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Citation:2004TCC799
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Date: 20041207
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Docket: 2003-2345(EI)
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BETWEEN:
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UNION OF SASKATCHEWAN GAMING EMPLOYEES LOCAL
40005,
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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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SASKATCHEWAN GAMING CORPORATION,
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Intervener.
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REASONS FOR JUDGMENT
Lamarre, J.
[1] This is an appeal from a decision
made by the Minister of National Revenue ("Minister")
on March 26, 2003, in which it was determined that tips paid to
employees of the Saskatchewan Gaming Corporation
("SGC") (namely, to Shauna Predenchuk during the period
from May 29, 1999, to December 10, 2000, to Ljilijana Dundjerovic
during the period from August 23, 1999, to March 5, 2000, and to
Viviana Floer during the period from December 11, 2000, to June
24, 2001) were insurable earnings and that the appellant was the
deemed employer for the purposes of calculating those earnings
and paying, deducting and remitting the employment insurance
premiums payable on them during the above periods, as it was the
appellant that paid the tips (Exhibit A-3). The Minister
relied on subsections 2(1) and 10(1) of the Insurable Earnings
and Collection of Premiums Regulations
("IECPR"), which read as follows:
PART 1
INSURABLE EARNINGS
Earnings from Insurable Employment
2. (1) For the purposes of the definition "insurable
earnings" in subsection 2(1) of the Act and for
the purposes of these Regulations, the total amount of earnings
that an insured person has from insurable employment is
(a) the total of all amounts, whether wholly or partly
pecuniary, received or enjoyed by the insured person that are
paid to the person by the person's employer in respect of
that employment, and
(b) the amount of any gratuities that the insured
person is required to declare to the person's employer under
provincial legislation.
. . .
Other Deemed Employers
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, or
(b) with the concurrence of a person other than the
insured person's actual employer, on premises or property
with respect to which that other person has any rights or
privileges under a licence, permit or agreement,
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.
[2] In its appeal the appellant
does not question the fact that the tips are insurable earnings.
It only challenges the determination that it is the deemed
employer with respect to the payment of the tips and thus
responsible for the deduction of the employment insurance
premiums payable on those tips.
[3] SGC, the intervener, takes
issue with the insurability of the tips but says that if they are
insurable, it is in agreement with the Minister's decision
that the appellant is the deemed employer with respect to the
deduction of the premiums payable on them.
[4] The respondent, surprisingly
and contrary to the decision by the Minister that is presently
being appealed, took the position at the hearing that the tips
paid to the employees of SGC by the appellant were not insurable
earnings in this particular set of circumstances.
[5] The appellant takes issue
with this new position of the respondent and is also of the view
that, as the insurability of the tips was not challenged in the
notice of appeal, it is not now open to the intervener nor to the
respondent to dispute it. In the appellant's view, the
intervener should have appealed the decision of the Minister
dated March 26, 2003, if it wanted to argue this point. The
appellant contends that the intervener cannot raise an issue that
was not raised in the Notice of Appeal.
[6] Before dealing with this
last point, and those raised by the parties, I will reproduce the
facts as summarized, correctly in my view, by the intervener in
paragraphs 3 to 20 of its memorandum of fact and law.
III. Facts
3. The Intervener is a Treasury Board
Crown Corporation established pursuant to The Saskatchewan
Gaming Corporation Act, 1994, SS 1994, cS-18.2.
4. The SGC operates and manages Casino
Regina in Regina, Saskatchewan.
5. Casino Regina opened to the public
in January, 1996.
6. The Appellant is a Local of the
Public Service Alliance of Canada union ("P.S.A.C.").
P.S.A.C. is certified as the bargaining agent for a specified
group of employees of the Intervener.
7. The Appellant and the Intervener
entered into a collective bargaining agreement dated September
19, 1997 for the effective period from June 1, 1997 to May 31,
2000 (the "First Collective Agreement"). The Appellant
and the Intervener entered into a second collective bargaining
agreement dated January 25, 2001 for the effective period from
June 1, 2000 to May 31, 2003 (the "Second Collective
Agreement").
Pre-Collective Agreements - Collection and
Distribution of Gratuities
8. Prior to the First Collective
Agreement, the Intervener was responsible for the collection,
counting and distribution of tips to its employees working in
various designated areas of the Casino. The Intervener placed tip
boxes in the various designated areas of the Casino where
employees of the Casino were required to place any tips that they
received from customers and patrons of the Casino. The tip boxes
were collected by security personnel at various intervals and
taken to the Count Room located in the internal bank of the
Casino. The frequency that the tip boxes were collected varied
depending on the area of the Casino where the tip boxes were
located, with the tip boxes for areas such as Table Games being
collected more frequently than other areas such as Customer
Service.
