Date: 20011120
Docket: 2000-3982-EI,2000-3984-CPP
BETWEEN:
SARA CONSULTING & PROMOTIONS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
JOAN S. STRACHAN and JACQUELINE M.
MORRISON,
Intervenors.
Reasonsfor
Judgment
Bell, J.T.C.C.
ISSUE:
[1]
Whether Jacqueline M. Morrison ("Morrison"), Joan S.
Strachan ("Strachan") and Gail M. Urban
("Urban") were:
(a)
in "insurable employment" within the meaning of
subsection 5(1) of the Employment Insurance Act
("Act") within the meaning of paragraph
6(g) of the Employment Insurance Regulations
("Regulation 6(g)"); and
(b)
whether they were in "pensionable employment" within
the meaning of section paragraph (1)(a) of the Canada
Pension Plan ("CPP") or under paragraph
6(1)(c) of the CPP and section 34 of the Canada
Pension Plan Regulations ("Regulation 34").
during the period January 1, 1999 to December 23, 1999.
GENERAL:
[2]
Documents presented to the Court show that Morrison and Strachan
each filed a Notice of Intervention pursuant to the appeal of the
Minister of National Revenue's decision of August 1, 2000
respecting the Act and CPP matters described above.
The Court received no record of intervention by Urban.
FACTS:
[3]
The Appellant filed an Agreed Statement of Facts. In addition,
Gail Murphy ("Murphy), President of the Appellant and the
two intervenors, Morrison and Strachan, testified.
Agreed Statement of Facts:
[4]
The Appellant, an Alberta corporation, had its head office in
Edmonton, Alberta. It was incorporated on April 5, 1984, and,
after some shareholder changes, as at December 23, 1999, Gail
Murphy, its President, owned 100 percent of the issued and
outstanding shares.
[5]
Its business was providing market research analysis and
demonstration management services. As part of its business, it
entered into contracts with retail outlets, manufacturers and
distributors and food brokerage companies. Pursuant to these
contracts, the Appellant managed and coordinated, on behalf of
its clients across western Canada, the provision of
"in-store demonstrations of food, beverage and related
products".
[6]
The Appellant managed such projects across western Canada and in
Thunder Bay, Ontario. It retained Morrison, Strachan and
Urban ("Demonstrators") to provide "in-store"
demonstration services, their duties being to demonstrate,
promote and sell food, beverage and other products of the
Appellant's clients. They performed services in and around
Edmonton and were paid by the Appellant, who had obtained those
clients and contracts.
[7]
The Appellant contacted the Demonstrators for demonstrations to
be performed on the premises of its clients. The Appellant or its
clients provided the Demonstrators with instructions and
procedures on how to prepare for and carry out those
demonstrations. The Appellant or its clients instructed the
Demonstrators as to what products to promote and how to promote
them. They could supply their own table and appliances if they
had those items and chose to use them in which case the Appellant
would pay for the use of same. If they did not have that
equipment, the Appellant provided it.
[8]
The Appellant or its clients provided the Demonstrators with a
blank cheque or voucher, not exceeding a specified amount, with
which the Demonstrators could purchase products used in a
demonstration. Such purchases were supported by receipts and
recorded on an expense report submitted to the Appellant. The
Demonstrators, after a demonstration, submitted written reports
to the Appellant. Those reports included such information as the
product being promoted, the quantity of the product sold, coupons
distributed, the number of customers served, customer comments,
how the demonstration went, table location in the store and
comments of the Appellant's client. Those reports were signed
by the Demonstrators and the Appellant's clients.
[9]
This appeal is the result of the Appellant's disagreement
with a ruling determining that each of Morrison, Strachan and
Urban was in insurable employment under the Act and in
pensionable employment under the CPP.
Evidence of Gail Murphy, President of the
Appellant:
[10] Murphy
testified that the company started business from her home in 1984
and described how the business expanded, more and more clients
coming to her. She also described how, as the business grew,
Demonstrators came to her, the best advertising being word of
mouth.
[11] She
stated that in the mid-1980's, Revenue Canada decided that
the Demonstrators were employees. She said that she lost the
appeal to Revenue Canada, not proceeding to the Tax Court because
there was not enough money involved. She said then that the
Appellant made deductions at source. Murphy then testified that
when someone else won an appeal on this subject matter, the
Appellant went back to sub-contract relationships, stopping
deductions at source. She said that she never had an employee
relationship and that the deduction obligation was forced on the
Appellant.
[12] She
testified that the Appellant produced a brochure for marketing
purposes for western Canada. She said that the Appellant produced
a "look" for the Demonstrators, namely that they wore a
black apron and a bow tie.
[13] Murphy
then described the growth of the Appellant, culminating in a
successful bid for the ability to conduct demonstrations in 214
Canada Safeway ("Safeway") stores in western Canada and
Thunder Bay. She described how the Appellant's Revenue leaped
from $611,627 for the year ended January 31, 1999 to $5,591,516
for the year ended January 31, 2000.[1] She also testified that the
Demonstrators had signs with the Appellant's logo, et cetera.
She described demonstration management and how the Appellant
conducted demonstrations at trade shows using costumes and
mascots.
[14] Although
a large number of documents including brochures, information,
proposal strategies, et cetera were introduced, I find it not
necessary to refer to them, except in passing, if at all, for the
purposes of determining the issues.
[15] Murphy
testified that Demonstrators could accept or reject a suggested
demonstration and could and did change the times of same,
negotiating with, for example, the meat manager at Safeway. She
said that the Demonstrators had flexible hours and were free, at
their own option, to replace themselves with other Demonstrators,
notifying the Appellant after a demonstration. She testified that
when demonstration supplies ran out, the Demonstrators would
present other products selected by, for example, the local
Safeway meat manager. This information was given to the Safeway
head office so that it could contact stores with future order
information. She testified that:
The Appellant was not involved in other changes but that this
was done by the Demonstrators and product managers.
[16] She
stated that either of them could initiate a change.
[17] Her other
evidence informs that the Appellant provided Demonstrators with
guidelines, instructions and procedures on how to prepare for and
carry out demonstrations but that they were free to alter these
guidelines. She said that the Appellant's clients did not
necessarily instruct the Demonstrators as to where in the store
they were to set up their demonstrations and that the
Demonstrators were not directly supervised by the store managers
while they conducted same. She added that the Demonstrators were
not supervised by the Appellant or its employees.
