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Citation: 2003TCC120
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Date: 20030321
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Docket: 2002-2354(EI)
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BETWEEN:
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GORDON LAWRENCE SCOTT,
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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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REASONS FOR JUDGMENT
Rowe, D.J.T.C.C.
[1] The appellant appeals from two
separate decisions - both dated March 28, 2002 -
wherein the Minister of National Revenue (the
"Minister") confirmed earlier assessments dated October
3, 2001 issued in respect of Canada Pension Plan (CPP)
contributions and Employment Insurance (EI) premiums relating to
certain named workers - listed in appendix "A" to said
decisions - on the basis those workers had been employed by
Gordon Lawrence Scott under a contract of service pursuant to the
relevant provisions of the Employment Insurance Act (the
"Act") and the Canada Pension Plan (the
"Plan"), respectively. The appellant filed a
separate appeal - 2002-2356(CPP) - from the decision issued
pursuant to the Plan. The appellant - appearing on his own
behalf - and counsel for the respondent agreed the two appeals
could be heard together.
[2] Gordon Lawrence Scott (Scott)
testified he resides in Victoria, British Columbia, and is
sole proprietor of a business which he operates on Vancouver
Island and the Lower Mainland. He has been in business for 30
years and during that time has sold a variety of products using
different trade names. During the relevant period, he hired
people to sell products such as cellular telephones and
accessories and home security alarms. In 1998 and 1999, Scott had
a contract with Rogers AT & T (Rogers) and with Price Alarms
Ltd. (Price) to sell their products. Scott stated his business
operated in different ways; one method was to have several
workers travelling door-to-door attempting to sell a product
while other sales strategies involved using a kiosk inside a mall
or staffing a booth at a trade show or other public event. The
concept of the mall kiosk was successful and Scott expanded his
operations in mall locations by leasing enclosed retail space in
order to establish a store in which cellular phones and
accessories and home security packages could be sold. Depending
on the location of the retail outlet, different names were used
for the business operation but all of them were owned and
operated by the appellant in his capacity as a sole proprietor.
As a result of the methods by which he had chosen to operate over
the course of 30 years, Scott stated it had never been necessary
to fire anyone because workers soon discovered either they were
not suited to a sales occupation or were dissatisfied with the
amount earned from straight commission. Throughout that period,
he had always utilized kiosks at home shows in conjunction with a
program of outside sales in order to expose various products to
the public. No workers had ever been entitled to any benefits
usually associated with employment nor were they guaranteed any
minimum pay. Scott stated that no worker had ever complained
about the status of independent contractor and was surprised to
receive - on March 28, 2002 - confirmation of assessments issued
by the Minister - on October 3, 2001 - because he had earlier
received a letter - Exhibit A-1 - dated September 28, 2001 -
issued to "Gordon Lawrence Scott, Operating West Shore
Cellular" wherein the Minister cancelled previous
assessments raised in that name. Scott stated he had operated one
sales location under that name. In terms of day-to-day
operations, Scott stated he did not exercise control or
supervision over his workers. The mall locations were staffed
with two full-time workers and one part-time worker and they
managed their own schedules. In the store space in the mall,
Rogers' products were displayed and interested persons could
also purchase a home security program offered by Price. The
cellular telephones (cell phones) were either handed out - free -
as part of the overall service contract or were sold for a token
amount, depending on the type of phone selected and the nature of
the cell phone service being provided over a particular period,
whether one, two or three years. The stores inside the malls also
sold headsets, car jacks, phone carrying cases and related
accessories which Scott obtained from various suppliers on a
consignment basis. The commission paid by Rogers and/or Price to
the appellant was based on the value of the contract entered into
by the customer but Scott retained all proceeds from sales of
phone accessories. With respect to Price, the appellant merely
sold a contract for an alarm service and all other interaction
with the customer - such as installation and subsequent billing -
was handled by Price. Scott described his participation in the
transactions involving Rogers and Price as merely "pushing
paper" in order to facilitate the contract between those
firms and the customer. During the relevant period, Scott
operated 5 stores and - at each location - three or four workers
provided their services. He contacted workers by telephone and
did not operate his business by using any conventional
organizational structure or hierarchy. Scott stated he entered
into arrangements with mall managers to obtain retail space in
which to sell contracts for alarm and/or cell phone service and
phone accessories. Initially, he was able to rent on a
month-to-month basis. The retail space was equipped with a desk,
related furniture and leased telephones connected to a line which
also served a direct payment apparatus (Interac) supplied by the
bank. On other occasions, Scott obtained space from trade show or
exhibition managers in order to demonstrate the products being
offered for sale. Scott stated the workers purchased their own
cell phones so they could demonstrate the product and also
communicate with fellow workers. They used their own vehicles for
door-to-door sales and for marketing in other locations or
for travelling to meetings and events where potential cell phone
customers were likely to attend. Scott and Rogers split - 50-50 -
the costs associated with participating in home shows. With
regard to the manner by which revenue was generated, Scott stated
he received a commission from Rogers and/or Price in respect of
sales concluded during a particular period. Scott then paid a 50%
share of that overall sum to workers who had sold specific items
and cell service contracts. The workers were paid - by cheque -
issued monthly on the third week of the following month in order
to allow for cancellations and chargebacks. Scott stated that
workers had some leeway in setting prices for cell phones in the
sense they could reduce the initial cost or include some
accessories in order to make the deal more attractive to the
potential buyer. Any merchandise used in that promotional sense
was paid for - at cost - by the salesperson. The commission
structure applicable to Scott and his workers required a customer
- pursuant to the contract for provision of cell phone service -
to pay the monthly service fee for a minimum of 6 months. Any
defaults occurring within that time frame were charged back to
Scott and - through him - to the salesperson who had sold that
particular contract. Scott stated he attempted to obtain at least
$50 for each cell phone and service contract and split - 50-50 -
any commission with the salesperson, the amount of which would be
increased if a service contract had been sold for a longer
period. During the relevant period, some phones were provided to
customers - without charge - if a service contract was signed for
one or two years. Later, it was usual for customers to pay for
their phones because the product had become technologically
advanced and more expensive. Scott stated Rogers undertook the
necessary credit checks with respect to potential customers but
some workers still lost money because of a later default by the
user within a 6-month period. Approximately 12% of all sales were
subject to cancellation, default or revisions to commission
payable; these variations were calculated by Rogers and, in
accordance therewith, the appropriate sum was deducted from the
amount owing to Scott who - in turn - provided detailed
accounting information - received from Rogers - to salespersons
affected thereby and made the appropriate deduction from the
relevant commission cheques. Scott stated his business did not
depend on any worker nor was his enterprise the sole source of
income for many salespersons. Rogers provided the necessary
training to workers and paid all related costs. Other training
was provided by representatives of various cell phone
manufacturers and any expense was borne by those entities. The
training involved only a few hours and was mainly devoted to
learning methods of explaining usage of new phones to a potential
customer who was confronted with the fact his or her relatively
new phone was now old and obsolete. In Scott's view, the
workers wanted to own new cell phones in order to remain current
with leading-edge technology and to use them for purposes of
demonstration and instruction in the course of attempting to make
a sale. The cost of an advertising program was shared equally
between Rogers and Scott and Rogers and/or Price provided
promotional and advertising material to workers at no cost.