9. Each time the tip boxes were
collected by security and taken to the internal bank, they would
be counted by members of the soft count team and recorded
separately on a Tip Record Form for each designated area of the
casino including: Security, Slots, Tables, Cashiers and Customer
Service. The Bank Shift Manager would then verify the tip count
for each area and record the tip amount in the Casino's
computer system which would generate a receipt. The tip funds
would then be deposited into the Casino bank and the Tip Record
forms would be forwarded to the Finance and Administration
division of the Intervener.
10. The tips collected from each department were
then distributed by the Intervener to the employees working in
those department [sic] based on the number of hours that
the employee had worked in each department over the two week pay
period. The tip amounts were included by the Intervener on the
pay cheques issued to the employees. The Intervener deducted
Canada Pension Plan contributions and Unemployment Insurance
premiums from the tip amounts paid to each worker and also
deducted income tax from the tips amount at each employee's
rate. The net amounts of the tips paid to employees were itemized
on each pay cheque.
First Collective Agreement dated September 19,
1997 (effective June 1, 1997 to May 31, 2000)
11. In the First Collective Agreement, Article 42
was included to address the issue concerning the collection and
payment of gratuities to Casino employees. Article 42 of the
First Collective Agreement read as follows:
42.01 For the purpose of this
agreement "gratuities" includes tips (which includes
cash and Casino Regina value chips).
42.02 The employer will continue to
provide facilities for the collection of gratuities. Effective
the date of signing of this agreement the employer will provide a
secure location, that is monitored by camera surveillance, for
the counting of gratuities, twice a week. The employer will also
provide the Union, on a bi-weekly basis, the hours worked by
employees during each two week period.
42.03 Effective the date of signing
this collective agreement the Union shall have sole
responsibility for the distribution of all gratuities subject to
42.04.
42.04 The Union will remit, bi-weekly,
to the employer the amount of tips payable to Pit Bosses, Slot
Shift and Bank Shift Managers, together with the figures
representing the total amount of tips collected by each
department. This amount will include these employees [sic]
share of the administration fee currently retained by the
employer. The current calculations used for tip distribution will
not change for these employees during the life of this
agreement.
42.05 The Union will provide the
employer, bi-weekly, with the total tip collection amount for
each two week period.
42.06 A management representative may
attend the count at any time.
42.07 If the union engages the
services of an Auditor to provide a report on the process,
accounting procedures, etc., the employer may purchase a copy of
the report by paying half of the auditor's billings.
12. Following the First Collective Agreement, the
Intervener continued to provide tip boxes in the designated areas
of the Casino for the collection of gratuities. The tip boxes
were taken by security personnel to the Casino bank at various
intervals agreed upon by the Intervener and the Appellant. Rather
than being counted immediately by members of the soft count team,
the tip boxes were emptied by the soft count team and placed into
numbered, sealable plastic bags. The soft count supervisor would
record the date and sealed bag number and initial the Casino
Regina Tip form. The Bank Shift Manager would verify the sealed
bag numbers and initial the Tip form and place the sealed,
numbered bags in the vault.
13. A count team appointed by the [Appellant] (the
"Union Count Team") would then attend at the count room
of the internal bank of the Casino on a weekly or bi-weekly basis
and verify the sealed plastic bag number and initial the Casino
Regina Tip forms. The Union Count Team would then count and
record the amount of the tips separately for each designated area
on separate Tip Record forms. The tips, in the form of cash and
chips, would then be turned over by the Union Count Team to the
Bank Shift Manager along with a completed Tip Record form for
each designated area. In the presence of the Union Count Team,
the Bank Shift Manager would then verify the total amount of the
tips for each area and sign for receipt of the money on the Tip
Record form.
14. A designate from the Union Count Team would
then sign for the money turned over to the Bank Shift Manager,
and a copy of the signed Tip Record form would be provided to a
designated member of the Union Count Team. The Bank Shift Manager
would then enter and record the tip amount on the Main Bank
Transfers form, which would generate a receipt, and send the Tip
Record forms up to the Finance and Administration department.
15. The Finance and Administration department of
the Intervener would then prepare a spreadsheet for the tip count
for the week itemized by each designated area and a cheque would
be requisitioned for the tip amount which would then be provided
to the Appellant. No deductions were taken off the total tip
amount by the Intervener and the cheque provided to the Appellant
would be for the full tip amount collected during the week.
