provide a service, for a price which the
client binds himself to pay.
|
2098. Le contrat d'entreprise ou de
service est celui par lequel une personne, selon le cas l'entrepreneur ou le
prestataire de services, s'engage envers une autre personne, le client, à
réaliser un ouvrage matériel ou intellectuel ou à fournir un service
moyennant un prix que le client s'oblige à lui payer.
|
|
2099. The contractor and the provider of
services is free to choose the means of performing the contract and no
relationship of subordination exists between the contractor or the provider
of services and the client in respect of such performance.
|
2099. L'entrepreneur ou le prestataire
de services a le libre choix des moyens d'exécution du contrat et il n'existe
entre lui et le client aucun lien de subordination quant à son exécution.
|
. . .
[9] The contract on which the
Minister relies, or which a party seeks to set up against the Minister, is
indeed a juridical fact that the Minister may not ignore, even if the contract
does not affect the Minister (art. 1440 C.C.Q.; Baudouin and Jobin, Les
Obligations, Éditions Yvon Blais 1998, 5th edition, p. 377).
However, this does not mean that the Minister may not argue that, on the
facts, the contract is not what it seems to be, was not performed as provided
by its terms or does not reflect the true relationship created between the
parties. The Minister, and the Tax Court of Canada in turn, may, as
provided by articles 1425 and 1426 of the Civil Code of Québec,
look for that true relationship in the nature of the contract, the
circumstances in which it was formed, the interpretation which has already been
given to it by the parties or which it may have received, and usage. The
circumstances in which the contract was formed include the legitimate stated
intention of the parties, an important factor that has been cited by this Court
in numerous decisions (see Wolf v. Canada (C.A.), [2002] 4 FC 396,
paras. 119
and 122; A.G. Canada v. Les Productions Bibi et Zoé Inc., 2004 FCA 54; Le
Livreur Plus Inc. v. M.N.R., 2004 FCA 68; Poulin v. Canada (M.N.R.),
2003 FCA 50; Tremblay v. Canada (M.N.R.), 2004 FCA 175).
. . .
[11] There are three characteristic constituent elements of a
"contract of employment" in Quebec law: the performance of work,
remuneration and a relationship of subordination. That last element is the
source of the most litigation. For a comprehensive definition of it, I would
refer to what was said by Robert P. Gagnon in Le droit du travail
du Québec, Éditions Yvon Blais, 2003, 5th edition, at pages 66 and 67:
[TRANSLATION]
90 - A distinguishing
factor - The most significant characteristic of an employment contract is
the employee's subordination to the person for whom he or she works. This is
the element that distinguishes a contract of employment from other onerous
contracts in which work is performed for the benefit of another for a price,
e.g. a contract of enterprise or for services governed by articles 2098 et
seq. C.C.Q. Thus, while article 2099 C.C.Q. provides that the contractor or
provider of services remains "free to choose the means of performing the
contract" and that "no relationship of subordination exists between
the contractor or the provider of services and the client in respect of such
performance," it is a characteristic of an employment contract, subject to
its terms, that the employee personally perform the agreed upon work under the
direction of the employer and within the framework established by the employer.
91 - Factual
assessment - Subordination is ascertained from the facts. In this respect,
the courts have always refused to accept the characterization of the contract
by the parties. . . .
92 - Concept - Historically,
the civil law initially developed a "strict" or "classical"
concept of legal subordination that was used for the purpose of applying the
principle that a master is civilly liable for damage caused by his servant in
the performance of his duties (article 1054 C.C.L.C.; article 1463 C.C.Q.).
This classical legal subordination was characterized by the employer's direct
control over the employee's performance of the work, in terms of the work and
the way it was performed. This concept was gradually relaxed, giving rise to
the concept of legal subordination in the broad sense. The reason for this is
that the diversification and specialization of occupations and work methods
often made it unrealistic for an employer to be able to dictate or even directly
supervise the performance of the work. Consequently, subordination came to
include the ability of the person who became recognized as the employer to
determine the work to be performed, and to control and monitor the performance.
Viewed from the reverse perspective, an employee is a person who agrees to
integrate into the operational structure of a business so that the business can
benefit from the employee's work. In practice, one looks for a certain
number of indicia of the ability to control (and these indicia can vary
depending on the context): mandatory presence at a workplace; a somewhat
regular assignment of work; the imposition of rules of conduct or behaviour; an
obligation to provide activity reports; control over the quantity or quality of
the services, etc. The fact that a person works at home does not mean that he
or she cannot be integrated into a business in this way. (Emphasis added.)
[37]
He also cited my
decision in Rhéaume v. The Minister of National Revenue and Julie Faucher,
2007 TCC 591, and, in particular, the following paragraphs:
[24] Upon analysing these provisions of
the Civil Code, it is clear that three essential conditions must be met
in order for a contract of employment to exist: (i) prestation of work by
the employee; (ii) remuneration paid by the employer for this prestation;
and (iii) a relationship of subordination. The factor that clearly
distinguishes a contract for services from a contract of employment is the
existence of a relationship of subordination, that is to say, the employer's
power of direction or control over the worker.
. . .
[29] In my opinion, the rules governing
the contract of employment in Quebec law are not identical to the common law
rules, and thus, it is not appropriate to apply common law decisions such as Wiebe
Door Services Ltd. v. Minister of National Revenue, [1986] 3 F.C. 553
(F.C.A) and 671122 Ontario Ltd. v. Sagaz Industries Canada
Inc., [2001] 2 S.C.R. 983, 2001 SCC 59.[7] At
common law, "there is no universal test to determine whether a person is
an employee or an independent contractor . . . 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."[8] As Major J. [h]eld in Sagaz:
47 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.
48 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. (Emphasis
added.)
. . .
[31] In Quebec, unlike the common law
situation, the central question is whether there is a relationship of
subordination, that is to say, a power of control or direction. Courts have no
choice but to determine whether or not there is a relationship of subordination
in order to determine whether a contract constitutes a contract of employment
or a contract for services. That is the approach that Létourneau J.A. of the
Federal Court of Appeal adopted in D & J Driveway,[9]
where he determined that there was no contract of employment based on the
provisions of the Civil Code, and, in particular, his finding that there
was no relationship of subordination, which he described as "the
essential feature of the contract of employment."[10]
. . .
