Citation: 2008TCC216
Date: 20080520
Docket: 2007-3931(EI)
BETWEEN:
PROMOTIONS C.D. INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
The issue in the case
at bar is whether the following Workers fulfilled the requirements of a
contract of service within the meaning of paragraph 5(1)(a) of the Employment
Insurance Act while working for the Appellant: Michel Blais, Antoine Corbeil,
David Franks, Robert Lavoie and Denis Pilon.
[2]
In making the decisions
in issue, the Minister of National Revenue ("the Minister")
relied on the following assumptions of fact, set out in paragraph 23 of
the Reply to the Notice of Appeal, and either admitted to or denied by the
Appellant, as stated in parentheses:
[TRANSLATION]
(a)
The Appellant was
incorporated on August 22, 1972. (admitted)
(b)
The Appellant operated
a business that distributed and sold non-food products inside grocery stores
and pharmacies. (admitted)
(c)
The Appellant hired 60
salaried employees, and 40 workers that it considered to be self-employed
representatives. (admitted)
(d)
The Appellant
considered the five Workers in the case at bar to be self‑employed
representatives because they accepted an offer to that effect from the
Appellant. (denied as worded)
(e)
The Workers signed
contracts with the Appellant that were automatically renewed each year. (admitted)
(f)
The majority of the
Workers told the appeals officer that they accepted the Appellant's terms and
conditions so that they could work and earn a living. (denied)
(g)
Denis Pilon had been
working for the Appellant for 12 years, Michel Blais and David Franks had
been working for the Appellant for eight years, and Antoine Corbeil and
Robert Lavoie had been working for the Appellant for five years. (admitted)
(h)
Certain Workers did not
take weeks off because they were afraid that they would lose their jobs if they
did. (denied)
(i)
The Workers' duties
consisted in taking orders from the Appellant's customers, receiving consignments
at the Appellant's regional warehouse, and delivering and setting up
merchandise such as toys or stationery in grocery stores or pharmacies. (denied
as worded)
(j)
The Workers received
training and instructions concerning the display racks and the presentation of
the Appellant's merchandise; they had to display the merchandise in accordance
with the Appellant's "program". (denied)
(k)
The Appellant assigned
the Workers a territory. (denied)
(l)
The Appellant provided
the Workers with a list of businesses to serve. (denied as worded)
(m)
The customers were the
Appellant's, not the Workers'. (denied as worded)
(n)
The Workers never
billed the Appellant's customers. (admitted)
(o)
The Appellant, not the
Workers, resolved customer complaints. (denied)
(p)
The Appellant provided
the Workers with a handheld computer and gave them the merchandise and the
equipment necessary to install it, such as display racks and hooks. (admitted)
(q)
The Appellant had
supervisors who verified the quality of the Workers' work. (denied)
(r)
Michel Blais, David
Franks, Robert Lavoie and Denis Pilon told a representative of the Respondent
that a supervisor of the Appellant's regularly gave them instructions. (denied)
(s)
Antoine Corbeil said
that the Appellant's sales director supervised his work. (denied as worded)
(t)
Each Worker set his own
schedule, but they all had to visit the businesses as frequently as instructed
by the Appellant. (denied)
(u)
The Workers were paid
solely by commission, and their commission varied from 9 to 14% depending on
the value of the sales. (denied as worded)
(v)
The Appellant alone set
the price of merchandise. (denied as worded)
(w)
The Workers had to
submit weekly sales reports to the Appellant. (denied)
(x)
The Workers were paid
regularly every two weeks by cheque. (admitted)
(y)
The Workers had
business cards supplied by the Appellant. (admitted)
(z)
The Appellant's
comptroller, René Cloutier, told a representative of the Respondent that the
Workers did not invest anything in the Appellant's business and that they had
no financial responsibilities other than their travel expenses. (denied as
worded)
(aa)
If the Workers had to
travel more than 200 km, the Appellant reimbursed them for the distance
they drove and their travel expenses. (denied)
(bb)
Michel Blais, Robert
Lavoie and Denis Pilon told a representative of the Respondent that they had to
do the work personally and could not hire an assistant. (denied)
Preliminary remarks
[3]
Henriot Cléophat, an
appeals officer with the Canada Customs and Revenue Agency, was the Respondent's
sole witness.