16. This process would be repeated for the second
week of the two week pay period. An updated spreadsheet would be
prepared by the Intervener showing the total amount of tips
collected in each designated area over the two week period and
recording the number of hours worked by both in scope and
out-of-scope employees in each designated area. Adjustments would
be made for any overtime hours or hours not worked by employees
in each specific area. The total amount of tips payable to
out-of-scope employees (Pit Bosses, Slot Shift and Bank Shift
Managers) would be determined and deducted from the total tips
for the two week period together with the previous tip amount
provided to the Appellant. A cheque requisition would be prepared
and a cheque for the balance of the tip amount owing would be
provided to the Appellant, together with a copy of the hours
worked by each employee in each designated area over the two week
period and a statement of adjustment for overtime hours and hours
not worked by employees in each area. No deductions from the tips
were made by the Intervener for CPP, EI or income taxes.
17. Once the balance of the tip amounts was
forwarded to the Appellant, together with the list of hours and
adjustments for employees working in each designated area, the
Intervener had no further involvement in the calculation of the
amount of the tips payable to each employee or the payment of the
tips to each employee.
Second Collective Agreement dated January 26,
2001 (effective date: June 1, 2000 to May 31, 2003)
18. In the Second Collective Agreement, the Appellant
and the Intervener agreed to certain revisions to Article 42
dealing with the issue of gratuities. The revised Article 42 read
as follows:
42.01 For the purpose of this
agreement "gratuities" includes tips (which includes
cash and Casino Regina value chips).
42.02 The employer will continue to
provide facilities for the collection of gratuities. Effective
the date of signing of this agreement the employer will provide a
secure location, that is monitored by cameral [sic]
surveillance, for the counting of gratuities, twice a week. The
employer will also provide the union, on a bi-weekly basis, the
hours worked by employees during each two week period.
42.03 Effective the date of signing
this collective agreement the union shall have sole
responsibility for the distribution of all gratuities.
42.04 The union will distribute tips,
formerly payable to pit managers, slot and bank shift managers,
to all employees on a hour per [sic] worked basis
excluding those employed in Table Games, Slots and Customer
Service departments.
42.05 Upon request, the union will
provide the employer with the total tip collection amount for
each calendar year.
42.06 A management representative may
attend the count at any time.
19. The primary change made to Article 42
concerned the tips payable to out-of-scope employees (Pit
Bosses, Slot Shift and Bank Shift Managers). Under the Second
Collective Agreement, no tips were payable to the Pit Managers,
Slot Shift and Bank Shift Managers. Rather, Article 42.04
provided that the Appellant would distribute the tips formerly
payable to the out-of-scope employees to all employees on a per
hour worked basis excluding those employed in Table Games, Slots
and Customer Service departments. In addition, pursuant to
Article 42.05, the Appellant was only required to provide the
Intervener with total tip collection amount for each calendar
year, as opposed to each two week period. The former
Article 42.07 which allowed the union to engage the services
of an auditor to provide a report on the process of tip
collection, with the employer being entitled to purchase a copy
of the report by paying half of the auditor's billings, was
deleted.
20. The tip collection process under the Second
Collective Agreement continued in much the same manner, with the
exception that no amount was deducted from the cheque issued by
the Intervener to the Appellant for the second week of the two
week pay period for tips payable to out-of-scope employees.
[7] Mr. Blaine Pilatzke, a regional
representative for the Public Service Alliance of Canada
("PSAC"), said that after the signature of the first
collective agreement, the appellant inquired of the Canada
Customs and Revenue Agency ("CCRA") about the need for
a payroll service to distribute the gratuities. The response was
that the appellant needed an employer number to remit taxes. It
was therefore determined that the appellant would use SGC's
employer number for the purposes of withholding tax at source
from the gratuities paid to the employees. At that time, the
appellant considered the gratuities not to be insurable earnings
and therefore no amount was withheld at source for employment
insurance premiums or for Canada Pension Plan ("CPP")
contributions. The payment of tips, the deduction of income tax
and the issuance of T4 slips were all done through the
appellant's own payroll service and not through SGC's. It
was the appellant that determined, in accordance with its own
calculations, based on a listing of hours for each employee,
provided by SGC to the appellant, how the tips would be
distributed to the employees. As soon as SGC had remitted a
cheque to the appellant for the amount of tips that SGC had
collected and as soon as SGC had provided the appellant with the
number of hours worked by the employees in a pay period, there
was no further involvement by SGC in the distribution of the tips
to the employees. The appellant paid the tips directly to the
employees. Mr. Ron Adams, SGC's director, Support
Services, at the Casino Regina said that SGC first became aware
that its employer number was being used by the appellant upon
receiving the Minister's first decision, dated August 16,
2002 (Exhibit A-1), establishing that the tips were
insurable earnings.