[33] Lastly, before finishing this
statement of the rules that govern the determination of whether
Ms. Rhéaume held insurable employment, we should recall the remarks made
by Picard J. of the Quebec Superior Court in 9002‑8515 Québec Inc.,[12] which I reproduced at paragraph 121,
page 2:82 of my paper:
15 In
order for there to be a contract of enterprise, there must be no relationship
of subordination and the Agreement contains several elements showing a
relationship of subordination. A sufficient number of indicia exists in
this case of a relationship of authority.
_______________________________
[38]
Counsel for NBF also
cited the following remarks by Bédard J. in Caron, sub nom. 9020‑8653
Québec Inc. v. Minister of National Revenue:
[17] . . . However,
I feel that contrary to the common law approach, once a judge finds the
absence of a relationship of subordination, that is the end of the analysis to
determine whether there is a contract for service. It is not necessary to
consider the relevance of ownership of tools and the risk of loss or
possibility of profit, since under the Civil Code, the absence of a
relationship of subordination is the only essential element of a contract for
service that distinguishes it from a contract of employment. Elements such as
ownership of tools and the risks of loss or possibility of profit are not
elements essential to a contract for service. However, the absence of a
relationship of subordination is a determining factor. With regard to the two
types of contract, it must be determined whether there is a relationship of
subordination. Obviously, the fact that the Worker acted as a contractor could
be an indication that there was no relationship of subordination.
. . .
[19] I must note that the Appellant
must show the absence of a relationship of subordination on a balance of
probabilities to establish that there was no contract of employment. I must
also note that if the evidence shows elements of both autonomy and
subordination, the conclusion must be that there was a contract of employment
because the contract for service must be carried out with no relationship of
subordination. This is what Picard J. decided in Commission des normes du
travail v. 9002-8515 Québec inc, No. 505‑05‑020995‑963,
April 6, 2000 (Superior Court of Québec):
15. In order for there to be a contract
of enterprise, there must be no relationship of subordination. . . . A
sufficient number of indicia exists in this case of a relationship of
authority.
[Emphasis added.]
[39]
Counsel for NBF submits
that ample evidence clearly shows that NBF exercised direction and control over
Mr. Massicolli's work. He submits that the fact that this obligation of
control and direction over a worker is partly attributable to regulatory
standards means that the worker in question is an employee. He reiterated that
the need for such control is not attributable solely to the IDA regulatory
standards; it also stems from NBF's business requirements. Among other things,
NBF's reputation and its ability to make profits depend on such control. These considerations
are also why NBF exercised its control and its right of direction over
Mr. Massicolli's work. Counsel noted paragraphs 2 and 3 of the
Partial Agreed Statement of Facts, which are worded as follows:
[TRANSLATION]
2. The Appellant's securities brokerage
services consist, among other things, in offering counselling and
brokerage services to individuals through investment advisors, and in
offering institutional brokerage and corporate finance services.
3. The counselling and brokerage services
that the Appellant offers to individuals are rendered by investment advisors
who are assigned to various branches throughout Canada, including the branch
located in Pointe‑Claire, Quebec ("the Branch").
[Emphasis added.]
[40]
Counsel also referred
to the following paragraphs:
9. In order
to comply with IDA requirements during the Period, the Appellant implemented
mechanisms for the supervision and control of transactions and operations
involving Clients' affairs.
14. The Appellant was responsible for, among other things, billing and Client account
receivables, and gave the Intervener the share of the commissions to which he
was entitled.
18. Client files
had to be stored at the Branch, and operations and transactions on Client
accounts had to be effected or initiated from the office located at the Branch.
[41]
As further evidence of
the exercise of control and direction by NBF, counsel once again referred to
the provisions of the Code of Ethics and the Employee Guide.
[42]
He acknowledged that
Mr. Massicolli was a model employee for NBF because he was very productive and
his behaviour complied with NBF's rules of conduct. Consequently, the fact that
NBF did not exercise as much control over Mr. Massicolli on a day-to-day basis
as far as his schedule was concerned does not mean that it did not have a right
of control over his activities.
• Mr. Massicolli's position
[43]
Counsel for Mr.
Massicolli did not dispute NBF's counsel's description of the rules that apply in
determining whether Mr. Massicolli was an independent contractor or an employee
— that is to say, the rules set out in
the Civil Code. In addition, when, as an important ground of his argument
that Mr. Massicolli was an independent contractor, he cited the fact that
Mr. Massicolli alone bore all losses resulting from any investments poorly
executed by him or by one of his assistants, I pointed out to him that
risk of loss is not a relevant element in the Civil Code. His reply
to my remark was that this factor was cited to establish the absence of a
relationship of subordination. He thereby acknowledged — and was, in my opinion, correct in
law in this regard — that the civil law approach should be adopted in
determining Mr. Massicolli's status.
[44]
First of all, counsel
for Mr. Massicolli noted that the IDA's rules can apply to an agent who is
not an employee, as shown by By-law No. 39. He also cited certain
portions of the decision of the Federal Court of Appeal in Combined
Insurance Co. of America v. Canada (Minister of National Revenue), [2007]
F.C.J. No. 124 (QL), 2007 FCA 60, and in particular the following:
70 The
judge also referred to the control of the respondent’s work quality in support
of his finding that the appellant exercised control over the respondent. At paragraph
19 of his decision, he wrote "it is the degree of control exercised over
the quality of work that counts". This was an error of law, as this Court's
case law is consistent on this point: control of the quality of work,
like that of results, does not necessarily create a relationship of
subordination. They also should not be confused with control of the
performance of work: see Desbiens v. Attorney General of Canada, [2005] F.C.J. No. 2103,
2005 FCA 439, at
paragraph 6.
. . .
72 . . . Finally, the evidence was that the
appellant exercised only a limited amount of control over the results of the
respondent’s work, primarily to ensure compliance with statutory and
regulatory requirements.
[Emphasis added.]
[45]
Thus, Mr.
