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Citation: 2005TCC189
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Date: 20050316
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Docket: 2002-1946(EI), 2002-1947(CPP)
2002-2043(EI), 2002-2044(CPP)
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BETWEEN:
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TED GRZYMSKI and
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CRYSTAL BEACH OPTICAL INC.,
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Appellants,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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REASONS FOR JUDGMENT
Sarchuk J.
[1] By notice of assessment dated
August 16, 2001, Crystal Beach Optical Inc. (Crystal Beach) was
assessed by the Minister of National Revenue under the
Employment Insurance Act and the Canada Pension
Plan for failure to remit employment insurance premiums in
respect of Ted Grzymski and Elisabeth Orfei in the amounts of
$1,550.72 and $210.03 and for related interest for the period
January 1, 2000 to February 28, 2001, as well as for CPP
contributions of $1,786.08 and $273,38 and related interest for
the same period. Both Crystal Beach and Grzymski filed Notices of
Appeal with respect to this assessment. Orfei neither appealed
nor did she seek to be an intervenor. The sole issue before the
Court is whether Grzymski and Orfei were employees of Crystal
Beach or independent contractors.
Background
[2] George Malina (Malina) is the
president and 50% owner of Crystal Beach, a boutique-style
optical retail store. His wife Yanna owns the remaining 50%.
Since the spring of 1997, Crystal Beach has carried on business
as a dispenser of optical supplies, more specifically eye
glasses, lenses including contact lenses, and associated products
in The Beaches area of Toronto. Malina testified that it catered
to a customer-base willing to pay a higher price for specialized
services and quality of product. The competition is severe, the
margin of profits thin and in order to compete, Crystal Beach
retained professionals to work on the premises to provide the
best possible service. During the period under appeal, the
professionals included an ophthalmologist who attended once a
week, an optometrist who provided services twice a week and two
opticians, Grzymski and Orfei. Crystal Beach and the
professionals entered into monthly verbal agreements, the renewal
of which was subject to his right to sever the relationship with
anyone of them. Malina also indicated that as long as the
services were to the customer's satisfaction, the agreement
was for an indefinite period. In addition to these individuals,
the Crystal Beach staff included himself and his wife. Malina
testified that upon obtaining prescriptions written by
ophthalmologists or optometrists, customers attend at Crystal
Beach to have the opticians fit eye glasses and contact lenses.
He noted that certain activities, such as adjustments of eye
glasses can only be performed by a licensed optician and he and
his wife were not qualified by law to provide the necessary
services and, more particularly were not allowed to dispense and
sell lenses without the presence of at least an optician.
[3] Crystal Beach advertised for
opticians in a local newspaper and on the Ontario Opticians
Association's website. Malina intentionally sought opticians
who were self-employed because, in his view, they provided better
services and were more responsible. He interviewed several
opticians including Grzymski and ultimately accepted his terms.
He specifically sought Grzymski's services because he was
well-known and had a reputation of being one of the best
contact lens fitters in Toronto. Grzymski committed himself to
Crystal Beach for three days a week, Tuesday, Thursday and
Saturday. With respect to remuneration, Malina noted that not all
opticians are paid equally, was aware of the rates opticians with
Grzymski's experience and skill would expect to be paid and
agreed to his stated fee of $24.00 per hour. At all times during
the period in issue, Grzymski submitted invoices with his
business name, the time involved and the type of services
rendered, charged GST on the invoices and was paid by Crystal
Beach by way of cheque. Crystal Beach did not deduct Worker's
Compensation premiums, employment insurance premiums, or Canada
Pension Plan contributions from his cheque nor was he paid for
personal days or sick days. Furthermore, there was an
understanding that if it was necessary for Grzymski to take time
off, he would have to find a replacement with the same skill
level. Other than that, Malina said he had no
"influence" over who the substitute optician would
be.