Preliminary issue
[8] The appellant began by raising the
question whether the intervener could bring up an issue that was
not raised in the Notice of Appeal, that is, whether the tips are
insurable earnings or not. The intervener submitted that it had
an interest in that particular issue, depending on the outcome of
the proceedings before this Court. Indeed, to the extent that a
ruling is made that the appellant is not the deemed employer, the
intervener will be directly affected in that it will be
responsible, if the tips are considered insurable earnings, for
the remittance of employment insurance premiums payable on the
tips paid to the employees. The intervener has therefore an
interest in arguing that the gratuities are not, as regards the
intervener, insurable earnings.
[9] The respondent agrees that the
intervener has a vested interest in this question. Counsel for
the respondent argued that there is nothing in the Tax Court
of Canada Rules of Procedure respecting the Employment
Insurance Act ("TCC Rules (EI)") to suggest
that the intervener is restricted to replying to arguments raised
by either the appellant or the respondent. In her view, there is
no requirement for any such restriction of the issues in an
appeal.
[10] Under the Employment Insurance
Act ("EI Act"), a person affected by a
decision rendered under subsection 93(3) of the EI Act on
an appeal to the Minister under sections 91 or 92 may appeal from
the decision to this Court, in accordance with the Tax Court
of Canada Act and the applicable rules, within a
specified time (subsection 103(1) of the EI Act). Sections
91, 92 and 93 and subsection 103(1) of the EI Act read as
follows:
91. An appeal to the Minister from a ruling may be made by
the Commission at any time and by any other person concerned
within 90 days after the person is notified of the ruling.
92. An employer who has been assessed under section 85 may
appeal to the Minister for a reconsideration of the assessment,
either as to whether an amount should be assessed as payable or
as to the amount assessed, within 90 days after being notified of
the assessment.
93. (1) The Minister shall notify any person who may be
affected by an appeal of the Minister's intention to decide
the appeal, including the Commission in the case of an appeal of
a ruling, and shall give them an opportunity to provide
information and to make representations to protect their
interests, as the circumstances require.
(2) An
appeal shall be addressed to the Assistant Director of Appeals in
a Tax Services Office of the Canada Customs and Revenue Agency
and delivered or mailed to that office.
(3) The
Minister shall decide the appeal within a reasonable time after
receiving it and shall notify the affected persons of the
decision.
(4) If
the Minister is required to notify a person who may be or is
affected by an appeal, the Minister may have the person notified
in such manner as the Minister considers adequate.
103. (1) The Commission or a person affected by a decision
on an appeal to the Minister under section 91 or 92 may appeal
from the decision to the Tax Court of Canada in accordance with
the Tax Court of Canada Act and the applicable rules of
court made thereunder within 90 days after the decision is
communicated to the Commission or the person, or within such
longer time as the Court allows on application made to it within
90 days after the expiration of those 90 days.
[11] Section 9 of the
TCC Rules (EI) states:
9. (1)
A person who wishes to intervene shall intervene in an appeal by
filing in or mailing to the Registry in which the notice of
appeal was filed, or to which it was mailed, a notice of
intervention that may be in the form set out in Schedule 9.
(2) The
notice of intervention shall be filed or mailed within 45 days
from the date that the notice of appeal was served on the
intervener under section 8.
(3) An
intervener may state in the notice of intervention that the
intervener intends to rely on the reasons set out in the notice
of appeal received by the intervener or the reasons set out in
the notice of intervention of another intervener.
(4) The
Registrar shall serve the Minister and the appellant with a copy
of any notice of intervention received by the Registrar.
(5) The
notice of intervention may be served personally, and personal
service on the Commissioner of Customs and Revenue is deemed to
be personal service on the Minister, or by mail addressed to the
Minister, and if served by mail, the date of service is the date
it is mailed and, in the absence of evidence to the contrary, the
date of mailing is that date appearing on the communication from
the Registrar accompanying the notice of intervention.
[12] Schedule 9 attached to the TCC Rules
(EI) gives an example of an acceptable form for a notice of
intervention. Under the item "Statement of Facts", the
intervener is directed to admit or deny the facts alleged in the
notice of appeal and to set out a statement of any further facts
upon which the intervener intends to rely. Under the item
"The Reasons which the Intervener Intends to Submit",
the intervener is directed to set out the reasons on which he or
she intends to rely. A note appended to Schedule 9 states that
the intervener may, instead of setting forth a statement of facts
and reasons, rely on the statement of facts and reasons provided
in the notice of appeal or in any other intervention.
[13] Here it is not disputed that the
intervener is directly affected by the decision of the Minister
which is under appeal. The appellant only questions the
intervener's right to raise a new argument. I will dispose of
this preliminary issue simply by saying that it is clear enough
from the TCC Rules (EI) that an intervener is not barred
from raising an issue that was not raised in the notice of
appeal. The EI Act does not preclude this either. An
intervener may, if he or she wishes, rely on reasons set out in
the notice of appeal. But, clearly, an intervener is not
forbidden to rely on other reasons that are not stated in the
notice of appeal.
