Combined Insurance Co. of America v. M.N.R., docket 97-1225-UI

Date: 19990217

Docket: 97-1225-UI

BETWEEN:

COMBINED INSURANCE COMPANY OF AMERICA,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for judgment

MacLatchy, D.J.T.C.C.

[1] The Appellant applied to the Respondent for a determination of the question of whether or not the Worker, Kimberly Fournier (now known as Kimberly Bessette), was employed in insurable employment while engaged by the Appellant for the period from May 13 to July 17, 1996 within the meaning of the Unemployment Insurance Act (the "Act").

[2] The Respondent informed the Appellant that it had been determined that the Worker's engagement with the Appellant during the period in question was insurable employment for the reason that the Worker was employed pursuant to a contract of service.

[3] The parties agreed to the following facts:

(a) the Appellant is an insurance company engaged in selling various products including personal, health and accident and supplementary hospital insurance across Canada, in business since 1956 in Canada;

(b) the Worker was engaged as a sales representative to sell the Company's range of products and to service and sell renewals of existing policies in a remote area in Northern Alberta. Linda Bowers was the District Territory Manager and Mike Charko was the Sales Manager during the period in question. As a sales representative, the Worker was to be duly licensed pursuant to the laws of the Province of Alberta under its insurance provisions in that regard. The Worker was to maintain the license and necessary filings up to date as required under those provisions of Alberta Law to be able to sell insurance products. The Worker must be recommended by an insurance company with a Certificate of Authority to be presented to the Department of Insurance of Alberta in order to obtain the license to sell the insurance products of the Appellant. To assist the Worker to become licensed and to provide him/her with knowledge of the Appellant's products and methods of sales, the Worker was invited to attend a three-week seminar in Calgary, Alberta. The Company provided shared accommodation at a named motel but the Worker was to pay all other living expenses during such training. The first week of such training was for licensing purposes to learn the requisite knowledge of the applicable insurance laws for the Province. The remaining two weeks was for training in knowledge of the Appellant's products for sale. Before attending such training, the Worker signed a Trainee's Agreement, not with the Appellant, but with the Sales Manager, Mike Charko, wherein the Worker agreed to pay her own expenses during the training period. It was agreed that there was no obligation to offer the Worker "a contract of service in the business of selling insurance as an independent contractor";

(c) subsequent to the training for licensing, the Worker paid an examination fee and after passing the examination, paid a further government licensing fee. Following the remaining training and the paying of a consignment fee for training material, the Worker returned to Northern Alberta where she commenced to sell the insurance products of the Appellant;

(d) both the Sales Manager and the District Sales Manager entered into a guarantee agreement with the Worker agreeing to ensure that the Worker would earn a total of $3,200 for the first eight weeks of her engagement as an "independent contractor" selling the products of the Appellant. Among other terms in the agreement, the Worker was required to complete a weekly report enumerating the number of days and locations where selling and renewing policies took place and accounting for the funds (cash and cheques) received in payment thereof. The agreement could be terminated by either party on two weeks notice, reserving to the Manager the right to terminate the Worker at any time if he/she in his/her reasonable judgment the Worker does not show an aptitude for the work, etc.;

(e) the Worker further was a party to an agreement between herself and the Appellant known as Combined Standard Agency Agreement. This document, as well as the previous agreements referred to, were marked collectively as Exhibit A-1 together with financial statements showing the earnings of the Worker during her term of engagement and a Summary of Positions of persons and officers of the Appellant who were salaried or on commission. The District Manager, Sales Manager and Sales Representative (i.e. the Worker) were paid on commission only. All other officers in the hierarchy of the Company, above those persons, were salaried;

(f) the sales earnings of the Worker (Exhibit A-1) indicated the sales commissions she was entitled to during her engagement with the Appellant. Charged against these earnings were the guarantee amounts that had been agreed to and a float of 10% against cancellations. This accounting was performed by the Appellant as it was the most efficient way to settle the weekly or bi-weekly accounting between all the parties concerned. It was not mandatory;

(g) the Worker commenced selling the Appellant's products on May 27, 1996, after obtaining and personally paying for a fidelity bond required by the Appellant. She terminated her engagement with the Appellant, for personal reasons, on or about July 17, 1996.