[4] With respect to the services
provided by Grzymski, Malina made specific reference to the
following:
(a) he did not supervise or give
direction to Grzymski on the manner in which his duties were to
be performed nor did Grzymski have to report to him; as well,
there were no company policies that he was required to
follow;
(b) Grzymski was free to work
elsewhere during the period of time he was with Crystal Beach and
did in fact provide services to two other optical stores;
(c) Grzymski used his own specialty
tools for the bulk of the work he performed. He personally
purchased all necessary supplies such as the soldering gun,
butane and pupilometer. Furthermore, he did not carry out all of
his duties at the store since certain repairs could not be done
there as a result of which he performed them at his own premises
where he had special equipment. Crystal Beach did not reimburse
him for any of these expenses;
(d) Malina testified that Grzymski had
his own clients to whom he provided services and billed them
directly. Although these services only occurred occasionally and
were usually made during the regular working day, he was
nonetheless paid the full hourly rate by Crystal Beach;
(e) Grzymski had separate
business cards which were displayed at the Crystal Beach premises
and these cards did not make reference to Crystal Beach; and
(f) Crystal Beach never paid for
his membership or licensing fees. He was required to keep the
license current with the College and to keep professional
indemnity insurance in respect of which he paid the premium.
[5] The Appellant Grzymski is a
licensed optician. He is trained to grind, fit and dispense
corrective lenses prescribed by an ophthalmologist or
optometrist. During the period under appeal, Grzymski provided
his services to three optical stores, Crystal Beach,
Josephson's Opticians and Humberview Optical. His
responsibilities included the examination of written
prescriptions to determine the specifications of the lenses, the
recommendation of eye glass frames and lenses after considering
the customer's needs and making all adjustments as necessary.
He testified that although he allotted specific hours and days to
Crystal Beach, there was a degree of flexibility in that
arrangement which permitted him to change his schedule, which
occurred on several occasions. Although Crystal Beach had a few
of the necessary basic tools, he preferred to use his own.
Furthermore, Crystal Beach did not have certain equipment and if
one of its clients required special work to be done, he would
take the work off-premises. He said this occurred approximately
20% of the time. He noted that his "carry-on tools"
cost between $1,500 to $1,800 and he had additional equipment at
home valued at approximately $7,000 which he used for specialty
work when necessary. He was personally responsible for expenses
such as parking, tools and material and costs incurred with
regard to customized items which he did quite frequently for his
own customers and those of Crystal Beach. The reason his invoices
did not reflect these additional expenses was because they formed
part of the services he offered and were factored into the hourly
rate he had quoted. He said that if he made a mistake in the
course of providing his services to Crystal Beach, he was
responsible for the consequences and any additional cost that
might be incurred. He carried his own insurance with respect to
malpractice, paid his own licensing fees, and was not paid
benefits nor did his contract call for sick days or holidays.
Appellants' submissions
[6] By agreement, counsel for Crystal
Beach made the submissions and provided the authorities for the
Appellants. The position of both is that Grzymski was an
independent contractor because among other things, the work he
was involved in required a specialized license. There was
absolutely no direction as to how the work was to be done nor was
there any supervision by Crystal Beach. Furthermore, the latter
provided virtually none of the equipment required, did not
reimburse Grzymski for expenses incurred by him, played no role
in determining whether the work was completed properly, and would
have accepted a qualified substitute selected by Grzymski to
carry out his function at his expense. Both Crystal Beach and
Grzymski considered him to be in business for himself. In the
contractual arrangement, it was Grzymski who determined the
hourly rate, determined which days it would be suitable for him
to work and those days were specifically requested because he had
other customers that he was servicing at the time. Counsel
observed that it is usual for the employer to determine what its
needs are and the employee accommodates those needs. However, the
manner in which this arrangement was made is more akin to a
business relationship as opposed to an employer/employee
relationship. The fact that Grzymski was able to and did provide
his services to competitors and Crystal Beach had no say in this
context was of particular import. Furthermore, Grzymski was not
provided with any of the benefits that employees normally have
which again suggests that he was in business on his own as
opposed to being an employee. As well, Grzymski absorbed the
costs of materials, tools, equipment, in addition to the
licensing fees, professional memberships, accounting fees,
insurance premiums, all expenses necessarily incurred in order to
permit him to perform the services. Counsel observed that in an
employment context, many of these expenses would normally be
borne by the employer.