Massicolli submits that, in determining Mr. Massicolli's status, the
application of IDA rules should not be taken into account. When asked to
characterize the legal relationship between the Auger‑Massicolli team and
NBF, counsel for Mr. Massicolli stated that he considered it a contract
for services and for the provision of premises and personnel, under which NBF
provided the services or property in question, initially to Mr. Massicolli,
and, as of May 2003, to the Auger-Massicolli team. He submits that Mr.
Massicolli's assistants, and the Auger‑Massicolli team's assistants, were
his assistants or the team's assistants, not NBF's assistants. If NBF paid
bonuses to its assistants, it was due to the service agreement between
Mr. Massicolli and the Auger‑Massicolli team on the one hand and NBF
on the other. Thus, it was the Auger‑Massicolli team, an undeclared
partnership, which operated a securities brokerage business. It was this team
that provided investment advice and financial planning services to clients
under a contract for services between the team and the client.
[46]
In
Mr. Massicolli's submission, NBF bought and sold securities for Auger‑Massicolli
clients under a mandate conferred on NBF by the client. As for the keeping of portfolios
belonging to clients served by the Auger‑Massicolli team, counsel for the
Appellant submits that this was under a type of contract of deposit, probably between
the client and NBF.
[47]
In order to
justify the existence of the IDA's rules, counsel for Mr. Massicolli stressed
article 2100 of the Civil Code, which states:
|
2100. The contractor and the provider of services are bound to act in
the best interests of their client, with prudence and diligence. Depending on
the nature of the work to be carried out or the service to be provided, they
are also bound to act in accordance with usual practice and the rules of
art, and, where applicable, to ensure that the work done or service
provided is in conformity with the contract
Where they are bound to produce
results, they may not be relieved from liability except by proving superior
force.
|
2100.
L'entrepreneur et le prestataire de
services sont tenus d'agir au mieux des intérêts de leur client, avec
prudence et diligence. Ils sont aussi tenus, suivant la nature de l'ouvrage à
réaliser ou du service à fournir, d'agir conformément aux usages et règles
de leur art, et de s'assurer, le cas échéant, que l'ouvrage réalisé ou le
service fourni est conforme au contrat.
Lorsqu'ils sont tenus du résultat,
ils ne peuvent se dégager de leur responsabilité qu'en prouvant la force
majeure.
[Emphasis added.]
|
|
|
|
[48]
In order to show that
Mr. Massicolli was self-employed, his counsel cited the absence of a schedule,
the fact that he had to develop his own clientele, the fact that most clients
followed Mr. Massicolli and Mr. Auger to Desjardins Securities, the
fact that they had to bear 100% of losses resulting from an investment, and the
fact that they behaved as businesspeople when they incurred expenses, such as
assistants' salaries, to earn their income. He also cited article 1308 of
the Civil Code, which pertains to the administration of the property of others.
[49]
Counsel for Mr.
Massicolli submits that NBF's role is like that of an intermediate broker. He also
cited paragraph 105 of my article (cited in Tambeau, supra), notably
at page 2:67:
[105] Another direct proof
of the exercise of the power of direction of an employer could be proof
establishing that the payor trains the worker, unless the training relates only
to knowledge of the products to be sold.120 The imposition of
rules of conduct or behaviour also constitutes direct proof, unless the
rules correspond to standards that are applicable regardless of the worker's
status, i.e. statutory standards.121
__________________________
121Charbonneau, supra (note 4), at paras. 7, 11; Dr Denis Paquette,
supra (note 99), at para. 33 (no 8); Services de
santé Marleen Tassé, supra (note 31), at paras. 16, 25, 63; Neblina Spa Enr., supra (note 95), at
paras. 5, 14, 16; Ménard, supra (note 98), at para. 8.
• Response
[50]
In
response, counsel for NBF submitted that the decision in Combined Insurance
is not applicable to the instant case because of significant differences
regarding the facts. Among other things, he noted the facts set out in paragraph 7
of the decision, particularly the fact that the worker in Combined Insurance
worked for the payor on a non-exclusive basis, the fact that she had complete
freedom with regard to the people to whom she could make insurance proposals,
and the fact that she needed to take out an appropriate insurance policy,
at her expense, to cover her personal civil liability.
[51]
He also
noted that Mr. Massicolli's counsel's characterization of the legal
relationship was complex while in reality the situation was much simpler.
Mr. Massicolli's clients, and, subsequently, those of the Auger‑Massicolli
team, were NBF's clients. The contract for services was between those clients
and NBF. The contractual relationship between Mr. Massicolli and NBF
was a relationship stemming from an employment contract. It is because
Mr. Massicolli was its employee that NBF had the right to exercise tight
control over the performance of his duties as investment advisor and registered
representative.
[52]
Counsel for
NBF made the following comments about the factors based on which his colleague
submits that the Appellant is self-employed. As far as the schedule is
concerned, he noted that Mr. Massicolli was someone who arrived at work
very early and left very late. He exceeded NBF's standards. This is why little
control was exercised over his schedule. As far as client recruitment is
concerned, he noted that every account opening required NBF's approval.
He also noted that all transactions on client accounts were controlled
daily or monthly by NBF. In his submission, NBF's standards were a set of rules
governing how work was to be done. The fact that the representatives had
some flexibility in building their clientele and determining their niche did
not cause NBF to lose its right to control its investment advisors' work in
relation to that clientele. As for the status of agent contemplated in By-law No. 39,
he noted that, according to By-law No. 2, IDA members and their
employees had to agree to abide by the by-laws, regulations, rulings and
policies, and that when a person engaged in securities related business as an
agent, the member was responsible for the agent's conduct and had to supervise
his actions. Lastly, the contract of agency (mandate) had to be approved in
writing by the IDA under section 39.4(n) of By-law No. 39, and
this approval was not obtained in the instant case.
Analysis
[53]
I am in agreement with
the summary given by counsel for NBF. However, I would like to add
the following comments.
• Intention
[54]
Since the starting
point for determining whether Mr. Massicolli was employed in insurable
employment is to establish whether he was bound by a contract of employment or
a contract for services under the provisions of the Civil Code, it is important
to consider how the parties themselves characterized the nature of their
contractual dealings. In the case at bar, the evidence as to the parties'
intention is clear: the parties wished to enter into an employment contract,
not a contract for services. Indeed, Mr. Massicolli signed an employment
application on August 26, 1993, with a view to becoming an investment
advisor at LBG (now NBF). From LBG's point of view, it is clear that Mr. Massicolli
was hired as a salaried employee because he was assigned Employee
No. 11368 on the employment application form. The form makes reference to
the position applied for and to the consideration of candidates' applications.