[18] Murphy
testified that the Demonstrators were, at their own expense,
required to take a food safety course. She said further that
Demonstrators incurred some expenses which were not paid by the
Appellant. Included in this were expenses relating to ownership
of essential equipment and tools, and repairs or damages thereto,
picking up instructions and support demonstration material from
the Appellant's business premises, transporting them to the
Demonstrators' place of business (typically the home), and,
transporting them with all necessary equipment to the store.
[19] Clients,
through the Appellant, reimbursed or advanced monies to cover the
Demonstrators' expenses relating to expendable items used in
the course of demonstrations, including product as well as
plastic utensils, serving plates, toothpicks, paper towels, et
cetera.
[20] She said
that the Appellant made suggestions to the Demonstrator but that
they did not have to be followed: for example, a
Demonstrator's use of frying pans or toaster ovens. She also
said that Demonstrators had to supply such items as reusable
utensils, bags, spray bottles, thermometers, and anti-bacterial
soap. She further stated that most supplied their own appliances.
She stated that if Demonstrators supplied their own appliances as
required by the Appellant, the Appellant sometimes agreed to rent
those items from the Demonstrators. She said that in other cases,
however, the Demonstrators chose to use their own tables or
appliances at their own expense. She added that the Demonstrators
were free to perform any service for another company, including
direct competitors of the Appellant.
[21] Murphy
said that there were 200 to 250 Demonstrators in Edmonton and
about 200 in the Calgary pool. She said that on a given week-end
in Edmonton 50 to 100 Demonstrators would be working. She said
that there were ten employees in the Edmonton office and four in
the Calgary office, these being full-time employees in respect of
whom all appropriate source deductions were made and remitted to
the government. She stated that the Demonstrators submitted
invoices for services performed setting out the number of hours
worked. They were paid twice a month, on the fifteenth and
thirtieth. Some were being paid only once a month, or not paid at
all in a month in which a Demonstrator performed no services.
[22] Murphy
also testified that the Appellant had a number of associates
which performed services similar to those of the Appellant in
Regina, Winnipeg, Calgary, Saskatoon, Burnaby, Thunder Bay,
Surrey and Edmonton. They performed demonstration services under
contract with the Appellant as required.
[23] She
stated that some Demonstrators had their own business cards for
marketing purposes to promote their availability to demonstration
companies, including the Appellant. She said that the industry
knew that the Appellant was working with Safeway and that
Demonstrators approached the Appellant, based upon that
information.
[24] Murphy
referred the Court to a fax request for publication in the
Edmonton Examiner in early 2000 of an ad as follows:
Independent contractors wanted for immediate work for in-store
demonstrating. Great supplementary earning potential for
individuals with flexible schedules. Training provided,
guaranteed min. 12 hrs./week (Sunday, Friday, Saturday).
Applicants must be neat in appearance and self motivated. Vehicle
a must. Motivated, enthusiastic individuals contact Kim @
426-2900 ext. 230 for immediate interviews and training.
[25] Murphy
said that they could have published that ad in 1999 but that:
They called us.
[26] Murphy
further stated that a vehicle was a "must" because
there were many tools and pieces of equipment to do the work,
including cutting boards, sanitizers, and other matters which
could not easily be transported by the Demonstrators by public
transportation. She stated that the Appellant did not pay for
vehicles or expenses. She said that the Appellant did not
"cover any accident", et cetera. She said that the
Appellant was looking for "business minded"
Demonstrators to deal with store managers and suppliers and that
they understood their position. She said that she made sure that
they knew that they would be sub-contractors. She also stated
that in her mind she was not offering employment. She referred to
the fluctuation in workload, for example, 100 demonstrations on a
given date and a few the next date, adding that she did not want
the Appellant to be paying employees when there was no work to be
done. She reiterated that the Demonstrators had to supply certain
equipment. She said also that the Appellant did not want
employees because of the fluctuation in the industry.
[27] Murphy
referred to an agreement entitled "Freelance Food Promotions
Services Contract". This was formalized in 2000. She said,
however, that she had been explaining this to Demonstrators
before, but simply didn't have a written contract before. She
said that this "just puts the relationship on paper".
That document provided:
The Contractor shall provide freelance food promotion services
to SARA for a period of one year from the day and year written
above, subject to renewal or earlier determination as provided
elsewhere in this Agreement.
...
The Contractor will exercise a degree of skill and care as
would be expected of someone providing freelance food promotion
services and shall use its best efforts and such time, skills,
energy and attention as are required to satisfactorily provide
the services for which the Contractor is retained pursuant to
this Agreement.
The Contractor shall be responsible for all costs and expenses
(such as travel and office expenses) associated in performing its
duties under this Agreement.
The Contractor shall provide all of the tools and equipment
necessary (such as cooking utensils, cutlery and other
requirements) to fulfil the Contractor's obligations under
this Agreement, except as agreed on a case by case basis between
the parties.
The Contractor shall ensure that he/she or the individuals
providing services under this Agreement shall hold a Food Handler
or equivalent Certification as required by law, at his or her
expense. SARA may assist in providing necessary training or
administration of this requirement, but is not obligated to do
so.
The Contractor will provide food promotion services upon
request of SARA during the term of this Agreement but is at all
times free to decline any opportunity to provide such services
offered to it by SARA. ...
Consequently, the actual hours and days assigned and accepted
by the Contractor are in the discretion of the Contractor. The
Contractor acknowledges that SARA's abilities to provide the
Contractor with opportunities to provide food promotion services
is contingent upon the demands of SARA's clients which may be
subject to fluctuation. As a result, SARA makes no
representations as to the number of assignments or amount of
revenue that may be generated by the Contractor pursuant to this
Agreement.
[28] The
contract also provides:
The Contractor is and shall for the life of this Agreement be
an independent contractor. Nothing herein contained shall be
construed so as to create an agency relationship, an employment
relationship, a partnership or a joint venture between the
parties.
The Contractor shall not represent itself to be the agent or
employee of SARA or to be related to SARA other than as an
independent or freelance contractor. ... The Contractor is
not an employee of SARA and shall not, by virtue of this
Agreement, be entitled to any vacation pay, benefits or other
privileges provided by SARA to its employees.