Respondent's submissions
[7] Counsel for the Respondent
contends that the assessment was correct in that the opticians
were engaged in insurable employment within the meaning of
paragraph 3(1)(a) of the Act and that they were
engaged in pensionable employment within the meaning of
subsection 6(1) of the Canada Pension Plan. Specific
reference was made by counsel to the four-in-one test set out in
the decision of Wiebe Door Services Ltd. v. M.N.R.[1] and adopted
in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.[2] which, he
said, applied to the facts before the Court and supports the
Minister's conclusions and assessments.
[8] With respect to control, counsel
argued that Grzymski's testimony regarding a replacement was
flawed and his evidence not credible. Specifically, it was
alleged that (a) Grzymski conceded that he could have been
disciplined by the owners; (b) there is no evidence supporting
his assertion that he determined the rate of pay; and (c) the
schedule was not set by him since, according to counsel, the
evidence was that the only days available were Tuesday, Thursday
and Saturday, i.e. the days on which he actually worked. With
respect to ownership of tools, counsel proposed that it was clear
in the industry that an independent contractor would be expected
to use his own pupilometer. Furthermore, he argued that "the
more significant tool is the provision of the premises themselves
at which the business was conducted". As for Grzymski's
chance of profit or risk of loss, counsel submitted that
Malina's testimony established that the hourly rate paid for
his services was based on a market standard. There was no risk of
loss to him since the only way he could have increased his profit
was to have arranged to work extra hours if they were available.
With respect to Grzymski's assertion that he still attended
to his own clients during the normal workday at Crystal Beach,
counsel argued that his inability to recall that such instances
had occurred during the relevant period of time suggest that it
never occurred.
[9] Counsel for the Respondent further
submitted that the payor, i.e. Crystal Beach, was not Grzymski's
client. In counsel's words:
"the client here - the argument of the Appellant would be
that the client here is really the payor, that's the client.
But I would suggest that when you take a step back and view the
whole entity, I think the clients here, and given what I am going
to go into in terms of the facts, the clients here would be the
people who came in. And really we have an employer/employee
relationship and the clients we should be looking at are the
people who walk through the door. And with that having been said,
the payor set the price to be charged. ... The payor
provided the customers. ... The payor billed the clients
directly, billed the customers directly. No independent billing
of those customers. ... "
I gather from this comment that counsel was of the view that
Crystal Beach should not be considered to be a Grzymski "client"
and that the only clients were the Crystal Beach customers to
whom Grzymski provided his services as an employee of Crystal
Beach.
Conclusion
[10] The question of whether an individual
is an "employee or independent contractor" has been
canvassed a number of times during the past few years and there
has been a discernable change with respect to the tests to be
applied. This development was most thoroughly analyzed in
Sagaz supra, where Major J. stated:
46 In my opinion,
there is no one conclusive test which can be universally applied
to determine whether a person is an employee or an independent
contractor. Lord Denning stated in Stevenson
Jordan, supra, that it may be impossible to give a
precise definition of the distinction (p. 111) and, similarly,
Fleming observed that "no single test seems to yield an
invariably clear and acceptable answer to the many variables of
every changing employment relations." ... (p. 416). Further,
I agree with MacGuigan J.A. in Wiebe Door, at p. 563,
citing Atyah, supra, at p. 38, that what must always occur
is a search for the total relationship of the parties:
[I]t is exceedingly doubtful whether the search for a formula
in the nature of a single test for identifying a [page 1005]
contract of service any longer serves a useful purpose ... The
most that can profitably be done is to examine all the possible
factors which have been referred to in these case as bearing on
the nature of the relationship between the parties concerned.
Clearly not all of these factors will be relevant in all cases,
or have the same whether in all cases. Equally clearly no magic
formula can be propounded for determining which factors should,
in any given case, be treated as the determining ones.
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.
[11] Given the facts before the Court, I
have concluded that the Appellant Grzymski was at all times an
independent contractor. First, he was completely free to control
the manner in which he performed his responsibilities. He was not
supervised at any time, there was no work evaluation, no training
given. In this context, it is also relevant to note that
Grzymski, who was licensed for contact lens fitting, made a
personal arrangement with the ophthalmologist to use his
equipment and examination room for that purpose. Malina
specifically noted "I never investigated what kind of an
agreement he had, but Dr. Shustermann allowed him to use the
examination room with respect to contact lens fitting" and
further observed that the equipment used for this purpose was
"not our equipment". Malina also noted that Grzymski had a
certain following of customers and that many people preferred to
deal with him. As a result, Malina said "I would divide these
customers into two sections: one, that he was invoicing himself
with respect to contact lenses and all that, because these were
his old customers; and those who needed glasses went eventually
through our store and through our system, and we billed for
that".
