Date: 20010523
Docket: 1999-3166-EI
BETWEEN:
YELLOW CAB COMPANY LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1]
Yellow Cab Company Ltd. ("Yellow Cab") was assessed for
employment insurance premiums for the 1996, 1997 and 1998
taxation years in respect of services that were performed by
Mr. Rajinder Matharu ("owner-operator")
for Yellow Cab. Yellow Cab was assessed because it failed to
deduct and remit any amounts with respect to premiums under the
Employment Insurance Act (the "Act") in
respect of Mr. Matharu's remuneration.
[2]
Yellow Cab was also assessed for employment insurance premiums
for the 1997 and 1998 taxation years in respect of services that
were performed by Baldev Atwal, Abdiqni Abdille,
Davinder Brar, Manjinder Dhaliwal, Kiranjit Malhi,
Hassan Osman, Amale Salah and Kewal Sond
(collectively referred to as the "lease-operators") for
Yellow Cab. Yellow Cab was assessed because it failed to deduct
and remit any amounts with respect to premiums under the
Act in respect of the drivers' remuneration.
THE APPELLANT'S SUBMISSIONS
[3] The Appellant submits that all of
the assessments at issue in this appeal involve individuals who
were not in insurable employment as defined by the Employment
Insurance Act and Regulations.
[4] All of the assessments at issue in
this appeal involve assessments on behalf of the individuals who
must properly be considered to be "operators of a
business" and therefore not in "insurable
employment".
[5] The Appellant has also argued in
the alternative if the owner-operator and lease-operators are
found to be in insurable employment and if the assessments were
based upon the owner's or lease-operator's gross revenue
without appropriate deductions for expenses such as vehicle
insurance, bookkeeping, dispatch, parking, training and marketing
fees, the assessments should be referred to the Minister for
rectification in that the assessments should be based on net
revenue.
EVIDENCE
EXTRACTS FROM AGREED STATEMENT
OF FACTS FILED BY THE PARTIES AT TRIAL
. . .
2. On or about July 16, 1998, the Appellant Yellow Cab
received four assessments for Employment Insurance withholdings
and remittances. One assessment was for the 1996 taxation year,
two assessments were for the 1997 taxation year and one
assessment was for the 1998 taxation year. . . .
3. The Appellants filed objections to the Assessments. The
Respondent confirmed all of the Assessments. The Appellants have
brought this appeal.
. . .
5. Yellow Cab has been assessed to make Employment Insurance
remittances regarding Mr. Matharu, solely in relation to the
operation of driving Cab No. 102D from July 1996 to January
1997.
6. During the time frame for which Yellow Cab was assessed to
make Employment Insurance remittances regarding Mr. Matharu,
i.e. from July 1996 to January 1997, Mr. Matharu owned the
50% of the rights to operate Cab No. 102 (described in the
Contract of Purchase and Sale as Cab No. 102D (day half)
including the right to the licence issued by the City of
Vancouver in respect of that cab.
. . .
9. Yellow Cab has been assessed to make Employment Insurance
remittances regarding:
(a) Mr. Atwal
solely in relation to the operation of Cab No. 158D from
September 1997 to April 1998;
(b) Mr. Abdille
solely in relation to the operation of Cab. No. 179N from March
1997 to April 1998;
(c) Mr. Brar
solely in relation to the operation of Cab. No. 179D from
December 1996 to April 1998;
(d) Mr. Dhaliwal
solely in relation to the operation of Cab. No. 158N from
September 1997 to April 1998;
(e) Mr. Malhi
solely in relation to the operation of Cab No. 161D from December
1996 to April 1998;
(f)
Mr. Osman solely in relation to the operation of Cab No.
158N from December 1996 to June 1997;
(g) Mr. Salah
solely in relation to the operation of Cab No. 161N from December
1996 to April 1998; and
(h) Mr. Sond
solely in relation to the operation of Cab. No. 158D from
December 1996 to June 1997.