[55]
As for Mr. Massicolli, he
stated on the form that he wished to begin working for LBG, and that, if hired,
he agreed to comply with the rules and practices in effect at LBG. In so doing,
he clearly expressed his intent to subordinate his work to LBG's direction and
control. The terms and conditions of hiring do not refer to fees, but rather to
an "annual salary" in the form of commissions. In his letter confirming
that Mr. Massicolli was being hired, Maurice Dupont, vice-president
and branch manager, discussed the various terms and conditions on which
Mr. Massicolli was being hired and expressed pleasure in welcoming
Mr. Massicolli to his team.
[56]
Another indicia that LBG
hired Mr. Massicolli as an employee is the fact that it offered him
numerous benefits, including, inter alia, various group insurance
policies, such as life insurance, disability insurance, health insurance and
dental insurance, the costs of which were generally borne by LBG/NBF. One of
the few fringe benefits described in the Employee Guide that Mr. Massicolli
was not entitled to was NBF's defined benefit pension plan. He was also
entitled to several discounts on various services offered by NBF and NBC to
their clients, though Mr. Massicolli asserts that he never availed himself
of these privileges. I do not know of clients that offer such benefits to their
suppliers (service providers). The only one that Mr. Massicolli named was
Cascades. When I asked him to specify whether they were offered to suppliers,
he acknowledged that they were limited to Cascades employees.
[57]
In addition to
intending to hire Mr. Massicolli as an employee, LBG/NBF continued to
consider him an employee throughout the relevant period, since NBF prepared T4
information slips, in respect of the 2003 and 2004 taxation years, setting out
the employment income that Mr. Massicolli received from NBF. Moreover,
when he left the company on October 1, 2004, NBF prepared a Record of
Employment in compliance with its obligations under the Act. Mr. Massicolli
never challenged NBF's approach in this
regard, except perhaps when he signed his commitment to comply with the Code
of Ethics, since he struck out the words [TRANSLATION] "as a
condition of my employment."
[58]
Not only did Mr.
Massicolli sign an application for employment with NBF (then LBG) on
August 26, 1993, he also acted consistently with the existence of an
employment contract by reporting the income that he received from NBF as
employment income. (See inter alia the income tax returns for the 2003
and 2004 taxation years, produced at tabs 39 and 40 of Exhibit INT‑1.)
In addition, on line 229 of his income tax returns, he deducted expenses
incurred to earn that employment income. In this regard, he set out the
details of these expenses on a Form T777. He did not fill out a statement
of business income, which anyone who operates a business must file. The only
business income that he reported was the sum of $400, from an activity other
than brokerage.
• The
parties' conduct
[59]
Naturally, it is
possible that the two parties to the contract, namely NBF and Mr. Massicolli,
were mistaken as to the true nature of their contractual relationship. It is
the function of this Court to ensure that the conduct of parties in the
performance of the contract was consistent with the intent that they expressed
when they agreed to form the contract.
Among other things, the Court must ensure that all conditions essential to the
existence of an employment contract were fulfilled. In the case at bar, the
condition that might pose a problem is the existence of a relationship of subordination.
As counsel for NBF noted in his oral argument, citing the Civil Code, cases
and scholarly writing in support, in Quebec the criterion that distinguishes
between a contract of employment and a contract of enterprise or for services
is the existence of a relationship of subordination.
— Relationship of subordination
[60]
This Court is rarely
provided with such direct and abundant evidence of a right of direction and
control over a worker's work. Generally, one has to turn to indirect evidence,
based on a series of indicia of supervision, to determine whether a
relationship of subordination exists. Here, the direct evidence of a right of
direction and control, and of the exercise of that right, is found largely in
the documentation, namely the Employee Guide, the Investment
Advisor's Guide, the Code of Ethics and the Compliance Manual.
(i) Employee Guide
[61]
Section 2.2
of the Employee Guide is the directive on attendance, and
section 2.7 is the directive regarding the performance evaluation process
(Exhibit A‑2, volume 5, tab 23, section 2.2 (translation of the
French version) and section 2.7 (English version):
2.2 Attendance
[TRANSLATION] It is
our responsibility as employees to be present at work. Absenteeism affects the
employee's entire department. When an employee does not work his or her
hours as scheduled, or is absent without a valid reason, the employee's
work must be done by colleagues, increasing their workload and affecting the
quality of service to clients. An employee's daily contribution is essential to
the smooth operation of the firm.
2.7 Performance
Evaluation Process
The firm believes that
employees should receive regular feedback on the quality of their work.
Performance evaluation is thus the process whereby the manager evaluates the
employee's current performance by identifying strengths and areas that
require improvement. The process also allows for developing an action plan that
encourages both professional development and acquisition of the skills required
for the position.
The specific objectives
of the performance evaluation process are to:
- Define clear,
quantifiable performance criteria for employees.
- Discuss the following freely and openly with
employees:
- their
current level of performance;
- progress
to be made in order to reach specific objectives;
- current or potential
problems.
- Provide employees and managers with a regular
opportunity to communicate.
Evaluations at NBF are
carried out between October 1 and November 15, whereas at NBCN they take place
throughout the year on the anniversary of the employee’s hire date.
Employees who have not
received a performance evaluation may request that their supervisor/manager
provide them with one.
[Emphasis added.]
[62]
An
investment advisor who is absent must ensure that he finds someone to replace
him during those absences. This goes without saying, because clients must be
able to contact an investment advisor at all times during regular business
hours. Mr. Leclerc confirmed that an investment advisor cannot work for
two brokerage firms at once. The Investment Advisor's Guide specifies NBF's policy in the event that an
investment advisor is absent. Here are the first two points of the relevant
directive (English version of Exhibit A‑2, volume 4, tab 13,
P100-11).
§
When an investment advisor is absent, unsolicited orders and orders solicited in advance must be
executed first by a member of the investment advisor's team, either an
associated advisor or an investment assistant, who is registered in the
client's province of residence.