[12] There are a number of other indicators
that Grzymski was an independent contractor. First, during the
period in issue, Grzymski had also entered into contracts with
two other optical dispensers albeit they were competitors of
Crystal Beach which would have been somewhat unlikely if he were
a mere employee. As well, he provided his own equipment since
that provided by Crystal Beach was minimal in nature and far from
adequate to permit Grzymski to provide the necessary services. He
also performed the necessary alterations or repairs in certain
instances with the specialized equipment he had at his home
which, I note, occurred approximately 20% of the time, a fact
which was not challenged by the Respondent. Furthermore, a degree
of financial risk on the part of Grzymski existed as a result of
which it was necessary to maintain professional indemnity
insurance. This was to satisfy the fact that if a mistake was
made by him in the process of grinding, fitting and dispensing
the corrective lenses, he was responsible for the costs involved
to rectify the mistake. While that may not do away entirely with
the possibility of financial risk to Crystal Beach, it is
nonetheless an important element in the context of a
determination of "whose business is it".
[13] Premised on the basis that during the
period in issue Grzymski had only been required to find a
replacement on one occasion, that being when his marriage took
place, the Respondent challenged his credibility with respect to
his assertion that he was obligated by the agreement with Crystal
Beach to provide a substitute at his own cost when necessary.
That the need to find a replacement did not occur more frequently
establishes nothing. There is no basis upon which the testimony
of Malina in this regard should be rejected and, I might add it
was consistent with the testimony of Grzymski. The Respondent
also challenges that Grzymski's testimony by alleging that
his so-called schedule reflected the fact that the days on which
he worked were the only days made available to him by Crystal
Beach. That is not correct. Grzymski testified that he was only
available on the three different days, Tuesday, Thursday and
Saturday, since the other days were allocated to the two optical
companies with whom he had contracts at that particular time. His
testimony was supported by Malina who said that because Crystal
Beach wished to obtain Grzymski's services, it accepted his
schedule. Much was also made of the hourly rate by counsel for
the Respondent who suggested it was, in effect, a customary rate
accepted by Crystal Beach. The evidence of both Malina and
Grzymski was that this was not "a negotiated rate" but was,
according to Grzymski, "an appropriate fee to charge for my
expertise" and was comparable to what he charged his other
customers. Malina's evidence supports the conclusion that Crystal
Beach accepted the terms set by Grzymski. One further issue
raised by counsel for the Respondent was that the services which
Grzymski was providing were to the Crystal Beach client base. It
would appear on balance from the evidence of both Malina and
Grzymski that a more appropriate description is that Grzymski was
providing a service to Crystal Beach rather than providing a
service to the customers of Crystal Beach.
[14] Having considered all of the factors
and the submissions made by counsel, I have reached the
conclusion that Grzymski was in fact an independent contractor
and that there was very little evidence to support the
Respondent's position that an employee/employer relationship
existed.
[15] As previously indicated, Elisabeth
Orfei was not present at the trial. What little evidence is
before the Court came solely from Malina. Orfei, who was
described by Malina as semi-retired, was an optician. She was
hired to provide services one day per week. He noted that she did
not have the same skills as Grzymski, she could not solder and
"couldn't really do many things that Mr. Grzymski
was capable of". Furthermore, she could not fit contact
lenses. As a result, her contract was based on a substantially
lower hourly rate. As well, Orfei did not have her own equipment
or her own pupilometer; did not use the examination room because
she did not and could not perform contact lens fitting; and
performed 100% of her duties at the Crystal Beach office. The
totality of the evidence with respect to Orfei's status falls
well short of establishing that she was an independent
contractor. Accordingly, the appeal of Crystal Beach as it
relates to Orfei is dismissed.
Signed at Ottawa, Canada, this 16th day of March, 2005.
Sarchuk J.
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