During 1998 and 1999, the major part of Scott's revenue was
derived from the sale of cell phones and Rogers' service
contracts but - earlier - the sale of Price alarms for homes and
small businesses had been a significant part of his business.
[3] In cross-examination by counsel
for the respondent, Scott was referred to a decision letter -
Exhibit R-1 - dated March 28, 2002 - to which a sheet was
attached listing names of workers during the relevant period.
Scott stated he had operated his business from 5 locations in
Victoria, Duncan and Nanaimo; some were located in malls and
others were in storefront premises. Scott stated the workers
staffed various locations particularly if another worker was ill
or otherwise unable to attend. In addition, they organized their
own work schedules and posted them in the workplace. None of the
workers had any contract with Rogers and any bonuses for
achieving a certain volume of sales were paid - by Rogers - to
Scott. Depending on the nature of the payment from Rogers, the
amount was either split 50-50 with the salesperson or - on
occasion - Scott paid the entire sum to the worker. A term of any
lease for space in a mall required the store to be staffed
according to a particular schedule. In 2001, workers in a Nanaimo
mall walked out and Scott replaced them the following day in
order to keep the retail space open for business. He used
advertisements in newspapers to solicit interest in his business
operation and preferred to enter into a working relationship with
persons who had previous sales experience even though - in his
view - one did not need "a lot of skill to stand in a mall
and give away a free phone". He agreed some product
knowledge was required and a worker had to possess the skills
required to complete the sale contract and any related
documentation. Workers had the right to sell used phones - owned
by them - without sharing any profit with Scott even though the
transaction occurred within space leased by him. Rogers provided
each salesperson with 700 minutes of free air time per month but
- first - the worker had to purchase a cell phone - at cost - and
pay the licensing fee, Goods and Services Tax (GST) and had to
accept responsibility for any subsequent long distance charges
billed to that account. In the event a customer defaulted on a
service contract within the 6-month minimum period, a
worker's commission could be reduced to zero. All workers
received the same commission - approximately $75 - for each phone
and contract sold. Scott stated that no worker had ever requested
a greater share of the commission flowing from Rogers nor had
anyone questioned the pay period, method of payment or the
chargebacks - sometimes referred to as clawbacks - made in
accordance with the reconciliation statement - provided by Rogers
- which identified specific customers by stating the assigned
telephone number. Within 5 days of receiving a commission
cheque from Rogers, Scott paid each worker his or her 50% share
of specific service contracts and/or additional product sold. No
worker ever charged Scott any GST in connection with provision of
services since none earned in excess of $30,000 per year and was
not required to register as a supplier. Scott did not issue any
T4A slips to workers but maintained a record of payments by
retaining cancelled cheques which he provided to Canada Customs
and Revenue Agency (CCRA) together with a list of all workers
during the relevant period. Payment to workers was based on
monthly invoices issued to him in which each salesperson had set
forth details of sales activity during the month including any
goods provided without charge to a customer. Approximately 90% of
all sales were transacted through the Interac system. Scott
stated that none of the sales locations had any designated
manager and a worker in charge of preparing a work schedule could
not insist that someone adhere to it. The workers in the Nanaimo
stores handled banking requirements and Satnam Dhillon operated
the store in Duncan. Scott identified a letter - Exhibit R-2 -
directed to Glen Foster, a GST auditor at Revenue Canada - in
which he identified certain individuals as having been his
ex-partners at some point in 1999. Named in the letter were Matt
Powell and Derek Langdon as ex-partners in various business
locations known as West Shore Cellular, Lance Bedard at Duncan
Cellular, Mark Coté at Nanaimo Cellular and Mike Fabbro at
Nanaimo Cellular South. Those named individuals had been partners
of Scott on the basis each would split
- 50-50 - any funds remaining after
deducting expenses associated with the operation of the
particular retail space and the amount of commissions paid to
workers. Scott was referred to a business card - Exhibit R-3 -
which he described as typical of the sort of Point of Sale
material provided to workers by a cell service provider. Scott
was shown another business card - Exhibit R-4 - whereon Derek
Langdon was described as Manager of West Shore Cellular. Scott
explained that Langdon had been a part owner of that operation
towards the end of 1999 but had been an ordinary salesperson
prior to that. Scott stated he had no objection to any worker
using a title or description of the service being provided
because he had always considered these persons to be operating
their own business. A sheet entitled Independent Sales Contract
Agreement - Exhibit R-5 - had been developed by Scott - in 2000 -
in contemplation of transferring his business to a corporation
but that document had never been used in 1998 or 1999 since the
majority of workers provided services pursuant to an oral
agreement throughout the relevant period. Although Scott had once
entered into an agreement with a worker wherein he agreed to pay
$1,500 per month as a minimum remuneration, that had occurred
subsequent to 1999 and - in the years at issue in the within
appeals - no worker had ever been guaranteed any amount of
remuneration in return for providing services.
[4] Evan Ross testified he is a
manager of a Rogers retail store in Victoria. In June, 1999, he
entered into a working relationship with Scott and began
organizing his own sales - activities including door-to-door
selling - and participating in home shows and trade events. He
also worked in the space - leased by Scott - at the mall and he
and other workers adhered to a schedule in order to conform with
requirements established by mall management. While carrying on
his sales activity, Ross stated he was not supervised and could
take breaks whenever he chose. He stated he accepted that he was
required to pay his own expenses and had to sell product in order
to earn revenue. He worked out of the West Shore Cellular retail
space located within the Canwest Mall at Langdon, a municipality
within the Greater Victoria area. At the mall, workers arranged
their own schedules and Ross stated he was free to make sales at
any location. Rogers supplied pamphlets but Ross purchased
supplies such as pens, a cell phone, and paid for the licensing
fee, GST and any subsequent long distance calls. On occasion -
following his own instincts - he would merely give a cell phone
to a customer with the expectation that this person would refer
others to him, affording an opportunity to sell several phones
together with service contracts. Ross stated he preferred to deal
directly with his own customers in relation to any matters
arising from a sale but was always willing to assist other
customers in the course of their inquiries.
[5] In cross-examination, Ross stated
he worked with Scott from June, 1999 to August, 2001. Currently,
he works at a corporate Rogers store which is staffed by
employees of Radio Shack. He had known Scott for several years
and was aware - at the time of hiring - that he
would be working as an independent contractor on commission
without any guaranteed remuneration and would not have any source
deductions taken from his cheques. He did not register for GST
since his annual earnings were less than $30,000 and did not take
out any business licence for selling phones and accessories.
Earlier, he had worked - in a managerial capacity - in the food
industry. Each month, he completed a list of sales including
details pertaining to activation dates, price plans, the number
of the cellular phone as well as descriptions of any accessories
provided free of charge to a customer in order to close a sale.
Ross received 50% of any commission paid to Scott - by Rogers -
arising from one of his sales. He had never requested an increase
in commission structure and had suffered the effect of clawbacks
from time to time as a result of default by a customer but that
amount had never been greater than the initial commission earned
on the sale. The computer in the mall retail space generated an
invoice which could be used to bill the appellant for a
worker's 50% share of commissions due. Rogers provided
training and instruction relating to technical information, sales
techniques and the method of explaining prices of various service
plans available to a buyer. Phone accessories were on consignment
and Ross did not pay Scott for any rent or other overhead
expenses. He stated that any structured schedule of working hours
at the mall store arose out of the agreement between Scott and
mall management whereby certain opening and closing times had to
be observed. In terms of his overall sales, Ross estimated that
60% were made inside the mall store with the balance occurring
elsewhere, including trade shows. He was provided with business
cards and received 700 minutes free air time per month from
Rogers and purchased - at cost - one cell phone per year.