§
If no team member is available/registered in the client's province of residence or if
the absent investment advisor is not associated with another investment advisor
and/or does not have an investment assistant who holds the appropriate licence,
any such orders must be executed by the branch manager or his designated
substitute who must hold the appropriate licences.
. . .
[Emphasis added.]
[63]
As for Mr. Massicolli's
schedule, Mr. Leclerc, the branch manager, acknowledged that investment
advisors did not have to punch any time cards. Mr. Massicolli, in
particular, had a great deal of flexibility with regard to his hours
of work. On the other hand, like all investment advisors, he had to comply
with certain minimum performance standards. Upon being hired, he was notified
in writing that [TRANSLATION] "your progress will be monitored and reviewed
regularly." If Mr. Massicolli had not worked enough hours during the
regular business hours of NBF's Pointe-Claire branch, the first penalty would
have been a commission reduction.
If the problem had continued for any length of time, NBF would have exercised
control by demanding that Mr. Massicolli be at the office more frequently.
If he had not complied with this instruction to be at the office longer in
order to generate more business for NBF, disciplinary measures, up to and
including Mr. Massicolli's dismissal, could have been taken. Since
Mr. Massicolli was an excellent producer who generated high commissions
during the relevant period —$457,943 in 2003 —
it was obviously unnecessary for NBF to exercise control over his attendance at
the Pointe-Claire branch.
[64]
The Employee
Guide prescribes the following dress code:
2.4
Dress Code
Each employee represents
the firm in dealings with clients and colleagues, which is why
professionalism is called for in regards to the choice of clothing.
[Emphasis added.]
[65]
Mr. Leclerc confirmed
that it was not necessary to intervene with respect to Mr. Massicolli's
dress because it was exemplary.
(ii) Investment
Advisor's Guide
[66]
NBF has prepared an
Investment Advisor's Guide, which discusses various corporate policies and
procedures that investment advisors must follow. Since it would be too
time-consuming to discuss all of them, I will only refer to a few. However, in
order to illustrate the breadth of the guide, its table of contents has been reproduced
in Appendix 1 to these Reasons for Judgment.
[67]
Under the heading
"Operations", there is a description of the steps to follow upon "Opening
an Account – Retail".
Mr. Leclerc specifically stated that no account can be opened at NBF
without NBF's consent. In order for an account to be opened for a client and
for the account to be authorized by the branch manager, a "Client
File" must be filled out by the advisor himself, not his assistant. The
investment advisor must know his client well, and the "Client File"
must contain all the requisite information. The advisor must obtain a copy of
acceptable, non-expired IDs for any new client. The guide specifies which IDs
and documents are acceptable. For individuals, these include a passport,
driver's licence, health insurance card, etc. (Exhibit A‑2,
volume 4, tab 13, G500‑01, page 5). According to the
guide, the advisor must ensure that all requisite documentation is received and
submitted to operations staff at the branch for verification (Exhibit A‑2,
volume 4, tab 13, pages 3 and 13).
[68]
The branch manager
exercises control over the conduct of his or her investment advisors through
constant supervision. If the Client File is incomplete, the manager must refuse
to open the account. If the client profile changes, notably with regard to the
risk level that the client accepts, the file must be revised. In other words,
if the investment objectives change, they must be noted in the Client File.
Once the account is open, the branch manager continues to monitor all
transactions on the account. The verification is done daily, monthly and
annually. Mr. Leclerc acknowledged that the measures adopted by NBF might
be stricter than IDA standards. One example that he gave is the rules for
trading on margin. NBF's interest stems from the fact that, if it accepts high
risk levels, it must have the capitalization level required by industry
standards.
[69]
According to Mr. Massicolli,
the Auger‑Massicolli team adopted file-opening standards that were stricter
than NBF and IDA minimum standards. For example, the client's signature was
required in order to complete the Client File. Moreover, an assistant with his
team looked after the compliance work, that is, ensuring that the investment
decisions made by the team were executed properly by NBF's personnel; this
consisted, among other things, in verifying the quantities and prices for
purchase and sale transactions that were to be carried out. This may all be
true, but it does not change the fact that NBF issued directives regarding
these activities and exercised strict control over them.
[70]
Page 4 of the section
of the Investment Advisor's Guide pertaining to the credit policy (P100-01)
discusses the settlement methods for cash accounts, and the Credit Department's
intervention criteria.
For example, on the tenth business day following the settlement date, "[i]f
by 2 p.m. the credit officer has not received confirmation from the investment
advisor that the transaction has been completed, he may, if deemed
necessary, liquidate or conclude the transaction that has not been settled. In
the case of an involuntary liquidation or conclusion, no commission is credited
to the investment advisor."(Emphasis in the original.) (English version of
Exhibit A‑2, volume 4, tab 13, P100-01, page 4).
[71]
The same section of the
guide discusses the policy for recovering unsecured debit balances greater than
$500 and less than $5,000. It states that, on the 26th day, if the situation is
not settled, the credit officer turns the case over to a collection agency.
The collection agency's fee, which amounts to 25% of the amount recovered, is
assumed by the investment advisor. The guide states that the advisor has the
option of using the Small Claims Court for amounts under $1,000.
[72]
For balances greater
than $5,000, NBF's legal department intervenes, and, generally, the collection fees
may be shared equally between NBF and the investment advisor (English version
of Exhibit A‑2, volume 4, tab 13, P100-01, page 24).
[73]
In the part entitled "Legal
Fees, Settlements and Judgements Involving the Responsibility of Investment
Advisors", it is stated that, where the complaint is considered serious
and complex, legal fees will be charged equally to the investment advisor named
in the lawsuit or involved in the alleged violation and to the branch where the
advisor reported at the time the events in question occurred. However, all
settlements must be paid by the investment advisor involved, and, should the
advisor cease to be an employee of NBF, the advisor will remain responsible for
their payment (English version of Exhibit A‑2, volume 4, tab 13, P160-01, pages 2 and
3, effective August 30, 2004).
[74]
In the part of the Investment
Advisor's Guide concerning commissions payable by clients, there is a
reference to the gross commission discount offered to clients. At page 2,
it is stated that discounts cannot cause gross commissions to fall below the
minimum commission without a penalty to the investment advisor, unless the
branch manager approves such a discount. (English version of Exhibit A‑2,
volume 4, tab 13, policy P100-02). The branch manager is
responsible for correcting any conduct that is not in keeping with NBF's
interests or with the spirit of the policy set out in that guide.
