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Citation: 2003TCC716
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Date: 20031219
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Docket: 2002-3098(EI)
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BETWEEN:
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WORLD INTERNET BROADCASTING NETWORK
CORPORATION INC. AND GLOBAL TREE TECHNOLOGIES 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
Woods J.
[1] Robert Mackin has a background in
broadcasting and became the president of a start up internet broadcasting
corporation, World Internet Broadcasting Network Corporation Inc., in the year
2000. This appeal concerns the nature of Mr. Mackin's relationship with World
Internet for purposes of the Employment Insurance Act. The relationship
was governed by a written agreement that expressly denied that Mr. Mackin was
an employee. However, when World Internet ceased operations, Mr. Mackin applied
for, and was granted, employment insurance benefits. World Internet and its
parent corporation, Global Tree Technologies Inc., appeal this decision. Global
Tree is a party to the appeal because it paid a part of Mr. Mackin's fee
directly and the Minister of National Revenue accordingly concluded that the
parent corporation is a deemed employer under the Act.
Whether Mr. Mackin was an employee
Facts
[2] The only person who
gave evidence at the hearing was the president of Global Tree, Robert Kennedy. Mr. Kennedy admitted that he was not the
person most knowledgeable about this matter accordingly I have had to make
inferences based largely on the written agreement governing the relationship. I
would note that the appellants were not the only parties to provide few
witnesses. The Crown did not call any witnesses and, in particular, Mr. Mackin
did not present evidence in support of his position.
[3] Sometime in 2000,
Robert Mackin approached
Global Tree about starting an internet-based broadcasting business. Global Tree
was a public corporation in the resource industry and had no expertise in
broadcasting but it was in a position to provide financing. Mr. Mackin had the
knowledge and industry contacts to manage the business and owned a website,
MyCityRadio.com, that would be used in the business.
[4] World Internet was a subsidiary of Global
Tree formed for the purpose of this new venture which started up about June 1,
2000. The business did not live up to expectations and, on August 8, 2001,
Global Tree stopped providing
funds and World Internet
ceased to operate.
[5] From December 1,
2000, the relationship between Mr. Mackin and World Internet was governed by a
written agreement titled "Consultant Agreement." Mr. Mackin, using the trade name Nikcam
Holdings, agreed to provide services to World Internet as an independent
contractor for a two year period. The duties of the consultant (defined as both
Mr. Mackin and Nikcam Holdings) were to act as president of World Internet and
to perform the following duties:
In conjunction with and upon approval of
the Board of Directors and of the Owner:
- develop an
annual operating budget, with projections and assumptions for approval by the
Board of Directors ;
- report budget
results on a quarterly basis comparing actual to budget;
- be responsible
for programming functions of the Owner;
- manage the
affiliates program;
- work with the
Vice-President of Marketing and Sales to develop and implement local and national
advertising programs and to meet advertising budgets;
- work with the
Chief Executive Officer and Investors Relations Group of Global Tree
Technologies Inc. to assist in the raising of funds;
- maintain a
positive and professional atmosphere in the Owner's workplace;
- control development of the
MyCityRadio website;
any of these services may, with approval of
the Board of Directors of the Owner be delegated to a competent consultant or
employee of the Owner.
[6] Under the Consultant Agreement, as amended,
Mr. Mackin was to receive a fee of approximately $7,000 per month, plus GST. The fee was to be increased to $8,250 in the second
year of the term if World Internet had achieved a positive cash flow. Mr. Mackin was also to receive a commission
equal to 7 1/2 percent of fees that were to be generated from licensing the
website in other cities. The Consultant Agreement also provided that Mr. Mackin
was to cause his website to be
licensed to World Internet pursuant to a perpetual exclusive license in return
for a royalty of 1 1/2 percent of net advertising revenue. A formal license
agreement was never entered into.
[7] Mr. Mackin did not own any shares of World
Internet but he did have a
small number of shares of
Global Tree. Mr. Kennedy testified that he and a colleague personally loaned
funds to Mr. Mackin for the purchase of these shares on the understanding that
the loan would be repaid out of the proceeds when the shares were sold.