Throughout his working relationship, he did not report to Scott
but two individuals - Matt Powell and
Derek Langdon - had also worked at the West Shore
Cellular location and he understood Langdon had been Scott's
business partner. Now and then - as a common courtesy - Ross
stated he had needed to find someone to cover his scheduled
shift. There were only 3 or 4 workers and the store was open
until 9:00 p.m. for only two days per week but was also open
on Sunday. Ross stated that if one of his customers attended at
the store in order to talk to him and he was not there, another
worker would provide his cell phone number so contact could be
made. Ross paid for his Chamber of Commerce (Chamber) membership
and in order to participate at home shows or other similar events
would pay rent of $25 or $50 and obtain space for a table on
which he could offer his product for sale. A gathering of
business people - trade mixers - was organized by the Chamber and
Ross paid any related fee. On occasion, Ross worked in a Rogers
booth at a show or exhibition and paid all expenses but - usually
- attempted to find another phone salesperson to join in the
venture and share the cost. Sometimes, commissions from sales
were not sufficient to cover the expenses but it was still an
efficient method by which to promote the product and to sell
accessories which were also on display. Revenue from sales of
phone accessories was divided equally with Scott but Ross was
wholly responsible for any loss of product due to theft or
damage.
[6] Christopher Balanko testified he
is a sales associate and had been an employee of Radio Shack at
various times over a period of 3 or 4 years. At Radio Shack, he
had reported to supervisors and worked in accordance with a
structure. Balanko stated he heard about Scott's business,
contacted him, and entered into an arrangement to sell phones and
accessories on the basis of straight commission. At Radio Shack,
the price of each product had been fixed and entered into the
computer. Because he was familiar with the cell phone business,
Balanko stated he began selling the product and purchased his own
cell phone and leased a car. On occasion, he sold a phone at a
loss in order to obtain other leads even though it sometimes took
up to one year for this tactic to bear fruit. During the relevant
period, if a customer signed a service contract for one year, a
phone was either provided free or at a maximum cost of $50.
However, if the customer defaulted on the contract and did not
return the phone, there was a chargeback against other earned
commissions. Balanko worked at a Douglas Street storefront outlet
in Victoria and also at the outlets inside Canwest and Tillicum
malls. At the same time, Balanko had a business - Chris Computer
Sales & Service - which he considered to be comprised of a
computer component which he operated together with his own cell
phone sales business as a sole proprietorship.
[7] In cross-examination, Balanko
stated he had operated a sideline computer business while working
as an employee at Radio Shack. He estimated that his sales in
retail outlets - during the relevant period - amounted to between
50% and 60% of his total sales whereas at an earlier point in his
selling career approximately 90% of all sales were made without
reference to an established retail space. At one point, he
requested a commission split greater than 50% but Scott refused.
Balanko maintained his own records of sales - as did Scott - and,
if a disagreement arose, they could refer to their own documents
in order to resolve the matter. Rogers conducted seminars and
supplied all necessary paperwork but Balanko paid for his own
office supplies and a cell phone for which he paid the sum of
$250. While working with Matt Powell and/or Derek Langdon,
Balanko stated he did not regard either of them as managers and
when working alone at the Douglas Street store would sometimes
decide to close the store early. This option was not available to
workers in the mall stores since mall management had to be
satisfied the store was open in accordance with lease
requirements. Any customer warranty was provided by the
manufacturer of the cell phone but Balanko stated he considered
customers who dealt with him to be his own clients. He had
purchased some special phone cases which he sold to his customers
and then retained the entire proceeds.
[8] In re-examination by Scott,
Balanko agreed he had been provided with details of any
chargebacks due to customer default - including telephone numbers
of former customers - and would contact people in an attempt to
persuade them to continue with the service and avoid suffering
consequences of a specific chargeback against future commission
income.
[9] Jason Little testified he is a
sales associate and when he entered into a working relationship
with Scott was aware there were no sales territories or fixed
hours of work. He worked at the Douglas Street Store and at West
Shore Cellular, Tillicum and at a small space inside a Costco
outlet. He also travelled to Washington state on a selling trip
and paid his own expenses. He stated he had not been supervised
by Scott and made his own decision to sell phones at the Luxton
Rodeo. On occasion, he sold a phone at a loss and had suffered
clawbacks to commissions. He worked with Scott between January
26, 1997 and December, 1998 and again beginning January,
2000.
[10] In cross-examination, Little stated he
heard about Scott's business operation and it had attracted
his interest because he had recently completed a retail sales
course offered by the provincial government. Throughout, he was
satisfied with the 50-50 commission split and was provided with
details of commission clawback provided by Rogers to Scott. He
was aware of the cost of a particular phone and would sometimes
reduce the price by $20 in order to finalize a sale. He reported
income - on his tax returns - as a self-employed individual. In
his experience, approximately 35%-40% of his sales took place
outside the retail outlets and he paid for his own business
forms, pens, pencils and vehicle costs. He purchased a Nokia
phone - at a cost of $299 - and bought a new one every 6 months
in order to be familiar with the latest technology. Even though
he regarded customers as his own, while working in any of the
stores he was willing to assist - without remuneration - anyone
who requested assistance.
[11] Satnam Dhillon testified he began
working for the appellant - in 1998 - at a retail store in
Duncan, B.C. and was aware he would be self-employed while
selling cell phones in that location or elsewhere including
within the Indo-Canadian community in Greater Vancouver. At the
Duncan store, Dhillon stated he took breaks when he chose and
travelled to Vancouver in order to deliver phones he had sold to
customers residing in that area. He had provided phones to people
free of charge in an effort to obtain valuable leads and paid for
his own cell phones. He considered that he was free to generate
other income and, with only two people working in the small
Duncan store, found the hours were somewhat flexible because it
was not located in a mall.
[12] In cross-examination, Dhillon stated he
had known Scott since 1996. Earlier, Dhillon had worked part time
in a retail clothing store but had not registered any business
name while selling cell phones under his arrangement with Scott.
He had not required prior approval from Scott to reduce the price
of a phone and, if it was sold at a loss of $30, that deficit was
shared equally by Scott. Dhillon stated he regarded the Duncan
store as his own office even though he had no investment in that
physical establishment. However, he purchased his own supplies
and the most expensive - $600 to $800 - cell phones in order to
have the latest product. Training was provided - by Rogers - at
no cost and manufacturers would also hold seminars to showcase a
new product. Dhillon stated he had no recollection of having told
a CCRA interviewer that he had been Manager of the Duncan outlet.
He agreed he had not sold cell phone service offered by any
competitor of Rogers. He estimated that 70% of sales took place
inside the store but other sales were made by faxing promotional
material to potential buyers within the Indo-Canadian community.