[75]
Another section of the Investment
Advisor's Guide (policy P100‑09) pertains to advertising. Its introduction
notes that industry rules require advertising by NBF or one of its investment
advisors to be approved first by a designated officer-administrator. The guide
states that the branch manager has been mandated to assume this role. It also
states that, in addition to receiving the branch manager's approval, certain
types of advertising must be approved by NBF's Compliance Department.
"Typical areas to watch for in advertising are omissions of relevant facts
and qualifications, and any exaggerated, unwarranted or misleading statements
or claims. Any particular rate or yield will require the relevant disclaimers.
We must also ensure that specific securities are not on the Firm's restricted
list." (English version of Exhibit A‑2, volume 4, tab 13, policy P100-09,
page 1 of 2.)
[76]
The guide also contains
a policy on communication with non-resident clients who live in tax havens. The
policy has been in force since March 31, 2006. Although dated
after the relevant period, it discloses that NBF has the right to exercise
control over its brokers or investment advisors. Among other things, it
states that "an investment advisor is not allowed to effect transactions
via another securities broker or financial institution. All transactions must
be transmitted to the authorized individual in the trading desk." (English
version of Exhibit A‑2, volume 4, tab 13, policy P120‑10
of the Investment Advisor's Guide, at page 1). It states that
the general objective of the policy is to promote a "proactive"
approach aimed at protecting NBF's integrity and reputation and maintaining
high ethical standards in dealings with non-resident clients. The goal is to
ensure compliance with regulations in accordance with the "Know Your
Client" rule, IDA Regulation 1300 (Identification of Beneficial
Owners), the Proceeds of Crime (Money Laundering) and Terrorist Financing
Act and Internal Revenue Service regulations. One of the control measures
adopted by NBF with respect to electronic mail is the following: "The
content of messages and documents transmitted and received will be swept by
special software in order to identify communication written to and from
jurisdictions identified as tax havens." (English version of Exhibit A‑2,
volume 4, tab 13, section P120-10, page 5).
(iii) The
Code of Ethics
[77]
In April 2003, the president
and CEO of NBF presented a new Code of Ethics to his employees.
Mr. Leclerc said that it was adopted following a market downturn; the bad
publicity created by the Enron and Nortel affairs comes to mind.
[78]
In the Code of
Ethics, NBF's president states that it is important that all employees
read and fully understand the Code so that its principles become their modus
vivendi, guiding them in the advice they give and the actions they take
with regard to NBF's clients and other stakeholders as well as to their fellow
employees. The president states that "[t]he laws and regulations set forth
by securities regulators and self-regulatory organizations provide detailed
rules on how we must conduct our operations; the Code of Ethics represents the
spirit in which all of us must work in order to ensure the integrity and
good reputation of our organization." (Introduction to the English
version of the Code of Ethics, dated February 2004, the French
version being Exhibit A‑2, volume 5, tab 17, page 1). Section 2
of the Code specifies that "employees are required to annually
acknowledge in writing compliance with the Code of Ethics (and any amendments)
as a condition of their employment" and that any breach the Code
"could result in sanctions, including dismissal for cause". (Exhibit
A-2, volume 5, tab 17, page 3.) On September 12, 2003, Mr. Massicolli
signed the "Acknowledgment and Undertaking" form, committing him to
abide by the rules of the Code of Ethics and the Computer Security Policy.
However, he struck out the words [TRANSLATION] "as a condition of my
employment" (see Exhibit A‑2, volume 5, tab 22).
[79]
The Code of Ethics
contains numerous rules that must be followed, including rules pertaining to
the confidentiality of information. For example, it specifies, in section 3.7
of the English version: "A client's affairs will be held in the strictest
confidence. An employee may not personally benefit from any knowledge of a
client's confidential information or affairs, or by disclosing such
confidential information to another party to allow such other party to benefit
from such knowledge."
[80]
One of the measures
concerning conflicts of interest states: "Gifts and entertainment should
not place the employee in a compromising position and should not influence the
decisions that we make in the performance of the duties performed for the Firm."
(Section 3.8 of the English version, the French version being Exhibit A‑2,
volume 5, tab 17, page 6). The same section states that all
employees functioning as directors of private or public companies must secure
the necessary approvals required by NBF prior to agreeing to function in that
capacity with a company other than NBF.
[81]
NBF has established
policies relating to advantageous transactions, that is to say, transactions
that show "a strong probability of gain and a degree of exclusiveness in
the right to participate." Section 3.8 states that "[w]henever
developments occur which present a conflict of interest between the employee
and his clients or the Firm, the employee must inform his supervisor so that
actions can be taken to resolve the conflict."
(iv) Compliance
Manual for Branch Managers
[82]
In carrying out their
duties, branch managers must follow the instructions contained in the Compliance
Manual for Branch Managers.The
document is meant to complement the Compliance Manual and its purpose is
to detail the legislation that branch managers must follow and to guide them in
their day-to-day tasks. IDA Policy No. 2 establishes minimum standards for
the supervision of retail accounts. The policy does not preclude members
like NBF from adopting higher standards of supervision. For example, NBF can
issue instructions to its investment advisors restricting trading in certain
securities. The list of restricted securities may be drawn up and issued by NBF's
legal services department or finance department.
[83]
One of the supervision
measures pertains to the opening of accounts for non‑residents (other
than U.S. residents). The measure expressly states that investment advisors
must obtain the Compliance Department's approval to open such accounts. The Compliance
Manual for Branch Managers sets out the daily and monthly monitoring that
branch managers must do and the points to verify, including excessive
concentration of securities, transactions not suited to the client, excessive
number of transactions, conflicts of interest between investment advisor and
client trading activity, inappropriate/high-risk trading strategies,
deterioration of the quality of client portfolios, and outstanding margin calls.