[8] Much of Mr. Kennedy's testimony related to
describing the acrimonious relationship between Mr. Mackin and the Board of
Directors. Most of this testimony is not particularly relevant but it might
explain why Mr. Mackin did not testify at the hearing. Mr. Kennedy himself was
reluctant to testify. To illustrate the difficulties between the Board and Mr.
Mackin, Mr. Kennedy stated
that he once asked Mr. Mackin to assist in finding alternate sources of
financing for World Internet. When Mr. Kennedy later asked to see the
documentation that Mr. Mackin was giving to prospective investors, Mr. Kennedy
was shocked to see a proposed reorganization of World Internet in which Mr.
Mackin would own 80 percent and Global Tree would own only 20 percent.
Analysis
[9] Whether a person is an employee or
independent contractor is generally determined on the facts of the particular
case. The general principles are described by Major J. in Sagaz Industries
Canada Inc. v. 671122 Ontario Limited:
[47] … 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.
[10] Nothwithstanding that World Internet
entered into what was called a consulting agreement, it is liable for
employment insurance premiums if, at law, the relationship with Mr. Mackin was
one of employment. The fact that the contract was styled as a consultant
agreement is not determinative: Nametco Holdings Ltd. v. R. The same can
be said of the fact that the agreement was signed in the name of Nikcam
Holdings, a business style used by Mr. Mackin.
[11] According to Sagaz Industries, the
central question is whether Mr. Mackin, as president of World Internet, was
carrying on a separate business. In general, I believe it would be difficult
for a president of a corporation who has a broad mandate to manage the business
to, at the same time, operate a separate business for his own account. The
duties that a president owes to the corporation in that capacity would
generally be inconsistent with the concept of operating a parallel separate
profit-making enterprise. Indeed when Mr. Mackin attempted to do just that by
raising funds for a reorganized business, Mr. Kennedy indicated that he was
shocked. Clearly in Mr. Kennedy's mind, Mr. Mackin was to act in the
corporation's interest only. Accordingly, the fact that Mr. Mackin had a very
senior position and was responsible for most aspects of the business strongly
negates an independent contractor relationship.
[12] Mr. Kennedy suggested that the fact that
Mr. Mackin brought the business concept to Global Tree illustrates that this
was not a typical employment relationship. This may be so but it does not
assist the appellants in this appeal. The fact that the business was the
brainchild of Mr. Mackin and that Global Tree had no expertise in broadcasting
makes it even more difficult to maintain that Mr. Mackin was carrying on a
separate business. World Internet looked to Mr. Mackin to manage its entire
business, except for raising funds, and it would have been incompatible with
this relationship for Mr. Mackin to do so as an independent businessman looking
to maximize his own profit.
[13] I find that the degree of responsibility
for management is the most important factor in this case. The other factors
referred to in Sagaz Industries as bearing on this question, control,
opportunity for profit, financial risk, hiring own workers and ownership of
equipment are of less significance and are not inconsistent with a finding that
Mr. Mackin was an employee.
[14] As for control, a president of a corporation
typically has more autonomy than other employees. Nevertheless, it is clear
that Mr. Mackin was under the supervision of the Board of Directors. The
Consultant Agreement explicitly provides for this and it is consistent with Mr.
Kennedy's testimony. In my view, the control factor is not significant in this
case.
[15] As for opportunity
for profit, Mr. Mackin did
have the opportunity to participate in the success of the venture. His monthly
fee would be increased if the venture generated a positive cash flow and he was
entitled to a commission based on license fees earned during the term of the
Consultant Agreement. He was also entitled to a royalty in return for granting
a perpetual license of his website. However, the royalty was to be payable
regardless of the termination of the Consultant Agreement and therefore is not
tied to the services rendered.
[16] In my view, the potential for Mr. Mackin to participate
in the success of the venture is not a significant factor. Incentive-based
remuneration is typically an important element in executive compensation and is
not inconsistent with an employment relationship.
[17] As for financial
risk, the Consultant Agreement
has two provisions relevant to this factor:
4.3 The Owner shall not be required
to make payment for Services performed or expenses incurred by the Consultant
to remedy errors or omissions for which, in the reasonable opinion of the
Owner, the Consultant is responsible.