[29] Murphy
said that a document entitled "POLICIES AND
PROCEDURES" was designed as suggestions of standard. It
provides that rates and times will vary from project to project
and that contractors/Demonstrators are free to accept or reject
any assignments offered by the Appellant. It also provides that
they are not restricted from accepting assignments from other
companies/suppliers. It states further that the Appellant makes
no government deductions or submissions on project payment
cheques - i.e. income tax, CPP and EI. It then says:
As a freelance Demonstrator you are responsible for your
own government submissions as required by law.
[30] It also
provides that the Appellant will cover all Demonstrators with
liability customer insurance when working on its assignments but
that personal liability insurance is the Demonstrator's
responsibility.
[31] Murphy
also referred to a document entitled CONTRACTOR'S INVOICE. It
provides spaces for details of the Demonstrator's monetary
claim and includes the following, including underlining, in bold
print:
I HEREBY ATTEST THAT I AM AN INDEPENDENT WORKER
CONTRACTING MY SERVICES AND THAT NO DEDUCTIONS (RE: INCOME TAX,
PENSION PLAN OR ANY OTHER BENEFITS) HAVE BEEN HELD AND ARE DUE TO
ME.
Murphy described this as a generic invoice to be completed.
Murphy then produced such a document in which a Demonstrator had
committed to a demonstration and then found a replacement to
fulfil her assignment. Murphy said that she did not know and did
not need to know in order to approve such replacement in advance
but wanted to know after the fact. She then testified that
Morrison and Strachan were conducting in-store demonstrations in
1999. She said of the Demonstrators that they were a "dime a
dozen". She said that replacement was not an issue and that
if one did not perform, "we'll just build the
pool". Finally, Murphy testified that she had never placed a
person on a client project on the basis that that person would be
employed.
[32] On
cross-examination she responded to a question as to who changed
demonstration hours by saying that it could be the Demonstrator
or a manager or by agreement. When asked why the Demonstrators
wore Sara aprons, Murphy replied that it was part of the meat
program and that Safeway wanted a consistent look and so the
Appellant provided this.
Evidence of Joan Strachan:
[33] Joan
Strachan, an intervenor, testified for the Appellant. Strachan
said that she went to different stores to promote products. She
said that although she mostly performed services for Sara she was
available for anyone that wanted her to work. She stated that she
takes on contracts and has to look after her own benefits and
expenses. She stated that she would receive calls from the
Appellant's office asking if she was available and would like
to work in a certain location. She replied that she did not want
to go more than 16 kilometres because her insurance would not
cover her vehicle more than 16 kilometres from home. She
testified that if she was not willing she would simply say she
did not want to do it and they obtained someone else. She said
that if she did want to do certain jobs she would go to the
Appellant's warehouse, pick up certain supplies and take her
own appliances. She said that she uses most of her own appliances
such as table, microwave, et cetera and that she bears the
cost.[2] She said
that she is not paid "to pick stuff up". She said that
she goes to the store, sets up a demonstration, gives her talks,
does her work, gets a paper signed by the store and returns that
paper to the Appellant.
[34] She said
that she discusses with the product manager where she would set
up her table and said also "I hassled them sometimes".
She described her manner of work and said she uses her discretion
on how to prepare and treat a product. She stated, for example,
that she improved the sale of brie cheese by warming it a bit in
the microwave before presenting it. She said that her job is to
sell, to expose people to a product and if a change makes a
difference, "go for it". She stated that she submits an
invoice and is paid bi-weekly. She said that she charges by the
hour and charges rental on her equipment and if there are
additional things that she must purchase (for example ice), she
adds it to her invoice. She also described the limited amount on
a cheque, payable to Safeway, that she may receive from a vendor
for products she uses. She said, specifically, that she did not
think she was an employee because no deductions were taken. She
said that she received a cheque and a copy of her invoice, that
she filed them and kept them for the person preparing her income
tax return. She stated clearly that she saw herself as
independent from the Appellant, that she could work elsewhere and
that she never asked for benefits because she didn't feel
entitled to them.
[35] On
cross-examination she said that she does jobs for a number of
clients, that she let them know that she was available and that
they would call. She also said that if she knew in advance that
she was going to be busy, she would tell them not to call her on
a certain day or week-end. In response to a query as to whether
she considered herself to be in business she replied in the
affirmative saying that she didn't have to go to a job. She
also said that she made arrangements with a store or with a
department manager to change hours.
Evidence of Jacqueline Morrison:
[36] Morrison,
an intervenor, also testified for the Appellant. Her evidence was
much the same as that of Strachan respecting manner of work
performance, submission of invoices, et cetera. With respect to
the guidelines prepared by the Appellant she said that there was
flexibility and that she could do what she wanted to do to
perform the work. She said she had a Policies and Procedures
Manual but hasn't read it yet. She said she also does
merchandising at other stores and that she goes into stores
tagging Alberta meat products including Safeway, Save-On, Great
Canadian Superstore and IGA. She said she also has done
women's shows for Sara.
[37] Morrison
testified that she obtained work through availability. She said
that she calls the Appellant when she's available and that
she likes the work. She said that although she is booked a month
in advance she can still cancel. She described the same duties as
performed by Strachan in picking up equipment, supplies, et
cetera. In response to a question as to whether she follows
guidelines, she said:
I've been doing it a long time. I just do it.
[38] She
testified that she received a gas allowance for merchandising but
not for demonstrating. She said that she reported her income as
self-employed and believes that she has always reported it that
way. She said further that she never believed that she was
employed by Safeway. She said that she deals with the Appellant
because it gives her consistent work.
[39] On
cross-examination, she said that she was not being supervised.
She said that she could cancel a session with the Appellant and
that she could replace herself and that she would call the
Appellant as a courtesy and advise them.
[40] When
asked on cross-examination whether she wore a Sara uniform when
merchandising she responded negatively. Then when she was asked
whether she wore anything she responded, apparently factually
and, certainly entertainingly:
clothes
[41] The
Respondent presented no evidence.