[4]
The Appellant's
witnesses were Jacques Collette, the Appellant's Vice‑President, and Denis
Pilon, Antoine Corbeil and David Franks, who are Workers affected by the
Minister's decisions. I should immediately note that I found the testimony of
the Appellant's witnesses to be very credible.
Facts
[5]
The Appellant operates
a business that distributes and sells non‑food products (household and
industrial chemical products, toys, stationery, etc.). The Workers' duties
included taking orders from the Appellant's customers (essentially major
supermarket chains as well as pharmacy chains and convenience store chains) and
from the customers that they recruited, collecting the merchandise (owned by
the Appellant) from a warehouse (generally the Appellant's warehouse) and
delivering and setting it up on the customers' premises, and taking back unsold
merchandise so that it could be returned to the Appellant's warehouse or
delivered to a common carrier for delivery to the Appellant's warehouse.
[6]
The Appellant's
witnesses and the documentary evidence adduced by the Appellant further
establish as follows:
(a)
All the Workers signed
the contract in a free and fully informed manner. The contract sets out the
terms and conditions governing the relationship between the parties and the
sale of the Appellant's products by the Workers, who are described therein as
non‑exclusive independent contractors, not employees of the Appellant.
The declared and sincerely expressed intention of the parties to the contract
is clear: they wanted the contract they signed to be in the nature of a
contract of enterprise.
(b)
All the Workers
reported their remuneration as business income on their income tax returns.
They registered their businesses with the Inspecteur général des
entreprises financières. They were also registered with the tax authorities for
GST and QST purposes, and these taxes were collected and remitted to the
authorities.
(c)
The Workers received
nothing more than their commission. They had to personally defray the costs and
expenses associated with their sales. Moreover, the Appellant did not provide
the Workers with a car or cell phone, or an allowance for the use thereof. Lastly,
the Appellant did not reimburse lodging expenses. The Workers were liable for any
theft or loss of goods from the moment that the goods were under their control,
i.e. from the moment that they picked them up from the Appellant's warehouse or
from the warehouse belonging to the common carrier whose services the Appellant
had retained, and from the moment they picked up unsold goods from the
customers.
(d)
The Appellant imposed
no sales quotas on the Workers.
(e)
The Workers were free
to sell products other than the Appellant's, provided those products did not
compete with the Appellant's. In this regard, Mr. Franks explained that,
for a certain period within the years in issue, in addition to distributing the
Appellant's products, he distributed coffee in bulk to the Appellant's
customers and his customers. Mr. Franks also explained that he operated a
floor cleaning business during the same period.
(f)
The Workers did not, at
any time, become owners of the goods sold. They did not determine the price of
the goods and they never billed the customers. In addition, certain Workers
explained that they occasionally proposed that the Appellant reduce their
commission on certain products in order to keep customers.
(g)
The Workers could hire
their own sales force without the Appellant's consent or involvement. In this
regard, Mr. Collette explained that his distributors for the Québec and
Beauce regions each had their own sales force.
(h)
The Workers were
responsible for planning their work, decided how many hours they would work and
on what days, and chose which customers they met and how often they did so. Lastly,
the Workers determined when they went on vacation and how long their vacations
would last.
(i)
The Workers recruited
their own customers in addition to serving the Appellant's customers. The
Appellant assigned each Worker a territory. However, the Workers could and did
recruit customers outside the assigned territory without the Appellant's
consent. The Workers explained that the cost of transportation associated with
the delivery of the merchandise was the only thing that limited their efforts
to make sales outside the territory assigned to them. Mr. Corbeil even
explained that he was free not to serve the Appellant's customers within the
territory that was assigned to him. In this regard, he explained that he
notified the Appellant that he would no longer be serving those of its
customers that were located in the most distant portion of the territory that
had been assigned to him (the La Tuque area) because he had noticed that he was
losing money by serving them.
