Citation: 2006TCC633
Date: 20061122
Docket: 2005-3853(EI)
BETWEEN:
TOM O'CONNOR,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
BRAVE NEW WINES LTD.,
Intervenor.
REASONS FOR JUDGMENT
Porter, D.J.
[1] The
issue in this appeal is whether the Appellant was engaged as an employee or as
an independent contractor to carry out his work for a wine selling business
known as "Brave New Wines Ltd." ("BNW") from August 1,
2003 to August 28, 2004.
[2] By
letter dated August 3, 2005, the Minister of National Revenue (the "Minister")
indicated his decision that the employment was not insurable as the Appellant
was not engaged under a contract of service and was therefore not an employee
of BNW during the period in question.
[3] The
Appellant has appealed to this Court from that decision and BNW has intervened
in the appeal on the side of the Minister.
Review of the Evidence
[4] The
principal evidence was given by the Appellant, Tom O’Connor, and by Peter Whitney
("Whitney"), the former president of BNW and his wife,
Marnie Griffith. Some back records and details of the Appellant’s tax
returns were entered by a BNW official and a Canada Revenue Agency employee.
[5] The
evidence reveals that the Appellant and Whitney had been school friends many
years before these events were set in motion. They both had lived in Ontario. The Appellant moved to Banff and
became involved in the bar/restaurant trade and Whitney moved to Australia where he followed an education in
the wine trade. In the year 2000 or so, Whitney returned with his wife to
Ontario and set up BNW in that province, registering it to do business in most
other provinces including Alberta.
[6] The
business of BNW was to import/arrange the importation of Australian wines into Canada and then to arrange for their sale to various
outlets, bars, restaurants, liquor stores or big box liquor outlets such as
Superstore. The manner of operation depended upon the rules in the particular
province.
[7] In
Alberta, the rules were established by the
Alberta Gaming & Liquor Commission ("AGLC"). Wines could be
arranged to be imported, but they had to pass through the AGLC warehouse. AGLC
receives the wines from the overseas supplier and turns them over to the
account of BNW. BNW, through its representative, would in turn arrange with
various liquor outlets to purchase these wines from AGLC and BNW would receive
its commissions for arranging the sales.
[8] In
May 2001, Whitney looked up the Appellant in Banff and stayed in his home. He explained to the Appellant the nature of his
business and sought to have him get involved, recognizing that the latter had
many contacts in the trade, albeit little or no actual sales experience. The
Appellant introduced Whitney to another friend of his, Marc Brooker ("Brooker"),
who had sales experience in the beer industry.
[9] As
a result of those discussions, the Appellant and Brooker did get involved.
Although he was working as a bartender in a local hotel and continued to do so
for a while, the Appellant started almost immediately in promoting sales of BNW
wines to bars, hotels and restaurants principally throughout southwestern Alberta. Brooker had other commitments at
the outset, but came on board by August 2001. His role was mainly to do sales
to the big box operations, with which he already had experience and
connections.
[10] Whitney
offered to pay them, in total, 12% of the CIF (cost/insurance/freight) price of
all sales generated each month in Alberta, as established by AGLC who kept the records.
[11] Both
the Appellant and Brooker had to be licensed as authorized representatives of
BNW under the Alberta Regulations. They attended to this right away before they
could start selling.
[12] The
arrangement between Whitney on behalf of BNW and the Appellant and Brooker was
not reduced to writing. In fact, it was pretty "loosey-goosey" and
was more like a work in progress. I had the sense that BNW was a very neophyte
business at that time which grew exponentially over the years, when it became
more difficult to handle with all the players involved.
[13] The
Appellant and Brooker set up their own bank account at the Alberta Treasury
Branch ("ATB") in Banff. They
signed a form of partnership agreement provided by the bank, and called
themselves BNW West. The monthly remittance cheque for the 12% commission was
sent by BNW to the Appellant and deposited into this account.
[14] They
then split the commission 50/50 regardless of which of them had actually earned
what in any particular month. It was just divided up 50/50 whatever it was. If
the Appellant made no sales and Brooker did, they still shared 50/50 and vice versa.
[15] A
certain amount of time was spent at trial by the witnesses attempting to
establish whose idea it was to set up the bank account in this way. Undoubtedly,
Whitney encouraged them to set up some kind of banking arrangement and then
left it to them, how and what they did and how they would divide up the
commission cheque.
[16] After his return to Ontario, Whitney’s wife, who managed the BNW
office back home, sent out to the Appellant various paraphernalia, such as
business cards and promotional materials.