[14] I will therefore analyze the two issues
now before me. First, are the tips insurable earnings in this
particular case, and second, if so, who is the deemed employer
for the purpose of calculating the insurable earnings with
respect to the tips and paying, deducting and remitting the
premiums payable on those insurable earnings under the EI
Act?
1st issue: Do the gratuities or tips paid to the employees
constitute insurable earnings under the EI Act and the
IECPR?
[15] The appellant relies simply on
Canadian Pacific Ltd. v. A. G. (Can.), [1986] 1 S.C.R. 678
(LexUM), and S & F Philip Holdings Ltd. (c.o.b.
SookeHarbour) v. Canada(Minister of
National Revenue - M.N.R.), [2003] T.C.J. No. 344
(Q.L.), in contending that gratuities are insurable earnings. In
Canadian Pacific Ltd. ("CP"), a majority
of the Supreme Court of Canada decided that tips paid to the
employer for distribution to its employees constituted insurable
earnings. In S & F Philip Holdings Ltd., the employer
integrated the payment of the tips into the regular payroll
mechanism to facilitate their distribution to employees. Deputy
Judge Rowe of this court held that in those circumstances the
tips were insurable earnings.
[16] The intervener relies on subsection
2(1) of the IECPR to argue that, as regards the appellant,
the amounts paid by the appellant to the employees in respect of
the gratuities may very well constitute insurable earnings
pursuant to paragraph 2(1)(a) of the IECPR.
However, it submits that, as regards the intervener, those
gratuities were not paid to the employees "by the . . .
employer" (the intervener) and therefore do not fall within
the definition of "insurable earnings" with respect to
the intervener. The intervener distinguished the two above-cited
cases relied upon by the appellant from the facts in the present
appeal, as in those cases the tips were paid by the employer
directly to the workers, which is not the case here since the
tips were paid by the union (the appellant) during the period at
issue. Finally, the intervener submitted that the gratuities
received by the employees do not constitute insurable earnings
within the meaning of paragraph 2(1)(b) of the
IECPR as there is no provincial legislation in
Saskatchewan that requires employees to declare the amount of
gratuities to their employer.
[17] The respondent argued that, in order
for tips to be considered insurable earnings under
paragraph 2(1)(a) of the IECPR, the employer
has to assume control over the tips, which is not the case here.
In her view, facilitation of distribution of the tips is not
meaningful control. She argued that before the existence of the
collective agreement the tips were intermingled with wages and
other remuneration, and the total amount was paid out to
employees. One could say that, in those days, the employer had
control over the total remuneration, including tips. Since the
existence of the collective agreement, the tips are collected by
the employer but the employer no longer has control over their
distribution to the employees. Therefore, it cannot be said,
according to counsel for the respondent, that the tips being
distributed in the present case constitute insurable earnings at
all. Counsel does not rely on any case law in support of that
proposition.
[18] The definitive statement of the law on
whether tips form part of insurable earnings is the majority
decision written by La Forest J. in the CP case,
supra. The issue in that case was similar to the issue
raised here. It was reproduced as follows by La Forest J. in
paragraph 2 (LexUM):
. . . "in calculating these premiums, is it necessary to
take into consideration amounts which an employer paid its
employees after receiving them from its customers, who had paid
them to the employer of their own accord, to be distributed to
the employees as tips?"
[19] In that case, CP collected tips
from attendees at conventions and banquets held at one of its
hotels. CP distributed those tips to its employees
pursuant to a collective agreement. The Minister treated the
amounts thereof as insurable earnings for the purpose of
calculating the unemployment insurance premiums that CP
was required to remit. The Supreme Court of Canada had to
determine the meaning to be given the expression "insurable
earnings". La Forest J. concluded that "insurable
earnings" was to be interpreted broadly to include tips paid
to employees by their employers. That interpretation is in line
with English cases that accept the word "earnings" as
including more than just wages or salary paid by an employer. La
Forest J. pointed to the fact that Parliament had also chosen to
use the word "earnings" in the Unemployment
Insurance Act, 1971 ("UI Act"), which was
the applicable legislation at the time. A broad interpretation of
the word "earnings" was also reflected in the
definition of "insurable earnings" in subsection 3(1)
of the Unemployment Insurance (Collection of Premiums)
Regulations ("UICPR"), which at the time
read in part as follows:
3. (1)
The amount from which an insured person's insurable earnings
shall be determined is the amount of his remuneration, whether
wholly or partly pecuniary, paid by his employer in respect of a
pay period, and includes
(a) any amount paid to him by his employer as, on
account or in lieu of payment of, or in satisfaction of
(i) a bonus, gratuity, retroactive pay increase, share of
profits, accumulative overtime settlement or an award.
