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Citation: 2004TCC138
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Date: 20040218
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Dockets: 2003-285(EI)
2003-286(CPP)
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BETWEEN:
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1280659 ONTARIO INC.,
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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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CONAL KLEIN,
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Intervener.
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REASONS FOR JUDGMENT
Bonner, J.
[1] The
Appellant appeals from determinations by the Minister of National Revenue (the
"Minister") that, during the period from February 9, 2001 to
March 12, 2002, Conal Klein ("Klein") was employed by it in
insurable and pensionable employment within the meaning of the Employment
Insurance Act ("EI") and the Canada
Pension Plan ("CPP"). Klein intervened in the appeals.
[2] The
Appellant carried on business under the name "Agents Are Us". Its
clients were manufacturers and importers whose goods were offered for sale in
"big box" retail stores. The Appellant undertook to service displays
of its clients' goods in such stores. Servicing involved visiting the stores
periodically in order to keep the displays fully stocked, clean, tidy and
otherwise attractive to shoppers. For this service, the Appellant's clients
paid to the Appellant a commission based on sales of the clients' goods.
[3] The
Appellant engaged a number of individuals sometimes described as
"servicing agents" whose duty it was to service the displays of its
clients' goods. Klein was one of those individuals.
[4] The
issue in the appeals is whether Klein worked for the Appellant under a contract
of service, as found by the Minister, or whether he worked under a contract for
services, as the Appellant claimed he did. Klein, the Intervener, contended
that the Minister's determinations were correct.
[5] The
Respondent pleaded that the Minister's decisions were based on the following
findings or assumptions of fact:
(a) the Appellant acts as agent for
various manufacturers and importers for which the business earns commissions,
based on volume of sales;
(b) the Worker was hired to service
various customers lines sold through Home Depot and Wall Mart, under a verbal
agreement;
(c) the Worker's duties were as
follows:
- setting displays
- stocking shelves
- picking up displays from
Appellant for transport to the stores
- wiring and lighting fixtures
(d) the Worker had to prepare report
after each customers' visit and send it to the Appellant;
(e) the Worker performed his duties
at various stores, assigned by the Appellant;
(f) the Worker worked flexible
hours, between Monday to Friday;
(g) the Worker's hours of work were
determined by the needs of the Appellant's clients;
(h) the Worker was paid at the
beginning $8.00 per hour and then got an increase to $10.00, $11.00 and finally
$13.00 per hour;
(i) the Worker was paid by cheque,
30 days after he submitted his invoice to the Appellant;
(j) the Worker's invoices showed
the actual hours of work, times the hourly rate;
(k) the Worker's invoices also
included car expenses (gas);
(l) starting on September 1, 2001,
the Worker received a monthly car allowance of $300.00;
(m) the Worker was also reimbursed
for any out-of-pocket expenses by the Appellant;
(n) the Worker was supervised by the
Appellant, Shlomo Bohbot;
(o) the Worker had to report to the
Appellant at the beginning of each shift and from each store;
(p) the Appellant provided the
necessary training to the Worker;
(q) the Appellant was responsible to
resolve customer complaints;
(r) the Appellant provided the
guarantee on the work performed;
(s) the Appellant covers the costs
relating to bad debts;
(t) the Appellant was responsible
to obtain and negotiate with the clients;
(u) the Appellant provided the
liability insurance as required by the clients;
(v) the Appellant supplied all the
necessary materials to the Worker;
(w) the Worker was required to wear a
red shirt with the "Agents Are Us" logo on the chest;
(x) the Worker was required to
purchase a book called "Best Practices" which is in fact methods
and procedures outlined by the Appellant;
(y) the Appellant's clients decided
if work had to be redone and the Appellant covered the related costs;
(z) the Worker had to perform his
services personally;
(aa) the Appellant maintained the
right to terminate the Worker's services;
(bb) the Worker's services were
integral to the Appellant's business.
[6] In
the main, the evidence adduced at the hearing either supported or at least did
not contradict the assumptions. However, a few comments are in order. Regarding
(f) and (g), it was the Appellant who determined when and where Klein was to
work. Regarding (r), it was the Appellant not Klein who was contractually bound
to the clients whose goods were on display in the stores. Obviously, if there
was any "guarantee" at all it would have been given by the Appellant.
Similarly, with regard to (s), (t) and (u), the author of the assumptions addresses
the contractual relationship between the Appellant and the client whose goods
were on display and not the contractual relationship between the Appellant and
Klein. Regarding (z), this point was very much in dispute but for reasons which
follow later I have concluded that the Appellant did not have the right to hire
a substitute to perform his work.
[7] The
two principal witnesses at the hearing of the appeals were Shlomo Bohbot
(Bohbot), President of the Appellant, and Klein. Two other servicing agents who
worked for the Appellant gave evidence but it is far from clear that the
contractual arrangements between the Appellant and its various servicing agents
were uniform. In arriving at a decision in this case, it is necessary to focus
on evidence with respect to the contract between the Appellant and Klein.
[8] Klein
was engaged by the Appellant in a rather informal way. A friend of Klein's
worked for the Appellant. The friend and other workers were in the habit of
meeting Bohbot at a parking lot each morning before embarking on the work of
the day. The friend invited Klein to attend and introduced Klein to Bohbot.
There was a brief discussion in which Bohbot told Klein that the pay was $8 per
hour, that he would need a business licence and that he would require training.
Bohbot also told Klein that he would be required to buy a "Best
Practices" book and a T-shirt bearing markings identifying him as an
Agents Are Us worker. It seems unlikely that in such circumstances any detailed
discussion of the terms of Klein's engagement ever took place.