10. During the time frame for which Yellow Cab has been
assessed to make Employment Insurance remittances regarding
Mr. Atwal, Mr. Abdille, Mr. Brar,
Mr. Dhaliwal, Mr. Malhi, Mr. Osman, Mr. Salah
and Mr. Sond (the "Operators") regarding the
operation of the cabs listed in paragraph 9 above, the Lease
Operators obtained their rights to operate the cabs in question
pursuant to a Lease Agreement with Mr. Amrik Dhillon.
Yellow Cab is a party to the Lease Agreement. . . .
11. The form and content of all of the lease agreements is
essentially the same, the main difference being the identity of
the owner, the identity of the Operator, the cab number, the term
of the lease and the operating fee.
12. Pursuant to the lease agreements, the Operators (e.g.
Mr. Moalin, Mr. Abdille, Mr. Brar, Mr.
Dhaliwal, Mr. Malhi, Mr. Osman, Mr. Salah
and Mr. Sond) were entitled to all revenues from the
operation of the cab.
13. Pursuant to the lease agreements, the Operators were
responsible for the costs of:
(a) the monthly dispatch fee;
(b) fuel used in the operation of the cab;
(c) all repairs to the vehicle used by the operator as the
cab;
(d) the licence for the
motor vehicle issued by the Department of Motor
Vehicles;
(e) a valid road worthiness inspection certificate for the
vehicle;
(f) an administration fee;
(g) bookkeeping fees; and
(h) an operating fee.
. . .
15. During the time frame for which Yellow Cab was assessed to
make Employment Insurance remittances regarding Mr. Matharu
regarding the operation of Cab No. 102D, Mr. Matharu
paid drivers to drive Cab No. 102D and also remitted income
tax, CPP and Employment Insurance amounts on behalf of the
drivers. Each driver was issued a T4 identifying Mr. Matharu
as the employer. The parties have assumed for the purposes of
this appeal that assessments in issue relate only to the fares
earned by Mr. Matharu.
SIGNIFICANT VIVA VOCE EVIDENCE AT
TRIAL
[6]
Yellow Cab holds motor carrier licences for 198 taxicabs. It also
owns the 'rights' to operate 10 taxicabs. The balance of
the rights to operate 188 taxicabs are owned by the shareholders
of Yellow Cab.
[7] Rights are divided into three
categories: whole cab, day half or night half.
[8] The owners who do not wish to
operate their taxicab rights but still wish to maintain their
right may lease their interests to lease-operators.
[9] The assessments against Yellow Cab
for employment insurance remittances are for two categories of
operators: owner-operator (Mr. Matharu) and lease-operators
(Messrs. Atwal, Abdille, Brar, Dhaliwal, Malhi, Osman, Salah
and Sond).
[10] The taxicab business in Vancouver,
British Columbia is governed by federal, provincial and municipal
regulatory controls.
[11] The British Columbia Motor Carrier
Commission regulates and licences all taxicabs in the province.
The Motor Carrier Commission issues licences, a motor carrier
certificate and a plate. The day-to-day administrative,
investigative and compliance responsibilities of the Motor
Carrier Commission are now carried out through ICBC's Motor
Carrier Department.
[12] The City of Vancouver also licences and
regulates taxicabs pursuant to the Vehicles for Hire by-law,
which provides strict guidelines for the operation of
taxicabs.
[13] The Vancouver Airport also controls and
regulates a taxicab program. The Vancouver Airport Authority
issues licences and requires regular inspections as well as
special training standards for drivers.
[14]
Drivers are also regulated by the Department of Motor Vehicles,
which requires a class 4 licence to operate a taxicab.
[15] The Vancouver City Police Taxi Unit
issues and regulates chauffeur's permits which are required
to drive a taxicab.