[84]
Monthly account
statements of clients who have generated at least $1,500 in commissions, monthly account
statements of employees, discretionary account statements and statements for
accounts in which mail has been waived must be reviewed on a monthly basis for
compliance. The Compliance Manual for Branch Managers specifies what points
to check and what measures to take. For example, if the branch manager notices
excessive volume, i.e. the ratio of gross commissions generated by the advisor
exceeds 1.5% of the assets under management, and inappropriate conduct is
noticed, disciplinary measures can be considered (see Exhibit A‑2,
volume 5, tab 14, pages 31 and 36 of the Compliance Manual
for Branch Managers, and pages 32 and 36 of the English version).
[85]
Mr. Massicolli submits
that there was little supervision of his work because he and Mr. Auger did the
compliance work themselves, through one of their assistants, whose very duty
was to do such work. Nonetheless, in an advertising letter boasting the merits
of the Auger‑Massicolli team and describing the
"MWA Basket Portfolio", Luc Paiement, NBF's president of
individual investor services, took care to specify that the fund was managed by
Mr. Auger and supervised by NBF's portfolio management department, a special
committee that meets every three months to confirm that the investments that
have been made are coherent at all times, and [TRANSLATION] "fully in
line" with the financial objectives of the "MWA Basket
Portfolio" (see Exhibit INT‑1, tab 32, page 108).
[86]
The Compliance
Manual for Branch Managers also deals with the IDA rules that require
registered personnel to participate in a continuing education program in order
to keep their registration in force.
In this regard, branch managers are required to follow the professional
development of the investment advisors and registered personnel at their branch.
Thus, they must follow and even guide them in their progress. They must also
make sure that personnel respect the deadlines for passing continuing education
courses (page 76, paragraph 3.6 of the manual, the French version being Exhibit
A‑2, volume 5, tab 14, page 85).
[87]
Lastly, paragraph 3.9,
which deals with trading practices, contains specific directives regarding the
manner in which things are to be done; among other things, it is forbidden
to solicit client orders on the basis of rumours: "NBF prohibits its
employees from spreading rumours of a sensational nature likely to affect the
market conditions." (English version of Exhibit A‑2, volume 5,
tab 14, page 91.)
[88]
The conclusion of the Compliance
Manual for Branch Managers sets out the objectives of efficient
branch-level supervision. It states that "efficient supervision is good
business practice that translates into acquiring and upholding the branch's
good reputation in the eyes of both clients and employees" (page 83 of the
manual, which is the English version of Exhibit A‑2, volume 5, tab 14,
page 93).
[89]
Mr. Leclerc stated
that if an investment advisor failed to comply with the directives given by
NBF, or contravened those directives, NBF's response could range from a notice
in writing to a disciplinary measure, and even a dismissal. Mr. Leclerc
reiterated that it is in NBF's interest to ensure that its clients have a high
level of trust, because its reputation depends on it.
(v) The existence of a regulatory
framework
[90]
The fact that IDA rules
required NBF to supervise its employees very closely does not mean that those
employees cannot be considered employees and that those rules are to be
excluded in determining the true nature of the contractual relationship between
NBF and its personnel. Given the importance of soundly managed financial
markets in Quebec and throughout Canada, and given that the adoption of abusive
or fraudulent practices by certain brokerage firms would have serious
repercussions on all brokerage firms (including reduced investor confidence in
the brokerage industry) it should come as no surprise that the various
brokerage firms joined together to form the IDA and adopt strict regulations,
and that the Commission des valeurs mobilières saw fit, in 1982, to entrust the
administration and regulation of securities brokers' activities to the IDA.
[91]
An analysis of the IDA
rules discloses no obligation on the part of a member to supervise and control
businesses operated by other brokers, except if an unincorporated agent
(unincorporated salesperson) is involved. NBF must exercise control over its
own business, and in particular its own personnel, including its investment
advisors, through which it operates its securities brokerage and counselling
services business. A reading of these rules shows that they apply to
"members and their partners, directors, officers, and employees". Some of the
IDA's rules add members' agents to this list.
When such agents are involved, "the Member shall be responsible for,
and shall supervise the conduct of the agent in respect of the business"
(By-law 39.4(c)) and "shall be liable to
clients . . . for the acts and omissions of the agent relating
to the Member's business as if the agent were an
employee . . ." (By-law 39.4(d)). It should be recalled
that an agent conducts business on behalf of the principal. It goes without
saying that a member is required to exercise control over his agent.
[92]
It should also be borne
in mind that Mr. Massicolli asserted that he was not acting as an agent of
NBF. Rather, in his submission, NBF was acting as his agent when it issued
invoices to his clients, collected on unpaid accounts and paid his assistants'
remuneration.
— NBF's business, not Mr. Massicolli's
[93]
The evidence as a whole
amply shows that the brokerage business, including the provision of investment counselling
services, was NBF's business. It should also be recalled that the parties
agreed that the business carried on by NBF was a brokerage services business which
consisted, among other things, in offering investment advice to individuals
through investment advisors.
[94]
Even though in correspondence
and other communication, casual reference might be made to "Mr.
Massicolli's clients" or "your clients", I have no doubt that
the clients in question were NBF's, and this includes the clients who were
directly solicited by Mr. Massicolli as well as those who were transferred to
another NBF investment advisor in consideration of $25,000. Being an
employee of NBF, and therefore acting in NBF's name and on its behalf, Mr.
Massicolli solicited potential clients for NBF's benefit. When the clients
agreed to "do business" with Mr. Massicolli, he opened an
account with NBF and subjected himself to NBF's strict standards regarding the
opening of new accounts. These clients legally became clients of NBF. In fact,
when Mr. Massicolli terminated a service contract with one of
"his" clients in May 2004, he thanked the client for
[TRANSLATION] "the trust that you have shown in [NBF] for all these
years."
[95]
Mr. Auger and Mr.
Massicolli acknowledged that, upon leaving NBF in October 2004 and joining
Desjardins Securities, they were not able to bring "their" clients'
files with them. They thereby recognized, at least implicitly, that these clients
belonged to NBF. The clients themselves had to ask NBF to transfer a copy of
their file and their entire portfolio (which they were entitled to do) so that
the Auger‑Massicolli team could continue to provide them with services at
their new employer's place of business.