[17] Whitney, in his evidence, described
how he saw differences between the "marketing" and the "sales"
of these products. The marketing was very much done in cooperation with the
suppliers overseas and a consistent theme was applied and used in marketing
materials. Thus, any marketing materials supplied to the Appellant had to
correspond to this theme. The sales, however, were a different matter and
Whitney indicated that the Appellant and Brooker were free to handle sales any
way they wanted to. The marketing materials, they might use, had to be the
same, but how they went about their sales, when, where, with whom, and how
often, was entirely up to them.
[18] During the course of the years,
various suggestions came across the emails encouraging the Appellant and
Brooker to deal more with certain wines, or to focus on particular areas. Whitney
also provided opportunities for them to attend trade shows and paid for these,
placing them under the heading of marketing. A lot of these types of things
Whitney said, were opportunities which he encouraged the Appellant and Brooker
to take and they were free to do so or not as they saw fit. I tend to believe
him in this as in the opening years of this business, clearly he was not into
micro-managing sales.
[19] So that everything might stay
coordinated, weekly meetings were set up to review where things were at and
what was going on. Whitney said they were not mandatory but done to help. Again,
I believe him as when the Appellant felt he did not want to continue those
weekly teleconferences, they were discontinued.
[20] The Appellant asked Whitney if the
latter would provide the funds for a vehicle, as the work involved lots of
travel. Whitney made it very clear that he was not into doing that. That
involved a sales expense, he said, and the Appellant was expected to pay his own
expenses related to sales. Anything to do with marketing, paper, ink, etc., was
reimbursed to the Appellant by Whitney. Whitney also provided the Appellant
with a laptop computer and printer which was designed to print off all the
marketing materials, which were the cost of BNW.
[21] The Appellant thus paid all his car
expenses, his cell phone, storage, accommodations and travel expenses.
[22] It is clear that under the
Regulations, neither the Appellant nor Brooker could sell other liquor
products, different marks and brands to those handled by BNW, without becoming
licensed by the Commission. Neither sought to be so licensed, but when Brooker
started to do so and that became known to Whitney in July 2004, Brooker was
terminated.
[23] It
was not clear to me whether Whitney was more concerned about a breach of the
Regulations and BNW being tainted by that, or whether he just did not want
either of them selling different products. He said the former, but I had the
distinct feeling it was more to do with the latter.
[24] In
any event, by this time many things had obviously started to break down between
BNW on the one hand, and the Appellant and Brooker on the other. BNW had
shortly before engaged a national sales director who had not been privy to the
early discussions between Whitney and the Appellant and Brooker. He clearly
wanted to tighten things up and impose much more control. Whitney admitted as
much in his evidence, saying that they wanted to bring the Appellant more under
their control and in July 2004 offered him an employment contract. In this
offer he would have been paid whether or not he produced sales, but he declined
the offer and the relationship came to an end. Similar terms were offered later
to another person who took on the position as an employee.
[25] It
is not clear to me how Whitney thought he could unilaterally change the
contract with the Appellant, reducing the commission payable from 12% to 6%
when Brooker was terminated. All he could have done was relieve Brooker of his
services, which did not mean he could unilaterally change the contract with the
Appellant. That, no doubt, is or has been an issue in another forum on another
day. It did, however, bring an end to the relationship. Sadly so, as these men
had been good friends and now from their demeanor I can see there is no love
lost between them.
The Law
The Degree or Absence of Control
Exercised by BNW Ltd.
[26] The
contract with the Appellant and Brooker was that they arrange the sale of wines
in Alberta. Whilst Brooker focused on the big
box stores, the Appellant was asked to use his contacts in the hotel, bar and
restaurant business, particularly around Banff.
However, it seemed to me that the Appellant could operate wherever he wished in
Alberta and occasionally by invitation in British
Colombia to attend shows there.
[27] The
Appellant organized his own schedule, and worked as much or as little as he
chose. There was no specified work hours or days. He could go where and when he
wished.
[28] The
Appellant was required to use the marketing (advertising) materials supplied to
him by BNW. However, these in turn came down from the overseas producers and I
do not see this as an element of control imposed by BNW any more than a
sub-contractor on a building site is obliged to follow the provisions,
conditions and restrictions imposed on the general contractor by an owner or
developer.
[29] The
wine and the marketing materials were a given. How the Appellant went about his
sales was clearly up to him. Suggestions about moving certain stock or focusing
on certain areas came over the wire from time to time, but he was free to
follow up on these or not, as he saw fit.
[30] The
teleconferences were voluntary and indeed the Appellant himself terminated
them.
[31] On the whole, I find that the
Appellant had a very free reign and this aspect of the test favours a
conclusion of an independent contractor.