[16] The express contractual relationship
between Yellow Cab and the owner-operator is found in a
'purchase agreement' and the express contractual
relationship between Yellow Cab and the lease-operators is found
in a 'lease agreement'. From the evidence it would also
appear several contractual terms are by implication without
direct reference to the agreements.
[17] The evidence of the Appellant's
general manager was that Yellow Cab was little more than a
service provider and the restraints or controls found in the
lease agreement or the purchase agreement was merely a reflection
of the several levels of government regulatory controls affecting
the taxicab industry.
LEGISLATION AND JURISPRUDENCE
[18]
Paragraph 6(e) of the Employment Insurance
Regulations ("E.I. Regulations")
explicitly includes employment of a driver of any taxicab as
insurable employment:
6. 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:
...
(e) employment of a person as a driver of a
taxi, commercial bus, school bus or any other vehicle that is
used by a business or public authority for carrying passengers,
where the person is not the owner of more than 50 per cent of
the vehicle or the owner or operator of the business or
operator of the public authority. [emphasis added]
[19]
Paragraph 12(e)[1] of the former Unemployment Insurance
Regulations ("U.I. Regulations") has been
dealt with by the Federal Court of Appeal in three cases, namely
Canada (A.G.) v. Skyline Cabs (1982) Ltd., [1986] 5 W.W.R.
16, 715341 Ontario Ltd. v. M.N.R., [1993] F.C.J.
No. 1064 (QL) and Mangat v. R., [2000] 4
C.T.C. 227. In these decisions, the lessees of taxicabs were
determined to be employees under to paragraph 12(e) of the
U.I. Regulations.
[20] The Supreme Court of Canada in
Martin Service Station v. M.N.R., [1977] 2 S.C.R. 996,
interpreted the word "employment" in paragraph
12(e) of the U.I. Regulations in the broader sense
of "activity" or "occupation" and not in the
narrower sense of a contract of service.
[21]
MacGuigan J.A. in Skyline Cabs, supra, quoted this
interpretation with approval. In that case, Skyline Cabs was
assessed for employer's unemployment insurance premiums under
the authority of paragraph 12(e) of the U.I.
Regulations in relation to the employment of persons as
taxicab drivers. Skyline Cabs appealed against the assessment on
the ground that it did not employ any taxicab drivers. Skyline
Cabs was the holder of a taxicab broker's licence, its rental
fee to the drivers included access to a dispatch service, it
enforced dress and grooming codes upon its drivers, it set a
clean car policy, it made provision for payment of credit card
slips, it provided for a non-scoop rule, and prohibited the use
of drugs and alcohol by the drivers. The Federal Court of Appeal
held that, even though the taxicab drivers in question leased
vehicles from the Respondent without a contract of service, they
were in insurable employment. MacGuigan J.A. pointed out that the
sum of these facts was insufficient to establish a contract of
service between the taxicab drivers and Skyline Cabs, however, in
his view, it irrefutably established "a sufficient degree of
participation by the Skyline Cabs in the carrying of passengers
by the taxis".
[22] In 715341 Ontario Ltd., supra,
715341 Ontario Ltd. owned taxicabs and had an arrangement with a
licenced broker under which it received the necessary services
from the broker to enable it to lease taxicabs to drivers. On the
facts, it was clear that 715341 Ontario Ltd. was in the business
of leasing equipped taxicabs to drivers who carry passengers and
not in the business of carrying passengers. The Federal Court of
Appeal found that the following interpretation given to
paragraph 12(e) of the U.I. Regulations by the
Tax Court of Canada Judge was correct. In paragraph 3 Heald J.
stated:
For the purposes of this case in determining the issue herein,
this paragraph should be read as set out hereafter deleting the
wording that does not apply to the facts herein.
...
(d) employment of a person as a driver of any taxi, ... where
that person is not the owner of the vehicle ...