APPELLANT'S SUBMISSIONS:
[42]
Appellant's counsel stated that all three witnesses were
credible and that their evidence was not challenged, there being
no basis to challenge same. He said that the evidence of Strachan
and Morrison was consistent, both being absent from the courtroom
during the examination of Murphy. Counsel stated that there was
no cross-examination on the statement of Morrison and Strachan as
to what they believed their situation to be. He submitted that
when Murphy obtained information of success on someone else's
appeal, she made a conscious decision, "all at arm's
length", not to have employees. He said that the Policies
and Procedures Manual spells out the Appellant's intention.
He stated that the Appellant deals with up to 450 contacts on an
ad hoc basis from very busy to low busy. He said that they are
"a dime a dozen" and not individually integral to the
business. He stated that a businessman would not employ them
all.
[43] Counsel
referred to the January 31, 2000 financial statements pointing
out that approximately two-thirds of the expenses had nothing to
do with the Demonstrators. He stated that the Appellant's
preferred business structure was to use larger organizations so
that it could concentrate on its core business i.e. getting
contracts on a western Canadian basis. He pointed out that the
two witnesses were clear on wanting independence, giving freedom
to accept or change demonstrations. They knew that they would not
receive benefits and that no deductions were taken and that they
were on their own in filing income tax returns. He referred to
the ability of the Demonstrators to decide themselves how to
carry out a demonstration and whether to substitute, et cetera.
He stated that the Demonstrators understood what expenses would
not be reimbursed such as driving to work. He pointed to the
requirement to have a substantial capital asset, namely, a
vehicle. He referred to their evidence being clear and
unequivocal that they did not want to be employees.
[44]
Appellant's counsel said that the disputed ruling was
directly contrary to what was intended by the Appellant and its
Demonstrators. He said that the Canada Customs and Revenue Agency
("Agency") was paternalistic in assuming in its ruling
that lady Demonstrators are unbusinesslike, suggesting that the
Agency knows better than those Demonstrators. He referred to
exhibit A-3 which set forth the dates worked by Morrison,
Strachan and Urban in 1989 and the amount of gross pay for each
of those dates. This schedule also set forth the amounts of CPP
and EI that, apparently, should have been deducted. This exhibit
bears the stamp and heading:
DOCUMENT DISCLOSED PURSUANT TO
THE ACCESS TO INFORMATION ACT
[45] Counsel
said that it is apparent on the face of such document that most
ladies would not qualify for employment insurance. He also said
that many are over 65 and are not obliged to pay CPP premiums any
longer. He categorized the Agency decision as "a money
grab" not qualifying for employment insurance and resulting
in the removal of money from the hands of industry.
[46] He
pointed out that Strachan and Morrison were not in the courtroom
during Murphy's examination and that all evidence was
consistent with what was contained in the documents.
[47] Counsel
referred to Morrison's evidence that she was more aware of
costs as she progressed. She said that she started 11 years ago,
was brought into the meat program, and doesn't want to work
full time. He referred to all of the documents that set out that
the relationship was not employment but one of independent
contract. One of these was the agreement referred to in evidence
that was prepared in his office and had been "in place"
for two or three months previous to the hearing. He stated
further that this document generally reflected what had taken
place before the relationships were so formalized. He referred to
the Agency's questionnaire stating that it was created by the
Agency out of bias and that he had prepared his own questionnaire
in more neutral form. Both were entered as exhibits. He referred
to the definition of "employee" in Black's Law
Dictionary, 6th edition, as follows:
... One who works for an employer; a person working for
salary or wages.
Generally, when person for whom services are performed has
right to control and direct individual who performs services not
only as to result to be accomplished by work but also as to
details and means by which result is accomplished, individual
subject to direction is an "employee".
[48] The
definition of "independent contractor" in that edition
reads as follows:
Generally, one who, in exercise of an independent employment,
contracts to do a piece of work according to his own methods and
is subject to his employer's control only as to end product
or final result of his work. ... One who renders service in
course of self employment or occupation, and who follows
employer's desires only as to results of work, and not as to
means whereby it is to be accomplished. ...
An independent contract is a person who contracts with another
to do something for him but who is not controlled by the other
nor subject to the other's right to control with respect to
his physical conduct in the performance of the undertaking. He
may or may not be an agent.
[49] Counsel
submitted that the traditional test for determining who was an
employee and what is "pensionable employment" is
outlined in Wiebe Door Services Ltd. v. M.N.R., 87 DTC
5025. He then said that the Wiebe Door test had its roots
in earlier authority which should be reviewed prior to looking to
that case. He stated that the case of Cormier v. Alberta
(Human Rights Commission), (1985) 56 A.R. 351 analyzes
whether a defendant was an "employer" for the purposes
of the Human Rights Commission. The Court said at page 355:
... the main problem has lain in distinguishing the
relationships of "employer and employee" and
"master and servant", said to result from a
"contract of service", from the relationship between a
person and another who is his "independent contractor"
under what is said to be a "contract for services".
...
[50] He then
said that the review and analysis of the law therein provided by
the Court appears to be the precursor to the Wiebe Door
four part test:
.. in that a large number of cases and statutory authorities
set out in a very detailed review of the law supported by later
developments.
[51] He
reviewed the four tests set out in Wiebe Door and said
that if after the analysis is complete an individual can be
described both as an independent contractor and an employee the
deadlock should be broken with reference to the objective of the
parties as evidenced both by the contract between them and their
conduct towards each other.
[52] Counsel
then referred to the Federal Court of Appeal decision in
Vulcain Alarme Inc. v. Minister of National Revenue,
[2000] 1 C.T.C. 48. He stated that the Court held at page 49 that
in following the four part test now entrenched:
... it should be remembered that they cannot be allowed
to compromise the ultimate purpose of the exercise, to establish
in general the relationship between the parties.
[53] The Court
found, at page 53 that:
... controlling the quality of work is not the same thing
as controlling its performance by the worker hired to do it.
[54] He said
that the Court also found, at the same page, that although the
contractors had become dependent by imposing economic
subordination on themselves:
... they were not legally bound by an exclusive contract
and had not ceased to be contractors.
and thus did not integrate themselves. He stated that the
Court found that the inspector bore the risk of loss because he
was not guaranteed constant income and had to pay for his own
losses following a motor vehicle accident.
