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Citation: 2005TCC478
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Date: 20050906
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Docket: 2004-4421(EI)
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BETWEEN:
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COMBINED INSURANCE COMPANY OF AMERICA,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
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and
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MÉLANIE DRAPEAU,
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Intervenor.
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REASONS FOR JUDGMENT
McArthur J.
[1] This is an appeal
from the decision of the Minister of National Revenue (the Minister), dated
September 20, 2004, that the Intervenor, Mélanie Drapeau was employed in insurable employment
with the Appellant within the meaning of paragraph 5(1)(a) of the Employment
Insurance Act ("the Act") from August 18, 2003, to
January 16, 2004. The Appellant submits that the Intervenor was not
an employee engaged in insurable employment during this period, but was an
independent contractor and was self‑employed.
A. THE FACTS
[2] In determining that
the Intervenor held insurable employment, the Respondent relied on the
following facts:
(a) the Appellant is
an insurance company engaged in selling various insurance policies;
(b) the Appellant is
in business in Canada since 1956 and has an office in Boucherville, Quebec;
(c) the Worker was engaged
by the Appellant as a sales representative;
(d) the Appellant and
the Worker signed a sales representative agreement;
(e) the Worker was
obliged to sign this agreement in order to perform her duties for the Appellant;
(f) the Worker was
required to use only the selling methods and techniques developed by the Appellant;
(g) the Worker was assigned
to specific tasks by the Appellant to be performed at specific times;
(h) the Worker was obliged
to sell only the insurance products the Appellant;
(i) the client base
developed by the Worker became the property of the Appellant;
(j) the Worker was required
to perform her duties personally;
(k) the Worker began
to work at 8:00 a.m. and finished at 9:00 p.m. and she followed the Appellant's
supervised and regimented schedule every day;
(l) the Worker was
obliged to attend sales representatives meeting daily;
(m) the Worker was not
permitted to change her work schedule on her own;
(n) the Worker's
routes were assigned to her each day by the sales manager;
(o) the Worker was
required to directly contact and advise the sales manager in the case of any
absence due to sickness or for any other reason;
(p) the Worker was required
to provide the Appellant with precise reports, both written and verbal, on a
regular basis;
(q) the Worker's remuneration
was on a commission basis;
(r) the Appellant unilaterally
set and changed the commission rate;
(s) the Worker had to
meet performance standards;
(t) the Appellant had
the right to terminate the Worker at his discretion;
(u) the Worker used
her own car and assumed its operating costs;
(v) the Appellant
provided an office, its furnishings, equipment and materials to the Worker;
(w) the risk of loss to
the Worker was reduced by the Appellant providing the Worker, on an ongoing
basis, lists of current clients whose policies were subject to renewal;
(x) the Worker's tasks
were integrated in the Appellant's business.
At the hearing, most of these assumptions were
revealed to be correct.
[3] I believe that the Appellant's
business structure is pyramidal: A "divisional administrator" supervises
roughly 40 "district managers." These "district
managers" supervise "sales managers" who, in turn, supervise a
number of representatives that do business within their territory. The Intervenor's
"district manager" was Jean‑Guy Saint‑Laurent.
[4] Mr. Saint-Laurent hired the Intervenor.
Employees of the Appellant who are responsible for training new representatives
prepared her for the exam administered by the Autorité des marchés
financiers; no one may work as an insurance representative in Quebec
without having passed this exam. Once the Intervenor passed the exam,
Mr. Saint‑Laurent was her supervisor during the compulsory training
period prescribed by the Act, respecting the distribution of
financial products and services, R.S.Q., c. D-9.2.
[5] On July 14, 2003,
and January 1, 2004, the Intervenor signed two documents entitled "Entente
standard d'agence de Combined" (Combined's Standard Agency Agreement]
with the Appellant (Exhibit A‑1). Pursuant to these agreements, the Intervenor
affiliated herself with the Appellant as a representative who "shall work
on a self-employed basis as an independent contractor." At least on paper,
these agreements expressly
create a relationship based on a contract of enterprise as opposed to an
employer-employee relationship under an employment contract.
[6] In practice, once
the training period was over, the Intervenor dealt mainly with her "sales
manager" Sylvain Poulin and her "district manager" Mr. St‑Laurent.
At the hearing, Michel Rivest,
the Appellant's "divisional administrator", testified that the
"district managers" were responsible for managing the
representatives.