Thus, the Federal Court of Canada accepted that, contrary to
MacGuigan J.A.'s interpretation in Skyline Cabs,
paragraph 12(e) of the U.I. Regulations does
not require that the taxicabs be used by the employer for
carrying passengers. Consequently, the Tax Court Judge's
conclusion that the drivers who leased taxicabs from 715341
Ontario Ltd. should be deemed to be in insurable employment
pursuant to the provisions of paragraph 12(e) of the
U.I. Regulations.
[23] In Mangat, supra, the Federal
Court of Appeal had to deal with paragraph 12(e) of
the U.I. Regulations and with subsection 17(1) of the
former Unemployment Insurance (Collection of Premiums)
Regulations, pursuant to which the owner, proprietor or
operator of a business that employs a person as a driver of a
taxicab is deemed to be an employer for the purposes of the
former Unemployment Insurance Act.
[24] Mr. and Mrs. Mangat were owners of
motor vehicles, which they leased to individual taxicab drivers.
Instead of holding the required licence to operate a taxicab, Mr.
and Mrs. Mangat owned shares in and entered into agreements
with two companies, which owned taxicab licences and ran
dispatching services. The issue to be determined was whether Mr.
and Mrs. Mangat, as owners of the taxicabs, employed persons
as taxicab drivers, or whether the taxicab dispatch companies
fulfilled that role.
[25] At the Tax Court level, Teskey J.,
relying on 715341 Ontario Ltd., supra, found that Mr. and
Mrs. Mangat were deemed employers within the terms of the U.I.
Regulations and that they were in the business of owning and
maintaining taxicabs which they leased to taxicab drivers. This
conclusion was based in large part on the finding that the lease
rate negotiated between Mr. and Mrs. Mangat and the drivers
included the cost of the services provided by the taxicab
dispatch companies. The Federal Court of Appeal first found that
the Tax Court Judge correctly looked at all the circumstances of
the relationship between the drivers and Mr. and Mrs. Mangat
in concluding that they employed the drivers.
[26]
McDonald J. made the following comment with respect to paragraph
12(e) of the U.I. Regulations in paragraph 25:
First, the wording of paragraph 12(e) of the
Unemployment Insurance Regulations explicitly includes
employment as a driver of any taxi in insurable employment. By
definition, employees are paid remuneration. This is a
significant difference between one who is self-employed and one
which is an employee. The[re] was surely an awareness of the
practices of the taxi industry when paragraph 12(e) was
drafted. Indeed, the fact that taxi drivers were explicitly
included as insurable employees seems to speak to the fact that
some confusion might otherwise result from these practices. The
Unemployment Insurance Regulations appear intended to
avoid such confusion by explicitly including taxi drivers as
insurable employees and not as self-employed individuals.
[27] The Federal Court of Appeal concluded
that the Tax Court Judge made no errors with respect to his
findings of fact and conclusion that Mr. and Mrs. Mangat
were deemed employers for the purposes of the U.I.
Act.
ANALYSIS
[28]
Subsection 6(e) of the E.I. Regulations extends the
concept of insurable employment beyond the determination of a
contract of service within an employer-employee relationship. The
written terms of the contracts between Yellow Cab and the owner
and Mr. Matharu are governed by a purchase agreement and the
written terms of the contracts between Yellow Cab, the owners and
the lease-operators are governed by a lease agreement. The
significant elements of these agreements are hereinafter set
forth.
(a) The Purchase Agreement
(Exhibit A-1, Tab 23):
The
parties to the agreement of purchase and sale are Mr. Ross M.
Mills (the "vendor"), Mr. Matharu (the
"purchaser") and Yellow Cab. Under the agreement, the
vendor agreed to sell to Mr. Matharu, shares in the capital of
Yellow Cab, his rights to a license issued by the City of
Vancouver to Yellow Cab, his rights to the permit issued by the
province of British Columbia to Yellow Cab and his interests in
motor vehicle #102 - day half and the equipment therein
(the "Assets").