[4] The question to be determined by this Court is whether the Worker had been engaged under a contract of service or a contract for services (i.e. an employee of the Appellant or an independent contractor). The law on this matter developed slowly through the years. Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025, a judgment of the Federal Court of Appeal, set down what it determined the best method to test the total relationship of the parties by weighing all the relevant facts. Four criteria were to be used in analyzing the facts:

(i) control and supervision – was the Worker under the control of and directed by the owner of the business and could he/she be suspended or dismissed?

(ii) opportunity of profit and risk of loss – could the employee share in the profit of the venture and/or suffer loss by reason of the failure of the exploit? Did the Worker pay his/her own expenses, etc.?

(iii) ownership of tools – what was provided to the Worker to perform his/her work, if anything?

(iv) the organization or integration test – whose business is it and how did the parties see their relationship and what was the true character of that relationship based on the facts elicited?

No test is conclusive – all the evidence must be examined and the tests applied in order to determine the totality of the relationship at issue.

[5] The first test of control and supervision in these circumstances is inconclusive. The Appellant gave three-weeks training to the Worker before she commenced to sell the products of the Appellant. Part of the training was to enable the Worker to become licensed by the governmental authorities which was a condition precedent to her being able to sell the Appellant's products. The Worker paid her own expenses for attending and existing during the periods of training. She had to pay to "set the examination" required by the Government and, if successful, to pay the fee to be so licensed. A training package was provided by the Appellant on a consignment basis to the Worker which consignment fee would be returned to the Worker on the return of the package. The training package contained aids to and style for selling the Appellant's products together with information concerning the product to enable the Worker to explain the product to a client; it was in the interest of the Appellant and also the Worker.

[6] The Worker and the Appellant signed an agency agreement prior to the Worker being engaged to sell the products. Amongst other terms, the agreement stated the Worker was an "independent contractor" and was appointed to act for the Appellant on a non-exclusive basis and to sell its products but "could not waive forfeiture or extend the time of payment of any premium, or alter, modify, waive or change any of the terms, rates or conditions of the Company's policies of insurance...".

[7] The Worker was to be paid commissions on her sales at a rate to be set by the Appellant and to be responsible to the Appellant for cheques or cash received on such sales. The Worker could advertise but all such dissemination of information had to be first approved by the Appellant but paid for by the Worker.

[8] The agreement could be terminated by either party on two-weeks notice subject to instant termination by the Appellant should the Worker fail to settle accounts on demand or commit a felony or violate any insurance laws or regulations.

[9] Details of the agreement and the relationship between the Appellant and the Worker were concisely and articulately given by Mr. Charles Bastin, Vice-President, Sales Administration for the Appellant. His depth of knowledge of the insurance industry and his candid information concerning the Appellant's operations were most helpful to this Court. He indicated that insurance business is a very heavily governmentally regulated business which is voluminous and quite complex. The Appellant had to ensure through its agreement with the Worker that all laws and regulations were complied with requiring some supervision by the Appellant over the Worker, including the approval of all advertising. No Worker could be expected to be sufficiently knowledgeable to avoid transgressions of such laws and regulations as could the Appellant through its various departments. Mr. Bastin agreed the Appellant had prepared the trainee agreement and the guarantee agreement for the use by District and Sales Managers but the Appellant was not a party to either agreement and the Appellant did not require that such agreement be entered into by the Worker. It was a convenience to the signing parties the form of the agreements being prepared with knowledge of the requirements of the law and the needs of the parties. The agency agreement was, however, required by the Appellant in order to satisfy the requirements of the law and settle the relationship between the Appellant and the Worker.

[10] The evidence provided by Linda Bowers, the District Manager for the Appellant at the relevant time, gave clarity to the day-to-day activities of the Company and the Worker. Weekly meetings took place early each Monday at the office of the District or Sales Manager so that the renewal cards for existing policies about to expire could be distributed to the sales representatives in the area; this concerned renewals of policies only and if a sales representative did not wish to service renewals, he/she need not attend. The Worker, Kimberly Bessette (formerly Fournier) gave evidence as a witness for the Respondent and indicated she liked to attend these meetings because she did service renewals and she met the other representatives in her area for discussions of and possible solutions to common problems. If she had questions for the District or Sales Manager, she could get answers at the meetings based on guidance that their experience and knowledge could provide. These meetings enhanced her ability to consummate sales in the field and increase her commissions and her income. These meetings were not mandatory.