B. APPLICABLE LAW
[7] In common law
provinces, the question whether an employer‑employee relationship exists
is answered by applying tests developed by the decision of the Federal Court of
Appeal in Wiebe Door
Services Ltd. v. Minister of National Revenue,
[1986] 3 F.C. 553, confirmed by the Supreme Court of Canada in 671122
Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983. Given
the complexity of economic and contractual relationships, the Courts have
rejected an analysis based strictly on a relationship of subordination, or the
exercise of a power of control, in favour of an examination of the overall
relationship between the parties. In Sagaz, Major J. wrote as
follows at paragraphs 47‑48:
. . . 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.
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.
[8] The advantage of
this multidimensional approach is that it is more flexible and permits
determinations that take account of the entire dynamic of the relationship. The
disadvantage of the approach is that it is more problematic to predict the
determination that a Court will make, given the multiplicity of factors on
which its analysis will be based.
[9] In Quebec, a province governed by civil law
principles, the employment contract is defined in article 2085 of the Civil
Code of Québec, S.Q. 1991, c. 64, which 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] An employment
contract differs from a contract of enterprise or for services (Article 2098)
"… 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." Article
2099 provides that "[t]he contractor or 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."
[11] Thus, subordination,
or the exercise of a power of control, is a more important, if not
determinative, factor in Quebec law. The Employment
Insurance Act, which
applies to the present dispute, is a Federal statute. As of
June 1, 2001, if concepts of private law are involved,
section 8.1 of the Interpretation Act, R.S.C. 1985,
c. I-21, has required the application of the private law of the province
in which the dispute arose:
8.1 Both the common law and the civil law
are equally authoritative and recognized sources of the law of property and
civil rights in Canada and, unless otherwise provided by law, if in
interpreting an enactment it is necessary to refer to a province's rules,
principles or concepts forming part of the law of property and civil rights,
reference must be made to the rules, principles and concepts in force in the
province at the time the enactment is being applied.
[12] In light of these
enactments, there is no sense debating whether the common law, multiple‑factor
approach propounded in Wiebe
Door and Sagaz is a preferable one. The Quebec
legislature has expressly stated that the existence of a relationship of
subordination between the parties is what distinguishes an employment contract
from a contract of enterprise or for services.
[13] Thus, I agree with
the comments of Dussault J., who stated as follows in Lévesque v. Canada (M.N.R.), [2005] T.C.J.
No. 183:
[TRANSLATION]
23 In Sauvageau Pontiac Buick GMC
Ltée v. Canada, T.C.C., No. 95‑1642(UI), October 25, 1996,
[1996] T.C.J. No. 1383 (QL), Archambault T.C.J., citing the Supreme Court
of Canada's decision in Quebec Asbestos Corp. v. Couture,
[1929] S.C.R. 166, considered these definitions and held that the
determinative element was whether or not a relationship of subordination
existed. He also accepted Pratte J.A.'s definition of this term in Gallant,
supra. At paragraph 12 of his decision, Judge Archambault stated:
12 It is clear from these provisions of
the C.C.Q. that the relationship of subordination is the primary distinction
between a contract of enterprise (or of services) and a contract of employment.
As to this concept of a relationship of subordination, I feel that the comments
of Pratte J.A. in Gallant are still applicable:
The distinguishing feature of a contract of
service is not the control actually exercised by the employer over his employee
but the power the employer has to control the way the employee performs his
duties.
24 Furthermore, in D & J
Driveway Inc. v. Canada, F.C.A., No. A‑512-02,
November 27, 2003, 322 N.R. 381, [2003] F.C.J. No. 1784 (QL),
Létourneau J.A. of the Federal Court of Appeal stated that an
employer-employee relationship does not necessarily exist simply because a
person who gives out work can control its result. He put the matter as follows
at paragraph 9 of the judgment:
A contract of employment requires the
existence of a relationship of subordination between the payer and the
employees. The concept of control is the key test used in measuring the extent
of the relationship. However, as our brother Décary J.A. said in Charbonneau
v. Canada (Minister of National Revenue - M.N.R.), [1996] F.C.J. No. 1337,
[1996] 207 N.R. 299, followed in Jaillet v. Canada (Minister of National Revenue - M.N.R.), 2002 FCA 394, control of the result and
control of the worker should not be confused. At paragraph 10 of the
decision, he wrote:
It is indeed rare for a person to give out
work and not to ensure that the work is performed in accordance with his or her
requirements and at the locations agreed upon. Monitoring the result must not
be confused with controlling the worker.