[55] He then
referred to Saskatchewan Deaf and Hard of Hearing Services
Inc. v. Canada, [2001] T.C.J. No. 38 in which he said that
the Appellant, a non-profit organization coordinated the workers
providing interpretive services to hearing impaired clients. He
stated that, following Vulcain Alarme Inc. and using the
Wiebe Door test, the Court noted that the parties
clearly expressed their intention that the relationship was one
of a contract for services and there was nothing in the evidence
to suggest otherwise. He said that the Appellant set the pay
scale, guaranteed the workers a minimum payment of 1.5 hours of
pay per session, paid the workers monthly after the workers
submitted their hours on invoice, covered the workers with WCB
and their liability insurance policy, required them to follow a
code of ethics set by professional organizations and helped them
arrange for replacement workers. He said that there was no chance
of making a profit and no risk of losing money and that no
equipment was necessary to perform the job. He continued that the
workers were entitled to one hour cancellation fees, that they
could personally make arrangements with the customer once they
accepted the assignment and could notify the Appellant of time
periods when they could not work. He said that the nature of the
workers' relationship to the Appellant was, therefore,
"explicitly changed to reflect the needs of the
clients", the Court properly recognized the legal form of
the arrangement, and noted at paragraph 29 of the decision:
... I am of the view that the Court should give due
deference to the initial intention of the parties. It is not for
the Court or for the Minister to rewrite the contract entered
into by the parties, absent clear evidence of the substance
differs from the stated intention.
[56] Counsel
referred to Ghostpine Farms Ltd. v. Minister of National
Revenue, [2001] T.C.J. No. 37. He then referred to cases
involving the "demonstration industry". The first was
Instore Focus Inc. v. Minister of National Revenue,
[1986] T.C.J. No. 107. He said that in that case there was a
supervisor that was very involved with the workers. The
Demonstrators had to work at the time and place set by Instore
and remit a report reporting instructions that were followed and
approved by the store. He said further, that unlike the present
case, they could not get someone else to "work" for
them without permission. All expenses were reimbursed and the
Demonstrators returned their materials to the supervisors if they
were not used. In these circumstances he said that there was held
to be no risk of loss to the Demonstrators and that the store
managers could "fire" them even though they did not
work for the managers. While, technically, the individuals were
allowed to work for competitors, counsel said that the supervisor
told one Demonstrator that if she did "she would not be
called again". He also said that that case was resolved in
favour of the Appellant. Counsel said that the Judge found the
decision "very hard to render", being a borderline
case, and said that no such chain of events exists in the case at
bar, implying that facts in this case were more favourable to the
Appellant.
[57] Counsel
then devoted some time to the "modern approach" to
taxation statutes, quoting from Canada v. Antosko, 94 DTC
6314 at 6320:
... In the absence of evidence that the transaction was a
sham or an abuse of the provisions of the Act, it is not the role
of the court to determine whether the transaction in question is
one which renders the taxpayer deserving of a deduction. If the
terms of the section are met, the taxpayer may rely on it, and it
is the option of Parliament specifically to preclude further
reliance in such situations.
[58] He then
quoted from the Supreme Court of Canada's decision in
Continental Bank Leasing Corporation v. Canada, 98
DTC 6505 with respect to whether an otherwise validly constituted
partnership ought to be denied a tax advantage given that the
partnership was expressly created to gain that advantage. The
majority of the Court held at page 6518 that:
... The underlying premise of this reasoning is also that
a transaction that is motivated by the securing of tax benefits
is not a valid transaction. This reasoning cannot be
supported.
A taxpayer who fully complies with the provisions of the
Income Tax Act ought not to be denied the benefit of such
provisions simply because the transaction was motivated for tax
planning purposes. In Stubart Investments, supra, this
Court unanimously rejected the "business purpose test"
and affirmed the proposition that it is permissible for a
taxpayer to take advantage of the terms of the Income Tax
Act by structuring a transaction that is solely motivated by
the desire to minimize taxation.
[59] Counsel
then said that this modern approach was reinforced in Duha
Printers (Western) Ltd. v. Canada, 1998 DTC 6334 and in
Neuman v. Canada, 1998 DTC 6296.
[60] He then
submitted that the issue was dealt with most recently and
forcefully in Shell Canada Ltd. v. The Queen, 99 DTC 5669
in which McLachlin, J. (as she then was) said at page 5676:
... First this Court has never held that the economic
realities of a situation can be used to recharacterize a
taxpayer's bona fide legal relationships. To the
contrary, we have held that, absent a specific provision of the
Act to the contrary or a finding that they are a sham, the
taxpayer's legal relationships must be respected in tax
cases. Recharacterization is only permissible if the label
attached by the taxpayer to the particular transaction does not
property reflect its actual legal effect: ...
Inquiring into the "economic realities" of a
particular situation, instead of simply applying clear and
unambiguous provisions of the Act to the taxpayer's legal
transactions, has an unfortunate practical effect. This approach
wrongly invites a rule that where there are two ways to structure
a transaction with the same economic effect, the court must have
regard only to the one without tax advantages. With
respect, this approach fails to give appropriate weight to the
jurisprudence of this Court providing that, in the absence of a
specific statutory bar to the contrary, taxpayers are entitled to
structure their affairs in a manner that reduces the tax
payable.
[61] Counsel
submitted that in the particular context of this appeal the
Agency cannot, in the absence of a sham or express statutory
language, deem a bona fide contractor relationship to be
otherwise, even if this form was purposely entered into to obtain
a tax benefit. He then said that if the parties intended to
create a contractor relationship and entered into their
relationship believing it to be so and conducted themselves
according to that belief, it is not the job of the Agency to deem
it to be other than a contractor relationship.
[62] Counsel
then submitted that the relevance of this line of authority is
that it appears that the Wiebe Door test looks beyond the
legal relationship and intention of the parties applying what was
in fact an "economic substance" approach. He said that,
for example, in looking to "integration" the Court is
expressly looking at the economics of the arrangement to
determine if the "businesses" appear to be integrated.