He was able to earn approximately $50 per contract and, if he had
to travel to Vancouver to deliver phones, would stay with
relatives in order to reduce the cost of the trip. Since ongoing
revenue from a specific cell service contract could range upwards
of $200 per month, it was sometimes a good sales strategy to
reduce the initial price on the phone. If a customer was
satisfied with a cheaper phone and was willing to sign a two-year
contract, the equipment could be provided free. Dhillon stated he
offered to beat the price offered by any cell phone competitor
and had sold a cell phone to a taxi driver - at a reduced cost -
with the expectation that other drivers would be interested in
acquiring a similar product.
[13] Aimee Quaife was called to the stand by
counsel for the respondent. She is a student at Camosun College
and - in June, 1998 - started work at Nanaimo Cellular and Alarms
(Nanaimo Cellular) located in the Woodgrove Centre mall.
Initially, her job description was Sales Associate but - later -
was designated as Supervisor and then Assistant Manager. The
store managers were - initially - Mark Coté (Coté)
and Gilbert Weekes. The work schedule was prepared by the
managers or - later - by Quaife and/or Kathy Peters and was
posted in the back of the store. Workers were expected to attend
at work in accordance with the schedule. Quaife was referred to
Appendix A - attached to the letter - Exhibit R-1 - and
identified several persons listed thereon as her co-workers
during the relevant period. Quaife stated Monica Armour had
arrived at the store during the 1998 Christmas season and worked
at a table set up at the other side of the mall in an effort to
generate additional business. Mary Coté - wife of Mark
Coté - worked at handling paperwork. Kevin Hesketh worked
inside the store and also at the table location. Kathryn Kashmere
worked in the store and was also a Supervisor. David Krypak
worked for a short time in the Nanaimo store but was fired by
Coté because of his habit of sleeping in and not showing
up for work as scheduled. Lawrence Lavalle worked inside the
store but the working relationship was terminated by Coté
because Lavalle was promoting Amway products to customers while
also attempting to sell them cell phones and related products.
Quaife stated Niki MacGregor, Terri McNaughton, Colleen
Minifie, Rebekah Norton, Gilbert Weekes, Darcie Yarrow and Jill
Walsh worked inside the Nanaimo store. In 1999, others worked
inside the store who had not been there during 1998, including
Christi-Lee Chemko, Lindsey Doolittle, Nicholas Karpinksy, Guy
Landry, Branden Shortt, Dean Simpson and Lucinda Thomson.
During 1999, Quaife stated she was responsible for scheduling the
workers and sales were recorded on a calendar on a wall at the
rear of the premises. Scott would call the store - on a daily
basis - to inquire about sales. A dress code was in place
requiring workers to wear appropriate clothing which was defined
as not including jeans. Quaife was also responsible for customer
service and wrote up service reports in respect of problem phones
and shipped them to Victoria for examination and repair. Towards
the end of her working relationship with Scott, she handled
payroll, merchandising, pricing, cleaning and anything else
required to maintain a smooth business operation. At the end of
the day, cash and/or cheques were placed in an envelope and
handed to Coté who would - presumably - make the
appropriate deposit. Once or twice, Quaife made the deposit at
the bank and the debit machine was closed off each night.
Business cards were provided to her together with all supplies
required to function within the store. While working at the
store, she received - without charge - a total of 4 or 5 cell
phones from Coté. Since remuneration was based on
commission, she spoke to Coté about participating in a
trade show in Nanaimo in order to generate more sales. He agreed
to this proposal and all related costs were paid for by Nanaimo
Cellular. Coté also paid membership dues for Quaife and
Kashmere to join a Nanaimo business organization for women.
Quaife stated she and Kathryn Kashmere decided to attempt to sell
phones in the Port Hardy area - at the northern tip of Vancouver
Island - and Coté obtained a 4-day business licence for
them and also paid for hotel costs, gas and food. Quaife stated
she had never considered that she was in business for herself and
was under the impression she could not work for other employers
while at Nanaimo Cellular. When she was hired - following an
interview by Coté and Scott - the term "independent
contractor" was not used even though she knew payment for
her services would be based strictly from commission on sales. In
the beginning, she received her pay cheque - signed by
Coté - from Nanaimo Cellular but - later - Scott issued
pay cheques to the workers. Sheets were provided in order to
record sales and she considered this procedure to be typical
within the cell phone industry because there many details must be
recorded when selling a cell phone and service contract. After
becoming Assistant Manager, she was paid the sum of $500 per
month in addition to whatever amount resulted from her 50%
commission derived from sales. Earlier, a worker could obtain an
advance in pay - under $500 - on the 5th of each month and would
receive a pay cheque on the 20th but the advances were cancelled
by Scott. The training received at the Coast Bastion Hotel - in
Victoria - was provided without charge by Rogers. Scott and/or
Coté paid for the cost of hotel rooms and meals for Quaife
and a co-worker. While working in the store, Quaife stated she
could not have hired someone else to perform her job and was not
free to take a break unless someone was able to take charge.
Details of clawbacks from commissions were contained in sheets
faxed by Scott. On occasion, she understood it was possible to
suffer a loss from such a clawback because it was based on the
whole amount of the contract whereas the commission was based on
a 50-50 split. The price of phones depended on the type of
service contract chosen by a customer. If the contract would
generate a minimum of $50 per month over the life of the
contract, then the phone could be provided without charge.
However, if the service produced only $20 per month, then the
cost of the phone - to the customer - would be $100. After
becoming Assistant Manager, Quaife stated she had learned enough
about the business to reduce the price - on occasion - and still
make a profit. Any salesperson could exercise his/her own
discretion to reduce the cost of a phone in order to close a sale
provided there was still a profit being made overall. Quaife
stated she was informed that the store was never to be left
unattended as that omission could expose Scott to a fine - up to
a maximum of $5,000 - that could be levied by mall management.
Once, Niki MacGregor, although not scheduled for work that day,
had to hurry to open the store because the designated employee
was ill. Quaife stated the workers were well aware that if the
store was not open for business, someone would lose his or her
job.
[14] In cross-examination by Scott, Aimee
Quaife stated she understood - at the beginning - that
Coté was a part owner of the store but she had also
considered him to be Manager of Nanaimo Cellular. In 1999, she
accepted the position of Assistant Manager and was paid $500 per
month. She had not been required to pay for any personal cell
phones, licensing fees, taxes, or any accompanying service
contract because 750 free minutes were initially provided by
Rogers, later increased to 1,500 minutes. Any product given
away to customers was recorded and the cost was divided equally
between herself and Nanaimo Cellular. She agreed the dress code
was based on the concept workers should wear professional attire
suitable for the purpose and that it was not particularly strict.
She also agreed that some workers left on their own accord and
sought employment elsewhere.
[15] In response to questions from the
Court, Quaife described the retail space as occupying three or
four hundred square feet, equipped with two desks, a till, debit
machine and computer. There was a back office used by the Manager
and a storeroom where phones were kept together with various
accessories. There were hooks for displaying product on slatboard
together with several display cases. Salespersons could earn a
50% commission for selling headsets, car phone chargers and
similar items.
[16] Kathryn Peters - formerly Kashmere -
testified she worked for Scott from June, 1998 to June, 1999 at
the store located in Woodgrove Centre in Nanaimo. She had
responded to a newspaper advertisement and was interviewed by
Coté prior to being hired as a sales representative on the
basis of straight commission. Later, she worked as an Assistant
Manager and was responsible for opening and closing the store,
shipping and receiving and cleaning the premises. Later, she and
Aimee Quaife prepared the schedule for all workers in the store.