25 . . . Several indicia
can be taken into account in ascertaining whether or not a relationship of
subordination exists. In Seitz v. Entraide populaire de Lanaudière inc.,
Court of Québec (Civil Division), No. 705‑22-002935-003,
November 16, 2001, [2001] Q.J. No. 7635 (QL), Judge Monique
Fradette provided a series of indicia that can help determine whether or not
subordination exists. She discussed this as follows at paragraphs 60‑62
of the judgment:
[TRANSLATION]
60 In order for there to be an
employment contract, the jurisprudence requires the existence of a right of
supervision and immediate direction. The mere fact that a person provides
general instructions about the way in which the work is performed, or reserves
the right to supervise or inspect the work, is not sufficient to convert the
agreement into an employment contract.
61 A series of indicia developed by
the jurisprudence enables courts to determine whether there is a relationship
of subordination between the parties.
62 The indicia of
control include:
- mandatory
presence at a workplace
- compliance with
work schedule
- control over employee's
vacations
- submission of activity reports
- control over the
quantity and quality of work
- imposition of the
means of performing the work
- power of sanction
with respect to the employee's performance
- source deductions
- fringe benefits
- employee status
on income tax returns
- exclusivity of
services for employer
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However, in my opinion,
the fact that some indicia point to a relationship of subordination does not
end the analysis. The process consists of determining the overall relationship
between the parties based on the distinction drawn in the C.C.Q. Thus, the
extent to which the indicia of subordination predominate in relation to the
others must be established.
C. ANALYSIS
[14] These indicia are
the basis on which I will examine the overall relationship between the Appellant
and the Intervenor in order to determine whether a relationship of
subordination is present or not.
[15] Mandatory presence at a workplace: The representatives who worked for the Appellant
worked in the field, since the role of a representative is to sell insurance
policies from door to door, and obtain renewals of existing policies by
visiting customers at their homes. Thus, the Intervenor was not required to go
to the same workplace every day. However, Mr. Saint‑Laurent assigned
the neighbourhoods in which the Intervenor was required to work. At the
hearing, the Intervenor testified that she was not free to choose these
neighbourhoods, and that she had to work on the streets that
Mr. Saint-Laurent assigned to her. Mr. Saint-Laurent's testimony
confirmed that he assigned her streets where she had to attempt to sell the Appellant's
insurance policies, but he said that she would have been free to choose her
streets if she had wished. In any event, the Intervenor does not seem to have
been encouraged to choose the areas in which she would work.
[16] Compliance with work schedule: The Intervenor's work days always began
with a morning meeting with her "sales manager", the other
representatives, and Mr. Saint‑Laurent. The Intervenor testified that
her work days were organized according to a strict schedule. The schedule began
with mandatory meetings in the morning to set the day's objectives and motivate
the representatives. There would be another meeting at about noon to go
over what was done in the morning and prepare for the afternoon's work. Since
the Intervenor's "district manager" expected her to attend these
meetings, she had no choice but to follow the work schedule chosen by
Mr. Saint-Laurent.
[17] Control over employee's absences: The Intervenor would occasionally miss
morning meetings. In addition, she was absent because of her pregnancy. At the
hearing, it was revealed that the Intervenor justified her absences to
Mr. Saint‑Laurent by giving him medical certificates. Although
Mr. Saint-Laurent did not expressly demand medical certificates, he agreed
to look at them when the Intervenor offered to submit them to him. It is
unlikely that the Intervenor would have asked her physician for such
certificates if she did not believe she was required to justify her absences to
Mr. Saint-Laurent. And Mr. St‑Laurent appears never to have
chosen to tell her that since she was self-employed, she did not need to
justify her absences in this manner.
[18] Submission of activity reports: The Intervenor gave Mr. Saint‑Laurent
activity reports so that he could calculate her total sales and pay her the
resulting commissions. These reports were essential for accounting purposes and
for the Appellant's records, and are not necessarily indicative of an employer-employee
relationship.