[9] Klein
obtained a licence and commenced to work for the Appellant. In light of the
emphasis placed on Bohbot's insistence upon a licence, a few comments are in
order. There was no suggestion that the Province of Ontario which issued the
licence made any attempt to look into or evaluate the nature of the
relationship between Klein and the Appellant. It was not suggested that such a
licence is a prerequisite to undertaking work in one's own name as an
independent contractor. What is clear is that Bohbot thought that the
possession of such a licence pointed to the existence of the contract for
services relationship which he clearly preferred.
[10] Klein testified that after he secured his licence he showed up for
work each morning at the parking lot with the other persons working that day
and Bohbot would tell them which stores were to be serviced that day. On a few
occasions, when Bohbot did not need anyone to service displays, the workers
were sent home.
[11] Klein was initially paid $8 per hour. He received a raise after
one month. Bohbot fixed the hours of work. He required Klein to record his
hours and to invoice the Appellant for his compensation. Klein was paid
monthly. He required a car for his work. During the last few months of the
period in issue, the Appellant paid him a vehicle allowance of $300 per month
plus gas. Klein's hours of work were variable though he generally started at
7:30 or 8:00 o'clock in the morning. The hours were set by the Appellant. Upon
arrival at a store, Klein was required to report to Bohbot in case instructions
with respect to special tasks were required.
[12] Klein and other workers were required to attend occasional meetings in
Bohbot's basement for the purpose of discussion of new products or of
complaints or for a pep talk.
[13] Klein required a few simple tools to do the work. They were furnished
to him by Bohbot but Klein was required to pay for them. Bohbot suggested the
tools were sold to Klein and repurchased later. Klein thought the payment to
Bohbot for the tools was a security deposit. In any event the money was
refunded when the tools were returned to Bohbot following Klein's termination.
[14] The Appellant issued a T4A information slip for 2001 in which the
payments to Klein were described as "self-employed commissions".
[15] Klein signed an agreement with the Appellant in which he undertook to
refrain from disclosing confidential or proprietary information which he had
received for purposes of the ongoing business relationship with the Appellant.
It is of course difficult to reconcile that agreement with Bohbot's contention
that Klein was entitled to employ a substitute to do his work for him. The
evidence as a whole does not persuade me that Klein had any such right. It does
not appear that Klein was responsible for any identifiable group of displays in
respect of which he might have employed an assistant to carry out the servicing
work.
[16] In summarizing the facts, I have relied primarily on the testimony of
Klein. Where his testimony was inconsistent with that of Bohbot, I prefer
Klein's version of events. I formed the impression that much of what Bohbot had
to say with respect to the terms of the relationship reflected not terms
actually agreed on between the two but rather terms as Bohbot wished them to
be. In my opinion, Bohbot's evidence was greatly influenced by his wish to
ensure that Klein and other workers be viewed as independent contractors.
[17] The leading case on the distinction between a contract for services
and a contract of service (employment) is 671122 Ontario Ltd. v. Sagaz
Industries Canada Inc., 2001 SCC 59. There, Major, J. delivering the
judgment of the Court reviewed the control test, the four-factor test and the integration test. He held that
the key is set out in Market Investigations Ltd. v. Minister of Social
Security, [1968] 3 All. E.R. 732, namely, whose business is it? At
paragraphs 47 and 48, Major, J. stated:
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.
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.
[18] Applying the tests, it seems clear that Klein was an employee of the
Appellant. He was hired by the Appellant to work for it at an hourly rate of
pay at such times and in such stores as Bohbot might direct. The right to
control the manner in which the work was to be done was clearly present.
[19] The ownership of tools test does not loom large in this case. The
tools required by Klein to do the work were few and basic and, I gather, not of
great value. The arrangement with the Appellant required Klein to pay a small
amount when the tools were supplied to him. That amount was ultimately treated
as if it was a security deposit. The money was in fact refunded when Klein was
fired. The arrangement bears only a faint resemblance to the case where a task
is carried out under a contract for services which, typically, requires the
contractor to do all that is necessary to carry out the work using his own
forces, tools, ingenuity and managerial skills. Klein apparently used his car
in the course of his work but he was paid an allowance to cover that expense.
Klein acquired and used a pager for purposes of his work. Although that
circumstance might appear to support the Appellant, that support is more than
offset when it is remembered that the pager was required by Bohbot to enable
him to exercise control over Klein in the performance of his work.
[20] Klein was not subject to financial risk arising from his relationship
with the Appellant. He was in the same position in relation to such risk as any
hourly‑rated worker. It simply was not open to him to employ managerial
skills with a view to maximizing revenue and reducing costs.
[21] Equally, it was not open to Klein to employ a substitute or assistant.
[22] In Alexander v. M.N.R., 70 DTC 6006, Jackett, P. stated at
page 6011:
...On the one hand, a contract of
service is a contract under which one party, the servant or employee, agrees,
for either a period of time or indefinitely, and either full time or part time,
to work for the other party, the master or the employer. On the other hand, a
contract for services is a contract under which the one party agrees that
certain specified work will be done for the other. A contract of service does
not normally envisage the accomplishment of a specified amount of work but does
normally contemplate the servant putting his personal services at the disposal
of the master during some period of time. A contract for services does normally
envisage the accomplishment of a specified job or task and normally does not
require that the contractor do anything personally.
[23] Klein's activities in relation to Agents Are
Us do not involve carrying out any specified task or group of tasks as an
independent contractor would. Rather, he agreed to put his personal services at
the disposal of the Appellant on a pay per hour worked basis. It must be
emphasized that the description adopted by the parties as to the nature of
their contractual relationship is not necessarily determinative.
[24] The appeal will be dismissed.
Signed at Toronto, Ontario, this 18th day of
February 2004.
Bonner,
J.
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