Each night, the volume of daily sales was reported either to
Coté or Scott. Peters prepared the payroll and also some
cash deposits which were taken to the bank by Coté. In
relation to her selling activity, Peters stated she was provided
with all necessary tools and materials including contracts for
Rogers service and was provided with a free cell phone. She
received the sum of $500 per month for her managerial duties in
addition to the 50% commission on profit from sales. She also
prepared a list of all sales - with names of the workers
responsible for specific sales - and Coté prepared pay
cheques based on that information. Peters stated she considered
her services had to be provided personally and, when working with
Quaife, one of them always ensured the store was staffed. She
recalled Lavalle being terminated - by Coté - because of
his Amway selling activity and that three or four other workers
had left for various reasons.
[17] In cross-examination by the appellant,
Kathryn Peters stated she had been told that Coté was a
partner of Scott in addition to being Manager of the store. She
agreed the work schedule could be changed, if required, and
stated she took instructions from the Manager because she only
saw Scott once per month. Peters stated that when she spoke with
an auditor from CCRA - on February 15, 2002 - she informed him
that she had always been a commission salesperson and not an
independent contractor.
[18] Russell Lyon testified he is an auditor
employed by CCRA. Following a lead received from a GST auditor,
he performed an employment compliance audit with respect to the
business operated by the appellant. Although Scott had reported a
large wage expense, there was no corresponding employer payroll
account established with CCRA. Lyon contacted Scott and obtained
a list of workers for the relevant period and copies of cancelled
cheques. At that time, Scott advised that all workers were
categorized as outside workers, selling on their own without
supervision. Some of the workers on the list were not identified
by a social insurance number (SIN) and Lyon attempted to locate
several individuals by searching the telephone directory. In
total, Scott provided 7 or 8 boxes of unsorted material,
including unopened mail, but did not provide any General Ledger
or other books of account. Scott did not issue any T4A's and
Lyon concluded the appellant's enterprise encompassed 5
stores of which 4 were supervised by an individual designated as
a Manager. The workers did not incur any expenses in relation to
operation of any retail space where most of the sales occurred.
Lyon stated he spoke to a total of 8 workers on the list and
travelled to Nanaimo in order to interview Quaife, MacGregor and
Coté. He also spoke to Dhillon - at the Duncan store - and
had a conversation with Mike Fabbro whom he understood to have
been a partner of Scott in the Harbour Park location. As a
result, Lyon did not consider Fabbro as an employee for the
purposes of the compliance audit. In the course of his
investigation, Lyon stated he formed an opinion whether certain
persons were working inside the retail stores or generating sales
outside of that structure and relying on their own initiative.
Lyon stated he spoke to Dhillon who described himself as the
store Manager. In the course of their conversation, Dhillon
stated all sales were produced inside the store and that he did
not consider himself to be providing services to Scott as an
independent contractor. After considering the material gathered,
Lyon stated he arrived at the conclusion that the in-store
workers were employees of Scott. Many of the workers of the list
were young and mobile and there were no addresses provided. None
of the workers had registered for GST and none had taken out a
business licence or registered a trade name. Lyon stated that -
at one point - Scott's partner - at West Shore Cellular - had
phoned CCRA in order to open a payroll account but Scott later
contacted CCRA and advised that all workers were self-employed
and there was no need to establish such an account. Lyon stated
Scott had advised him the industry standard - relating to sales
of cell phones and service - was that salespersons were regarded
as independent contractors. As a result of receiving this
information, Lyon contacted other cell service providers in
kiosks at malls and discovered they were all treated as employees
whereas outside sales representatives were considered to be
independent contractors. As the audit progressed, Lyon stated he
informed Scott that it appeared as though all workers inside the
various retail outlets should be classified as employees. Total
sales within the Scott business structure exceeded $1 million per
year and were increasing.
[19] In cross-examination by the appellant,
Russell Lyon stated he had sold cell phones and air time and had
operated a video business - in a partnership - when he was 18. He
had experience in leasing equipment, attending exhibitions and
gatherings, and had leased space in a mall in Nanaimo but had
been evicted by mall management for failing to abide by terms
relating to the need to observe mandatory opening and closing
hours. Lyon stated Scott had identified the amounts paid to
workers as "wages" when filing his Profit and Loss
Statement together with his tax return. Lyon stated he did not
group all workers together - as suggested by Scott - but had
taken care not to include - as employees for purposes of his
audit report - any persons who were partners of Scott or those
salespersons who generated revenue exclusively from outside sales
rather than by working inside the retail outlets. Lyon stated he
spoke to Derek Langdon, Guy Landry and Nicholas Karpinsky.
In speaking with various workers, Lyon stated he formed the
impression they had all considered it was extremely difficult to
earn a living if required to rely solely on outside sales. Lyon
stated that during his conversation with Dhillon, he had not
mentioned any sales activity in the Vancouver area and had
clearly expressed the opinion that almost all sales took place
inside the store. Lyon stated that only the in-store workers were
included in the assessment.
[20] Jeffrey Derrick stated he is a Senior
Appeals Officer and has been employed by CCRA for the past 21
years. The first assessments were cancelled because they were
issued to the appellant, operating as West Coast Cellular. At
that stage, Scott was represented by counsel who advised that
Scott operated his business as a sole proprietor. As a result,
new assessments were issued, as explained in the letter
- Exhibit A-1 - sent to Scott on September 28,
2001 in which those new assessments were confirmed. Derrick
stated he ascertained that no T4A's had been issued and
proceeded to send out questionnaires to 20 workers. He received
13 responses and spoke to 11 or 12 workers of whom 4 or 5
indicated they were self-employed. Some workers had been issued
business cards on which they were described as holding managerial
positions. No worker ever mentioned selling any product for
Price, the home alarm company. All workers reported they were
paid 50% of the profit on each sale of phones, service and/or
accessories. Derrick ascertained that no worker was expected to
pay rent or any share of the expense associated with leasing
space or any equipment and no worker was registered for GST,
although some workers had reported income on the basis of being
self-employed. Some indicated they had the ability to come and go
as they pleased. Derrick stated that Scott's position - from
the beginning - had been that all workers - approximately 30 -
had been self-employed whether working inside a retail outlet
owned by him or outside in accordance with their own methods.
[21] In cross-examination, Jeffrey Derrick
agreed Christopher Balanko had informed him that a substantial
amount of outside sales had been made but had not provided any
further details.
[22] The appellant submitted the assessments
were flawed because the Minister had not properly taken into
account that the business methods employed were standard within
the cell phone industry and the workers had provided their
services within the context of their own business in which they
earned revenue solely on the basis of commission on sales. He
conceded the evidence had disclosed the operation of Nanaimo
Cellular to have been somewhat different than the other stores in
the Victoria area. The appellant pointed out there was a risk of
loss in regard to commission income as a result of clawbacks and
the requirement that salespeople pay their own expenses when
making outside sales. In addition, the appellant submitted that
Coté had been a partner at some point in the relevant
period and should be excluded from the assessments on that basis
together with Powell, Langdon, Bedard who had also been partners
or co-venturers sharing profit from certain retail locations in
the Victoria region.