(j)
The Appellant did not
demand that the Workers submit reports on the activities, nor did it fill out
the evaluation forms concerning their work when it met with them to provide
them with the results of the evaluation. The Appellant did not discipline the
workers.
(k)
The Workers did not work
on the Appellant's premises. They essentially went to the Appellant's premises
to pick up the goods at its warehouse and to return, to the same warehouse, the
unsold goods that the customers wanted to return to the Appellant.
(l)
It was the Workers, not
the Appellant, who resolved the Appellant's customers' complaints, and it
should be added that such complaints were very rare due to the quality of the
Workers' services and their considerable experience in distribution.
(m)
As a general rule, the
Workers received no instructions or training from the Appellant. The
instruction and training that they did receive from the Appellant pertained to
the instructions that the Appellant occasionally received from some of its
customers with respect to the positioning of the merchandise at its
points-of-sale. All the Workers who testified stated that they only met the
Appellant's supervisors very rarely, and that the only instructions that they
occasionally received from them were related, once again, to the demands of the
Appellant's customers concerning merchandise placement at their places of
business. Lastly, Mr. Corbeil categorically denied that the Appellant's sales
director supervised his work. Mr. Corbeil explained that he occasionally
met with the Appellant's sales director solely for the purpose of working with
him to develop a strategy to keep a customer that the Appellant was on the
verge of losing.
(n)
The Appellant provided
the Workers with a handheld computer as well as the equipment required to lay
out the merchandise, such as racks and hooks. The Workers explained that the
Appellant did not demand that the handheld computer be used, but that such use
greatly facilitated their work in terms of taking customers' orders and sending
them to the Appellant. Lastly, it should be emphasized that the Workers were
liable for the loss or theft of the handheld computer made available to them.
Analysis
The law
[7]
When
the courts must define concepts from Quebec private law to apply federal legislation such as
the Employment Insurance Act, they must follow the rule of
interpretation in section 8.1 of the Interpretation Act. To determine
the nature of a Quebec employment contract and distinguish it from a contract for services, one
must apply the relevant rules of the Civil Code of Québec
(the "Civil Code"), at least since June 1, 2001. These rules are not
consistent with the rules stated in decisions such as 671122 Ontario Ltd. v.
Sagaz Industries Canada Inc., [2001] S.C.R. 983 and Wiebe Door Services
Ltd. v. M.N.R., [1986] 3 F.C. 553. Contrary to the situation with
the common law, the constituent elements of a contract of employment have been
codified, and, since the coming into force of articles 2085 and 2099 of the
Civil Code on January 1, 1994, the courts no longer have the same latitude as
the common law courts to define what constitutes an employment contract. If it
is necessary to rely on previous court decisions to determine whether there was
a contract of employment, one must choose decisions with an approach that conforms
to civil law principles.
[8]
The Civil Code contains
distinct chapters governing the "contract of employment" (articles
2085 to 2097) and the "contract of enterprise or for services"
(articles 2098 to 2129).
[9]
Article 2085 states
that 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.
[10] Article 2098 states that a contract of enterprise
. . . 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.
[11] Article 2099 follows, and states:
The contractor or 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.
[12]
It
can be said that the fundamental distinction between a contract for services
and a contract of employment is the absence, in the former case, of a
relationship of subordination between the provider of services and the client,
and the presence, in the latter case, of the right of the employer to direct
and control the employee. Thus, what must be determined in the case at bar is
whether there was a relationship of subordination between the Appellant and the
workers.
[13]
The
Appellant has the burden of proving, on a balance of probabilities, the facts in
issue that establish its right to have the Minister's decisions set aside.