[19] Control over quantity and quality of work: The Intervenor set sales targets with
Mr. Saint-Laurent. If she did not reach them, Mr. Saint-Laurent
exhorted her to adhere more closely to the sales techniques set out in the
training manuals that the Appellant prepared for the representatives. With
regard to the quality of the Intervenor's work, at least during her mandatory
training period, Mr. Saint‑Laurent, as the supervisor, was to ensure
that she made no false representations to any clients, and that the clients
gave valid consent. In my opinion, the fact that this obligation is imposed by
the Act respecting the distribution of financial products and services
is of little importance: it is the degree of control exercised over the quality
of the work that counts.
[20] Imposition of the means of performing the
work: This is one of the
most fundamental distinctions between a contract of enterprise, under which a
contractor generally has only an obligation of result, and an employment
contract, under which the employer imposes an obligation of means on the
employee so that the employee will achieve the result using the employer's
preferred method. The evidence in this case disclosed that the Appellant's
training manuals, and Mr. Saint‑Laurent, insisted on the use of
ready‑made scripts which even anticipated answers to clients' objections
and refusals. The following is an example of such a script (Exhibit I-3):
[TRANSLATION]
Client: I'm not interested.
Agent: Mr./Ms. _________, if you had
a money-making machine, and it gave you thousands of dollars a year, surely you
would want to insure this machine for only $ _______ a week, wouldn't you?
Client: Yes.
Agent: The good news is …
You are such a
machine. You are potentially worth thousands of dollars of future income. I
think you'll agree that such a precious machine should be insured … especially
when the premium is so low. Isn't this true? [or] Do you agree?
Client: Yes.
Agent: May I write it for you, then?
Client: Yes.
Agent: You want the full unit, $_____ per month
______ like the others, is that correct?
In my opinion, these
sales scripts, and the importance they were given during the training and at
the meetings the Intervenor was required to attend, suggest that the Appellant
imposed means of performing the work.
[21] Power of sanction with respect to the
employee's performance: In
addition to selling insurance policies to new customers, the representatives
were responsible for renewing existing policies. It was easier to obtain a
renewal than to sell a new policy, and the Appellant's commissions for new
business were higher than its renewal commissions. However, renewals
constituted a source of income for the Intervenor, and Mr. Saint‑Laurent
gave representatives the names and addresses of customers whose policies were
due for renewal. If he decided not to give renewals to a representative owing
to poor performance, the decision had the effect of an economic sanction on the
representative. I agree with counsel for the Appellant that a purely economic
sanction should be distinguished from a disciplinary sanction, but the fact
remains that the Appellant had a power of sanction over the Intervenor, if only
in economic terms.
[22] Source deductions and fringe benefits: The Appellant did not make source
deductions from the amounts it paid the Intervenor, and the Intervenor had no
benefits that point to the existence of an employment contract.
[23] Employee status on income tax returns: The Intervenor declared business income
and, on Mr. Saint-Laurent's advice, she kept the receipts for the expenses
that she incurred in the performance of her duties so that she could deduct
them from her taxable income. At first glance, this appears difficult to
reconcile with the existence of a typical employment contract, but the fact
that the Intervenor took steps to obtain employment insurance benefits at the
end of her contract with the Appellant suggests that her understanding of her
situation, and of the tax and employment insurance systems, was rather limited.
[24] Exclusivity of
services for employer: The Intervenor testified that she could
sell only the Appellant's insurance products and could not hold other
employment. However, it appears that no one expressly told her that she could
not do any other work. I have no doubt that the Intervenor believed she could
not work for anyone else, and it appears that neither the Appellant nor
Mr. Saint‑Laurent made any particular effort to disabuse her of this
belief. Nonetheless, this is still just an impression in the Intervenor's mind,
and it cannot have the same probative value as an express prohibition issued by
the Appellant.
D.
CONCLUSION
[25] In light of the
indicia listed above, I find that by virtue of the degree of control involved
in the relationship between the Appellant and the Intervenor, that relationship
was sufficiently subordinate to constitute an employment contract rather than a
contract for enterprise.
[26] However, the Appellant's
business model is not on trial in this appeal. It is quite possible that most
of the Appellant's representatives are independent contractors. It is even
possible that Mr. Saint-Laurent, who had considerable discretion regarding
the way in which he managed representatives, did not exercise the same degree
of control over the work of other representatives under his supervision.
[27] Nonetheless, it is
clear to me that the Intervenor, having been subject to the control that the Appellant
exercised over her during her period of service, experienced all the drawbacks of employee status
without access to its benefits, including eligibility for employment insurance
benefits.
[28] For these reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 6th day of September, 2005.
McArthur J.
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