[20] La Forest J. stated at paragraph 21
(LexUM):
21 However that may be,
the meaning of the word earnings is not restricted to the
situations falling squarely within the opening words of s. 3(1).
The various paragraphs of the provision enumerate a whole series
of benefits that accrue to the employee by reason of his
employment. These paragraphs serve to clarify or to add to what
is comprised in the opening words.
[21] At the time, "gratuity" was
among the types of earnings listed and La Forest J. found
that this term included tips. He then concluded at
paragraphs 25, 26 and 27 (LexUM) as follows:
25 The interpretation I
have given to "insurable earnings" is consistent with
the purpose of the Act, which is to pay, to persons who have lost
their employment, benefits calculated in terms of a percentage of
their insurable earnings. Otherwise, an employee who received a
good part of his earnings as tips would not benefit to the same
degree as his colleagues who receive the whole of their earnings
directly from the pocket of their employer. By adding to the
definition of remuneration a whole series of benefits an employee
receives by reason of his employment, the regulations clearly
indicate that the expression should be given a broad
interpretation. Moreover, as noted, a law dealing with social
security should be interpreted in a manner consistent with its
purpose. We are not concerned with a taxation statute. The cases
of Penn v. Spiers & Pond Ltd. [[1908] 1 K.B. 766] and
Great Western Railway Co. v. Helps [[1918] A.C. 141] are
merely examples of the principle that I have just stated.
26 I would add that if the
appellant is obliged to pay premiums solely in relation to the
part of the earnings of his employee that comes out of his
pocket, then it is in a better situation than other employers who
pay these premiums in relation to all the earnings accruing to
the employee from his work. The employer obviously benefits from
the fact that some of his employees are in a position where they
can obtain tips. He is able to retain their services at a better
price. It, therefore, appears unjust that he should also be able
to divest himself of a part of the obligation that all other
employers must carry, or to restrict the amount of benefits of
his employees whose earnings come in good part from tips.
27 It is true that these
arguments are in a measure applicable equally to employees who
personally receive tips, even though s. 3(1) of the Regulations
does not mention these. However, those who drafted the
Regulations no doubt concluded that it was necessary to proceed
in this way for administrative reasons. See on this issue the
case of Association des employés civils v. Minister of
National Revenue [NR 1168, March 29, 1983]. It is almost
impossible to levy premiums on tips obtained in this manner and
it is for that reason that the Regulation does not take them into
account. It goes without saying that insurable earnings include
many tips collected in ways other than the ones collected in this
case. For example, those added when paying a bill by credit
card.
[22] In the recent decision of this Court
referred to by the appellant, namely, S & F
Philip Holdings, supra, Deputy Judge Rowe followed the
CP case and held that tips paid by an employer to an
employee were insurable earnings within the meaning of subsection
2(1) of the IECPR, which corresponds to the former
subsection 3(1) of the UICPR. The Court noted that while
the UICPR referred to in the CP case explicitly
included a gratuity, the current legislation does not. In the
Court's view, however, the current definition continues to
include tips received from employers. Deputy Judge Rowe explained
his reasoning as follows in paragraph 24 of his reasons:
¶ 24 I am aware the relevant
Regulation under the former Unemployment Insurance Act - defining
insurable earnings - specifically included a
"gratuity". In my view, the current definition found in
subsection 2(1) of the EI Regulations under the current Act is
even broader in that it refers to "the total of all
amounts" paid "in respect of" that employment.
[23] Two other cases where tips were found
not to form part of insurable earnings (Guimond v.
Canada(Minister of National Revenue - M.N.R.),
[2000] T.C.J. No. 143 (Q.L.) and Sauvé v. Canada
(Minister of National Revenue - M.N.R.), [1995] F.C.J. No.
1378 (F.C.A.) (Q.L.)) reinforce the requirement that tips must be
distributed to the employees by the employer in order to fall
within the definition of "insurable earnings".
[24] In conclusion, it would appear from the
case law that tips are part of insurable earnings so long as they
are paid by an employer to an employee. In the present case, the
intervener collects the tips and then issues a cheque for them to
the appellant which, in turn, distributes the tips to the
employees. The intervener does not pay those amounts directly to
the employees. Therefore, as the appellant is the distributor of
the tips, it is necessary to determine whether it falls into the
category of "deemed employer" such that it can be
concluded that a deemed employer is paying the tips to the
employees. If so, the tips will be part of the employees'
insurable earnings.
2nd issue: Deemed employer
[25] The appellant submitted that it was
acting as an agent for the employer in distributing tips. Indeed,
as the union was prevented from collecting the tips directly
because of security concerns, the appellant's role was
limited, through the employer's security policies, to
counting and distributing the funds collected by the employer.