He stated that, similarly, the provision of tools or equipment
would appear to have little, if anything, to do with the legal
relations created between the parties. He said that, on the other
hand, contractual assignment or acceptance of risk appears a
legitimate tool of analysis in looking at the legal relations
created, as is the contractual imposition, or lack thereof, of
control. He then submitted that key, however, is the intention of
the parties as objectively expressed prior to, at the time of,
and subsequent to the entry into the contract. He then said:
What was being offered, what was negotiated, and does the
subsequent conduct of the parties evidence the agreement. It is
submitted that this is a more appropriate form of analysis.
[63] Counsel
then stated that the evidence establishes that the Appellant
clearly communicated the basis upon which it was prepared to
proceed at every stage of the process, from attracting individual
Demonstrators, "to discussions on the terms on which a
retainer could be put in place", to the orientation sessions
held at the commencement of business relations and to the methods
in which contracts were completed. Counsel then stated:
That basis was that the Appellant was not prepared to offer or
engage in employment, for a large number of business, legal and
administrative reasons. At no time did the Appellant offer
employment, and at no time did the individuals understand that
they were being employed. On this basis, it is submitted that the
contract cannot in law be said to be employment.
RESPONDENT'S SUBMISSIONS:
[64] Counsel
commenced by saying that this Court is limited to considering the
three Demonstrators even if the Appellant fears that the loss of
this appeal would be detrimental to all Demonstrators and
individuals. She then stated that this was not a test case and
that "the Minister says no" to any such suggestion for
purposes of the Appellant and the Demonstrators and the
industry.
[65] Counsel
said that the Appellant's focus was to set up an independent
contractor relationship from the beginning and that this was
borne out by the evidence. She suggested that the Demonstrators
perceived themselves to be individual contractors because they
received no benefits, et cetera and that this was the result of
information from the Appellant, having been told "over and
over". She stated that the Demonstrators' work added
nothing to their gain or loss but only added value to the
clients.
[66] Counsel
asked why, if the Demonstrators were independent contractors, it
took one of them up to 1999 to deduct expenses. When asked by the
Court if counsel had asked that witness, she said:
"No".
[67] Counsel
suggested that the Policies and Procedures Manual indicated
control on the part of the Appellant. She submitted that control
in the manual was beyond guidelines or suggestions.
[68] She
referred to the fact that the Appellant supplied certain items
and reimbursed Demonstrators for the cost of product and that the
Appellant required reports of hours and sales for her
clients' purposes. She said that there were no guidelines
but, rather, directions, suggesting that they were told by way of
pamphlet how to display. She referred to the supplies given to
Demonstrators at minimum expense, that they wore code dress, that
they had specific procedures, were called by Appellant for work
and could choose to work or not, characterizing all of that as
"casual employment". Counsel did not expand on that
characterization. She reiterated that the Demonstrators believed
that they were sub-contractors because they were told they were.
She referred to Strachan's response that she did not ask for
benefits because she never thought she was entitled to them.
Counsel then stated that she knew that because she had been told
that.
[69] Counsel
then mentioned the "broader picture", speaking of
persons and a social structure that Parliament regulated for
workers' insurable employment.
[70] Counsel
then commented on Appellant's submission respecting Shell
Canada and said that that involved a taxing provision but
that there was a statutory bar in the Act. She then,
without explanation, said that the whole Act was a
statutory bar. She submitted that Parliament could not have
intended a relationship to deny benefits.
[71] She then
quoted from the decision of the Supreme Court of Canada in
Bronfman Trust v. Her Majesty, 87 DTC 5059 which, dealing
with the interpretation of a taxation statute, said at 5066:
I acknowledge, however, that just as there has been a recent
trend away from strict construction of taxation statutes ...
so too has the recent trend in tax cases been towards attempting
to ascertain the true commercial and practical nature of the
taxpayer's transactions. There has been, in this country and
elsewhere, a movement away from tests based on the form of
transactions and towards tests based on what Lord Pearce has
referred to as a "common sense appreciation of all the
guiding features" of the events in question: ...
This is, I believe, a laudable trend provided it is consistent
with the text and purposes of the taxation statute. Assessment of
taxpayers' transactions with an eye to commercial and
economic realties, rather than juristic classification of form,
may help to avoid the inequity of tax liability being dependent
upon the taxpayer's sophistication at manipulating a sequence
of events to achieve a patina of compliance with the apparent
prerequisites for a tax deduction.
[72] Counsel
then referred to Puri v. Minister of National Revenue,
[1998] T.C.J. No. 175 where Rowe, T.C.J. in finding that Puri and
Hesketh were employees, said in paragraphs 14 and 15:
There is no doubt the appellants and the Club wanted their
relationship to be on the basis they were coaches providing
services as independent contractors. ...
What the parties thought their relationship was will not
change the facts. In the case of The Minister of National Revenue
v. Emily Standing, 147 N.R. 238, Stone J.A. at p. 239 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."
[73] Counsel
then turned to Wiebe Door, where at page 5030 she referred
to the comments of Cooke, J. in Market Investigations, Ltd. v.
Minister of Social Security, [1968] 3 All E.R. 732:
... The most that can be said is that control will no
doubt always have to be considered, although it can no longer be
regarded as the sole determining factor; and that factors, which
may be of importance, are such matters as whether the man
performing the services provides his own equipment, whether he
hired his own helpers, what degree of financial risk he takes,
what degree of responsibility for investment and management he
has, and whether and how far he has an opportunity of profiting
from sound management in the performance of his task.
[74] Counsel
stated that the Appellant had certainly grown but asked whether
that was so for the Demonstrators.
[75]
Appellant's counsel then turned to a submission based upon
Regulation 6(g). Paragraph 18 of the Reply to the Notice
of Appeal reads as follows:
18.
The Respondent further states that, if the Workers were not
employed under contracts of service with the Appellant, which is
not admitted but is denied, then the Workers were engaged in
insurable employment with the Appellant pursuant to paragraph
6(g) of the Employment Insurance Regulations during the
period from January 1, 1999 to December 23, 1999, in that they
were placed in their employment by the Appellant to perform
services for and under the direction and control of clients of
the Appellant and as the Workers were paid by the Appellant for
the performance of those services.
Regulation 6(g) reads:
Employment in any of the following employments, unless it is
excluded from insurable employment by any provision of these
Regulations, is included in insurable employment: ...
(g)
employment of a person who is placed in that employment by a
placement or employment agency to perform services for and under
the direction and control of a client of the agency, where that
person is remunerated by the agency for the performance of those
services.