4.4 If the Consultant fails to comply
with the Law, and the Owner does anything or pays any monies to rectify any
noncompliance, then the Owner may deduct the cost of rectification from any
monies then or thereafter due to the Consultant.
[18] These provisions were not mentioned by
either party at the hearing and their scope is not clear. The rights of World
Internet under them may be somewhat more expansive than the rights of an
employer under the implied duty of an employee at common law but World
Internet reasonably would have wanted this protection since the shareholder did
not have broadcasting expertise. World Internet's right to sue appears to be
limited to the fees owing which may be more restrictive that even common law
remedies against an employee. There was no evidence that World Internet sought
to invoke these provisions notwithstanding what Mr. Kennedy described as
serious breaches of conduct. In my view, the financial risk factor is neutral.
The provisions that the parties agreed to are consistent with either an
employee or independent contractor relationship.
[19] As for hiring of workers, there is no
evidence that Mr. Mackin hired any workers and therefore this factor does not
assist the appellants.
[20] The last factor to consider is ownership of
equipment. The relevant equipment is office equipment and, generally, it was
provided by World Internet. It is not a significant factor.
[21] Looking at the relationship between the
parties as a whole, I find that Mr. Mackin was engaged as an employee of World
Internet. The significant factor in this case is the responsibility that Mr.
Mackin had for World Internet's business. It is a strong indication of an
employment relationship. The other factors tended to be neutral, or at least
not of sufficient importance to outweigh it.
Whether Global Tree is liable for
premiums
[22] The Minister invokes subsection 10(1) of
the Insurable Earnings and Collection of Premiums Regulations and
suggests that Global Tree is liable for a portion of the employment insurance
premiums. Subsection 10(1) provides:
10.(1) Where, in any case not coming within any other
provision of these Regulations, an insured person works
(a) under the general control or direct supervision
of, or is paid by, a person other than the insured person’s actual
employer, …
that other person shall,
for the purposes of maintaining records, calculating the insurable earnings of
the insured person and paying, deducting and remitting the premiums payable on
those insurable earnings under the Act and these Regulations, be deemed to be
the employer of the insured person in addition to the actual employer.
(emphasis added)
[23] From May to August, 2001 Global Tree paid World
Internet's bills directly. Global
Tree had been concerned about World Internet's creditors being paid because of
a lawsuit against it. Accordingly,
during this period Global Tree paid
Mr. Mackin's fees directly and the payments were recorded as advances.
[24] The broad scope of subsection 10(1) was
recently considered by the Federal Court of Appeal in Insurance Corp. of
British Columbia v. R.
Strayer J.A. noted:
[8] … The proposition is simple
enough and its purpose clear: premiums are to be deducted at the source where
salary or wages are calculated and administered, and where checks or
pay-packets are issued. The term "paid" ought to be interpreted in
context, and it is not necessary to examine technical sources in order to
attribute to it a meaning that would defeat the clear purpose of the section.
[25] Subsection 10(1) has
been applied in circumstances similar to this, where a corporation assumed the payroll of an employer who was
experiencing financial difficulties: Gateway Building & Supply Ltd. v.
M.N.R.
Global Tree likewise assumed the bankroll for World Internet because it was
concerned that World Internet's creditor's would not be paid given the lawsuit
against it. In these circumstances, Global Tree is a deemed employer for
purposes of subsection 10(1) of the Regulations.
Conclusion
[26] In applying for
employment insurance benefits, Mr. Mackin took a position contrary to the
position in the agreement that he had signed. While it is unfortunate that
someone can take advantage of the system in this manner, nevertheless that is
what the law requires. If there was a reasonable position that Mr. Mackin was
an independent contractor, I would be inclined to accept the Appellant's
position. The case of Wolf v. R.
supports the view that the parties expressed intention should have
significance unless it is not supported in law. In this case, the stated
intention is not supportable.
[27] The appeal is dismissed.
Signed at Ottawa,
Canada this 19th day of December, 2003.
J.M.
Woods J.
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