Therefore, the appellant argued that it cannot be said that it is
the deemed employer pursuant to subsection 10(1) of the
IECPR, as it was only acting as a conduit to remit to the
employees the tips that were in fact paid by the intervener.
[26] It is the intervener's position
that, as the appellant was solely responsible for the
distribution and payment of tips to the employees during the
relevant periods, the appellant is deemed, pursuant to subsection
10(1) of the IECPR, to be the employer of the employees
for the purpose of paying, deducting and remitting the employment
insurance premiums payable on those amounts with respect to the
employees. The intervener does not dispute that it is the actual
employer of the employees or that the employees were at all
relevant times under the general control or direct supervision of
the intervener. However, the intervener states that it was the
appellant, and not the intervener, that paid the gratuities or
tips to the employees and therefore the appellant is deemed to be
the employer of the employees for the purpose of the deduction
and remittance of premiums payable with respect to those tips and
gratuities.
[27] The intervener relies on the Federal
Court of Appeal decision in Insurance Corp. of British
Columbia v. Canada (Minister of National Revenue - M.N.R.),
[2002] F.C.J. No. 380 (Q.L.), in arguing that the term
"paid" as used in paragraph 10(1)(a) of the
IECPR is to be given a broad and liberal interpretation.
Strayer J.A., speaking for the Federal Court of Appeal stated at
paragraph 8:
¶ 8 The purpose of the
Regulations and the statute which authorizes them is in part to
facilitate collection of employment insurance premiums, an
activity which is essential to the scheme as it now exists. The
Act clearly authorizes the kind of provision which has been
adopted by the Governor in Council in section 10 of the
Regulations. In examining section 10 one sees that it is to apply
inter alia where an employed insured person is being "paid
by a person other than [his or her] actual employer". In
such case that "other person" must maintain records of
employment and calculate, deduct, and remit the appropriate
premiums. 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. It would be equally possible, if one were
to dwell on abstract legal concepts, to hold that a person can be
an "actual employer" only if that person is paying the
"employee" from his or her own resources and not at the
expense of another. But that would also defeat the purpose of the
section by precluding its application to any situation where a
third party was actually providing and administering the wages or
salary.
[28] Strayer J.A. also concluded that the
"other person" can be considered to have
"paid" someone else's employee without having a
legal obligation to that employee to do so (see Insurance
Corp. of British Columbia, supra, at
paragraph 9).
[29] In the intervener's view, it is to
be inferred from that case that employment insurance premiums
must be deducted at the source where the gratuities are paid to
each worker. The intervener submits that in the present case it
is clear that the calculation of the portion of the tips payable
to each of the employees was performed by the appellant, which
then issued the cheques to the workers. The appellant was
therefore providing and administering the tips and was thus
responsible for the deduction at source of the premiums.
[30] The intervener argues lastly that the
case law clearly establishes that even though the intervener had
general control and direct supervision of the employees and was
their actual employer, it is the payment of the gratuities which
causes the appellant to fall within paragraph 10(1)(a) of
the IECPR. The intervener argues that in
paragraph 10(1)(a), the phrase "or is paid
by" is used in the alternative and therefore does not
require a finding that the person other than the insured
person's actual employer had "general control or direct
supervision" of the employees and had also "paid"
the employees. Rather, it is sufficient, in order for the
"other person" to fall within
paragraph 10(1)(a), that this "other
person" make payment to the employees (see Gateway
Building & Supply Ltd. v. Canada(Minister of
National Revenue - M.N.R.), [1991] T.C.J. No. 521
(Q.L.)).
[31] Counsel for the respondent adopts the
position taken by the intervener. She pointed to Strayer
J.A.'s statement in Insurance Corp. of British
Columbia, supra, at paragraph 8, that the purpose of
the IECPR is in part to facilitate collection of
employment insurance premiums. She noted that the appellant was
already deducting the tax on the tips paid to the employees. In
her view, it is the appellant who should also be making the
deductions of employment insurance premiums, in conformity with
paragraph 10(1)(a) of the IECPR.
[32] In my view, the appellant's
argument that it was only acting as an agent for the employer
when it distributed the tips to the employees, put forward in an
attempt to escape the application of subsection 10(1) of the
IECPR, does not stand up. Although this argument was
raised in the case of Canada (Attorney General) v.