The essence of this submission is that a Demonstrator was
placed in employment by the Appellant, in its capacity as a
placement agency, to perform services for and under the direction
and control of a client of the Appellant where that Demonstrator
is remunerated by the Appellant.
[76] Counsel
concluded by submitting that the Demonstrators were controlled by
the Appellant in the sense that they were under the
Appellant's direction, received supplies, and were given a
dress code. She submitted that the company failed the integration
test in that the Appellant had the clients and the business. She
submitted that the control test was not as strong with respect to
tools but that the Demonstrators were reimbursed for some
supplies and that the other tools were so minimal that they were
of no consequence. With respect to profit and risk of loss,
counsel stated that there was growth in the Appellant's
business but no evidence that the businesses of the Demonstrators
had grown. She said if there were more jobs for Demonstrators it
was because of the Appellant's growth.
ANALYSIS AND CONCLUSION:
[77] This case
departs somewhat from the ritualistic and unadorned recitation of
the four tests in Wiebe Door having become an inalterable
juristical formula for the determination of insurable
employment[3]. Such
tests alone may not contemplate a number of factors weighing upon
such determination. Control exists not only in contracts of
service but in contracts for service. Ownership of tools is an
inappropriately revered primary test, looking to objects,
equipment and space. The risk of profit or loss test, as applied,
often takes a "shoe horn" approach only, considering
simply whether a service provider receives a fixed formula amount
and occasionally paying little attention to potential elements of
risk. With respect, there seems to be little usefulness in what
is described as the integration test. MacGuigan, J. in Wiebe
Door, at page 5029, quoted Denning L. J. (as he then
was) in Stevenson, Jordan and Harrison Ltd. v. MacDonald and
Evans [1952] 1 T.L.R. 101 at 111:
One feature which seems to run through all the instances is
that, under a contract of service, a man is employed as part of
the business, and his work is done as an integral part of the
business; whereas under a contract for services, his work,
although done for the business, is not integrated into it but is
only accessory to it.
The learned Justice continued, however, as follows:
Perhaps the best synthesis found in the authorities is that of
Cooke J. in Market Investigations, Ltd. v. Minister of Social
Security, [1968] 3 All E.R. 732, 738-9:3
The observations of Lord Wright, of Denning L.J., and of the
judges of the Supreme Court in the U.S.A. suggest that the
fundamental test to be applied is this: 'Is the person who
has engaged himself to perform these services performing them as
a person in business on his own account?' If the answer to
that question is 'yes,' then the contract is a contract
for services. If the answer is 'no' then the contract is
a contract of service. No exhaustive list has been compiled and
perhaps no exhaustive list can be compiled of considerations
which are relevant in determining that question, nor can strict
rules be laid down as to the relative weight which the various
considerations should carry in particular cases. The most that
can be said is that control will no doubt always have to be
considered, although it can no longer be regarded as the sole
determining factor; and that factors, which may be of importance,
are such matters as whether the man performing the services
provides his own equipment, whether he hires his own helpers,
what degree of financial risk be taken, what degree of
responsibility for investment and management he has, and whether
and how far he has an opportunity of profiting from sound
management in the performance of his task. The application of the
general test may be easier in a case where the person who engages
himself to perform the services does so in the course of an
already established business of his own; but this factor is not
decisive, and a person who engages himself to perform services
for another may well be an independent contractor even though he
has not entered into the contract in the course of an existing
business carried on by him.
MacGuigan J. then, without elaboration, said:
There is no escape for the trial judge, when confronted with
such a problem, from carefully weighing all of the relevant
factors, as outlined by Cooke J.
[78] The
evidence given by three credible witnesses was uncontradicted. It
was supported by an abundance of documentation making it clear
that the intention of both the Appellant and Demonstrators was
not to have an employment relationship. Although only two
Demonstrators, being Intervenors, testified, they clearly
described and clearly accepted their position as not being
employees of the Appellant. Respondent's counsel attempted to
characterize them as having, in effect, being brainwashed by
being told "over and over" that they were independent
contractors. This appears to be a convenient construction of the
facts summarized earlier in this paragraph.
[79] These
Demonstrators were free to turn down invitations to work at given
places and at given times when they felt like so doing. It is
irrelevant to speculate what would have happened had they
declined such invitations on an ongoing basis. They had the
ability to change hours. They had the ability, unfettered by the
Appellant, to negotiate the arrangements under which they worked
with a client of the Appellant.
[80] They were
required by the Appellant to meet a dress code. This cannot be
construed as any substantial element of control. It is simply the
common sense reality of the business world that the Demonstrators
should be presented in well-attired, well-groomed,
consistent and polite manner. Obviously, the work of the
Demonstrators was to impress the buying public and the client. A
suggestion that they were subject to the control of the Appellant
simply because, with some assistance from the Appellant, they
presented themselves in the best fashion to do the best job
possible misrepresents the circumstances under which these
Demonstrators worked with an independent sense of pride and
achievement. They also had to have a vehicle, for which they were
not reimbursed, in order to move equipment.
[81] They had
to, if they so desired, obtain their own disability
insurance.
[82] Both
Strachan and Morrison testified that they had not read the
Policies and Procedures Manual because they knew what they were
doing. It is obvious from their evidence and their demeanour that
they were proud of and enjoyed their work. It is equally obvious
that the manual was not a direction.
[83] The
Demonstrators had to have food safety training at their own
expense.
[84] They had
to be well-groomed at their own expense.
[85] The fact
that the Appellant wanted the Demonstrators to be well equipped
is not indicative of control so much as it is indicative of how
both the Appellant and the Demonstrators could be successful.
Murphy's evidence was quite clear that the Appellant did not
want to have employees other than the fourteen or so employees
described above, there being periods when there would be no work
for the Demonstrators.
[86] So far as
tools are concerned, the Demonstrators used equipment owned by
both the Appellant and themselves and they transported their own
equipment to the place of work and transported the
Appellant's equipment from the Appellant's store house
for same. I cannot conclude on the base of ownership and use of
tools, that the Appellant was an employer. A gardener, using the
owner's lawnmower and implements, may well be an independent
contractor.