The
sale of the Assets to Mr. Matharu is subject to Yellow Cab
approving the transfer. In consideration of Yellow Cab approving
the transfer of the Assets, Mr. Matharu grants to Yellow Cab for
one year the option to purchase the Assets. This option is
exercised upon Yellow Cab determining that the taxicab is not
being used and operated in accordance with Yellow Cab's rules
and regulations regarding the operation of the taxicab.
In
addition to the purchase price, Mr. Matharu is required to bear
the costs and expenses of operating and maintaining the motor
vehicle.
(b) The Lease Agreements (Exhibit A-1,
Tab 28):
Under
the lease agreements, Mr. Amrik Dhillon (the "owner")
is a shareholder of Yellow Cab and has rights to operate the
taxicabs in question. These rights are leased to lease-operators
who have taxicab permits by Yellow Cab who is the holder of
taxicab licenses issued by the City of Vancouver. Included in the
monthly operating fee charged to the lease operators by Yellow
Cab is the use of the taxicab license. The operating fee is
determined by a set schedule. Yellow Cab provides more than the
use of a taxicab license to the lease-operators. The
lease-operators are required to pay a monthly fee set and charged
by Yellow Cab for insurance, bookkeeping completed by Yellow Cab
and dispatch services that are provided, maintained and managed
by Yellow Cab.
The
agreement provides that Yellow Cab can issue orders or directions
to the lease-operators with respect to dispatch services and the
general operation of the taxicabs.
The
agreement also provides for the lease-operators entitlement to
revenues received from the customers and provides for the
lease-operators' obligations to Yellow Cab to cover the
operating, insurance, dispatch and bookkeeping expenses.
[29]
Significant other elements in the overall contractual
relationship between Yellow Cab and the
owner-operator/lease-operators that have emerged from the
evidence are hereinafter indicated.
[30]
Yellow Cab holds the motor carrier licenses for the taxicabs.
[31]
Yellow Cab is the registered owner of the taxicabs for certain
purposes including fleet insurance.
[32]
Yellow Cab enforces internally the rules and regulations of the
various regulatory bodies and incorporates the rules and
regulations part of the contractual relationship between Yellow
Cab and the owner-operator/lease-operators.
[33] To the taxicab market in Vancouver,
Yellow Cab is held out publicly to be a taxicab company.
[34]
Yellow Cab in its dispatch service takes the taxicab orders and
dispatches the taxicab to the customers in the name of Yellow
Cab.
[35] In the lease agreements with the
taxicab operators the operators are subject to the general rules
and regulations of Yellow Cab and the operators must comply with
orders or directions of the company with respect to the dispatch
system and the operation of the taxicab. Yellow Cab can order the
suspension or discharge of drivers in breach of any rule or
regulation of the company.
[36]
Yellow Cab can penalize an owner-operator for a breach of company
procedures. For example, the provision to Yellow Cab of
incomplete trip sheet by fines and/or suspension of access to the
Dispatch system. Yellow Cab determines the rules associated with
the operation of the taxicab by way of an Operating Agreement
entered into by Mr. Matharu with Yellow Cab.[2]
[37]
Yellow Cab regulates and enforces drivers' comportment and
behaviour, motor vehicle cleanliness, driver/operator appearance
and dress codes.
THE INTERPRETATION OF PARAGRAPH
6(e)
[38] The Respondent and the Appellant
disputed the proper interpretation of paragraph 6(e).
The Respondent submits that at issue is whether the earnings were
made by the lease-operators and owner-operators as drivers of a
taxicab. The Appellant argues that the Federal Court of
Appeal's interpretation of paragraph 6(e) of the
E.I. Regulations in 715341 Ontario Ltd. should not
be read such that a person employed as a driver of a taxicab can
be excluded from the provision only if the person is the owner of
more than 50 per cent of the vehicle.