[11] While travelling in her designated area (such area agreed to between the Managers and the Worker), Ms. Bessette had to pay her own expenses for food, telephone, hotel accommodation, auto rental, gas, car repairs, by-law infractions and the like. At times, the Sales or District Manager might pay for a meal or hotel accommodation to encourage her or as a sales incentive but otherwise she was responsible for her own expenses.

[12] Ms. Bessette said she was not instructed what hours to work, when and where to go or how many calls to make. She set her own agenda based on her personal goals for a week. She attended at the office of the Manager generally on Fridays to provide the office with her record of sales and the cash and cheques received on sales. If she did not, the terms of guarantee could not be administered and payment to her could not be made. The Appellant acted as a central banking facility for the Managers and the Worker at no cost; it was a convenience to all.

[13] In substance, there was a modicum of control and supervision exercised by the Appellant, a great deal of which was required by legislation in the insurance industry and part of which was necessary to enable the sales representative to be credited from time to time. Otherwise, it appeared that the sales representative was in control of his/her own hours of work, method of sales and personal ambitions in the business on a day-to-day basis.

[14] The opportunity of profit and risk of loss was a significant factor in the relationship between the Appellant and the Worker. Ms. Bessette earned commissions on her sales of products both for renewals of existing policies and for "new face" sales. The commission rates were substantially higher on "new face" policies (policies sold to her own clients rather than the Appellant's clients). She could enhance her income by creating this new business rather than just servicing existing business. Her hours spent in the field and her methods of selling new product could greatly enhance her income. She was in control of her own costs of operation. If these costs could be controlled and carefully used, it would materially change her income; if left uncontrolled, she could suffer substantial loss. It was her own business and she ran the risk of loss but could expect significant rewards if she was a successful sales representative. She could also carry on other endeavours or sell other insurance products other than that which would be in competition to that of the Appellant.

[15] Ownership of tools – the Worker by the sales agreement was responsible for her own expenses. Auto purchase or rental, office space (in home or in rental facilities), costs of maintenance and insurance of vehicle and any other equipment purchased, telephone and long distance charges, stationery, business cards, meals, hotel accommodation were all the responsibility of Ms. Bessette in this instance. Clearly, the ownership of tools fell to the Worker.

[16] Integration – Ms. Bessette and the Appellant spelled out throughout the sales agreement that she was an independent contractor. On the corporate hierarchy sales representatives, sales managers and district managers were all considered to be independent contractors all earning their incomes by commissions on sales and not by salary. They ran their own businesses including the creating of their own client base, the hiring of any support staff, the maintaining of required licenses, filings, liability and fidelity insurance without any interference or approval from the Appellant.

[17] The fact that the Worker must file weekly reports was as much a requirement of the government regulations than of the Appellant but was necessary to the Worker to obtain full credit for the business that was written by her. The guarantee for a period of eight weeks in the amount of $3,200 given to Ms. Bessette when she commenced her sales role was made between she and the Sales and District Managers and not the Appellant. The guarantee amount was changeable against her sales commissions and was looked on as an incentive to the sales representative to reduce the concern of the Worker of not making immediate sales to have income.

[18] The fact that both the Appellant and Ms. Bessette thought they had created a contract for services is not necessarily determinative of the issue, yet it is strong evidence in support of their relationship. Both parties thought a sales representative was an independent contractor and both parties operated as though that was their clear intention.

[19] Considering all the circumstances of their relationship in light of the tests applied, the Worker was engaged under a contract for services and was not engaged in insurable employment under the Act. The evidence is overwhelming that the Worker was not an employee of the Appellant but was an independent contractor.

[20] The appeal is therefore allowed and the decision of the Minister of National Revenue is vacated.

Signed at Toronto, Ontario, this 17th day of February 1999.

"W.E. MacLatchy"

D.J.T.C.C.