It must prove the contract entered into by the parties and establish their
common intention with respect to its nature. If there is no direct evidence of
that intention, the Appellant may turn to indicia from the contract and the
Civil Code provisions that governed it. In the case at bar, if the Appellant
wishes to show that there was no employment contract, it will have to prove
that there was no relationship of subordination. In order to do so, it may, if
necessary, prove the existence of indicia of independence such as those stated
in Wiebe Door, supra, namely the ownership of tools, the risk of
loss and the chance of profit. However, in my opinion, contrary to the common
law approach, once a judge is satisfied that there was no relationship of
subordination, that is the end of the judge's analysis of whether a contract of
service existed. It is then unnecessary to consider the relevance of the
ownership of tools or the risk of loss or chance of profit, since, under the
Civil Code, the absence of a relationship of subordination is the only
essential element of a contract for services that distinguishes it from a
contract of employment. Elements such as the ownership of tools, the risk of
loss or the chance of profit are not essential elements of a contract for
services. However, the absence of a relationship of subordination is an
essential element. For both types of contract, one must decide whether or not a
relationship of subordination exists. Obviously, the fact that the worker
behaved like a contractor could be an indication that there was no relationship
of subordination.
[14]
Ultimately,
the courts will usually have to make a decision based on the facts shown by the
evidence regarding the performance of the contract, even if the intention
expressed by the parties suggests the contrary. If the evidence regarding the
performance of the contract is not conclusive, the Court can still make a
decision based on the parties' intention and their description of the contract,
provided the evidence is probative with respect to these questions. If that
evidence is not conclusive either, the appeal will be dismissed on the basis
that there is insufficient evidence.
[15]
Thus, the question is
whether the Workers in the case at bar worked under the Appellant's control or
direction, or whether the Appellant could have, or was entitled to, control or direct
the Workers.
[16]
The contract between
the Workers and the Appellant clearly states that it is a contract of
enterprise. However, even though the contracting parties in the case at bar
stated their intention clearly, freely and in a fully informed manner in their
written contract, this does not mean that I must consider this fact decisive.
The contract must also have been performed in a manner that is consistent with its
provisions. Just because the parties stipulated that the work would be
done by an independent contractor does not mean that the relationship was not
between an employer and an employee. Clearly, I must verify
whether the relationship described in the contract was consistent with reality.
[17]
In my opinion, the
contract between the Workers and the Appellant was a contract for services
because there was no subordination. First of all, the Workers behaved like
contractors. As we have seen, the Appellant was not entitled to the Workers'
services on an exclusive basis, and the Workers could sell products other than
the Appellant's and hire their own sales force without the Appellant's consent
or involvement. The Workers were responsible for planning their work,
decided how many hours they worked and on what days, and chose which customers
to meet and how often they would meet them. The Workers determined when they
went on vacation and how long their vacations lasted. The Workers recruited
their own customers in addition to serving the Appellant's customers. They
could and did recruit customers within the territories assigned. They could and
did refuse to serve the Appellant's
customers when they determined that it was not profitable to do so. The
Appellant did not require the Workers to report on their activities. The
Workers did not work on the Appellant's premises. They were paid solely by
commission. They had to personally assume the costs and expenses associated
with the sales. They owned almost all the tools needed to perform their work.
Admittedly, they had to lay out the merchandise in some of the Appellant's
customers' establishments in accordance with the Appellant's instructions. I do
not believe that this necessarily implies a relationship of subordination. In
my opinion, the specificity of the tasks to be carried out is not a
distinguishing and exclusive characteristic of an employment contract. Indeed, a
contractor who retains the services of a subcontractor to carry out his duties
to his customers, in whole or in part, will necessarily specify what the
subcontractors must do. Otherwise, one would have to conclude that the
Appellant itself had a contract of employment with its customers because it was
required to position the merchandise in accordance with their instructions. It
is rare for someone to give out work and not ensure that it is done in
accordance with their requirements. It is true that the Appellant had control
over the pricing of merchandise and over billing. Although I believe this
is generally an indicia of subordination as opposed to independence, I
emphasize that it does not, in itself, make the existence of a contract of
employment more likely, since practically all the other facts adduced support
the existence of a contract for services. In my view, the fact that the
Appellant determined the price of the goods is to be expected, because it was
the Appellant that entered into a contract with the customers. Thus, the
customers were the Appellant's and were simply served by independent
contractors, namely, the Workers.
[18]
For these reasons, the
appeal is allowed.
Signed at Ottawa, Canada,
this 20th day of May 2008.
"Paul Bédard"
Translation
certified true
on this 12th day
of June 2008.
Brian McCordick,
Translator
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