[87] As to
profit and risk of loss, we know that a Demonstrator could
increase income by working longer hours, not by having an
increased amount of reward per hours worked unless so negotiated
with the Appellant. The Demonstrator did have risk of loss by
virtue of potential car expense including both repair and
ordinary operating expense. This component of the test does not
favour an employment conclusion.
[88] As to
integration, the importance of which test is questionable, the
Demonstrator was, of course, assisting the Appellant in the
conduct of its business. However, the evidence of Strachan and
Morrison was clear that each was conducting her own business,
admittedly not on a grand scale. It should not be assumed, a
priori that the larger, paying entity be viewed as
dominant and, therefore, more important in determining whether
the service provider could also be in business. The question of
"whose business it is" may tend to minimize the
appropriate characterization of that service provider.
[89]
Respondent's counsel referred to Puri and
Standing. They simply state that if the facts do not
support the evidence of a relationship described by the parties,
that relationship does not necessarily exist. That is a common
sense conclusion. It is the facts that are
important.
[90]
Respondent's counsel's characterization of the Appellant
having issued "directions", not "guidelines"
is not supported by the evidence.
[91]
Respondent's counsel's reference to the Act being
social legislation has absolutely nothing to do with the issues
and their resolution.
[92] I have
concluded that neither of the two Demonstrators who gave evidence
was an employee. I accept the direction as expressed in
Shell, that the recharacterization of legal relationships
is only permissible if the label attached by the taxpayer to the
transaction does not properly reflect its actual legal effect.
Admittedly, this statement by the Supreme Court of Canada was in
respect of tax cases. However, in the absence of clear and
credible evidence that the description of a relationship is other
than as agreed between arm's length parties, the description
agreed upon by those parties must stand. There is no such clear
and credible evidence in this case.
[93] It is
noted that Respondent's counsel's rejection of the
validity of the cases, including Shell, referred to by
Appellant's counsel, as being tax cases, when the Act
was a "complete code", was followed by her reference to
a tax case in an attempt to persuade the Court to her view.
[94] I shall
deal quickly with Respondent's submission that the Appellant,
within the meaning of Regulation 6(g) was a placement
agency. It is recalled that the Respondent's Reply states
that if the workers "were not employed under contracts of
service with the Appellant", then the workers were engaged
in insurable employment pursuant to Regulation 6(g). Using
counsel's premise that the workers "were not
employed" how could they possibly be "placed in ...
employment" by anyone? The Appellant was, and is, not a
placement or employment agency. That submission is rejected.
[95] I turn
now to Respondent counsel's statement that this case is not a
test case for the purpose of the Appellant and the Demonstrators
and the industry. That, of course, is a position that the
Respondent is entitled to adopt. However, the Respondent must be
very careful in determining whether a Demonstrator providing
services to this Appellant or any other taxpayer conducting a
similar business, is in insurable employment. I cannot,
obviously, pre-judge, nor do I wish to, any situation whose facts
are not known to me. However, the urge to continue to gnaw at the
same bone is not unknown to the Respondent. The Appellant has
access to and engages up to 450 Demonstrators. There are,
obviously, a number of other entities in Canada conducting
businesses similar to that of the Appellant. The result of an
inappropriate determination or decision could be very costly to
the Appellant and to other business enterprises in terms both of
financial resources and time lost in the preparation for, and
conduct of, litigation.
[96] The Court
was not advised as to how the Respondent decided to challenge the
characterization of the Appellant's relationship with the
three Demonstrators, Morrison, Strachan and Urban. It is unlikely
that the Respondent would, respecting this Appellant, select
Demonstrators whose fact situations would be unfavourable to the
Respondent's position. This renders curious its adamant
assertion that this appeal would not be regarded as a test
case.
[97] Section 7
of the Act provides that Employment Insurance benefits are
payable to an insured person who qualifies to receive them. It
describes a person as qualified if that person has had, during a
qualifying period, a specified number of hours of
insurable employment. Paragraph 5(1)(a) of
the Act reads as follows:
Subject to subsection (2), insurable employment is
(a)
employment in Canada by one or more employers, under any express
or implied contract of service or apprenticeship, written or
oral, whether the earnings of the employed person are received
from the employer or some other person and whether the earnings
are calculated by time or by the piece or partly by time and
partly by the piece, or otherwise;
[98] I have
determined, for the reasons outlined above, that, based upon the
evidence of Murphy, Strachan and Morrison, neither Strachan nor
Morrison was, during the period in question, in insurable
employment. Although Urban did not testify, I have no reason to
believe that the evidence of the Appellant alone, which was
supported by the evidence of the two Demonstrators, would not
apply to Urban.
[99] As agreed
with counsel, my conclusion will also apply to pensionable
employment so far as CPP is concerned.
[100] Accordingly, I
conclude that the appeals will be allowed.
Signed at Ottawa, Canada this 29th day of November,
2001.
"R.D. Bell"
J.T.C.C.
COURT FILE
NO.:
2000-3982(EI) and 2000-3984(CPP)
STYLE OF
CAUSE:
Sara Consulting & Promotions Inc. v.
The Minister of National Revenue
PLACE OF
HEARING:
Edmonton, Alberta
DATE OF
HEARING:
June 27, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge R.D. Bell
DATE OF
JUDGMENT:
November 20, 2001
APPEARANCES:
Counsel for the
Appellant:
Carman P. McNary
Counsel for the
Respondent:
Margaret McCabe
COUNSEL OF RECORD:
For the
Appellant:
Name:
Carman P. McNary
Firm:
Fraser Milner Casgrain
Edmonton, Alberta
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-3982(EI)
BETWEEN:
SARA CONSULTING & PROMOTIONS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
JOAN S. STRACHAN and JACQUELINE M.
MORRISON,
Intervenors.
Appeal heard on common evidence with the appeal
of
Sara Consulting & Promotions Inc.
(2000-3984(CPP))on June 27, 2001 at Edmonton, Alberta by
the Honourable Judge R.D. Bell
Appearances
Counsel for the
Appellant:
Carman P. McNary
Counsel for the
Respondent:
Margaret McCabe
For the
Intervenors:
The Intervenors themselves
JUDGMENT
The
appeal is allowed and the decision of the Minister is vacated in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 20th day of November, 2001.
J.T.C.C.
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