Théorêt (1988), 61 D.L.R. (4th) 289, [1988]
F.C.J. No. 1115 (F.C.A.) (Q.L.), which deals with section 18
of the UICPR, the predecessor to section 10 of the
IECPR, the decision reached by the majority of the Federal
Court of Appeal focussed on different issues. The argument was
definitely rejected by Marceau J., the dissenting judge in
that case, who said at page 298 (D.L.R.):
It is incorrect, first, in terms of the interpretation of the
applicable law, because it presupposes that section 18 of the
Regulation on collection of premiums must be construed as not
covering a mandatary. This is a gratuitous presupposition, in my
opinion. The relevant words of the section are the following:
"where...an insured person...is paid by a person other than
his actual employer...that other person shall...be deemed to be
the employer of the insured person in addition to the actual
employer...". There is nothing in the text that permits the
inference that a mandatary is not included and, to my way of
thinking, it is precisely the contrary that is suggested. The
mandatary acts himself, even if he is there as a mandatary, and
he answers for his deeds and actions. The principle undoubtedly
is that the mandatary who discloses his mandate "is not
personally liable to third persons with whom he contracts"
(article 1715 of the Civil Code of Lower Canada), but this
obviously does not prevent him from being the one who made the
contract. If the notary paid, whether or not he did so as a
mandatary, he paid, he proceeded with the payment, and it seems
to me that on its very face this is all that the text requires
for its application.
[33] In Insurance Corp. of British
Columbia, supra, the Federal Court of Appeal
manifestly ignored the majority decision in
Théorêt, supra, on the basis, among
others, that there was no decision on the crucial issue, which
was the same as that involved here, and also on the basis that
the majority decision did not focus on the meaning of the
Regulations as such.
[34] Strayer J.A. clearly stated in
Insurance Corp. of British Columbia, supra, that
the purpose of section 10 of the IECPR and the purpose of
the statute authorizing those regulations is in part to
facilitate collection of employment insurance premiums. He noted
that "in examining section 10 one sees that it is to apply
inter alia where an employed insured person is being 'paid by
a person other than [his or her] actual employer'. In such
case that 'other person' must maintain records of
employment and calculate, deduct, and remit the appropriate
premiums" (Insurance Corp. of British
Columbia, supra, paragraph 8). Section 10 of the
IECPR is certainly drafted in such a way as to include
"any situation where a third party [is] actually providing
and administering the wages or salary" (ibid.).
[35] In the Insurance Corp. of British
Columbia case, Strayer J.A. refers to salary and wages as
being the kinds of things that are "paid" under
subsection 10(1); he does so likely because it was salary
and wages that were in fact paid to the employee in that case (as
opposed to tips in the present case).
[36] In light of the broad definition of
"insurable earnings" in the CP case and their
current definition in the IECPR, which do not restrict
that term's meaning to salary and wages, it is to be
understood that "paid" refers generally to the payment
of "insurable earnings" and thus includes payment of
salary, wages and tips. This is consistent with the intent that
premiums be based on all earnings. Similarly, in the CP
case, the majority of the Supreme Court of Canada gave a broad
meaning to the word "paid" and concluded that it could
equally well mean mere distribution by the employer (CP,
supra, paragraph 20 (LexUM)); this is in line with the
approach taken by the Federal Court of Appeal in Insurance
Corp. of British Columbia.
[37] Here, the collective agreements clearly
provide that the appellant is to have sole responsibility for the
distribution of all gratuities. The calculation of the gratuities
payable to each employee is performed by the appellant, which,
after receiving a cheque from the intervener, distributes the
tips to the employees through its own payroll service. As a
matter of fact, the appellant already withholds at source the
income tax payable by the employees on those earnings.
[38] Accordingly, as the intervener (the
actual employer) collects the tips and passes them on to the
appellant, the appellant is the "other person" and thus
the "deemed employer" because it is distributing and
therefore "paying" the tips to the casino
employees.
Conclusion
[39] Subsection 1(2) of the IECPR
reads as follows:
(2) For the purposes of Part IV of the Act and for the purposes
of these Regulations, "employer" includes a person who
pays or has paid earnings of an insured person for services
performed in insurable employment.
[40] Under subsection 2(1) of the
IECPR, the total of all amounts received by an insured
person that are paid to that person by the person's employer
constitutes insurable earnings.
[41] A reading of subsections 1(2) and 10(1)
suggests that the term "employer" includes a
"deemed employer" as defined in the IECPR.
Accordingly, for the above reasons, I conclude that the tips paid
by the appellant to the intervener's employees are insurable
earnings within the meaning of the EI Act and the
IECPR, and that the appellant, as the deemed employer, is
responsible pursuant to subsection 10(1) of the IECPR for
paying, deducting and remitting the premiums payable on those
insurable earnings under the EI Act and the
IECPR.
[42] The decision of the Minister is
therefore confirmed and the appeal is dismissed.
Signed at Ottawa, Canada, this 7th day of December 2004.
Lamarre, J.
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