Ownership of Tools
[32] Apart
from the computer and printer provided to produce the marketing materials which
was programmed from Ontario, the Appellant provided all of his
own tools.
[33] The
major item was a new car and BNW made it very clear from the outset that they
were not funding this, as it was a sales expense. Thus, the Appellant provided
it himself and bore all the expenses of operating it.
[34] In
addition, the Appellant paid for his own cell phone and provided an office and a
storage room in his house, the expense of which he himself bore.
[35] This
aspect of the test also favours a conclusion of an independent contractor.
Chance of Profit and Risk of Loss
[36] Clearly,
the more wine the Appellant and Brooker sold, the more commission they made and
the converse was also true.
[37] The
Appellant had certain basic expenses, e.g. his car payments, cell phone costs,
and travel and accommodation expenses. Thus, if he made no commissions in a
month, he would suffer a loss.
[38] I
cannot say whether or not it was available to him to sell other products, as this
did not arise in his case. He would have had to be licensed by AGLC. My sense
is that Whitney would not have favoured him doing so and might not have
continued the contract.
[39] However,
he was free to do other things and at the outset carried on his employment as
bartender until sales picked up sufficiently to let go of that job. No doubt,
it was open to him to supplement his income in other ways, where there would be
no conflict with BNW products. The fact that he chose not to do so is neither
here nor there.
[40] Whilst
the Appellant could not have anyone to do the actual sales without having them
licensed by AGLC, he was free to hire people in other capacities. In fact, he
did so when he hired helpers at various shows he attended.
[41] There
was clearly no guarantee that in any particular week or day any sales would
take place and he was not eligible for any benefits from BNW.
[42] Clearly
the Appellant filed his tax returns as a self employed business person and
wrote off significant expenses which would not necessarily have been available
to him as an employee. He took the opportunity of that tax advantage as an
independent contractor, not as an employee.
[43] These
criteria, in my view, characterize the relationship as an independent
contractor.
Integration Test
[44] Referring
to the case of 671122 Ontario Ltd. v Sagaz Industries Canada Inc. [2001] 2 S.C.R. 983, the
question seems to be: Was the Appellant performing these services as a person
in business on his own account?
[45] First
off, I noted when Marnie Griffith asked him for his Social Insurance Number
upon the return of her husband from the initial Banff visit, he queried why she needed it. Upon her reply, in case she needed
it for tax purposes, he promptly informed her that he was paying all of his own
taxes and there should be no deductions.
[46] In
fact, that is what occurred. It is apparent that he filed his tax returns as a
person in business on his own account and claimed significant amounts of
expenses ($26,000.00 to $27,000.00 per annum). These were no doubt perfectly
legitimate expenses for a person in business on his own account, but would not
necessarily have been so for an employee. So that is how he dealt with his
income taxes. There was no question of his saying to BNW that he was an
employee and needed a T4 slip. Clearly, he chose the other route.
[47] I
also noted that the Statement of Claim filed by Brooker against BNW upon his
termination, referred to
In the third week of
March 2001
"Mr. Brooker and his
partner, Tom O’Connor, were retained by Brave New Wines to develop business in Alberta."
And
"At all material times Mr. Brooker and Mr.
O’Connor operated under the trade name Brave New Wines West."
[48] Whilst
the Statement of Claim issued by the Appellant against BNW claimed he was an
employee, there was clearly a divergence of opinion after the fact, i.e. after
termination, as to what their relationship was.
[49] I
noted that they set up their business at the bank as a partnership under the
name of Brave New Wines West.
[50] I
also noted that they decided between themselves how to divide up their monthly
commission cheque. In fact, they agreed to divide it 50/50 regardless of the
efforts of each of them. They were, of course, free to change this at any time
and do it any other way that suited them. Employees, of course, do not normally
share pay cheques, but are paid for their own work and effort.
[51] All
of these aspects of the matter have led me to the clear and inalienable
conclusion that these two men were in business for themselves.
[52] BNW
was in the business of importing wine to Alberta from overseas producers and doing the general marketing (advertising) of
the product. They had no means of actually selling it in the province of Alberta.
[53] The
Appellant and Brooker were in the business of selling or arranging sales
through the AGLC of the product, for which they bore their own expenses, earned
their commissions and made their profit.
[54] Everything
the Appellant and Brooker did had the air of entrepreneurial business about it.
Conclusion
[55] I
am completely satisfied on the evidence for the above reasons that the
Appellant was engaged as an independent contractor, and that he was in business
for himself.
[56] The
appeal is accordingly dismissed and the decision of the Minister is confirmed.
Signed at Calgary, Alberta,
this 22nd day of November 2006.
"M. H. Porter"
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