[39] I am of the view that paragraph
6(e) of the E.I. Regulations should be read as
interpreted by the Federal Court of Appeal in 715341 Ontario
Ltd., "employment of a person as a driver of a taxi,
... where that person is not the owner of more than 50 per
cent of the vehicle". Thus, the words "that is used by
a business or public authority for carrying passengers" only
modify the phrase "any other vehicle".
[40] I add to my view of the interpretation
that the repeated use of the word "or" in paragraph
6(e) of the E.I. Regulations cannot be ignored.
Thus, a person employed as a driver of a taxicab is excluded from
paragraph 6(e) of the E.I. Regulations if the
person meets one of the following exceptions:
(1) the person is the owner of more than 50
per cent of the vehicle;
(2) the person is the owner or
operator of the business; or
(3) the person is the operator of the
public authority.
[41] In determining whether the
lease-operators and owner-operator are in insurable employment,
their occupation must be that of drivers of a taxicab and they
must not be owners of more than 50 per cent of the vehicle and
must not own or operate the business of delivering taxicab
services.
CONCLUSION
[42] The owner-operator and the
lease-operators have purchased or leased the rights to operate
taxicabs. The operation of the taxicabs is governed by a privity
of contract between Yellow Cab and the owner-operator and
lease-operators as stated by a combination of express, implied
and written contractual terms. A substantial degree of control is
exercised by Yellow Cab over the owner-operator and the
lease-operators in the provision of taxicab services, including
the carrying of passengers, under the name of Yellow Cab. Yellow
Cab in this relationship is not merely a taxicab business support
service provider. It is in the business of delivering taxicab
services, including the carrying of passengers. The overall
analysis of the whole scheme of the organization leads to the
conclusion that the delivery of taxicab services business in
which the owner-operators and lease-operators are an integral
part is that of Yellow Cab and as such Yellow Cab is the
employer.
[43] The owner-operators and the
lease-operators are employed as drivers of taxis for Yellow Cab.
In their employment as drivers of taxicabs the owner-operator and
the lease-operators are not the owners of more than 50
per cent of the vehicles. The owner-operators and the
lease-operators are not the owners or operators of the business
of the delivery of taxicab services, i.e. carrying passengers.
That is the business of Yellow Cab.
[44] I find the owner-operators and the
lease-operators, when driving the taxicabs, are in insurable
employment pursuant to paragraph 6(e) of the
Employment Insurance Regulations.
[45]
Pursuant to section 9 of the Insurable Earnings and Collection
of Premiums Regulations the owner or operator of a business
that employs a person as a driver of a taxicab is deemed to be
the employer for the purposes of the Act.
9. (1) Every owner or operator of a business or public
authority that employs a person or persons in employment
described in paragraph 6(e) of the Employment Insurance
Regulations shall, for the purposes of maintaining records,
calculating insurable earnings and paying the premiums payable on
those insurable earnings under the Act and these
Regulations, be deemed to be the employer of every such person
whose employment is included in insurable employment under that
paragraph
[46] I conclude the Appellant owned and
operated a delivery taxicab services business during the 1996,
1997 and 1998 taxation years that employed the owner-operator and
lease-operators as drivers.
[48] I further find the assessments were
based upon the owner or lease-operators' gross revenue
without deductions for expenses incurred. On the basis of Jack
M. Chow v. M.N.R., 98-42(UI), a decision of His Honour
Judge Bonner, I conclude the assessments should be based on the
owner-operator or lease-operators' net revenues and as such
the assessments are referred back to the Minister of National
Revenue for rectification.
DECISION
[49] The appeals are allowed and are
referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the Appellant
was properly assessed for employment insurance premiums for the
herein-stated owner-operator and lease operators for the 1996,
1997 and 1998 taxation years, but that the assessments require
rectification as the assessments should be based on the
owner-operator or lease-operator's net revenues.
Signed at Ottawa, Canada, this 23rd day of May 2001.
J.T.C.C.
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