[23] Counsel for the respondent advised that
Mike Fabbro had not been included in the assessment on the basis
CCRA officials had been satisfied he was not an employee because
certain leasing documents had been examined which enabled the
conclusion to be drawn that he was engaged in a form of
partnership with Scott. Counsel submitted the assessments issued
by the Minister should be confirmed because the evidence
disclosed the workers were not carrying on business on their own
account. Instead, they worked inside retail stores owned by the
appellant and were not required to supply and tools, equipment or
to make any substantial investment. Examining the evidence
overall, counsel submitted the workers were retail clerks and/or
commission salespersons working pursuant to a contract of service
with Scott.
[24] The Supreme Court of Canada - in a
recent decision - 671122 Ontario Ltd. v. Sagaz Industries
Canada Inc., [2001] S.C.C. 59; 274 N.R. 366 - (Sagaz)
dealt with a case of vicarious liability and in the course of
examining a variety of relevant issues, the Court was also
required to consider what constitutes an independent contractor.
The judgment of the Court was delivered by Major, J. who reviewed
the development of the jurisprudence in the context of the
significance of the difference between an employee and an
independent contractor as it affected the issue of vicarious
liability. After referring to the reasons of MacGuigan, J.A. in
Wiebe Door Services Ltd. v. M.N.R., [1986] 2 C.T.C. 200
and the reference therein to the organization test of Lord
Denning - and to the synthesis of Cooke, J. in Market
Investigations, Ltd. v. Minister of Social Security, [1968]
3 All E.R. 732 - Major, J. at paragraphs 45 to 48,
inclusive, of his judgment stated:
Finally, there is a test that has emerged that relates to the
enterprise itself. Flannigan, ... ("Enterprise control: The
servant-independent contractor distinction" (1987), 37
U.T.L.J. 25, at p. 29) sets out the "enterprise test"
at p. 30 which provides that the employer should be vicariously
liable because (1) he controls the activities of the worker; (2)
he is in a position to reduce the risk of loss; (3) he benefits
from the activities of the worker; (4) the true cost of a product
or service ought to be borne by the enterprise offering it.
According to Flannigan, each justification deals with regulating
the risk-taking of the employer and, as such, control is always
the critical element because the ability to control the
enterprise is what enables the employer to take risks. An
"enterprise risk test" also emerged in La Forest
J.'s dissent on cross-appeal in London Drugs where he stated
at p. 339 that "[v]icarious liability has the broader
function of transferring to the enterprise itself the risks
created by the activity performed by its agents".
In my opinion, there is no one conclusive test which can be
universally applied to determine whether a person is an employee
or an independent contractor. Lord Denning stated in
Stevenson Jordan, ... ([1952] 1 The Times L.R. 101) that it
may be impossible to give a precise definition of the distinction
(p. 111) and, similarly, Fleming observed that "no single
test seems to yield an invariably clear and acceptable answer to
the many variables of ever changing employment relations..."
(p. 416) Further, I agree with MacGuigan J.A. in Wiebe Door,
at p. 563, citing Atiyah, ...(Vicarious Liability in the Law of
Torts. London: Butterworths, 1967) at p. 38, that what must
always occur is a search for the total relationship of the
parties:
[I]t is exceedingly doubtful whether the search for a formula
in the nature of a single test for identifying a contract of
service any longer serves a useful purpose... The most that can
profitably be done is to examine all the possible factors which
have been referred to in these cases as bearing on the nature of
the relationship between the parties concerned. Clearly not all
of these factors will be relevant in all cases, or have the same
weight in all cases. Equally clearly no magic formula can be
propounded for determining which factors should, in any given
case, be treated as the determining ones.
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.
[25] I will examine the facts in relation to
the indicia set forth in the judgment of Major J. in
Sagaz.
Level of control
[26] The appellant conceded the evidence had
disclosed the Nanaimo store had been operated in a different
manner than the retail outlets located in the
Greater Victoria area. Although the evidence is unclear
whether Coté was a partner of Scott during the relevant
period, there is no doubt that he was acting as Manager of
Nanaimo Cellular located in Woodgrove Centre. The testimony of
Quaife and Peters demonstrated the nature of the business
structure and the policies that had been instituted to carry out
the task of selling cell phones, accessories, and service
contracts. There was a work schedule prepared - initially - by
Coté and workers were expected to conform with those
posted shifts. Later, Quaife and Peters each received the sum of
$500 per month - in addition to earned commission income - in
order to act as Assistant Managers and to perform a variety of
duties - including preparation of payroll - and the lists used to
calculate commissions owed to workers and otherwise to ensure the
efficient operation of the store. The evidence reveals that other
workers at Nanaimo Cellular also followed directions provided by
Coté or his designate and were supervised to some degree
in carrying out their sales duties within the retail premise. A
worker had been fired - by Coté - as a result of repeated
late attendance at work. Another had been discharged because of a
perceived conflict arising from attempts to sell Amway to
customers who - presumably - had attended at the
store to inquire about obtaining a cell phone. The workers had to
perform the services personally and were treated as ordinary
retail clerks in the same manner as those employed within other
stores at the mall except for the method of remuneration which -
for salespersons not performing any managerial duties - was
wholly based on commission.
[27] The workers in the Victoria area, even
though working in the mall locations, appeared to have greater
flexibility in terms of arranging their own schedules. Testimony
provided by Ross, Little and Balanko indicated they made sales
both inside and outside the retail premises established by the
appellant and each of them had undertaken specific initiatives on
their own accord with a view to selling and/or promoting the
product. Participation in home or trade shows or travel in and
out of the Greater Victoria area for the purpose of selling cell
phones and service appeared to be at the discretion of these
workers. However, the retail space within the various malls had
to be staffed at all times in order to satisfy leasing
requirements and the workers were permitted to operate on the
basis of consensus with regard to creating a work schedule
provided the store was open, as required. The Douglas Street
premise was not subject to the same strict hours of operation and
could be closed early if business did not warrant staying open on
a particular day. Satnam Dhillon testified he worked on the basis
that he was - like Ross, Little and Balanko - an independent
contractor and operated his own business at the Duncan store This
characterization is at odds with the statements provided to
Russell Lyon - the CCRA auditor - during the course of an
interview during which Dhillon identified himself as Manager of a
two-person operation and had offered the opinion that he was not
an independent contractor. According to Lyon, Dhillon stated that
all cell phone sales were made inside the store. It is probable
that the sales activity on the Lower Mainland described by
Dhillon in the course of his testimony occurred outside the time
frame relevant to the within appeals or - through a
revelation offered by the gift of hindsight - he decided to
revamp his original opinion concerning the nature of his working
relationship with Scott.
Provision of equipment and/or helpers
[28] First, concerning the workers at the
Nanaimo store, Quaife and Peters both testified they were each
provided with cell phones - free - together with adequate monthly
air time by Rogers. They did not pay for any related licensing
fee or GST and all furniture, supplies and equipment required to
carry on duties within the store were provided by - or through -
Scott within the context of his overall business structure. The
evidence established the workers were required to perform their
duties personally and were not required to provide any additional
tools or equipment or personnel in order to ensure ongoing sales
activity within the store.