[96]
While Mr. Massicolli did
enjoy some degree of flexibility in terms of the way in which to perform his
work, and this was reflected in, among other things, the choice to
associate with Mr. Auger and adopt a business model focussing on the
discretionary management of portfolios held by Quebec entrepreneurs, numerous authorizations
did have to be secured from NBF management. The fact that Mr. Auger had
the necessary experience and qualifications to manage portfolios meant that Mr. Massicolli was able to pursue his
approach, which did not prioritize commissions, but rather investment advice in
exchange for fees. However, when it came time to organize a marketing campaign
or do a mass mailing of advertising letters, NBF's authorization was needed. It
was entirely normal that NBF should have its say regarding these matters, not
only because its clients were involved and because of IDA rules, but also
because the firm's reputation was on the line. It was entirely justified
for it to exercise control over the manner in which its business was operated.
[97]
In order to show that
he and Mr. Auger carried on business as self-employed workers,
Mr. Massicolli called Mr. Auger as a witness. He stated that he
developed a business plan without requiring NBF's approval. As an example, he
cited his fee schedule for management services offered in the "MWA
Basket". Upon being questioned by the Court, he acknowledged that the
schedule was essentially similar to NBF's, except that NBF offered far more
services for the same fees. Indeed, the Auger‑Massicolli advertising brochure
says that their management fees cover portfolio management, financial advice,
account management, and accompanying clients to their meetings with business
partners such as accountants, tax experts, lawyers, bankers, insurers and other
professionals (Exhibit INT‑1, tab 32, at page 106).
[98]
It is true that, under
the contractual agreement between Mr. Massicolli and NBF, Mr. Massicolli
was liable for any loss incurred by NBF if fees could not be recovered or if a
client's investment resulted in any other loss. It is also true that
Mr. Massicolli had to incur several expenses to earn his commission
income; these expenses included, but were not limited to, the salary of certain
additional administrative assistants that Mr. Massicolli or the Auger‑Massicolli
team felt it useful to have; the cost of purchasing certain equipment,
including electronic equipment; and the cost of financial data services, such
as the Bloomberg service. The existence of such an agreement or of such terms
and conditions is not inconsistent with the existence of a contract of
employment. Other examples of this that readily come to mind are cashiers at supermarket
chains or other retail sales businesses, who are often held responsible for
discrepancies in the till; commissioned sales agents who pay their own
transportation costs; and construction workers who supply their own small
tools.
[99]
One must bear in mind
that NBF had adopted a business model in which its investment advisors received
roughly 50% of the gross commissions collected by NBF in consideration of their
brokerage and investment counselling services. NBF could just as well have
borne all the expenses, and remunerated its investment advisors by paying them
a fixed salary with a bonus, or a much lower percentage than the 50% of gross
commissions that was paid. In view of the context, it is entirely understandable
that NBF determined that certain expenses should be wholly borne by the
investment advisors if they were to be entitled to a 50% commission.
[100] In my opinion, the letter of January 24,
2004, expressing the Auger-Massicolli team's frustration, reflects the fact
that Mr. Auger and Mr. Massicolli no longer wanted to behave like the
(commissioned) employees that they were, but rather as persons acting
independently from NBF, which was not permitted under IDA rules unless they
themselves became members of the IDA.
[101] Certain arguments put forth by counsel for
Mr. Massicolli are worth commenting on. In his oral submissions, counsel
acknowledged that the contract entered into when his client was hired might be
an employment contract. However, he said that the contract was later
transformed into a contract for services. When I asked him when this
transformation occurred, he initially said: [TRANSLATION] "At the end
of the nine-month period in which NBF paid a base salary of $15,000 for the
first nine months." When asked to confirm whether it was indeed at the end
of this nine-month period that the service contract came into being, counsel
for Mr. Massicolli did so. But when I asked him to specify what had
changed in the conduct of Mr. Massicolli's activities that would justify
such a conclusion, his counsel was unable to do so. As I have stated, only the
terms and conditions of remuneration had changed. Subsequently, counsel said
that the change occurred later, when the business model adopted by Mr. Auger
and Mr. Massicolli changed and they adopted the portfolio management model.
[102] According to Mr. Massicolli's conception of
things, his business was to offer investment counselling services, and this
business was regulated by the IDA. On cross‑examination by counsel
for NBF concerning the minimum capital requirements set out in IDA By-law No. 17,
Mr. Massicolli replied that it was NBF, his supplier of services, which
needed to have this minimum capital (see Exhibit A‑2, tab 17,
By-law No. 17). By-law 17.1 states that all members "shall
have and maintain at all times risk adjusted capital greater than zero
calculated in accordance with Form 1 and with such requirements as the
Board of Directors may from time to time prescribe."
[103] The interpretation of the facts proposed by
counsel for Mr. Massicolli cannot be reconciled with the parties' conduct,
since the Payor, NBF, continued to prepare T4 information slips and T2200
forms, a fact that clearly shows that NBF considered Mr. Massicolli its
employee. In fact, in the income tax returns that he prepared, Mr. Massicolli
even entered his commission income paid by NBF, and his fees, as income from
employment.
[104] The fact that Mr. Massicolli and Mr.
Auger formed an undeclared partnership is not inconsistent with the existence
of a contract of employment. There can be a contact of partnership even if the
parties to the contract do not carry on a business.
Indeed, article 2186 of the Civil Code defines a contract of
partnership as "contract by which the parties, in a spirit of cooperation,
agree to carry on an activity, including the operation of an
enterprise, to contribute thereto by combining property, knowledge or
activities and to share any resulting pecuniary profits." (Emphasis added.)
Consequently, it is possible to have a partnership made up of people who seek
to make and share pecuniary profits even though the activity in which they engage
is not the operation of a business. Thus, in my view, the activity could
consist in providing services as an employee, or leasing property.
[105] In summary, the evidence amply demonstrates
that there was a relationship of subordination between Mr. Massicolli and NBF
during the relevant period. The contract between Mr. Massicolli and NBF
was a contract of employment, not a contract for services.
[106] For all these reasons, NBF's appeal is
allowed and the Minister's determination is reversed. Carlo Massicolli was
employed by NBF in insurable employment during the period from January 1, 2003,
to October 1, 2004.
Signed at Ottawa, Canada, this 16th day of January 2009.
"Pierre Archambault"
Translation certified true
on this 4th day of March 2009.
Brian McCordick, Translator
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