[29] The workers located in the Victoria
area - and Dhillon in Duncan - purchased their own cell phones -
at cost - but paid a licensing fee and GST and incurred certain
additional expenses in connection with sales activity although
not in respect of in-store sales. Various estimates were provided
by Ross, Little and Balanko as to attribution of sales inside and
outside the retail outlets but it is clear the majority of sales
occurred inside the retail premises. These workers chose to use
their privately-owned vehicles in the course of attempting to
sell the product but there were no particular tools or equipment
required other than some minor amounts of office supplies. The
inside sales were accomplished solely by using all of the
equipment, furniture, display, cash registers, debit machines,
telephones and lines, promotional material, paperwork and related
material provided by Scott in the course of creating a retail
outlet. Ross incurred some expenses in order to participate at a
trade show, exhibition or other gathering but shared the cost
with another worker. Rogers provided the paperwork and
promotional material and revenue from sales of phone accessories
taken from a particular store was split 50-50 with Scott.
Degree of financial risk and responsibility for investment
and management
[30] On the evidence, the workers in the
Nanaimo store had no financial risk or responsibility to
contribute capital to the business operation. Any management
activity carried out by Quaife and/or Peters was remunerated at
the rate of $500 per month and was not dependent on any
percentage of overall profit or sales volume. There is no
evidence upon which to conclude that any worker in that store was
required to purchase any cell phone or to invest any sum in order
to produce revenue. Certainly, no worker was required to assume
any risk in relation to the cost of establishing and maintaining
that retail premise including the monthly lease payments and
associated costs, telephone lines, furniture and related
equipment. Any penalty levied by mall management for
non-compliance with leasing requirements would be borne solely by
Scott.
[31] Satnam Dhillon - in Duncan - and the
workers in the Victoria area did not have any degree of financial
risk arising from the operation of the retail stores. None were
signatories to any lease nor were they at risk in terms of the
equipment or goods offered for sale within those stores. Scott
had obtained the accessories on a consignment basis and was
primarily responsible for payment. The only management required
on their part was to ensure - among themselves - that the various
stores were open for business, as required. Since they were all
remunerated solely by commission, it is reasonable to expect the
workers would take steps to organize their own work schedule.
According to Exhibit R-2 - a letter sent by Scott to Glen Foster
at Revenue Canada, various individuals were named as ex-partners
who - in 1999 - had "power of attorney over income and
expenses". Obviously, these individuals were responsible for
management at the premises described as West Shore Cellular,
Duncan Cellular, Nanaimo Cellular and Nanaimo Cellular South.
[32] There was the issue of chargebacks
against commissions which affected all workers. Basically, a
commission was paid on the sale of a phone and service contract
with the proviso that all conditions subsequent had to be
fulfilled, including the requirement that a customer had to
maintain regular payments for a 6-month period. In the event of
default, the commission previously deemed to have been earned was
then reversed and the appropriate amount was deducted from future
commission payments. There was some confusion arising from the
evidence but I conclude that no worker could ever lose more than
the amount of the commission originally paid. All profit
resulting from sales was divided equally between Scott and the
specific worker responsible for the sale. Similarly, a chargeback
could subsequently be made - by Rogers - to Scott in accordance
with details provided on a sheet prepared by Rogers staff. Using
that information, Scott then deducted the amount - previously
paid to a worker on that now-defaulted contract - on the basis it
had since become ineligible for inclusion in the category of
earned commission. The evidence also established that each
contract - theoretically - could lead to a full loss of
commission but over the course of 100 sales it would be doubtful
that any significant loss of commission would occur and - in any
event - was never in an amount greater than the original
commission. Quaife and Peters thought they had been charged the
entire amount of commission chargeback but it is more likely they
misread the information contained on the list forwarded by Scott
and were only subject to a loss of their original commission
based on a 50-50 profit split with Scott.
Opportunity for profit in the performance of tasks
[33] All workers - wherever located - were
paid a commission which was calculated on the basis of an equal
division - with Scott - of profit flowing from the sale of a
particular unit, service contract or accessory, whether made
inside or outside one of the retail stores. There is some
indication one or more of the workers could sell used phones or
accessories on their own without reference to Scott but that did
not constitute a significant portion of their sales. There was an
opportunity for increased commission if a worker could sell a
phone at full price to a customer without having to offer a
discount - or free accessories - in order to close a sale. Since
the credit approval for potential users was solely at the
discretion of Rogers, the workers had no opportunity to minimize
the risk of future clawbacks against commission by refusing to
submit offers by customers. Workers engaged in outside sales
could pay attention to costs associated with generation of sales
revenue and could regulate their own behaviour in that regard.
Sales made inside the store were subject to a small range for
greater profit but did not have any related expenses that had to
be borne by the workers.
[34] In the case of Ivanov v.Canada
(Minister of National Revenue - M.N.R.), [2000] T.C.J. No.
236, I found the worker to have been an independent contractor
while engaged in selling long distance services by calling on
people in their houses and apartments. In that situation, there
had been an agreement signed purporting to characterize Ivanov as
an independent contractor. At paragraphs 19 - and following - I
commented, as follows:
19. Taking to heart the
advice to look at the entire forest, I turn again to the issue of
integration as part of the four-in-one test used in the context
of the overall scheme of operations. Looking at it from the
perspective of the appellant, he was - like salesmen for the last
hundred years - out in the territory on a "smile and a
shoeshine" earning what he could on a commission basis and
bearing his own expenses. He could leave the sales area when he
chose and could arrive when he wanted to begin another day of
selling. Meanwhile, Bartel was a promotions business handling a
variety of products which it sold at different locations using
different sales strategies, including consignment to
salespersons. In the event the appellant did not produce sales
over an extended period of time, there would not be much point in
him using up a sales territory that could be more productive in
the hands of another salesperson. Under the circumstances of the
appellant's working relationship with Bartel, he was merely
an accessory to it and had not been integrated into the Bartel
organization. The appellant obviously felt the same way as when
he decided to leave he merely notified David Siradze of his
intent and then quit, never to return. One would not expect
someone fulfilling a function integral to an employer to behave
in that manner.
20. As for the effect to
be given to the agreement
- Exhibit A-1 - it is clear what the
parties thought their relationship was will not change the facts.
In the case of Minister of National Revenue v. Emily
Standing, 147 N.R. 238, Stone, J.A. at
pages 239-240 stated:
...There is no foundation in the case law for the proposition
that such a relationship may exist merely because the parties
choose to describe it to be so regardless of the surrounding
circumstances when weighed in the light of the Wiebe Door
test...
21. It is, however,
important to examine whether the parties, during the course of
their relationship, acted in a manner consistent with their
agreement or whether the document purporting to set out certain
mutual contractual obligations was - on an objective analysis -
at odds with the observed conduct of the parties and/or merely an
instrument to apply a patina of entrepreneurship to an obvious
employment situation. In the within appeal, the appellant's
retroactive interpretation of how he must have acted - and the
reasons for such conduct - during the short time he was there is
not borne out by other evidence. His behaviour was not that of
someone who - at the time - believed he was an employee subject
to review, discipline or control in any meaningful sense.
22. Taking into account
all of the evidence, I find the appellant was not engaged in
insurable employment with Bartel pursuant to a contract of
service during the period disclosed by the evidence to have been
March 16 to May 25, 1998. Taking into account this variation, the
decision of the Minister is otherwise correct.
[35] In the case of Frontier Business
Centre Ltd. v. Canada (Minister of National Revenue -
M.N.R.), [1998] T.C.J. No. 388 - a judgment of the Honourable
Judge Bowman, as he then was, Tax Court of Canada, dated May 20,
1998, two salesmen were found to have been working as independent
contractors while selling new and used farm equipment. Judge
Bowman found they had no fixed hours, worked out of their homes
and were not required to meet any sales quotas or even to sell
anything. In fact, they were discouraged from attending at the
payor's office since he wanted to make the sale himself and
not have to pay a commission. They paid all their own expenses -
initially - and then received reimbursement only in accordance
with the commission split - 30% of the net profit - once a sale
had been completed. They were free to hire other people, for
which they paid, and chose what sales would be attempted. A
significant difference between those facts and the situation in
the within appeals is that those salesmen were able to choose the
price they would charge for the equipment and had full discretion
as to the amount they would allow on a trade-in which would
directly impact on their share of the net profit. Judge Bowman
found there was no control over their income-generating activity
nor were there any assigned territories. In addition, he held
they were not integrated into the organization even though their
services - overall - had an effect on the profit of Frontier
Business Centre Ltd.
[36] In the case of Randy Fatt v. Canada
(Minister of National Revenue - M.N.R.), [2001] T.C.J.
No. 239, I considered the matter of a worker who was engaged in
selling pay phone installations to businesses. The worker worked
on his own, sent in contracts to the telephone service provider
and was remunerated on that basis. In that situation, the worker
was an experienced salesman and had chosen to provide his
services pursuant to an agreement that permitted him to function
as an entrepreneur carrying on business on his own account. As in
the within appeals, there was a subsequent desire to ignore the
conduct of the parties subsequent to the agreement and to simply
seek a revision of the working status based on nothing more than
a desire that the Court now classify him as an employee who - all
along - had truly been providing his services pursuant to a
contract of service.
[37] In the case of Lazowksi v. Canada
(Minister of National Revenue - M.N.R.), [2002] T.C.J.
No. 517, I dealt with the case of an individual who had been
working as a fundraiser for the Western Canada Wilderness
Committee. Partway through paragraph 18, I commented:
... I find there was very little control exercised by Thiessen
with respect to the sales activities of the appellant and it was
usually reactive in the sense of responding to a specific issue
rather than proactive in a wider, ongoing sense. The
appellant's contact with the WCWC office was primarily for
the purpose of obtaining additional literature - to assist in
making sales - or to deliver the ledger sheets - every two weeks
- in order that he could be paid on the basis of his recorded
sales. The appellant - an experienced salesperson - was motivated
to operate in accordance with his own style. He chose to begin
canvassing earlier in the day than other canvassers and used his
own vehicle to arrive at a specific location within a designated
area. The fundraising activities of WCWC comprised only a portion
of its overall activities in pursuit of its goal of advancing the
cause for protection of the environment. Within the sphere of
fundraising, some funds were solicited door-to-door together with
sales of memberships. Other memberships were sold through the
Vancouver Head Office or the Winnipeg office and revenue was
raised through sales of product at two retail outlets as well as
from grants from government, corporations, private foundations
and members of the public. Even the door-to-door aspect of the
fundraising was subject to different treatment. Thiessen
campaigned on his own in his capacity as Campaign Director and a
private company had been engaged to carry out some canvassing of
certain areas of metropolitan Winnipeg in addition to the
services provided by the appellant and the team of 4-8 other
canvassers that was driven to and from their assigned areas by a
WCWC representative. Within the overall picture, the appellant
played his part by providing a canvassing service - on his own -
in the manner he deemed appropriate and earned income based
solely on his own efforts.
[38] After reflecting on the relevant facts
in the within appeals and turning to the applicable
jurisprudence, I must deal with the central question - as set
forth at paragraph 47 of the judgment of Major J. in
Sagaz, supra - and that is to decide "whether
the person who has been engaged to perform the services is
performing them as a person in business on his own
account".
[39] Bearing in mind that one is to consider
this issue from the standpoint of the worker, the caveat still
applies that the perspective of the worker must be analzyed on an
objective basis. At this point, Dhillon wants to be seen as an
independent contractor during the relevant period. Ross, Little
and Balanko also consider themselves to be entrepreneurs engaged
in selling a specialized product within a rapidly-changing
industry. There is little or no evidence relating to other
workers named in Appendix A to the decision letter - Exhibit R-1
- confirming earlier assessments issued for 1998 and 1999. There
is no evidence upon which I could find that any worker in Nanaimo
considered themselves to have been other than employees - of the
appellant - as managed and supervised by Coté. There is
some indication Coté may have been a partner of Scott - at
some point - but there is insufficient evidence upon which to
determine whether that special relationship had come to an end
prior to 1999. Without specific information in that regard, it is
difficult to exclude Coté from the assessments as it is
equally probable that he had the status of employee with full
discretion to operate Nanaimo Cellular. Overall, the evidence
does not permit me to find that there were two separate
businesses operating, one by Scott and another by workers
providing services - mainly - inside a retail location and/or
selling phones elsewhere. The retail premises had been leased and
fully equipped by Scott. The merchandise offered for sale had
been provided by Scott who had a contract with Rogers. The
workers did not have any capacity to sell a phone or a service
contract - with Rogers - except through the business structure
established by Scott. The locations were chosen and named by
Scott and some stores had an individual who functioned as a
manager and/or partner at various times during 1998 and 1999.
Mike Fabbro was apparently named on the lease for the premises at
Nanaimo Cellular South - and was excluded from the assessments
issued to Scott together with those salespersons who had been
engaged - exclusively - in outside sales. The appellant provided
no details to support his contention that Powell, Langdon, Bedard
and Coté should also be regarded as partners except for
the ambiguous statement contained in his letter filed as Exhibit
R-2. With respect to others who wished to be seen as independent
contractors, unless the facts support that determination, parties
cannot assign themselves a status within a working relationship
and expect to bind the Minister.
[40] There are many salespersons - deriving
remuneration strictly based on commission for sales - who are
still employees. Moreover, it is not unusual for these persons to
pay all expenses associated with sales activity if that is a
condition of their employment. In such case, there are provisions
of the Income Tax Act pursuant to which expenses
associated with the generation of sales revenue may be deducted
from income. Flexibility in work schedules or the ability to have
input into the establishment of said schedule or working part
time or being paid wholly or partly by commission or by the piece
does not - without more - transform an employee into an
independent contractor.
[41] The appellant has the onus of
establishing on a balance of probabilities that the assessments
issued by the Minister should be vacated or varied. The appellant
could not offer any evidence with regard to many of the named
workers and had little personal contact - perhaps once per month
- with his stores in Nanaimo. Instead, he relied on Coté
and Fabbro to manage those retail outlets and must be bound by
their conduct as it pertained to relationships with workers
inside those stores. Overall, there is insufficient evidence to
permit me to arrive at any conclusion other than to confirm the
decisions of the Minister - dated March 28, 2002 - confirming
earlier assessments issued pursuant to the Act and the
Plan.
[42] Both appeals are hereby dismissed.
Signed at Sidney, British Columbia, this 21st day of March
2003.
D.J.T.C.C.
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